CRAWA 10-Q Quarter ended June 30, 2011

See Notes to Consolidated Financial Statements

Note:  Amounts derived from audited financial statements previously filed with the Securities and Exchange Commission.

See Notes to Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 of the information and footnotes required by generally accepted accounting principles for complete 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 nine month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ended September 30, 2011. 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 September 30, 2010.

2. Inventories

Inventories are valued at the lower of cost or market and consist of the following:

The above amounts are net of reserve for obsolete inventory in the amount of $ 524,476 , $380,000 and $571,972 for the periods ended June 30, 2011, September 30, 2010 and June 30, 2010 respectively.

3. Notes Receivable

The Company has notes receivable with a current employee and former employee at an interest rate of three percent per annum. Currently monthly payments are being made by the former employee. The Company does not anticipate repayment within the next twelve months.

4. Short-term Financing

The Company has a credit agreement of $250,000 with one of its major shareholders. The agreement expires in April 2012 and provides for a revolving credit facility of $250,000 with interest generally equal to three percent per annum plus prime and is unsecured. In addition, the agreement generally allows for borrowing based on an amount equal to eighty percent of eligible accounts receivables or $250,000. The Company had outstanding borrowings of $185,000 under this loan facility at June 30, 2011. In addition, the Company is currently evaluating other short-term financing alternatives.

5. Capital Stock, Treasury Stock, Contributed Capital and Stock Options

Under the Company's Key Employees Stock Option Plans (collectively the "Employee Plans"), incentive stock options, in general, are exercisable for up to ten years, at an exercise price of not less than the market price on the date the option is granted. Non-qualified stock options may be granted at such exercise price and such other terms and conditions as the Compensation Committee of the Board of Directors may determine. No options may be granted at a price less than $2.925. Options for 26,850 Class A shares were outstanding at June 30, 2011 (41,500 shares at September 30, 2010 and 41,500 shares at June 30, 2010) at prices ranging from $3.125 to $5.00 per share. Options for 800 shares at a price of $3.55 per share were canceled during the three month period ended June 30, 2011. Options for 13,850 shares at prices ranging from $3.125 to $3.55 per share expired during the three month period ended December 31, 2010. In addition, options for 17,900 shares at prices ranging from $3.125 to $5.00 per share expired during the three month period ended December 31, 2009. No other options were granted, exercised or canceled during the three or nine month periods presented under the Employee Plans. All options granted under the Employee Plans are exercisable at June 30, 2011.

The Company's Outside Directors Stock Option Plans (collectively the "Directors Plans"), provide for the automatic grant of options to purchase up to 38,000 shares of Class A Common Stock to members of the Board of Directors who are not employees of the Company, at the fair market value on the date of grant. Options for 38,000 Class A shares were outstanding at June 30, 2011 (44,000 shares at September 30, 2010 and 44,000 shares at June 30, 2010) at prices ranging from $2.925 to $11.00 per share. Options for 8,000 shares at prices ranging from $2.925 to $11.00 were canceled during the three month period ended June 30, 2011. Options for 5,000 and 6,000 shares were granted under the Directors Plans during each of the three month periods ended March 31, 2011 and March 31, 2010, at a price of $2.925 and $6.00 per share respectively. In addition, options for 3,000 and 3,000 shares expired during each of the three month periods ended March 31, 2011 and March 31, 2010, at $4.25 and $8.50 per share respectively. All outstanding options under the Directors Plans become fully exercisable on February 24, 2014.

The following is a summary of the range of exercise prices for stock options outstanding and exercisable under the Employee Plans and the Directors Plans at June 30, 2011:

The Company accounts for Share-Based Payments under the modified prospective method for its stock options for both employees and non-employee Directors. Compensation cost for fixed based awards are measured at the grant date, and the Company uses the Black-Scholes option pricing model to determine the fair value estimates for recognizing the cost of employee and director services received in exchange for an award of equity instruments. The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect the fair value estimates. Employee stock options are immediately exercisable while Director's stock options are exercisable over a three year period. The fair value of stock option grants to Directors is amortized over the three year vesting period. During the three and the nine month periods ended June 30, 2011 and June 30, 2010 respectively $2,865 and $9,750 ; $4,020 and $12,025 was expensed as share-based compensation. The following weighted-average assumptions were used in the option pricing model for the three and nine month periods ended June 30, 2011 and 2010 respectively: a risk free interest rate of 5.5% and 5.5%; an expected life of 10 and 10 years; an expected dividend yield of 0.0% and 0.0%; and a volatility factor of .75 and .75.

6. Recently Issued Accounting Pronouncements

During the third quarter and the nine month period of fiscal 2011 and the third quarter and the nine month period of fiscal 2010, options to purchase 64,850 and 85,500 shares of common stock, respectively, at prices ranging from $2.925 to $11.00 per share were outstanding but were not included in the computation of diluted earnings per share because the option's effect was antidilutive or the exercise price was greater than the average market price of the common shares.

8. Segment and Related Information

The Company's three business units have a common management team and infrastructure that offer different products and services. The business units have been aggregated into two reportable segments: 1.) indicators and gauges and 2.) automotive related diagnostic tools and equipment.

Indicators and Gauges
This segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture or service business, military and pleasure aircraft. Within the locomotive market, indicators and gauges are sold to both original equipment manufacturers and to operators of railroad equipment.

Automotive Diagnostic Tools and Equipment
This segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions.

Information by industry segment is set forth below:

All export sales to Australia, Canada, England, Mexico and other foreign countries are made in United States of America Dollars.

9. Commitments and Contingencies

Legal Matters

The Company is the plaintiff in a suit pursuing patent infringement against a competitor in the emissions market. On March 29, 2011 The United States District Court Northern District of Ohio Eastern Division published a Case Management Schedule that calls for a number of steps to be implemented between that date and September 15, 2011 culminating in a scheduled Settlement Conference September 20, 2011. It is not possible , at this time, to estimate the timing of subsequent actions in the matter and management believes that it is not currently possible to estimate the impact, if any, that the ultimate resolution of the patent infringement matter will have on the company's results of operations, financial position or cash flows.

The Company has evaluated subsequent events through the date the financial statements were submitted to The Securities and Exchange Commission and has determined there were no subsequent events to recognize or disclose in these financial statements.

The Company has determined that it has two reportable segments: 1) indicators and gauges and 2) automotive related diagnostic tools and equipment. The indicators and gauges segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture or service business, military and pleasure aircraft. Within the locomotive market, indicators and gauges are sold to original equipment manufacturers, servicers of locomotives and operators of railroad equipment. Revenue in this segment was $372,606 and $388,110 for the third quarter of fiscal 2011 and fiscal 2010, respectively, and $907,378 and $1,129,569 for the first nine months of fiscal 2011 and fiscal 2010, respectively. The reduced sales volume in the current year was primarily due to lower orders for locomotive replacement items for distributor inventories due to tight credit, slowing of business aircraft conversion activity and timing of government funding for two military programs.

The automotive diagnostic tools and equipment segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions. Revenue in this segment was $903,938 and $1,002,245 for the third quarter of fiscal 2011 and fiscal 2010, respectively, and $2,794,705 and $3,291,563 for the first nine months of fiscal 2011 and fiscal 2010, respectively. The prior year increase was due primarily to the completion of an order for automotive diagnostic testing equipment for an OEM.

Product sales for the quarter ended June 30, 2011 were $1,186,989 versus $1,267,497 for the quarter ended June 30, 2010. The 6% decrease in product sales during the current quarter of approximately $80,000 was volume related due primarily to decreased sales of automotive diagnostic products of approximately $70,000. Sales of emission products and diagnostic products to the aftermarket decreased by approximately $66,000 and $21,000 respectively. Sales of indicator products decreased by approximately $10,000. These decreases were offset by an increase in sales of diagnostic products to OEM's of approximately $26,000. Management continues to be concerned about the current economic conditions in the markets the Company serves . Management implemented additional cost cutting measures that were effective in March and April 2011 primarily in the form of additional personnel reductions and anticipates cost savings of approximately $46,000 per month. Fiscal 2011 third quarter benefited from these cost cutting measures. Although the current economic uncertainties make forecasting difficult, product sales are expected to continue at current levels during the f ourth quarter of the fiscal year.

S ervice sales for the quarter ended June 30, 2011 were $89,555 versus $122,858 for the quarter ended June 30, 2010. The decrease was volume related and due primarily to a lower sales volume for chargeable repairs. The current level of service sales related to product repair sales is expected to continue in the fourth quarter of the fiscal year.

Cost of product sold in the third quarter of fiscal 2011 was $732,777 ( 61.7 % of product sales) as compared to $676,004 (53.3% of product sales) in the third quarter of 2010. The dollar and percentage increase in the cost of product sold was due primarily to a change in product mix. The current cost of product sold percentage is expected to decrease slightly during the fourth quarter of the fiscal year due to the cost cutting measures and an improved product mix. During the quarter ended June 30, 2011 the Company achieved the savings that were anticipated from the additional cost cutting measures implemented in March and April 2011.

Cost of service sold for the quarter ended June 30, 2011 was $59,868 ( 66.9 % of service sales) as compared to $72,002 (58.6% of service sales) in the quarter ended June 30, 2010. The percentage increase was due primarily to the lower sales volume in the current quarter. The dollar decrease was also due primarily to the lower sales volume in the current quarter. T he current cost of services sold percentage is anticipated to continue in the fourth quarter of the fiscal year.

Marketing and administrative expenses were $381,611 (29.9% of total sales) in the third quarter of fiscal 2011 versus $537,407 (38.7% of total sales) for the same period a year ago. The dollar decrease in expenses for the current fiscal quarter was due to cost cutting measures effective March and April 2011 and other expense reductions. Marketing expenses were approximately $165,000 in the third quarter of fiscal 2011 versus $246,000 for the same period a year ago. Within marketing expenses, labor costs, outside consulting, travel expenses, commissions, advertising expenses and royalties decreased by approximately $31,000, $20,000, $14,000, $10,000, $4,000 and $2,000 respectively. These decreases were offset in part by an increase in promotion expenses of approximately $6,000. Administrative expenses were approximately $216,000 in the third quarter of fiscal 2011 versus $292,000 for the same period a year ago. Within administrative expenses, labor costs, professional fees, directors fees and travel expenses decreased approximately $48,000, $18,000, $6,000 and 1,000 respectively. The current level of marketing and administrative expenses is expected to continue during the fourth quarter . For the quarter ended June 30, 2011 the Company achieved the savings that were anticipated from the cost cutting measures implemented in March and April 2011 .

Interest expense was $1,039 in the third quarter of fiscal 2011 which compares with $0 in the third quarter of fiscal 2010. Interest expense for the current quarter was due primarily to borrowings on the Company's available credit facility and interest paid on vendor accounts. During the prior year there was no credit facility available. The current level of interest expense is expected to increase significantly for the fourth quarter of the fiscal year due to anticipated borrowings on the line of credit.

Other income was $6,007 in the third quarter of fiscal 2011 which compares with $5,957 in the third quarter of fiscal 2010. Other income consists primarily of the proceeds from the sale of scrap metal shavings, purchase discounts and interest income on cash and cash equivalents invested.

Income taxes in the third quarter of fiscal 2011 and 2010 was $-0-. In the third quarter of fiscal 2011 and 2010 a recovery of income taxes was calculated at an effective tax rate of 37% offset by an increase in the valuation allowance netting to $0.

The net loss in the third quarter of fiscal 2011 was $125,949 which compares with a net loss of $151,479 in fiscal 2010. The net loss for the current quarter was primarily the result of a lower sales volume offset in part by the cost cutting measures implemented in fiscal 2011.

Unshipped customer orders as of June 30, 2011 were $600,000 versus $256,000 at June 30, 2010. The increase was due primarily to increased orders in automotive diagnostic products of $235,000, specifically, $157,000 for emissions products, $45,000 for aftermarket products and $33,000 for OEM products. In addition, indicators and gauges increased by approximately $109,000 . The Company estimates that approximately 81% of the current backlog will be shipped in the last quarter of fiscal 2011.

Product sales for the nine months ended June 30, 2011 were $3,393,998 versus $4,093,198 for the same period in fiscal 2010. The decrease in product sales during the first nine months of the current fiscal year of approximately $699,000 was volume related due to decreased sales of automotive diagnostic products, primarily testing products to OEM's of approximately $365,000. Sales of emission products increased by approximately $106,000 and diagnostic aftermarket product s declined by approximately $214,000 . In addition, sales of indicator products decreased by approximately $226,000. Management continues to be concerned about the current economic conditions in the markets the Company serves and anticipates product sales for the fourth quarter of the fiscal year to continue at current levels.

Service sales for the nine months ended June 30, 2011 were $308,085 compared with $327,934 for the same period in fiscal 2010. The decrease was volume related and due primarily to a lower sales volume for chargeable repairs. The current level of service sales related to product repair sales is expected to continue in the last three months of the fiscal year.

Cost of product sold was $2,029,511 (59.8% of product sales) compared with $2,176,959 (53.2% of product sales) for the nine months ended June 30, 2010. The percentage increase in the cost of product sold was due primarily to a lower sales volume, lower plant utilization and a change in product mix. The current cost of product sold percentage is expected to decrease slightly during the fourth quarter of the fiscal year due to product mix and the additional cost cutting measures implemented in March 2011.

Cost of service sold was $213,330 (69.2% of service sales) compared with $197,036 (60.0% of service sales) for the nine months ended June 30, 2010. The dollar and percentage increase was due primarily to the lower sales volume and to a lower plant utilization. T he cost of services sold percentage is anticipated to decrease slightly in the fourth quarter of the fiscal year due the additional cost cutting measures effective March 2011.

Product development expenses were $755,207 (22.3% of product sales) compared to $800,275 (19.6% of product sales) for the nine months ended June 30, 2010. The percentage increase was due primarily to lower product sales during the current period. The dollar decrease was due primarily to lower labor costs, research and experimental material and travel expenses of approximately $25,000, $19,000 and $2,000 respectively. These reductions were primarily the result of the additional cost cutting measures implemented in March 2011 and other cost cutting measures throughout the year. The current level of product development expenditures is expected to continue for the fourth quarter of the fiscal year . Management believes the current resources will be sufficient to maintain current product development commitments and continue to develop identified new products for both OEM and Aftermarket customers.

Marketing and administrative expenses were $1,370,617 for the nine months ended June 30, 2011 (37.0% of total sales) versus $1,687,201 (38.2% of total sales) for the nine months ended June 30, 2010. The percentage and dollar decrease during the first nine months of the current fiscal year was due to the additional cost reductions implemented in March and April 2011 and other expense reductions. Marketing expenses were approximately $581,000 during the first nine months of the current fiscal year versus $801,000 for the same period a year ago. Within marketing expenses, decreases were primarily in labor costs, outside consulting, commissions, advertising and travel expense of approximately $76,000, $77,000, $57,000, $16,000 and $7,000 respectively. These decreases were offset in part by increases in royalties, promotion expense and collection expense of approximately $11,000, $9,000 and $1,000 respectively. Administrative expenses were approximately $789,000 during the first nine months of the current fiscal year versus $886,000 for the same period a year ago. The dollar decrease during the first nine months of the current fiscal year was due primarily to decreases in labor costs, professional fees, directors fees, data processing expenses and travel expense of approximately $58,000, $18,000, $17,000, $4,000 and $1,000 respectively, offset in part by an increase in data processing expense of approximately $6,000. The third quarter level of marketing and administrative expenses is expected to continue during the fourth quarter of the fiscal year due to the the cost cutting measures implemented in March and April 2011.

Interest expense was $1,039 for the nine months ended June 30, 2011, and $542 for the same period in 2010. The increase during the current nine months was due primarily to borrowings on the Company's available credit facility and interest paid on vendor accounts. During the prior year there was no credit facility available. The current level of interest expense is expected to increase due to anticipated borrowings on the line of credit during the fourth quarter of the fiscal year.

Other income of $10,009 compares with other income of $18,569 in the same period last year. Other income consists primarily of the proceeds from the sale of scrap metal shavings, purchase discounts and interest income on cash and cash equivalents invested. The decrease is due primarily to a lower level of cash available for investment and lower interest rate during the current period.

Income taxes during the first nine months of fiscal 2011 were $0 which compares with income taxes of $0 in the first nine months of fiscal 2010. In fiscal 2011 and 2010 a recovery of income taxes was calculated at an effective tax rate of 37% offset by an increase in the valuation allowance netting to $0. During fiscal 2011 management continues to record a valuation allowance on the recovery of income taxes calculated due to continued losses, the current economic uncertainties, the negative effects of the current economic crisis on all of the Company's markets and concern that a more likely than not expiration of the Company's net operating loss and research and development credit carryforwards could occur before they can be used.

Total current assets were $2,958,909, $3,312,428 and $3,831,080 at June 30, 2011, September 30, 2010 and June 30, 2010, respectively. The decrease of approximately $872,000 from June to June is due primarily to a decrease in cash and cash equivalents, accounts receivable and prepaid expenses of approximately $850,000, $55,000 and $19,000 respectively, offset in part by an increase in inventory of approximately $52,000. Cash and cash equivalents decreased due primarily to increased working capital needs . The decrease from September 2010 to June 2011 of approximately $353,000 is due primarily to the decrease in cash and cash equivalents and prepaid expenses of $656,000 and $8,000 respectively, offset in part by an increase in accounts receivable of approximately $310,000. Accounts receivable increased due primarily to a higher sales volume during the current quarter. The decrease in cash and cash equivalents was due primarily to increased working capital needs.

Working capital as of June 30, 2011 amounted to $2,179,908. This compares to $3,273,882 a year earlier. Current assets were 3.8 times current liabilities compared to 6.9 a year ago. The quick ratio was 1.0 compared to 3.0 a year ago.

Internally generated funds during the nine months ended June 30, 2011 were a negative $802,878. The primary reason for the negative cash flow from operations was the net loss during the period. The Company does not anticipate any material capital expenditures during fiscal 2011. In addition, the Company believes that cash and cash equivalents together with available short-term financing will provide adequate funding of the Company's working capital needs through the end of fiscal 2011.

Shareholders' equity during the nine months ended June 30, 2011 decreased by $647,862 which was the net loss during the period of $657,612 and $9,750 of share-based compensation expense.

Market Risk

The Company is the plaintiff in a suit pursuing patent infringement against a competitor in the emissions market. On March 29, 2011 The United States District Court Northern District of Ohio Eastern Division published a Case Management Schedule that calls for a number of steps to be implemented between that date and September 15, 2011 culminating in a scheduled Settlement Conference September 20, 2011. It is not possible , at this time, to estimate the timing of subsequent actions in the matter and management believes that it is not currently possible to estimate the impact, if any, that the ultimate resolution of the patent infringement matter will have on the company's results of operations, financial position or cash flows.

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.