CRAWFORD UNITED Corp - Quarter Report: 2019 June (Form 10-Q)

 

 

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

 

FORM 10-Q 

 

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

 

For the quarterly period ended June 30, 2019

OR

[ ] 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

 

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Crawford United Corporation

(Exact Name of Registrant as Specified in Charter) 

 

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Ohio	0-147	34-0288470
(State or Other Jurisdiction  of Incorporation)	(Commission  File Number)	(IRS Employer  Identification No.)

 

10514 Dupont Avenue Cleveland, Ohio	44108
(Address of Principal Executive Offices)	(Zip Code)

 

(216) 541-8060

(Registrant’s telephone number, including area code)

 

Hickok Incorporated

(Former Name or Former Address, if Changed Since Last Report) 

 

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

 

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 [X] 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 [X] 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 [X]
	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 [X]

 

As of July 31, 2019, 2,162,806 shares of Class A Common Stock and 696,848 shares of Class B Common Stock were outstanding.

 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

		(Unaudited)
		June 30, 2019				December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents		$	739,678			$	5,057,626
Accounts receivable less allowance for doubtful accounts			15,967,703				9,835,262
Costs and estimated earnings in excess of billing			2,865,403				2,083,349
Inventories-less allowance for obsolete inventory			6,164,112				5,497,982
Prepaid Expenses and other current assets			672,510				818,609
Total Current Assets			26,409,406				23,292,828
PROPERTY, PLANT AND EQUIPMENT:
Land and Improvements			228,872				257,205
Buildings and Leasehold Improvements			1,750,946				1,709,165
Machinery and Equipment			13,745,070				13,343,878
Total Property, Plant and Equipment			15,724,888				15,310,248
Less accumulated depreciation			2,782,721				2,006,133
Property, Plant and Equipment, Net			12,942,167				13,304,115
Operating Right of Use Assets, Net			9,671,445				-
OTHER ASSETS:
Goodwill			9,799,041				9,582,202
Intangibles, net of accumulated amortization			4,145,019				4,332,202
Other non-current assets			95,263				95,263
Total Non-Current Other Assets			14,039,323				14,009,667
Total Assets		$	63,062,341			$	50,606,610

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		(Unaudited)
		June 30, 2019				December 31, 2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Convertible notes payable		$	200,000			$	200,000
Notes payable			2,694,226				1,555,663
Bank Debt			5,088,939				1,333,333
Leases payable			628,556				13,800
Accounts payable			7,316,361				5,169,819
Unearned revenue			2,579,089				5,257,797
Accrued payroll and related expenses			1,081,080				1,358,669
Accrued expenses			2,516,565				1,606,429
Accrued income taxes			467,510				360,239
Total Current Liabilities			22,572,326				16,855,749
LONG-TERM LIABILITIES:
Notes payable			9,735,846				11,086,402
Bank Debt			3,356,696				8,194,679
Deferred Income Taxes			1,701,653				1,701,653
Leases payable			9,160,482				2,642
Total Long-Term Liabilities			23,954,677				20,985,376
STOCKHOLDERS' EQUITY
Preferred shares, no par value - 1,000,000 shares authorized, no shares issued and outstanding
Common shares, no par value			-				-
Class A common shares - 10,000,000 shares authorized, 2,162,806 and 2,123,014 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively			2,907,342				2,641,300
Class B common shares - 2,500,000 shares authorized, 596,848 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively			710,272				710,272
Contributed capital			1,741,901				1,741,901
Treasury shares			(1,905,780	)			(1,905,780	)
Class A common shares - 37,208 shares held at June 30, 2019 and December 31, 2018
Class B common shares – 182,435 shares held at June 30, 2019 and December 31, 2018
Retained earnings			13,081,603				9,577,792
Total Stockholders' Equity			16,535,338				12,765,485
Total Liabilities and Stockholders' Equity		$	63,062,341			$	50,606,610

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		Three Months Ended June 30,								Six Months Ended June 30,
		2019				2018				2019				2018
Total Sales		$	24,514,636			$	13,593,192			$	46,350,723			$	25,471,892
Cost of Sales			19,287,703				10,106,614				36,293,902				18,966,873
Gross Profit			5,226,933				3,486,578				10,056,821				6,505,019
Operating Expenses:
Product development costs			-				97,389				-				220,418
Selling, general and administrative expenses			2,435,380				1,572,244				4,694,197				3,824,571
Operating Income			2,791,553				1,816,945				5,362,624				2,460,030
Other (Income) and Expenses:
Interest charges			284,579				80,755				550,652				166,688
Loss on sale of business			-				1,160,574				-				1,160,574
Other (income) expense, net			25,535				49,450				1,661				108,266
Total Other (Income) and Expenses			310,114				1,290,779				552,313				1,435,528
Income before Provision for Income Taxes			2,481,439				526,166				4,810,311				1,024,502
Provision for Income Taxes			649,960				131,541				1,233,374				256,125
Net Income		$	1,831,479			$	394,625			$	3,576,937			$	768,377
Net Income Per Common Share - Basic		$	0.66			$	0.14			$	1.30			$	0.27
Net Income Per Common Share - Diluted		$	0.57			$	0.13			$	1.12			$	0.24
Weighted Average Shares of Common Stock Outstanding
Basic			2,755,916				2,721,832				2,755,764				2,880,070
Diluted			3,212,798				3,076,076				3,196,151				3,236,590

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		COMMON SHARES - NO PAR VALUE
		CLASS A				CLASS B				CONTRIBUTED CAPITAL				TREASURY SHARES				RETAINED EARNINGS				TOTAL
Balance at March 31, 2018		$	2,482,534			$	710,272			$	1,741,901			$	(264,841	)		$	6,337,834			$	11,007,700
Share-based compensation expense			13,000				-				-				-				-				13,000
Proceeds from sale of business			-				-				-				(1,640,939	)							(1,640,939	)
Net Income			-				-				-				-				394,625				394,625
Balance at June 30, 2018		$	2,495,534			$	710,272			$	1,741,901			$	(1,905,780	)		$	6,732,459			$	9,774,386

		COMMON SHARES - NO PAR VALUE
		CLASS A				CLASS B				CONTRIBUTED CAPITAL				TREASURY SHARES				RETAINED EARNINGS				TOTAL
Balance at March 31, 2019		$	2,865,159			$	710,272			$	1,741,901			$	(1,905,780	)		$	11,250,124			$	14,661,676
Share-based compensation expense			42,183				-				-				-				-				42,183
Proceeds from sale of business			-				-				-				-				-				-
Net Income			-				-				-				-				18,831,479				1,831,479
Balance at June 30, 2019		$	2,907,342			$	710,272			$	1,741,901			$	(1,905,780	)		$	13,081,603			$	16,535,338

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		COMMON SHARES - NO PAR VALUE
		CLASS A				CLASS B				CONTRIBUTED CAPITAL				TREASURY SHARES				RETAINED EARNINGS				TOTAL
Balance at December 31, 2017		$	2,246,367			$	710,272			$	1,741,901			$	(264,841	)		$	5,964,082			$	10,397,781
Share-based compensation expense			249,167				-				-				-				-				249,167
Proceeds from sale of business			-				-				-				(1,640,939	)			-				(1,640,939	)
Net Income			-				-				-				-				768,377				768,377
Balance at June 30, 2018		$	2,495,534			$	710,272			$	1,741,901			$	(1,905,780	)		$	6,732,459			$	9,774,386

		COMMON SHARES - NO PAR VALUE
		CLASS A				CLASS B				CONTRIBUTED CAPITAL				TREASURY SHARES				RETAINED EARNINGS				TOTAL
Balance at December 31, 2018		$	2,641,300			$	710,272			$	1,741,901			$	(1,905,780	)		$	9,577,792			$	12,765,485
Share-based compensation expense			266,042				-				-				-				-				266,042
Proceeds from sale of business			-				-				-				-				(73,126	)			(73,126	)
Net Income			-				-				-				-				3,576,937				3,576,937
Balance at June 30, 2019		$	2,907,342			$	710,272			$	1,741,901			$	(1,905,780	)		$	13,081,603			$	16,535,338

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		Six Months Ended June 30,
		2019				2018
Cash Flows from Operating Activities
Net Income		$	3,576,937			$	768,377
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			976,612				654,930
Loss (gain) on sale of operations			-				1,160,574
Loss (gain) on disposal of assets			4,294				0
Non-cash share-based compensation expense			266,042				249,167
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable			(6,130,441	)			1,023,256
Decrease (Increase) in inventories			(666,130	)			(262,496	)
Decrease (Increase) in costs and estimated earnings in excess of billings			(782,054	)			(611,353	)
Decrease (Increase) in prepaid expenses & other assets			148,599				(217,071	)
Increase (Decrease) in accounts payable			1,997,175				717,836
Increase (Decrease) in accrued payroll and related expenses			(277,589	)			136,719
Increase (Decrease) in accrued expenses			944,172				(135,701	)
Increase (Decrease) in accrued income taxes			107,271				119,019
Increase (Decrease) in unearned revenue			(2,688,679	)			580,858
Total adjustments			(6,100,728	)			3,415,738
Net Cash Provided by (Used in) Operating Activities		$	(2,523,791	)		$	4,184,115
Cash Flows from Investing Activities
Capital expenditures		$	(418,934	)		$	(133,385	)
Cash paid for acquisition			(50,001	)			-
Net Cash Used in Investing Activities			(468,935	)			(133,385	)
Cash Flows from Financing Activities
Payments on notes			(223,993	)			(142,996	)
Payments on bank debt			(2,537,663	)			(4,100,000	)
Borrowings on bank debt			1,442,445				435,729
Payments on capital lease			(6,011	)			(24,007	)
Net Cash Used in Financing Activities			(1,325,222	)			(3,831,274	)
Net Increase (decrease) in cash and cash equivalents			(4,317,948	)			219,456
Cash and cash equivalents at beginning of year			5,057,626				2,444,110
Cash and cash equivalents at end of period		$	739,678			$	2,663,566
Supplemental disclosures of cash flow information
Interest Paid		$	439,572			$	232,991
Income Taxes Paid		$	1,161,400			$	119,019
Non-cash proceeds received for Class A and Class B Common Shares in exchange for the sale of certain assets		$	-			$	1,640,939

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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 (formerly Hickok Incorporated) 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, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. 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 ended December 31, 2018. 

 

During the three and six months ended June 30, 2019, there were no changes to our significant accounting policies other than the adoption of the new standard for leases, as discussed in Note 2 below.

 

Reclassifications

Certain prior year amounts were reclassified to conform to the current year presentation. These reclassifications have no effect on the financial position or results of operations reported as of and for the periods presented.

    

 

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 year ended December 31, 2018.

 

Recently Adopted Accounting Standards
The Company did not incur any material impact to its results of operations due to the adoption of any new accounting standards during the periods reported. The adoption of the new standard for leases did have a material impact on consolidated balance sheets as disclosed below and in Note 9.

 

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842),” a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial application. The new standard is effective for fiscal years and interim periods within those years, beginning on or after December 15, 2018, with early adoption permitted. The adoption of this new standard on January 1, 2019 resulted in assets of $9.7 million recorded as Operating Right of Use Assets, net, and additional lease liabilities of $9.8 million.  The Company also recorded an adjustment to retained earnings resulting from the cumulative effect of the change in accounting of ($0.1) million.  See Note 9 for further information.

 

Recently Issued Accounting Standards

 

In January 2017, FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The standard, which should be applied prospectively, is effective for fiscal years and interim periods within those years beginning on or after December 15, 2019. Early adoption is permitted. We are evaluating the impact the adoption of this standard could have on our consolidated financial statements.

 

 

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 is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2019 with early adoption permitted. We are evaluating the impact the adoption of this standard could have on our consolidated financial statements.

 

 

 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 $16,875 and $35,000 at June 30, 2019 and December 31, 2018, respectively.

 

 

4.  INVENTORY

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

 

 

 

5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

 

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 intangible assets is on a straight-line basis over period ranging from 1 year to 15 years. Intangible assets are as follows:

 

  

Amortization of intangibles assets was $93,592 and $217,257 for the three months ended June 30, 2019 and 2018, respectively, and $187,183 and $377,015 for the six months ended June 30, 2019 and 2018, 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:

 

 

Depreciation expense was $375,987 and $139,744 for the three months ended June 30, 2019 and 2018, respectively, and was $804,765 and $271,960 for the six months ended June 30, 2019 and 2018, respectively.

 

 

 

7.  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.  

 

The revolving facility under the Credit Agreement includes a $3 million sublimit for the issuance of letters of credit thereunder.  The Credit Agreement also provides for a separate credit line for borrowings of up to an aggregate of $1,000,000 for capital expenditures until July 5, 2019, at which time any outstanding capital expenditure borrowings will be converted into a term loan maturing at the earlier of five years after such conversion or the termination of the revolving credit facility.  Interest for borrowings under the revolving facility accrues at a per annum rate equal to Prime Rate or LIBOR plus applicable margins of (i) 0.00% for Prime Rate loans and (ii) 2.00% for LIBOR loans. The maturity date of the revolving facility is June 1, 2020. 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.

 

 

Bank debt balances consist of the following: 

 

 

 

8. NOTES PAYABLE

 

Convertible Notes Payable - Related Party

The Company is party to a Convertible Loan Agreement (as amended, “Convertible Loan”) with Roundball, LLC (“Roundball”). The Convertible Loan provides approximately $467,000 of liquidity to meet working capital requirements of the Company and allows $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.34%.  Borrowings under the Convertible Loan mature December 30, 2019.  Roundball, a major shareholder of the Company, is an affiliate of Steven Rosen and Matthew Crawford, who serve on the Board of Directors of the Company.

 

The Convertible Loan provides Roundball with the option to elect to convert amounts outstanding under the Convertible Loan into Class A Common Shares at a conversion price of $1.43 per Class A Common Share. In December 2018, the Convertible Loan was amended to provide Roundball with the option to elect to convert, subject to shareholder approval which was obtained on May 10, 2019, a portion of the indebtedness into Class B Common Shares at a conversion price of $1.43 per Class B Common Share, up to a maximum amount of 75,000 Class B Common Shares.

 

 

The outstanding balance on the Convertible Loan as of June 30, 2019 and December 31, 2018, respectively was $200,000.

 

In connection with the Convertible Loan, the Company issued a warrant to Roundball to purchase, at its option, up to 100,000 shares of Class A Common Stock of the Company at an exercise price of $2.50 per share, subject to certain anti-dilution and other adjustments. The warrant expires on December 30, 2019.

 

Notes Payable – Related Party

The Company has 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 have an interest rate of 6.25% per annum, which was increased from 4.0% per annum as part of the July 2018 amendments. In addition, the promissory note with original principal amount of $2,768,662 was amended in July 2018 to provide for a conversion option commencing July 5, 2019 which allows First Francis to convert the promissory note, in whole in part with respect to a maximum amount of $648,000, into shares of the Company’s Class B common stock at the price of $6.48 per share (subject to adjustment), subject to shareholder approval which was obtained on May 10, 2019. On May 10, 2019, the shareholders approved the issuance of shares of Class B Common Stock of the Company in connection with the conversion of indebtedness outstanding under loan agreements with First Francis Company Inc. and Roundball LLC.  On July 9, 2019, First Francis exercised its option to convert $648,000 of existing indebtedness into 100,000 Class B Common Shares of the Company. First Francis is owned by Matthew Crawford, who serves on the Board of Directors of the Company, and Edward Crawford, who served on the Board of Directors of the Company until June 17, 2019.  

 

Notes Payable – Seller Note

Effective July 1, 2018, the Company completed the acquisition of CAD for 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 the Company.   Interest accrued on the original principal amount became due and payable in arrears beginning September 30, 2018, and subsequent interest is due on the first day of each calendar quarter thereafter up to and including the quarter ending June 30, 2019.  The Company is required to make quarterly principal payments, the amount of which will be calculated based on a four (4) year amortization schedule, beginning on September 30, 2019 and continuing on the last day of each calendar quarter thereafter up to and including the Maturity Date.

  

Notes payable consists of the following:

 

 

 

 

9. LEASES

 

On January 1, 2019, the Company adopted ASU 2016-02 “Leases (Topic 842),” a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP.

 

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

 

Supplemental balance sheet information related to leases:

 

 

 

10. EARNINGS PER COMMON SHARE 

 

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

 

 

 

 

11. ACQUISITIONS

 

Effective July 1, 2018, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of CAD, pursuant to the Share Purchase Agreement.  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 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. 

 

CAD manufactures high end components for the aerospace industry and has one operating location in Phoenix, Arizona. The purchase price was assigned to the book value of the net assets acquired with the excess over the book value assigned to intangible assets and goodwill and has been allocated to the following accounts:

 

 

On April 19, 2019, the Company, completed the acquisition of substantially all of the assets of Data Genomix, Inc., an Ohio corporation (“DG”), pursuant to the terms of an Asset Purchase Agreement (the “Asset Purchase Agreement”) entered into by and between Hickok Operating LLC, an Ohio limited liability company and wholly-owned subsidiary of the Company (“Hickok Operating”), and DG on the date thereof. DG is in the business of developing and commercializing marketing and data analytic technology applications, which applications include, but are not limited to,topplr, anglrjobs, anglrlegal and anglrads.

 

 

12. DISPOSITIONS  

 

Effective June 1, 2018, the Company completed the sale (the “Sale”) of certain assets comprising its Test and Measurement business segment (the “Test and Measurement Segment”) to Hickok Waekon, LLC, an Ohio limited liability company (“Buyer”), pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) by and among Buyer, the Company, Supreme Electronics Corp., a Mississippi corporation and wholly-owned subsidiary of the Company (“Supreme”), Waekon Corporation, an Ohio corporation and wholly-owned subsidiary of the Company (“Waekon Corporation”), and Robert L. Bauman, who was a director of the Company. Prior to the effectiveness of the Sale, Supreme and Waekon Corporation owned certain of the assets used in the operation of the Test and Measurement Segment and were primarily responsible for the operation thereof.

 

Upon the closing of the Sale, all of the issued and outstanding shares of capital stock of the Company then-owned, directly or indirectly, by Mr. Bauman or his affiliate, equaling approximately 21,413 shares of Class A Common Stock of the Company and 176,768 shares of Class B Common Stock of the Company, were transferred and assigned to the Company. The shares constituted the consideration received by the Company in the Sale.  Based upon the share price at closing, the value of the proceeds received was approximately $1.6 million.  The net assets sold were approximately $2.7 million.  The Company recorded a loss on sale of approximately $1.2 million in the second quarter of 2018.

 

 

13. SEGMENT AND RELATED INFORMATION  

 

The Company operates three reportable business segments: (1) Aerospace Components, (2) Commercial Air Handling, (3) and Industrial Hose.  The Company operated the Test and Measurement business segment through June 1, 2018, at which time it was sold to Hickok Waekon, LLC. 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.

 

 

Aerospace Components:
The Aerospace Components segment was added July 1, 2018, when the Company purchased all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc. (“CAD”) in Phoenix, Arizona. This segment manufactures precision components primarily for customers in the aerospace industry.  This segment 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.  Our quality certifications include ISO 9001:2015/AS9100D, as well as Nadcap accreditation for Fluorescent Penetrant Inspection (FPI), Heat Treating/Braze, Non-Conventional Machining EDM, TIG/E-Beam welding.

 

Commercial Air Handling:
The Commercial Air Handling 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 Hose: 

The Industrial Hose segment was added July 1, 2016, when the Company purchased the assets of the Federal Hose Manufacturing, LLC in 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.

 

Test and Measurement: 

The Test and Measurement segment is the legacy business that was started in 1910 when the Company was founded, and was sold June 1, 2018. This business segment included electronic testing products designed and manufactured for the automotive and trucking industries and includes indicators and gauges for the locomotive and aircraft industries. The automotive diagnostic products are sold to original equipment manufacturers and to the aftermarket under several brand names and through a variety of distribution methods. In the aircraft industry, primary customers are manufacturers of commercial, military and personal airplanes. In the locomotive industry, indicators and gauges are sold to manufacturers and servicers of railroad equipment and locomotives.

 

Corporate and Other: 

Corporate costs not allocated to the three primary business segments are aggregated with the results of DG, acquired in April 2019.

 

 

Information by industry segment is set forth below: 

 

 

 

 

14. SUBSEQUENT EVENTS

 

On July 9, 2019, First Francis exercised its option to convert $648,000 of existing indebtedness into 100,000 Class B Common Shares of the Company. As a result, the principal amount outstanding under the second promissory note issues by the company to First Francis was reduced to $2,618,435. See Note 8, Notes Payable - Related Party.

 

 

 

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