CRAWFORD UNITED Corp - Quarter Report: 2021 March (Form 10-Q)

 

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 March 31, 2021

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

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 May 3, 2021, 2,637,058 shares of Class A Common Stock and 771,848 shares of Class B Common Stock were outstanding.

 

 

		(Unaudited)
		March 31, 2021				December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	4,841,177			$	6,194,276
Accounts receivable less allowance for doubtful accounts			15,550,526				12,021,692
Contract assets			3,901,253				3,735,557
Inventories-less allowance for obsolete inventory			13,119,476				11,030,960
Investments			1,644,975				1,534,400
Prepaid expenses and other current assets			674,789				657,496
Total Current Assets			39,732,196				35,174,381
Property, plant and equipment, net			15,286,257				11,290,783
Operating right of use asset, net			8,565,973				8,856,820
OTHER ASSETS:
Goodwill			13,978,426				11,505,852
Intangibles, net of accumulated amortization			9,555,385				7,558,309
Other non-current assets			102,129				106,638
Total Non-Current Other Assets			23,635,940				19,170,799
Total Assets		$	87,220,366			$	74,492,783

		(Unaudited)
		March 31, 2021				December 31, 2020
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes payable – current			2,915,213				2,782,479
Bank debt – current			1,333,333				1,333,333
Leases payable – current			1,158,633				1,136,300
Accounts payable			9,913,661				9,230,032
Unearned revenue			677,741				820,002
Contingent liability - current			750,000				-
Accrued expenses			3,382,366				2,242,924
Total Current Liabilities			20,130,947				17,545,070
LONG-TERM LIABILITIES:
Notes payable – long-term			6,489,571				5,455,717
Bank debt – long-term			17,757,675				12,174,428
PPP loans			-				1,453,837
Leases payable – long-term			7,638,786				7,901,357
Deferred income taxes			2,429,828				2,429,828
Contingent liability – long-term			750,000				-
Total Long-Term Liabilities			35,065,860				29,415,167
STOCKHOLDERS' EQUITY
Class A common shares - 10,000,000 shares authorized, 2,678,787 issued at March 31, 2021 and 2,595,087 issued at December 31, 2020			5,285,333				3,896,705
Class B common shares - 2,500,000 shares authorized, 954,283 shares issued at March 31, 2021 and December 31, 2020			1,465,522				1,465,522
Contributed capital			1,741,901				1,741,901
Treasury shares			(1,979,085	)			(1,938,052	)
Class A common shares – 41,729 shares held at March 31, 2021 and 39,467 shares held at December 31, 2020
Class B common shares – 182,435 shares held at March 31, 2021 and December 31, 2020
Retained earnings			25,509,888				22,366,470
Total Stockholders' Equity			32,023,559				27,532,546
Total Liabilities and Stockholders' Equity		$	87,220,366			$	74,492,783

 

		Three Months Ended March 31,
		2021				2020
Total Sales		$	23,994,004			$	25,281,574
Cost of Sales			17,991,083				19,073,431
Gross Profit			6,002,921				6,208,143
Operating Expenses:
Selling, General and administrative expenses			3,677,461				3,069,994
Operating Income			2,325,460				3,138,149
Other (Income) and Expenses:
Interest charges			218,618				297,421
Realized (gain) on investments			(152,761	)			-
Unrealized (gain) on investments			(233,644	)			-
PPP loan forgiveness			(1,453,837	)			-
Other (income) expense, net			278,125				71,361
Total Other (Income) and Expenses			(1,343,499	)			368,782
Income before Provision for Income Taxes			3,668,959				2,769,367
Provision for Income Taxes			525,542				693,797
Net Income		$	3,143,417			$	2,075,570
Net Income Per Common Share - Basic		$	0.93			$	0.63
Net Income Per Common Share - Diluted		$	0.93			$	0.63
Weighted Average Shares of Common Stock Outstanding
Basic			3,392,839				3,311,477
Diluted			3,393,720				3,313,157

 

		COMMON SHARES - NO PAR VALUE
		CLASS A				CLASS B				CONTRIBUTED CAPITAL				TREASURY SHARES				RETAINED EARNINGS				TOTAL
Balance at December 31, 2019		$	3,599,806			$	1,465,522			$	1,741,901			$	(1,905,780	)		$	16,527,083			$	21,428,532
Share-based compensation expense			70,849				-				-				-				-				70,849
Stock awards			226,050				-				-				-				-				226,050
Repurchase of shares			-				-				-				(32,272	)			-				(32,272	)
Net income			-				-				-				-				5,839,387				5,839,387
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			15,667				-				-				-				-				15,667
Stock awards			313,961				-				-				-				-				313,961
Issuance for acquisition			1,059,000				-				-				-				-				1,059,000
Repurchase of shares			-				-				-				(41,033	)			-				(41,033	)
Net income			-				-				-				-				3,143,417				3,143,417
Balance at March 31, 2021		$	5,285,333			$	1,465,522			$	1,741,901			$	(1,979,085	)		$	25,509,887			$	32,023,559

		COMMON SHARES ISSUED								TREASURY SHARES								COMMON SHARES OUTSTANDING
		CLASS A				CLASS B				CLASS A				CLASS B				CLASS A				CLASS B
Balance at December 31, 2019			2,576,837				954,283				37,208				182,435				2,539,629				771,848
Stock awards			17,250				-				-				-				17,250				-
Stock option exercise			1,000				-				-				-				1,000				-
Share repurchase			-				-				2,259				-				(2,259	)			-
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				-
Share repurchase			-				-				2,262				-				(2,262	)			-
Balance at March 31, 2021			2,678,787				954,283				41,729				182,435				2,637,058				771,848

 

		Three Months Ended March 31,
		2021				2020
Cash Flows from Operating Activities
Net Income		$	3,143,417			$	2,075,570
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			724,641				623,465
Unrealized gain on investments in equity securities			(233,644	)			-
Forgiveness of PPP loan			(1,453,837	)			-
Non-cash share-based compensation expense			329,628				36,466
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable			(967,662	)			2,056,246
Decrease (Increase) in inventories			(319,455	)			(339,843
Decrease (Increase) in contract assets			(165,696	)			(1,775,539	)
Decrease (Increase) in prepaid expenses & other assets			268,510				(58,099	)
Increase (Decrease) in accounts payable			(633,307	)			2,305,197
Increase (Decrease) in accrued expenses			912,024				1,239,831
Increase (Decrease) in unearned revenue			(142,261	)			(546,965	)
Total adjustments			(1,681,059	)			3,540,759
Net Cash Provided by Operating Activities		$	1,462,358			$	5,616,329
Cash Flows from Investing Activities
Cash paid for business acquisitions			(7,081,277	)			(9,400,000	)
Sale of equity securities			123,069				-
Capital expenditures			(827,184	)			(122,720	)
Net Cash (Used in) Investing Activities		$	(7,785,392	)		$	(9,522,720	)
Cash Flows from Financing Activities
Payments on notes			(562,500	)			(684,720	)
Payments on bank debt			(1,352,833	)			(3,093,747	)
Borrowings on bank debt			6,926,301				10,870,893
Share repurchase			(41,033	)			-
Net Cash Provided by Financing Activities		$	4,969,935			$	7,092,426
Net Increase (decrease) in cash and cash equivalents			(1,353,099	)			3,186,035
Cash and cash equivalents at beginning of period			6,194,276				2,232,499
Cash and cash equivalents at end of period		$	4,841,177			$	5,418,534
Supplemental disclosures of cash flow information
Interest Paid		$	153,995			$	255,742
Supplemental disclosures of noncash financing activity
Forgiveness of PPP loan		$	1,453,837				-
Supplemental disclosures of noncash investing activity
Issuance of Class A common shares in business acquisition		$	1,059,000				-

 

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 months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2021. 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 fiscal year ended December 31, 2020. 

 

During the three-month period ended March 31, 2021, 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, 2020.

 

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 beginning after December 15, 2022. 

 

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 $17,009 and $19,973 at March 31, 2021 and December 31, 2020, 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

 

For the identified reporting units, a Step 1 impairment test was performed as of December 31, 2020 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, 2020, no indefinite-lived intangible assets or goodwill was determined to be impaired. Management updated their assessment during the first quarter of fiscal 2021 and validated the assumptions used in the analyses performed as of December 31, 2020 and determined that the resulting conclusions remained appropriate as of March 31, 2021.

 

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:

 

 

Amortization of intangibles assets was: $205,924 and $179,340 for the three months ended March 31, 2021 and 2020, 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 $508,937 and $434,684 for the three months ended March 31, 2021 and 2020, respectively.

 

7.  INVESTMENTS IN EQUITY SECURITIES

 

Investments in equity securities are summarized in the table below:

 

 

Unrealized gains were $233,644 as of March 31, 2021 compared to $585,107 as of December 31, 2020 and unrealized losses were $0 as of March 31, 2021 compared to $0 as of December 31, 2020. Realized gains were $152,748 as of March 31, 2021 compared to $0 as of December 31, 2020 and Realized losses were $0 as of March 31, 2021 and $0 as of December 31, 2020.

 

 

Investments by fair value level in the hierarchy as of March 31, 2021 and December 31, 2020 are as follows:

 

 

 

8.  BANK DEBT 

 

The Company entered into a Credit Agreement on June 1, 2017 with JPMorgan Chase Bank, N.A. as lender, which was amended in connection with funding the acquisition of CAD Enterprises, Inc. (“CAD”) on July 5, 2018 and further amended on September 30, 2019, December 30, 2019 and March 2, 2021 (as amended, the “Credit Agreement”). The March 2, 2021 amendment increased the maximum borrowing amount under the revolving credit facility from $20,000,000 to $30,000,000. As amended, the Credit Agreement is comprised of a revolving facility in the amount of $30,000,000 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. 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.

 

Bank debt balances consist of the following:

 

 

The Company had $13.2 million and $9.2 million available to borrow on the revolving credit facility at March 31, 2021 and December 31, 2020, 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 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 and who has been nominated for election to the Board of Directors in 2021.  

 

 

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.

 

Paycheck Protection Program Notes

The Company applied for and was approved for a loan in the amount of $3,679,383 (the “PPP Loan”) on April 10, 2020 pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On May 5, 2020, the Company instructed JPMorgan to repay in full the Promissory Note pursuant to the Paycheck Protection Program under the CARES Act. On June 4, 2020, Federal Hose and CAD each entered into unsecured loans with First Federal Savings and Loan Association of Lakewood, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), in the amounts of $253,071 and $1,200,766, respectively (the “PPP Loans”). The Company received notice of forgiveness from First Federal Savings and Loan Association of Lakewood of 100% of the CAD and Federal Hose PPP loans on January 2, 2021 and January 29, 2021 respectively.

 

 

Notes payable consists of the following: 

 

 

 

10. 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:

 

 

11. EARNINGS PER COMMON SHARE 

 

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

 

 

 

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 $3.6 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 approximately $1,702,000 of specified liabilities of the seller.

 

 

 

Effective March 1, 2021, MTA Acquisition Company, LLC, a Delaware limited liability company (“MTA”) 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 approximately $1.6 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.

 

 

 

 

13. SEGMENT AND RELATED INFORMATION  

 

As of January 1, 2021, the Company elected to report operations for two business segments: (1) Commercial Air Handling Equipment, (2) Industrial and Transportation Products. The decision to change from three to two reportable business segments was the result of a board-level discussion and was deemed appropriate given the size of the Company. 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.

 

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 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, 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 specialized 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 L.L.C. (Machining Technologies), in Longmont, Colorado on March 2, 2021. Global-Tek and Machining Technologies 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.

 

Corporate and Other: 

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

 

Information by industry segment is set forth below: 

 

 

 

 

(1)	March 31, 2020 segment information has been restated to reflect the change in reportable segments.

 

 

14. UNCERTAINTIES

 

The coronavirus (COVID-19) pandemic had a material adverse effect on the Company’s reported results for the three months ended March 31, 2021. The Company will continue to actively monitor the impact of the coronavirus pandemic, which is expected to negatively impact the Company’s business and results of operations for the remainder of fiscal year 2021 and possibly beyond. The extent to which the Company’s business and operations will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak; new and growing outbreaks of COVID-19 or new strains of COVID-19; actions by government authorities to contain COVID-19 or treat its impact, such as reimposed public health restrictions; efforts to combat COVID-19, such as vaccine development and distribution, among other things.

 

15. SUBSEQUENT EVENTS

 

None