crawa20220630

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from Not Applicable to Not Applicable

Commission file number: 000-000147

CRAWFORD UNITED CORPORATION

(Exact name of registrant as specified in its charter)

Ohio	34-0288470
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10514 Dupont Avenue, Suite 200, Cleveland, Ohio	44108
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number (216) 243-2614

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act: None.

As of July 25, 2022, 2,744,239 shares of Class A Common Stock and 731,848 shares of Class B Common Stock were outstanding.

PART I

ITEM 1. FINANCIAL STATEMENTS

CRAWFORD UNITED CORPORATION

CONSOLIDATED BALANCE SHEET

	(Unaudited)
	June 30, 2022		December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,151,409	$	1,494,415
Accounts receivable less allowance for doubtful accounts		22,115,955		18,387,744
Contract assets		2,040,011		2,111,057
Inventories-less allowance for obsolete inventory		20,819,135		16,585,437
Investments		1,084,175		1,518,244
Refundable tax asset		604,815		1,316,595
Prepaid expenses and other current assets		1,782,820		1,112,068
Total Current Assets		51,598,320		42,525,560
Property, plant and equipment, net		14,966,382		15,609,202
Operating right of use asset, net		8,731,603		8,998,776
OTHER ASSETS:
Goodwill		16,157,277		14,404,618
Intangibles, net of accumulated amortization		10,146,440		9,336,564
Other non-current assets		113,511		88,591
Total Non-Current Other Assets		26,417,228		23,829,773
Total Assets	$	101,713,533	$	90,963,311

See accompanying notes to consolidated financial statements

CRAWFORD UNITED CORPORATION

CONSOLIDATED BALANCE SHEET

	(Unaudited)
	June 30, 2022			December 31, 2021
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable – current	$	2,968,833		$	2,946,885
Bank debt – current		777,778			1,444,444
Leases payable – current		1,687,313			1,241,681
Accounts payable		14,640,013			11,460,364
Unearned revenue		4,100,220			2,881,535
Contingent liability – short term		750,000			750,000
Accrued expenses		3,694,103			3,136,690
Total Current Liabilities		28,618,260			23,861,599
LONG-TERM LIABILITIES:
Notes payable		2,222,888			4,275,377
Bank debt		21,661,715			16,175,436
Leases payable		7,280,843			7,985,628
Contingent liability – long-term		-			750,000
Deferred income taxes		3,275,370			3,275,370
Total Long-Term Liabilities		34,440,816			32,461,811
STOCKHOLDERS' EQUITY
Class A common shares - 10,000,000 shares authorized, 2,791,449 issued at June 30, 2022 and 2,720,787 issued at December 31, 2021		7,311,949			5,393,823
Class B common shares - 2,500,000 shares authorized, 914,283 shares issued at June 30, 2022 and December 31, 2021		1,465,522			1,465,522
Contributed capital		1,741,901			1,741,901
Treasury shares		(2,121,822	)		(1,981,113	)
Class A common shares – 47,210 shares held at June 30, 2022 and 41,844 shares held at December 31, 2021
Class B common shares – 182,435 shares held at June 30, 2022 and December 31, 2021
Retained earnings		30,256,907			28,019,768
Total Stockholders' Equity		38,654,457			34,639,901
Total Liabilities and Stockholders' Equity	$	101,713,533		$	90,963,311

See accompanying notes to consolidated financial statements

CRAWFORD UNITED CORPORATION

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Total Sales	$	31,902,027	$	26,449,885	$	62,904,773	$	50,443,889
Cost of Sales		25,133,536		20,669,595		49,769,877		38,660,678
Gross Profit		6,768,491		5,780,290		13,134,897		11,783,211

Operating Expenses:
Selling, general and administrative expenses		4,392,964		3,660,493		9,362,048		7,337,954
Operating Income		2,375,527		2,119,797		3,772,849		4,445,257

Other (Income) and Expenses:
Interest charges		154,065		238,696		415,081		457,314
Other (income) expense, net		625,792		286,644		121,006		(1,275,473	)
Total Other (Income) and Expenses		779,857		525,340		536,088		(818,159	)
Income before Provision for Income Taxes		1,595,670		1,594,457		3,236,761		5,263,416

Provision for Income Taxes		424,406		347,152		999,622		872,694
Net Income	$	1,171,264	$	1,247,305	$	2,237,139	$	4,390,722

Net Income Per Common Share - Basic	$	0.34	$	0.37	$	0.65	$	1.29

Net Income Per Common Share - Diluted	$	0.34	$	0.37	$	0.65	$	1.29

Weighted Average Shares of Common Stock Outstanding
Basic		3,464,765		3,408,906		3,449,465		3,400,917
Diluted		3,464,765		3,409,800		3,449,465		3,401,805

See accompanying notes to consolidated financial statements

CRAWFORD UNITED CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

Three Months Ended June 30, 2022 and 2021

	COMMON SHARES - NO PAR VALUE
	CLASS A		CLASS B		CONTRIBUTED CAPITAL		TREASURY SHARES			RETAINED EARNINGS		TOTAL

Balance at March 31, 2022	$	6,292,130	$	1,465,522	$	1,741,901	$	(2,046,822	)	$	29,085,643	$	36,538,374
Share-based compensation expense		19,807		-		-		-			-		19,807
Stock awards		-		-		-		-			-		-
Acquisition		1,000,012		-		-		-			-		1,000,012
Repurchase of shares		-		-		-		(75,000	)		-		(75,000	)
Net Income		-		-		-		-			1,171,264		1,171,264
Balance at June 30, 2022	$	7,311,949	$	1,465,522	$	1,741,901	$	(2,121,822	)	$	30,256,907	$	38,654,457

	COMMON SHARES ISSUED				TREASURY SHARES				COMMON SHARES OUTSTANDING
	CLASS A		CLASS B		CLASS A		CLASS B		CLASS A			CLASS B

Balance at March 31, 2022		2,752,987		914,283		44,210		182,435		2,708,777			731,848
Acquisition		38,462		-		-		-		38,462			-
Repurchase of shares		-		-		3,000		-		(3,000	)		-
Balance at June 30, 2022		2,791,449		914,283		47,210		182,435		2,744,239			731,848

	COMMON SHARES - NO PAR VALUE
	CLASS A		CLASS B		CONTRIBUTED CAPITAL		TREASURY SHARES			RETAINED EARNINGS		TOTAL

Balance at March 31, 2021	$	5,285,333	$	1,465,522	$	1,741,901	$	(1,979,085	)	$	25,509,887	$	32,023,559
Share-based compensation expense		14,333		-		-		-			-		14,333
Stock awards		65,915		-		-		-			-		65,915
Net Income		-		-		-		-			1,247,305		1,247,305
Balance at June 30, 2021	$	5,365,581	$	1,465,522	$	1,741,901	$	(1,979,085	)	$	26,757,193	$	33,351,112

	COMMON SHARES ISSUED					TREASURY SHARES				COMMON SHARES OUTSTANDING
	CLASS A		CLASS B			CLASS A		CLASS B		CLASS A		CLASS B

Balance at March 31, 2021		2,678,787		954,283			41,729		182,435		2,637,058		771,848
Share conversion		40,000		(40,000	)		-		-		40,000		(40,000	)
Balance at June 30, 2021		2,718,787		914,283			41,729		182,435		2,677,058		731,848

CRAWFORD UNITED CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

Six Months Ended June 30, 2022 and 2021

	COMMON SHARES - NO PAR VALUE
	CLASS A		CLASS B		CONTRIBUTED CAPITAL		TREASURY SHARES			RETAINED EARNINGS		TOTAL

Balance at December 31, 2021	$	5,393,823	$	1,465,522	$	1,741,901	$	(1,981,113	)	$	28,019,768	$	34,639,901
Share-based compensation expense		36,114		-		-		-			-		36,114
Stock awards		882,000		-		-		-			-		882,000
Issuance for acquisition		1,000,012		-		-		-			-		1,000,012
Repurchase of shares		-		-		-		(140,709	)		-		(140,709	)
Net Income		-		-		-		-			2,237,139		2,237,139
Balance at June 30, 2022	$	7,311,949	$	1,465,522	$	1,741,901	$	(2,121,822	)	$	30,256,907	$	38,654,457

	COMMON SHARES ISSUED				TREASURY SHARES				COMMON SHARES OUTSTANDING
	CLASS A		CLASS B		CLASS A		CLASS B		CLASS A			CLASS B

Balance at December 31, 2021		2,720,787		914,283		41,844		182,435		2,678,943			731,848
Stock awards		32,200		-		-		-		32,200			-
Acquisition		38,462		-		-		-		38,462			-
Repurchase of shares		-		-		5,366		-		(5,366	)		-
Balance at June 30, 2022		2,791,449		914,283		47,210		182,435		2,744,239			731,848

	COMMON SHARES - NO PAR VALUE
	CLASS A		CLASS B		CONTRIBUTED CAPITAL		TREASURY SHARES			RETAINED EARNINGS		TOTAL

Balance at December 31, 2020	$	3,896,705	$	1,465,522	$	1,741,901	$	(1,938,052	)	$	22,366,470	$	27,532,546
Share-based compensation expense		30,000		-		-		-			-		30,000
Stock awards		379,876		-		-		-			-		379,876
Issuance for acquisition		1,059,000											1,059,000
Repurchase of shares		-		-		-		(41,033	)		-		(41,033	)
Net Income		-		-		-		-			4,390,722		4,390,722
Balance at June 30, 2021	$	5,365,581	$	1,465,522	$	1,741,901	$	(1,979,085	)	$	26,757,193	$	33,351,112

	COMMON SHARES ISSUED					TREASURY SHARES				COMMON SHARES OUTSTANDING
	CLASS A		CLASS B			CLASS A		CLASS B		CLASS A			CLASS B

Balance at December 31, 2020		2,595,087		954,283			39,467		182,435		2,555,620			771,848
Stock awards		23,700		-			-		-		23,700			-
Acquisition		60,000		-					-		60,000			-
Stock conversion		40,000		(40,000	)		-		-		40,000			(40,000	)
Repurchase of shares		-		-			2,262		-		(2,262	)		-
Balance at June 30, 2021		2,718,787		914,283			41,729		182,435		2,677,058			731,848

See accompanying notes to consolidated financial statements

CRAWFORD UNITED CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)

	Six Months Ended June 30,
	2022			2021
Cash Flows from Operating Activities
Net Income	$	2,237,139		$	4,390,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,855,257			1,518,494
Unrealized loss (gain) on investments in equity securities		434,069			(67,928	)
Forgiveness of PPP loan		-			(1,453,837	)
Amortization of right of use assets		647,471			572,326
Loss on disposal of assets		15,370			-
Non-cash share-based compensation expense		918,114			409,876
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable		(3,100,400	)		(3,186,784	)
Decrease (Increase) in inventories		(2,219,722	)		(1,781,567	)
Decrease (Increase) in contract assets		71,046			1,623,466
Decrease (Increase) in prepaid expenses & other assets		(599,793	)		(205,280	)
Increase (Decrease) in accounts payable		2,603,596			1,462,832
Increase (Decrease) in lease liability		(639,452	)		(572,788	)
Increase (Decrease) in accrued expenses		1,383,324			(533,131	)
Increase (Decrease) in unearned revenue		843,202			676,359
Total adjustments		2,212,082			(1,537,962	)
Net Cash Provided by Operating Activities	$	4,449,221		$	2,852,760
Cash Flows from Investing Activities
Cash paid for business acquisitions		(4,331,739	)		(7,089,381	)
Sale of equity securities		-			123,069
Capital expenditures		(324,967	)		(1,418,663	)
Net Cash (Used in) Investing Activities	$	(4,656,706	)	$	(8,384,975	)
Cash Flows from Financing Activities
Payments on notes		(2,030,541	)		(1,287,456	)
Payments on bank debt		(1,916,666	)		(3,630,634	)
Borrowings on bank debt		6,702,395			7,734,627
Payments on contingent liability		(750,000	)		-
Share repurchase		(140,709	)		(41,033	)
Net Cash Provided by Financing Activities	$	1,864,479		$	2,775,504
Net Increase (decrease) in cash and cash equivalents		1,656,994			(2,756,710	)
Cash and cash equivalents at beginning of period		1,494,415			6,194,276
Cash and cash equivalents at end of period	$	3,151,409		$	3,437,566
Supplemental disclosures of cash flow information
Interest Paid	$	438,210		$	362,353
Supplemental disclosures of noncash financing and investing activity
Forgiveness of PPP loan	$	-		$	1,453,837
Additions to ROU assets obtained from new operating lease liabilities	$	380,298		$	-
Issuance of Class A common shares in business acquisition	$	1,000,012		$	1,059,000

See accompanying notes to consolidated financial statements

CRAWFORD UNITED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2022

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of Crawford United Corporation and its wholly-owned subsidiaries (the “Company”). Significant intercompany transactions and balances have been eliminated in the financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ending December 31, 2021.

During the six-month period ended June 30, 2022, there have been no changes to our significant accounting policies.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s Summary of Significant Accounting Policies is provided with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

New Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The standard requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This standard will be effective for smaller reporting companies for fiscal years beginning after December 15, 2022.The Company is in the process of analyzing the impact to its financial statements.

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts of certain assets and liabilities and disclosure of contingencies at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments
Accounting for "Financial Instruments" requires the Company to disclose estimated fair values of financial instruments. Financial instruments held by the Company include, among others, accounts receivable, accounts payable, and notes payable. The carrying amounts reported in the consolidated balance sheet for assets and liabilities qualifying as financial instruments is a reasonable estimate of fair value.

Fair Value Measurements

As defined in FASB ASC 820, "Fair Value Measurements", fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable firm inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the examination of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

* Level 1: Quoted market prices in active markets for identical assets or liabilities.

* Level 2: Inputs to the valuation methodology include: * Quoted prices for similar assets or liabilities in active markets;

* Quoted prices for identical assets or similar assets or liabilities in inactive markets;

* Inputs other than quoted prices that are observable for the asset or liability;

* Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

* Level 3: Unobservable inputs that are not corroborated by market data.

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Stock: The stock market value is based on valuation of market quotes from independent active market sources, and is considered a level 1 investment.

3. ACCOUNTS RECEIVABLE

The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The reserve for doubtful accounts was $98,804 and $75,930 at June 30, 2022 and December 31, 2021, respectively.

4. INVENTORY

Inventory is valued at the lower of cost (first-in, first-out) or net realizable value and consists of:

	June 30, 2022		December 31, 2021
Raw materials and component parts	$	3,762,339	$	3,904,865
Work-in-process		4,434,122		3,949,647
Finished products		13,181,987		9,183,532
Total inventory	$	21,378,448	$	17,038,044
Less: inventory reserves		559,313		452,607
Net inventory	$	20,819,135	$	16,585,437

5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

For the identified reporting units, impairment testing was performed as of December 31, 2021 using an income approach based on management’s determination of the prospective financial information, with consideration given to the existing uncertainty in the global economy and aerospace and defense industry, particularly the commercial sector. The results of this test indicated the fair value exceeded carrying value for all reporting units tested. As a result of the impairment testing performed as of December 31, 2021, no indefinite-lived intangible assets or goodwill was determined to be impaired. Management updated their assessment during the first quarter of fiscal 2022 and validated the assumptions used in the analyses performed as of December 31, 2021 and determined that the resulting conclusions remained appropriate as of June 30, 2022.

Goodwill increased by $1.8 million from $14.4 million at December 31, 2021 to $16.2 million at June 30, 2022. The increase in Goodwill was driven by the addition of $1.9 million of Goodwill related to the acquisitions of Knitting Machinery Company of America, Reverso Pumps and Separ America in the Industrial and Transportation Products segment in the quarter, partially offset by a decrease of $0.2 million related to a purchase accounting adjustment to Goodwill for Global-Tek and Global-Tek Colorado, also in the Industrial and Transportation Products segment. Goodwill by reportable segment is as follows:

	June 30, 2022			December 31, 2021
Commercial Air Handling Equipment Segment:
Beginning Balance	$	478,256		$	478,256
Acquisitions		-			-
Adjustments		-			-
Ending Balance	$	478,256		$	478,256

Industrial and Transportation Products Segment:
Beginning Balance	$	13,926,362		$	11,027,596
Acquisitions		1,922,513			2,898,766
Adjustments		(169,854	)		-
Ending Balance	$	15,679,021		$	13,926,362

Total Company:
Beginning Balance	$	14,404,618		$	11,505,852
Acquisitions		1,922,513			2,898,766
Adjustments		(169,854	)		-
Ending Balance	$	16,157,277		$	14,404,618

Intangible assets relate to the purchase of businesses. Goodwill represents the excess of cost over the fair value of identifiable assets acquired. Goodwill is not amortized but is reviewed on an annual basis for impairment. Amortization of intangibles is being amortized on a straight-line basis over period ranging from one year to 15 years. Intangible assets are as follows:

	June 30, 2022		December 31, 2021
Customer list intangibles	$	9,316,000	$	8,741,000
Non-compete agreements		200,000		200,000
Trademarks		4,474,149		3,599,149
Total intangible assets		13,990,149		12,540,149
Less: accumulated amortization		3,843,709		3,203,585
Intangible assets, net	$	10,146,440	$	9,336,564

Amortization of intangibles assets was: $320,895 and $261,025 for the three months ended June 30, 2022 and 2021, respectively and $640,124 and $466,949 for the six months ended June 30, 2022 and 2021, respectively.

6. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment are recorded at cost and depreciated over their useful lives. Maintenance and repair costs are expenses as incurred. Property, plant and equipment are as follows:

	June 30, 2022		December 31, 2021
Land	$	231,034	$	231,034
Buildings and improvements		2,955,118		2,961,431
Machinery & equipment		22,112,000		21,612,759
Total property, plant & equipment		25,298,152		24,805,224
Less: accumulated depreciation		10,331,770		9,196,022
Property plant & equipment, net	$	14,966,382	$	15,609,202

Depreciation expense was $585,412 and $661,628 for the three months ended June, 2022 and 2021, respectively and $1,181,246 and $1,170,565 for the six months ended June 30, 2022 and 2021, respectively.

7. INVESTMENTS IN EQUITY SECURITIES

Investments in equity securities are summarized in the table below:

	BALANCE AT BEGINNING OF YEAR		ACQUISITIONS, DISPOSITIONS AND SETTLEMENTS		UNREALIZED GAINS (LOSSES) INCLUDED IN EARNINGS			REALIZED GAINS INCLUDED IN EARNINGS		BALANCE AT END OF PERIOD
December 31, 2021	$	1,534,400	$	19,698	$	(188,615	)	$	152,761	$	1,518,244

Year-to-date June 30, 2022		1,518,244		-		(434,069	)		-		1,084,175

Investments by fair value level in the hierarchy as of June 30, 2022 and December 31, 2021 are as follows:

Quoted Market Prices in Attractive Markets

(Level 1)

Models with Significant Observable Market Parameters

(Level 2)

Unobservable Inputs that are not Corroborated by Market Data

(Level 3)

Total Carrying Value in the Balance Sheet

Common stock as of June 30, 2022

1,084,175

Common stock as of December 31, 2021

1,518,244

8. BANK DEBT

The Company entered into a Credit Agreement on June 1, 2017 with JPMorgan Chase Bank, N.A. as lender, which was subsequently amended in connection with funding the acquisition of CAD Enterprises, Inc. (“CAD”) on July 5, 2018 (as amended, the “Credit Agreement”). As amended, the Credit Agreement is comprised of a revolving facility in the amount of $12,000,000, subject to a borrowing base (determined based on 80% of Eligible Accounts, plus 50% of Eligible Progress Billing Accounts, plus 50% of Eligible Inventory, minus Reserves, each as defined in the Credit Agreement) and a term A loan in the amount of $6,000,000. Outstanding borrowings on the term A loan are payable in consecutive monthly installments, which currently amount to $111,111 per month and a final payment of $222,223 on the maturity date. The Credit Agreement was amended on September 30, 2019 to expand the revolving loan amount from $12,000,000 to $20,000,000, subject to a borrowing base, and to extend the maturity of revolving facility from June 1, 2021 to June 1, 2024. The Credit Agreement was amended on December 30, 2019 to eliminate the borrowing base. The Credit Agreement was amended on March 2, 2021 to expand the revolving loan amount from $20,000,000 to $30,000,000.

The revolving facility under the Credit Agreement includes a $3 million sublimit for the issuance of letters of credit thereunder. Interest for borrowings under the revolving facility accrues at a per annum rate equal to Prime Rate or LIBOR plus applicable margins of (i) (0.25%) for Prime Rate loans and (ii) 1.75% for LIBOR loans. The maturity date of the revolving facility is June 1, 2024. Interest for borrowings under the term A loan accrues at a per annum rate equal to Prime Rate or LIBOR plus applicable margins of (i) 0.25% for Prime Rate loans and (ii) 2.25% for LIBOR loans. The maturity date of the term A loan is December 1, 2022. The Credit Agreement includes a commitment fee on the unused portion of the revolving facility of 0.25% per annum payable quarterly. The obligations of the Company and other borrowers under the Credit Agreement are secured by a blanket lien on all the assets of the Company and its subsidiaries. The Credit Agreement also includes customary representations and warranties and applicable reporting requirements and covenants. The financial covenants under the Credit Agreement include a minimum fixed charge coverage ratio, a maximum senior funded debt to EBITDA ratio and a maximum total funded debt to EBITDA ratio. LIBOR is a common benchmark interest rate (or reference rate) used to set and make adjustments to interest rates for certain floating rate securities and other financial instruments. Financial institutions are discontinuing the use of LIBOR and adopting alternative reference rates including the Federal Reserve Bank of New York’s Secured Overnight Financing Rate (SOFR).

Bank debt balances consist of the following:

	June 30, 2022		December 31, 2021
Term debt	$	777,778	$	1,444,444
Revolving debt		21,763,887		16,311,493
Total Bank debt		22,541,665		17,755,937
Less: current portion		777,778		1,444,444
Non-current bank debt		21,763,887		16,311,493
Less: unamortized debt costs		102,172		136,057
Net non-current bank debt	$	21,661,715	$	16,175,436

The Company had $8.2 million and $13.7 million available to borrow on the revolving credit facility at June 30, 2022 and December 31, 2021, respectively.

9. NOTES PAYABLE

Notes Payable – Related Party

The Company had two separate outstanding promissory notes with First Francis Company Inc. (“First Francis”), which were originally issued in July 2016 in connection with the acquisition of Federal Hose Manufacturing (“Federal Hose”) and which were amended in July 2018 in connection with acquisition of CAD. The first promissory note was issued with original principal in the amount of $2,000,000, and the second was issued with original principal in the amount of $2,768,662. The promissory notes each had an interest rate of 6.25% per annum, which was increased from 4.0% per annum as part of the July 2018 amendments to the Credit Agreement.

In connection with the Komtek Forge acquisition, on January 15, 2021, the Company refinanced the outstanding First Francis promissory notes in the aggregate amount of $2,077,384, including accrued interest payable through the refinance date and combined this amount with an existing First Francis promissory note carried by Komtek Forge in the amount of $1,702,400 into one note for a combined $3,779,784 loan due to First Francis Company, payable in quarterly installments beginning April 15, 2021. The interest rate on the refinanced loan remained at 6.25% per annum. First Francis is owned by Edward Crawford and Matthew Crawford, both of whom serve on the Board of Directors of the Company.

Notes Payable – Seller Note

Effective July 1, 2018, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of CAD. Upon the closing of the transaction, the CAD shares were transferred and assigned to the Company in consideration of the payment by the Company of an aggregate purchase price of $21 million, $12 million of which was payable in cash at closing, with the remainder paid in the form of a subordinated promissory note issued by the Company in favor of a Seller (the “Seller Note”), which is subject to certain post-closing adjustments based on working capital, indebtedness and selling expenses, as specified in the Share Purchase Agreement entered into in connection with the acquisition (the “Share Purchase Agreement”). The Seller Note bears interest at a rate of four percent (4%) per annum and is payable in full no later than June 30, 2023 (the “Maturity Date”). The Maturity Date, with respect to any then-outstanding portion of the original principal amount which is subject to an indemnification claim by the Company (asserted in accordance with the terms of the Share Purchase Agreement) pending as of the date thereof, will be automatically extended until such time as any claim relating to such disputed amount is no longer pending, pursuant to the terms of the Seller Note and subject to additional conditions set forth therein and in the Share Purchase Agreement. The Company is not permitted to prepay any amounts due and owing under the Seller Note. Payment of the Seller Note is secured by a second-priority security interest in the assets of CAD. Interest accrued on the original principal amount is due and payable in arrears on the first day of each calendar quarter up to and including June 30, 2023. The Company is required to make quarterly principal payments, the amount of which is calculated based on a four (4) year amortization schedule, on the last day of each calendar quarter up to and including the Maturity Date. The holders of the Seller Note and the Company agreed to defer the quarterly principal payment due June 30, 2020 until June 30, 2023; quarterly interest was paid on the Seller Note.

Notes payable consists of the following:

	June 30, 2022		December 31, 2021
In connection with the Komtek Forge acquisition, the Company refinanced the outstanding First Francis promissory notes, accrued interest payable through the refinance date and the assumed First Francis promissory note into one note on January 15, 2021 for a $3,779,784 loan due to First Francis Company, payable in quarterly installments beginning April 15, 2021.	$	2,941,721	$	3,284,762
In connection with the CAD acquisition, the Company entered into a promissory note on July 1, 2018 for a $9,000,000 loan due to the seller, payable in quarterly installments beginning September 30, 2018.		2,250,000		3,937,500
Total notes payable		5,191,721		7,222,262
Less current portion		2,968,833		2,946,885
Notes payable – non-current portion	$	2,222,888	$	4,275,377

10. LEASES

The Company has operating leases for facilities, vehicles and equipment. These leases have remaining terms of 2 years to 15 years, some of which include options to extend the leases for up to 10 years.

Supplemental balance sheet information related to leases:

	June 30, 2022			December 31, 2021
Operating leases:
Operating lease right-of-use assets, net	$	8,731,603		$	8,998,776

Other current liabilities		1,687,313			1,241,681
Operating lease liabilities		7,280,843			7,985,628
Total operating lease liabilities	$	8,968,156		$	9,227,309
Weighted Average Remaining Lease Term
Operating Leases (in years)		9.0			9.0
Weighted Average Discount Rate
Operating Leases		5.0	%		5.0	%

11. EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per share.

	Three Months Ended June 30,				Six Months Ended June 30,

	2022		2021		2022		2021

Earnings Per Share - Basic
Net Income	$	1,171,264	$	1,247,305	$	2,237,139	$	4,390,722
Weighted average shares of common stock outstanding - Basic		3,464,765		3,408,906		3,449,465		3,400,917
Earnings Per Share - Basic	$	0.34	$	0.37	$	0.65	$	1.29

Earnings Per Share - Diluted
Weighted average shares of common stock outstanding - Basic		3,464,765		3,408,906		3,449,465		3,400,917
Warrants, Options and Convertible Notes		-		894		-		888
Weighted average shares of common stock -Diluted		3,464,765		3,409,800		3,449,465		3,401,805
Earnings Per Share - Diluted	$	0.34	$	0.37	$	0.65	$	1.29

12. ACQUISITIONS

Effective January 15, 2021, the Company completed the acquisition of all of the issued and outstanding membership interests of KT Acquisition LLC (dba Komtek Forge, “Komtek”), a Massachusetts limited liability company and supplier of highly engineered forgings for the aerospace, industrial gas turbine, medical prosthetics. alternative energy, petrochemical, and defense industries, pursuant to a Membership Interest Purchase Agreement entered into as of January 15, 2021. The Company acquired Komtek in consideration of the payment by the Company of an aggregate purchase price of $3.7 million, subject to certain post-closing adjustments based on working capital, indebtedness and selling expenses, as specified in the Membership Interest Purchase Agreement, which was comprised of cash, the issuance of 60,000 Class A common shares of the Company and the assumption of certain specified liabilities of the seller.

Cash Consideration Transferred	$	840,551
Assumed Debt		1,753,757
Fair Value of Stock Consideration		1,059,000
Total Consideration	$	3,653,308

Cash	$	75,701
Accounts Receivable		1,502,713
Inventory		1,595,859
Fixed Assets		434,197
Prepaid and Other Assets		280,258
Goodwill		832,306
Total Assets Acquired	$	4,721,034

Accounts Payable	$	843,817
Accrued Expense		223,909
Total Liabilities Assumed	$	1,067,726

Total Fair Value	$	3,653,308

Acquisition transaction costs incurred were:	$	147,400

Goodwill

Goodwill has an assigned value of $0.8 million and represents the expected synergies generated by combining the operations of Komtek and the Company. The Company purchases forgings to manufacture products for customers in the Industrial and Transportation Products segment and the Komtek acquisition strengthens the Company’s supply chain.

Effective March 1, 2021, MTA Acquisition Company, LLC, a Delaware limited liability company (“Global-Tek Colorado”) and indirect wholly-owned subsidiary of Crawford United Corporation, completed the acquisition of all of the membership interests of Global-Tek-Manufacturing LLC, a Puerto Rico limited liability company and specialist in machining parts from wrought, rounds, castings or extrusions and providing in house anodizing and other finishing and assembly operations and substantially all of the assets of Machining Technology L.L.C., a Colorado limited liability company with CNC machining capability, pursuant to a Membership Interest and Asset Purchase Agreement entered into March 2, 2021 and effective as of March 1, 2021. The stock and assets were transferred and assigned to MTA in exchange for approximately $4.9 million in cash and the repayment of remaining outstanding indebtedness and transaction costs totaling $1.4 million, subject to customary post-closing adjustments. The Purchase Agreement also includes a post-closing “earnout” that provides for up to an aggregate of $1.5 million in additional consideration to the certain sellers (up to $750,000 per year) if specified performance targets are met in the two years following closing. If earned, the additional consideration is payable in cash or, at the election of each such seller, in Company common shares up to a maximum aggregate amount of 61,475 shares.

Cash Consideration Transferred	$	4,926,035
Seller Transaction Costs and Repayment of Indebtedness		1,398,394
Total Consideration	$	6,324,429

Accounts Receivable	$	1,058,460
Inventory		173,202
Fixed Assets		3,233,073
Prepaid and Other Assets		189,214
Intangibles Asset: Trademark		1,162,000
Intangible Asset: Customer List		1,041,000
Goodwill		1,896,607
Total Assets Acquired	$	8,753,556

Accounts Payable	$	473,119
Accrued Payroll and Other Expense		456,008
Contingent Liability		1,500,000
Total Liabilities Assumed	$	2,429,127

Total Fair Value	$	6,324,429


Acquisition transaction costs incurred were:	$	190,007

Goodwill and Intangible Assets

Goodwill has an assigned value of $1.9 million and represents the expected synergies generated by combining the operations of Global-Tek Colorado, Global-Tek-Manufacturing LLC and the Company. The Company utilizes machined parts for customers in the Industrial and Transportation Products segment and the acquisition of Global-Tek Colorado and Global-Tek-Manufacturing allows the Company to strengthen its supply chain. Intangible asset, trademark has an assigned value of $1.2 million which represents the expected value of the Global-Tek trade name in the market. Intangible asset, customer list has an assigned value of $1.0 million which represents the expected value of the list of the customers of Global-Tek to the Company.

Contingent Consideration

Global-Tek has a contingent consideration of $1.5 million as of the acquisition date which represents $750 thousand of additional consideration per year for a period of two years following the acquisition date if specified performance targets are met. The additional consideration will be earned if Global-Tek achieves specified profitability targets and is payable either in cash or in common shares of the Company up to an aggregate maximum amount of 61,475 shares. The range of estimates for the outcome of the contingent consideration is between $0 and approximately $1.5 million. The maximum amount of the payment is the greater of the value of 61,475 common shares of the Company and $1.5 million. The first year performance target has been achieved by Global-Tek and was paid out in the second quarter of 2022 in the amount of $750 thousand.

Effective July 1, 2021, Crawford EH Acquisition Company, LLC, a Delaware limited liability company and indirect wholly-owned subsidiary of Crawford United Corporation, completed the acquisition of all of the operating assets of Emergency Hydraulics LLC, (“Emergency Hydraulics”) a Florida limited liability company and provider of hydraulic hoses, air tank assemblies and related products to manufacturers of firefighting trucks and other emergency vehicles, pursuant to an Asset Purchase Agreement entered into July 1, 2021. The acquired business is strategically important to the Company’s growing industrial hose platform and will expand its offerings and diversify its customer base in this important market segment. The assets were transferred and assigned to Emergency Hydraulics in exchange for approximately $0.3 million of repayment of remaining outstanding indebtedness and transaction costs.

Assumption of Indebtedness	$	287,359

Accounts Receivable		79,843
Inventory		67,254
Intangible Assets: Customer List		478,649
Total Assets Acquired	$	625,746

Accounts Payable	$	338,387
Total Liabilities Assumed	$	338,387
Total Fair Value	$	287,359
Acquisition transaction costs incurred were:	$	36,204

Intangible Assets

Intangible asset, customer list has an assigned value of $0.5 million which represents the expected value of the list of the customers of Emergency Hydraulics to the Company.

Effective January 10, 2022, Crawford REV Acquisition Company LLC (name later changed to Reverso Pumps LLC or “Reverso Pumps”), a Delaware limited liability company and indirect wholly-owned subsidiary of Crawford United Corporation (the “Company”), completed the acquisition (the “Reverso Transaction”) of substantially all the assets of Reverso Pumps, Inc., a Florida corporation and developer, designer, manufacturer, seller and distributor of oil change systems, fuel and oil transfer pumps, fuel primers, fuel polishing systems and engine flushing systems (“Reverso”), pursuant to an Asset Purchase Agreement (the “Reverso Asset Purchase Agreement”) entered into and effective January 10, 2022 by and among Reverso Pumps, the Seller, the seller parties named therein and the Seller Parties’ representatives named therein. Upon the closing of the Transaction, the assets were transferred and assigned to Reverso Pumps in exchange for approximately $2.6 million in cash, subject to customary post-closing adjustments.

Additionally, effective on January 10, 2022, Crawford SEP Acquisition Company LLC (name later changed to Separ America LLC or “Separ America”), a Delaware limited liability company and indirect wholly-owned subsidiary of the Company, completed the acquisition (the “Separ Transaction,” and with the Reverso Transaction, the “Transactions”) of substantially all the assets of Separ of the Americas, LLC, a Florida limited liability company and developer, designer, manufacturer, seller and distributor of oil change systems, fuel and oil transfer pumps, fuel primers, fuel polishing systems and engine flushing systems (“Separ”) pursuant to an Asset Purchase Agreement (the “Separ Asset Purchase Agreement,” and together with the Reverso Asset Purchase Agreement, the “Purchase Agreements”) by and among Separ America, the Seller, the seller parties named therein and the Seller Parties’ representative named therein. Upon the closing of the Transaction, the assets were transferred and assigned to Separ America in exchange for approximately $1.6 million in cash, subject to customary post-closing adjustments.

Cash Consideration Transferred	$	3,973,375
Seller Transaction Costs		230,359
Total Consideration	$	4,203,734

Accounts Receivable		471,879
Inventory		1,349,115
Fixed Assets		255,000
Prepaid and Other Assets		47,632
Intangible Asset: Customer List & Trademark		1,300,000
Goodwill		1,378,191
Total Assets Acquired	$	4,801,817

Accounts Payable	$	542,359
Accrued Expense		55,724
Total Liabilities Assumed	$	598,083
Total Fair Value	$	4,203,734

Acquisition transaction costs incurred were:	$	124,825

Goodwill

Goodwill has an assigned value of $1.4 million and represents the expected synergies generated by combining the operations of Reverso, Separ, and the Company. The Company sells marine hoses and related products and the acquisition of Reverso Pumps and Separ America will allow the Company to expand its offerings to customers in the strategically important marine and defense markets. Intangible assets, customer list and trademarks has an assigned value of $1.3 million which represents the expected value of the list of the customers and trademarks of Reverso Pumps and Separ America.

Effective May 1, 2022, Knitting Machinery Company of America, LLC, a Delaware limited liability company (“Knitting Machinery”) and indirect wholly-owned subsidiary of Crawford United Corporation, completed the acquisition of all of the operating assets of KMC Corp. dba Knitting Machinery Corp., a Delaware corporation and specialist in the manufacture of hose reinforcement machinery for the plastic, rubber and silicone industries pursuant to an Asset Purchase Agreement entered into as of May 1, 2022. The acquired business is strategically important to the Company’s growing industrial hose platform and will expand its offerings and diversify its customer base in this important market segment. The assets were transferred and assigned to Knitting Machinery in exchange for approximately $250,000 in cash and 38,462 Class A Common Shares valued at $1.0 million.

Cash Consideration Transferred	$	250,000
Fair Value of Stock Consideration		1,000,012
Total Consideration	$	1,250,012

Cash	$	100,000
Accounts Receivable		155,932
Inventory		664,861
Fixed Assets		164,123
Intangible Assets		150,000
Goodwill		424,261
Total Assets Acquired	$	1,659,177

Accounts Payable	$	33,694
Deferred Revenue		375,471
Total Liabilities Assumed	$	409,165
Total Fair Value		1,250,012

Acquisition transaction costs incurred were:	$	8,951

Goodwill and Intangible Assets

Goodwill has an assigned value of $0.4 million and represents the expected synergies generated by combining the operations of

KMC and the Company. The Company utilizes industrial hoses for customers in the Industrial and Transportation Products segment and the acquisition of KMC allows the Company to strengthen its supply chain. Intangible asset, trademark has an assigned value of $0.075 million which represents the expected value of the KMC trade name in the market. Intangible asset, customer list has an assigned value of $0.075 million which represents the expected value of the list of the customers of KMC to the Company.

Sales and net income information for the acquired companies, including Komtek Forge LLC (“Komtek”), Global-Tek Manufacturing LLC and Global-Tek Colorado LLC (“Global-Tek”), Emergency Hydraulics LLC (“EH”), Reverso Pumps LLC (“Reverso Pumps”), Separ America LLC (“Separ America”) and Knitting Machinery Company of America LLC (“Knitting Machinery”) since the respective acquisition dates for the six months ended June 30, 2022 and 2021 are provided below.

	Six Months ended					Six Months ended
	June 30, 2022					June 30, 2021
	Sales		Net Income			Sales		Net Income
Acquired Companies:
Komtek (acquired January 15, 2021)	$	4,148,696		200,675		$	3,634,832	$	273,371
Global-Tek (acquired March 1, 2021)		3,154,086		(488,575	)		4,310,258		705,122
EH (acquired July 1, 2021)		656,068		69,543			-		-
Reverso Pumps (acquired January 10, 2022)		2,548,563		351,769			-		-
Separ America (acquired January 10, 2022)		869,739		234,595			-		-
Knitting Machinery (acquired May 1, 2022)		579,388		61,415			-		-
Subtotal Acquired Companies	$	11,956,540		429,422			7,945,090		978,493

All Other Companies		50,948,233		1,807,717			42,498,799		3,412,229
Total	$	62,904,773	$	2,237,139		$	50,443,889	$	4,390,722

13. SEGMENT AND RELATED INFORMATION

The Company reports operations for two business segments: (1) Commercial Air Handling Equipment, (2) Industrial and Transportation Products. The identification of our operating segments is based on guidance in ASC 280-10-50-1. The Company's management evaluates segment performance based primarily on operating income. Certain corporate costs are allocated to the segments and interest expense directly related to financing the acquisition of a business is allocated to that segment, respectively. Intangible assets are allocated to each segment and the related amortization of these assets are recorded in selling, general and administrative expenses.

Both our Commercial Air Handling Equipment segment and our Industrial Transportation Products segment engage in business activities from which they may recognize revenues and incur expense, including revenue and expenses relating to transactions with other components of the Company. The operating results for both the Commercial Air Handling Equipment segment and the Industrial Transportation Products segment are reviewed regularly by our chief operating decision maker and is considered in making decisions about resources to be allocated to the segment in assessing its performance. Financial information for both segments is available in internal financial statements that are prepared on a monthly basis.

Commercial Air Handling Equipment:

The Commercial Air Handling Equipment segment was added June 1, 2017, when the Company purchased certain assets and assumed certain liabilities of Air Enterprises Acquisition LLC in Akron, Ohio. The acquired business, which operates under the name Air Enterprises, is an industry leader in designing, manufacturing and installing large-scale commercial, institutional, and industrial custom air handling solutions. Its customers are typically in the health care, education, pharmaceutical and industrial manufacturing markets in the United States. This segment also sells to select international markets. The custom air handling units are constructed of non-corrosive aluminum, resulting in sustainable, long-lasting, and energy efficient solutions with life expectancies of 50 years or more. These products are distributed through a network of sales representatives, based on relationships with health care networks, building contractors and engineering firms. The custom air handling equipment is designed, manufactured and installed under the brand names FactoryBilt® and SiteBilt®. FactoryBilt® air handling solutions are designed, fabricated and assembled in a vertically integrated process entirely within the Akron, Ohio facility. SiteBilt® air handling solutions are designed and fabricated in Akron, but are then crated and shipped to the field and assembled on-site.

Industrial and Transportation Products:

The Industrial and Transportation Products segment was added July 1, 2016, when the Company purchased the assets of the Federal Hose Manufacturing, LLC of Painesville, Ohio. This business segment includes the manufacture of flexible interlocking metal hoses and the distribution of silicone and hydraulic hoses. Metal hoses are sold primarily to major heavy-duty truck manufacturers and major aftermarket suppliers in North America. Metal hoses are also sold into the agricultural, industrial and petrochemical markets. Silicone hoses are distributed to a number of industries in North America, including agriculture and general industrial markets. The Company purchased all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc.(“CAD”) in Phoenix, Arizona on July 1, 2018. CAD provides complete end-to-end engineering, machining, grinding, welding, brazing, heat treat and assembly solutions. Utilizing state-of-the-art machining and welding technologies, this segment is an industry leader in providing complex components produced from nickel-based superalloys and stainless steels. CAD’s quality certifications include ISO 9001:2015/AS9100D, as well as Nadcap accreditation for Fluorescent Penetrant Inspection (FPI), Heat Treating/Braze, Non-Conventional Machining EDM, and TIG/E-Beam welding. The Company added the distribution of marine hose to this segment through the acquisition of the assets of MPI Products, Inc. (“MPI”) on January 2, 2020. MPI specializes in rubber and plastic marine hose for the recreational boating industry. MPI offers certified products that meet marine industry standards and regulations. Effective April 19, 2019, the Company, completed the acquisition of substantially all of the assets of Data Genomix, Inc., an Ohio corporation (“DG”). DG is in the business of developing and commercializing marketing and data analytic technology applications. The Company purchased all of the issued and outstanding membership interests of KT Acquisition LLC (name later changed to Komtek Forge LLC), in Worcester, Massachusetts on January 15, 2021. Komtek Forge LLC is a supplier of highly engineered forgings for the aerospace, industrial gas turbine, medical prosthetics, alternative energy, petrochemical and defense industries. The Company purchased all of the membership interests of Global-Tek-Manufacturing LLC (“Global-Tek”), in Ceiba, Puerto Rico and substantially all of the assets of Machining Technology LLC (name later changed to Global-Tek Colorado LLC or “Global-Tek Colorado”) in Longmont, Colorado on March 2, 2021. Global-Tek and Global-Tek Colorado specialize in providing customers with highly engineered manufacturing solutions, including CNC machining, anodizing, electro polishing and laser marking for customers in the defense, aerospace and medical device markets. The Company purchased substantially all of the assets of Emergency Hydraulics LLC (“Emergency Hydraulics”), in Ocala, Florida on July 1, 2021. Emergency Hydraulics provides hydraulic hoses, air tank assemblies and related products to manufacturers of firefighting trucks and other emergency vehicles. The company purchased substantially all of the assets of Crawford REV Acquisition Company LLC (name later changed to Reverso Pumps LLC or “Reverso Pumps”), in Davie, Florida on January 10, 2022. Reverso Pumps develops, designs, manufactures, sells and distributes oil change systems, fuel and oil transfer pumps, fuel primers, fuel polishing systems and engine flushing systems.

The company purchased substantially all of the assets of Crawford SEP Acquisition Company LLC (name later changed to Separ America LLC or “Separ America”), in Davie, Florida on January 10, 2022. Separ America develops, designs, manufactures, sells and distributes oil change systems, fuel and oil transfer pumps, fuel primers, fuel polishing systems and engine flushing systems. The company purchased substantially all of the assets of KMC Corp. dba Knitting Machinery Corp. (“Knitting Machinery”), in Cleveland, Ohio and Greenville, Ohio on May 1, 2022. Knitting Machinery specializes in manufacturing hose reinforcement machinery for the plastic, rubber and silicone industries.

The factors used to determine the Company’s reportable segments follow the guidance of ASC 280-10-50-21 and 50-10-22 and include consideration of the type of products or services delivered, the customers and end markets served, the appliable revenue recognition methodology and the length of time it takes to deliver products or services to customers. The Commercial Air Handling Equipment segment was identified as a reportable segment consisting of Air Enterprises, because Air Enterprises is strategically and operationally different from our other companies in several ways. First, Air Enterprises sells equipment to end customers and our other businesses that fall into the Industrial and Transportation Products segment sell products and components to end customers, not equipment. Second, the Commercial Air Handling Equipment segment delivers custom air handling solutions to customers which is different than the Industrial and Transportation Products segment which delivers manufactured metal, silicone, hydraulic and marine hoses, complex engineered components, highly engineered forgings, highly engineered and machined parts and data analytic technology applications. Third, the Commercial Air Handling Equipment segment serves customers primarily in the health care and education end markets while the Industrial and Transportation Products segment delivers products to customers in the heavy-duty truck manufacturing, agricultural, industrial, petrochemical, aerospace, defense, industrial gas turbine, medical prosthetics, alternative energy and emergency vehicle end markets. Fourth, the Commercial Air Handling Equipment segment recognizes revenue primarily over time while the Industrial and Transportation Products segment recognizes revenue primarily at a point in time. Fifth, the Commercial Air Handling Equipment segment manufactures custom air handling solutions for customers over a period of three to eighteen months from the time the order is received to the time the air handling solution is delivered to the end customer as compared to the Industrial and Transportation Products segment which sells and delivers products to customers much more quickly, often within 30 days or less. For the reasons previously mentioned, Air Enterprises is strategically and operationally different than the other businesses owned by the Company and management finds it useful to include this business in the Commercial Air Handling Segment which is separate and distinct from all of our other businesses that reside in the Industrial and Transportation Products segment.

Corporate and Other:

Corporate costs not allocated to the two primary business segments are aggregated here.

Information by industry segment is set forth below:

	Three Months Ended June 30, 2022
	Commercial Air Handling		Industrial And Transportation Products		Corporate and Other			Consolidated
Sales	$	11,845,380	$	20,056,647	$	-		$	31,902,027
Gross Profit		2,453,139		4,315,352		-			6,768,491
Operating Income		1,382,553		1,839,634		(846,660	)		2,375,527
Pretax Income		1,382,553		1,514,121		(1,301,004	)		1,595,670
Net Income		988,526		1,071,636		(888,898	)		1,171,264

	Three Months Ended June 30, 2021
	Commercial Air Handling		Industrial And Transportation Products		Corporate and Other			Consolidated
Sales	$	9,972,545	$	16,477,340	$	-		$	26,449,885
Gross Profit		2,030,038		3,750,252		-			5,780,290
Operating Income		845,092		1,342,966		(68,261	)		2,119,797
Pretax Income		845,092		1,121,507		(372,142	)		1,594,457
Net Income		633,818		893,184		(279,697	)		1,247,305

	Six Months Ended June 30, 2022
	Commercial Air Handling		Industrial And Transportation Products		Corporate and Other			Consolidated
Sales	$	23,403,254	$	39,501,519	$	-		$	62,904,773
Gross Profit		5,082,796		8,052,101		-			13,134,897
Operating Income		2,944,897		3,121,620		(2,293,668	)		3,772,849
Pretax Income		2,944,897		2,930,092		(2,638,228	)		3,236,761
Net Income		2,105,602		2,017,870		(1,886,333	)		2,237,139

	Six Months Ended June 30, 2021
	Commercial Air Handling		Industrial And Transportation Products		Corporate and Other			Consolidated
Sales	$	18,737,644	$	31,706,245	$	-		$	50,443,889
Gross Profit		4,260,858		7,522,353		-			11,783,211
Operating Income		1,890,721		3,094,411		(539,875	)		4,445,257
Pretax Income		1,890,721		2,693,643		679,052			5,263,416
Net Income		1,418,040		2,099,368		873,314			4,390,722

14. SUBSEQUENT EVENTS

None.

RESULTS OF OPERATIONS.

The following discussion is intended to assist in the understanding of the Company's financial position at June 30, 2022 and December 31, 2021, results of operations for the three and six month periods ended June 30, 2022 and 2021, and cash flows for the three and six month periods ended June 30, 2022 and 2021, and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The coronavirus (COVID-19) pandemic has disrupted our operations and affected our business, and may continue to do so, due to many factors, including imposition by government authorities of mandatory closures, work-from-home orders and social distancing protocols, increased employee absenteeism due to illness and/or quarantine requirements, and other restrictions that could materially adversely affect our ability to adequately staff and maintain our operation. The COVID-19 pandemic has also disrupted, and may continue to disrupt, our operations and facilities and to provide personal protective equipment for our employees. There may also be long-term negative effects on the economic well being of our customers and in the economies of affected countries. Even as government restrictions have been lifted and economies gradually reopened, the shape of the economic recovery remains uncertain and may continue to negatively impact our results of operations, cash flows and financial position in subsequent quarters.

Items Affecting the Comparability of our Financial Results

The Company purchased all of the issued and outstanding membership interests of KT Acquisition LLC (name later changed to Komtek Forge LLC “Komtek”), in Worcester, Massachusetts on January 15, 2021.

The Company purchased all of the membership interests of Global-Tek Manufacturing LLC (“Global-Tek”) in Ceiba, Puerto Rico and substantially all of the assets of Machining Technology L.L.C. (“Machining Technology”), in Longmont, Colorado on March 2, 2021.

The Company purchased substantially all of the operating assets of Emergency Hydraulics LLC, (“Emergency Hydraulics”) in Ocala, Florida on July 1, 2021.

The Company purchased substantially all of the operating assets of Reverso Pumps, Inc, (“Reverso Pumps”) and Separ of the Americas, LLC, (“Separ America”), both located in Davie, Florida on January 10, 2022.

The Company purchased substantially all of the operating assets of KMC Corp. dba Knitting Machinery Corp. (“Knitting Machinery”) located in Cleveland, Ohio and Greenville, Ohio on May 1, 2022.

Accordingly, in light of the timing of these transactions, the Company’s results for the three and six month periods ended on June 30, 2022 include the added results of operations of Emergency Hydraulics, Reverso Pumps, Separ America and Knitting Machinery in the Industrial and Transportation Products segment. Conversely, our results for the three and six month periods ended June 30, 2021 do not include the results of operations of Emergency Hydraulics, Reverso Pumps, Separ America and Knitting Machinery and also do not include a full six months of results for Komtek, Global-Tek and Machining Technology in the Industrial and Transportation Products segment.

Results of Operations – Three Months Ended June 30, 2022 and 2021

Sales for the quarter ended June 30, 2022 (“current quarter”) increased to $31.9 million, an increase of approximately $5.5 million or 21% from sales of $26.4 million during the same quarter of the prior year. The increase in sales of $5.5 million from $26.4 million for the quarter ended June 30, 2021 to $31.9 million for the quarter ended June 30, 2022 was driven by increased sales from the acquisitions of Reverso and Separ of the Americas of $1.9 million, Emergency Hydraulics of $0.7 million and Knitting Machinery of $0.6 million. Additionally, there was increased demand for products sold by Air Enterprises of $1.9 million, MPI of $0.8 million, Federal Hose of $0.6 million and Data Genomix $0.5 million. These increases were partially offset by a decline in demand of $1.5 million attributable to Global-Tek Manufacturing and Global-Tek Colorado.

Cost of sales for the current quarter was $25.1 million compared to $20.7 million, an increase of $4.5 million or 22% from the same quarter of the prior year. Gross profit was $6.8 million in the current quarter compared to $5.8 million, an increase of $1.0 million from the same quarter of the prior year. The increase in cost of sales and gross profit was primarily attributable to the impact of the acquisitions of Reverso and Separ of the Americas, Emergency Hydraulics and Knitting Machinery in addition to greater demand for products sold by Air Enterprises, MPI, Federal Hose and Data Genomix partially offset by a decrease in cost of sales and gross profit for Global-Tek Manufacturing and Global-Tek Colorado.

Selling, general and administrative expenses (SG&A) in the current quarter were $4.4 million, or 14% of sales, compared to $3.7 million, or 14% of sales in the same quarter of last year. Selling, general and administrative expenses was flat as a percentage of sales due primarily to increased control over spending partially offset by an additional $0.4 million of Selling, general and administrative expenses in the current quarter as a result of the acquisitions of Reverso Pumps, Separ America, Emergency Hydraulics and Knitting Machinery.

Interest charges in the current quarter were approximately $0.2 million compared to $0.2 million in the same quarter of the prior year. Average total debt (including notes) and average interest rates for the current quarter were $29.0 million and 3.1% respectively, compared to $27.7 million and 2.9% in the same period of last year.

Other expense, net was $0.6 million in the current quarter compared to $0.3 million in the same quarter of the prior year. The increase in other expense, net is driven by a loss of $0.6 million in the quarter related to investments in marketable securities compared to a loss of $0.2 million related to investments in marketable securities and $0.1 million of transaction costs in the same period of last year.

Income tax expense in the current quarter was $0.4 million compared to $0.3 million in the same quarter of the prior year. Tax expense is higher compared to the same quarter of the prior year despite similar levels of pre-tax income because a higher expected state tax rate was used in the current quarter.

Net income in the current quarter was $1.2 million or $0.34 per diluted share as compared to net income of $1.2 million or $0.37 per diluted share for the same quarter of the prior year because of the factors noted above.

Commercial Air Handling Segment

Sales in the Commercial Air Handling Equipment segment for the quarter ended June 30, 2022 increased to $11.8 million, an increase of approximately $1.9 million or 18.8% from sales of $10.0 million during the same period of the prior year. This increase was primarily attributable to an increase in demand as COVID-19 pandemic-related restrictions were lifted and the on-site access necessary to complete the installation of commercial air handling units was restored for certain hospital and university customers.

Cost of sales in the Commercial Air Handling Equipment segment for the current quarter was $9.4 million compared to $7.9 million in the prior year, an increase of $1.4 million or 18.3%. Gross profit was $2.5 million in the current quarter compared to $2.0 million in the same period of last year, an increase of $0.5 million. Cost of sales as a percentage of sales was 79.3% in the current quarter compared to 79.6% in the prior year. The decrease in cost of sales as a percentage of sales in the current quarter was primarily attributable to cost savings and lower input costs in the current period compared to prior year.

Selling, general and administrative expenses (SG&A) in the Commercial Air Handling Equipment segment in the current quarter were $1.1 million, or 9.0% of sales, compared to $1.2 million, or 11.9% of sales, in the prior year.

There was no interest charge in the Commercial Air Handling Equipment segment for the current quarter or the same quarter of the prior year because there was no outstanding debt attributable to this segment during those periods.

Income tax expense in the Commercial Air Handling Equipment segment in the current year was $0.4 million compared to $0.2 million in the prior year an increase of $0.2 million that was primarily attributable to an increase in income before taxes.

Net income in the Commercial Air Handling Equipment segment for the current year was $1.0 million compared to net income of $0.6 million in the prior year due primarily to the factors noted above.

Industrial and Transportation Products Segment

Sales in the Industrial and Transportation Products segment for the current quarter increased to $20.1 million, an increase of approximately $3.6 million or 21.7% from sales of $16.5 million during same period to the prior year. This increase was primarily driven by sales from the acquisitions of Reverso and Separ of the Americas of $1.9 million, Emergency Hydraulics of $0.7 million and Knitting Machinery of $0.6 million, MPI of $0.8 million, Federal Hose of $0.6 million and Data Genomix $0.5 million. These increases were partially offset by a decline in demand of $1.5 million attributable to Global-Tek Manufacturing and Global-Tek Colorado.

Cost of sales in the Industrial and Transportation Products segment for the current quarter was $15.7 million compared to $12.7 million in the prior year, an increase of $3.0 million or 23.7%. Gross profit was $4.3 million in the current quarter compared to $3.8 million in the same period of the prior year, an increase of $0.6 million. The increase in cost of sales and gross profit was primarily attributable to the impact of the acquisitions of Reverso and Separ of the Americas, Emergency Hydraulics and Knitting Machinery in addition to greater demand for products sold by MPI, Federal Hose and Data Genomix partially offset by a decrease in cost of sales and gross profit for Global-Tek Manufacturing and Global-Tek Colorado.

Selling, general and administrative expenses (SG&A) in the Industrial and Transportation Products segment in the current quarter were $2.5 million, or 12.3% of sales, compared to $2.4 million, or 14.6% of sales, in the prior year. Selling, general and administrative expenses decreased as a percentage of sales due primarily to increased control over spending partially offset by an additional $0.4 million of Selling, general and administrative expenses in the current quarter as a result of the acquisitions of Reverso Pumps, Separ America, Emergency Hydraulics and Knitting Machinery.

Other expense, net in the Industrial and Transportation Products segment was $0.1 million in the current year compared to $0.0 million of other income, net in the same period of the prior year. The increase in other expense, net was primarily attributable to an increase to a non-operating reserve.

Income tax expense in the current quarter was $0.4 million compared to $0.2 million in the same quarter of the prior year. Tax expense is higher compared to the same quarter of the prior year primarily driven by the increase in pre-tax income.

Net income in the Industrial and Transportation Products segment for the current quarter was $1.1 million compared to net income of $0.9 million in the same period of the prior year due primarily to the factors noted above.

Results of Operations – Six Months Ended June 30, 2022 and 2021

Sales for the six months ended June 30, 2022 increased to $62.9 million, an increase of approximately $12.5 million or 24.7% from sales of $50.4 million during the same period of the prior year. This increase in sales was primarily attributable to the impact of the acquisitions of Emergency Hydraulics, Reverso Pumps, Separ America Emergency Hydraulics and Knitting Machinery in addition to a full six months of earnings from Komtek, Global-Tek and Machining Technology as compared to the same period last year. The increase in sales of $12.5 million from $50.4 million for the six months ended June 30, 2021 to $62.9 million for the six months ended June 30, 2022 was driven by increased sales from the acquisitions of Komtek ($0.5 million), Emergency Hydraulics ($0.7 million), Reverso Pumps and Separ America ($3.4 million) and Knitting Machinery ($0.6 million) and a $9.2 million increase attributable to recovery in demand as COVID-19 pandemic-related restrictions loosened and commercial activity increased for Air Enterprises, Federal Hose, Data Genomix and MPI. These increases were partially offset by a decline in demand of $1.9 million attributable collectively to global-Tek Manufacturing, Global-Tek Colorado and CAD Enterprises.

Cost of sales for the six-month period ending June 30, 2022 was $49.8 million compared to $38.7 million, an increase of $11.1 million or 28.7% from the same period of the prior year. Gross profit was $13.1 million in the six-month period ending June 30, 2022 compared to $11.8 million, an increase of $1.4 million from the same period of the prior year. The increase in cost of sales and gross profit was primarily attributable to the impact of the acquisitions of Knitting Machinery, Emergency Hydraulics, Reverso Pumps and Separ America, in addition to a full six months of earnings in 2022 from Komtek, Global-Tek and Machining Technology. In addition, cost of sales for Air Enterprises increased from $14.5 million in the first six months of 2021 to $18.3 million in the six months ended June 30, 2022, an increase of $3.8 million or 26.2% driven by increased demand for its products.

Selling, general and administrative expenses (SG&A) for the six months ending June 30, 2022 were $9.4 million, or 15% of sales, compared to $7.3 million, or 15% of sales in the same period of last year. Selling, general and administrative expenses increased due to $0.9 million of stock awards that were granted in the current six months compared to $0.3 million of stock awards during the same period of last year. An additional $0.9 million of Selling, general and administrative expenses in the current six month period were a result of the acquisitions of Reverso Pumps and Separ America, in addition to a full six months of expenses in 2022 for Komtek, Global-Tek and Machining Technology.

Interest charges in the six months ended June 30, 2022 were approximately $0.4 million compared to $0.5 million in the same period of the prior year. The interest expense decreased due to lower balances on the Company’s fixed rate notes payable. Average total debt (including notes) and average interest rates for the most recent six-month period were $29.0 million and 2.9% compared to $26.9 million and 3.0% in the same period of last year.

Other expense, net was $0.1 million in the six-month period ending June 30, 2022 compared to $1.3 million of other income, net in the same period of the prior year. The decrease in other income is primarily driven by the forgiveness of the Company’s $1.5 million in outstanding Payroll Protection Loans (“PPP Loans”) in full by the U.S. Small Business Administration in accordance with the terms of the CARES Act in the first quarter of 2021 as compared to no PPP Loan forgiveness in the first six months of 2022. The forgiveness of the PPP Loans was treated as income in the first six months of 2021.

Income tax expense in the six-month period ending June 30, 2022 was $1.0 million compared to $0.9 million in the same period of the prior year. Tax expense is higher in the six-month period ending June 30, 2022 compared to the same period of the prior year despite lower pre-tax income because PPP Loan forgiveness is not taxable, which contributed to a lower tax rate in 2021.

Net income for the six-month period ending June 30, 2022 was $2.2 million or $0.65 per diluted share as compared to the net income of $4.4 million or $1.29 per diluted share for the same period of the prior year.

Commercial Air Handling Segment

Sales in the Commercial Air Handling Equipment segment for the six months ending June 30, 2022 increased to $23.4 million, an increase of approximately $4.7 million or 24.9% from sales of $18.7 million during the same period of the prior year. This increase was primarily attributable to an increase in demand as COVID-19 pandemic-related restrictions were lifted and the on-site access necessary to complete the installation of commercial air handling units was restored for certain hospital and university customers.

Cost of sales in the Commercial Air Handling Equipment segment for the six-month period ending June 30, 2022 was $18.3 million compared to $14.5 million in the same period of the prior year, an increase of $3.8 million or 26.6%. Gross profit was $5.1 million in the six-month period ending June 30, 2022 compared to $4.3 million in the prior year, an increase of $0.8 million. Cost of sales as a percentage of sales was 78.3% in the most recent six months compared to 77.3% in the same period of the prior year. The increase in cost of sales as a percentage of sales in the current year was primarily attributable to higher costs driven by supply chain disruptions in the most recent six-month period compared to prior year.

Selling, general and administrative expenses (SG&A) in the Commercial Air Handling Equipment segment in the six-month period ending June 30, 2022 were $2.1 million, or 9.1% of sales, compared to $2.4 million, or 12.6% of sales, in the same period of the prior year. The improvement in SG&A expenses as a percentage of net sales is driven by the impact of the fixed SG&A expenses over the higher revenue base in the 2022 period compared to the same period a year ago.

There was no interest charge in the Commercial Air Handling Equipment segment for the six-month period ending June 30, 2022 or in prior year because there was no outstanding debt attributable to this segment during those periods.

Income tax expense in the Commercial Air Handling Equipment segment in the six-month period ending June 30, 2022 was $0.8 million compared to $0.5 million in the prior year an increase of $0.3 million that was primarily attributable to an increase in income before taxes.

Net income in the Commercial Air Handling Equipment segment for the six-month period ending June 30, 2022 was $2.1 million compared to net income of $1.4 million in the same period of the prior year due primarily to the factors noted above.