SUMMARY OF SIGNIFICANT ACCOUNTING POLICIE

New Accounting Standards

The Company did

not

incur any material impact to its financial condition or results of operations due to the adoption of any new accounting standards during the periods reported.

May 2017,

the Financial Accounting Standards Board (FASB), issued ASU

2017

09,

"Compensation-Stock Compensation (Topic

718

): Scope of Modification Accounting." ASU

2017

provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. This ASU is effective for annual periods and interim periods within those annual periods beginning after

December 15, 2017.

Early adoption is permitted. We do

not

expect the adoption of this guidance to have a material impact on our consolidated financial statements.

January 2017,

FASB issued ASU

2017

04,

"Intangibles-Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment." ASU

2017

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 beginning after

December 15, 2019.

Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU

2017

on our consolidated financial statements.

August 2016,

FASB issued ASU

2016

15,

"Statement of Cash Flows (Topic

230

), Classification of Certain Cash Receipts and Cash Payments." The amendments in this update provide guidance on

eight

specific cash flow issues, thereby reducing the diversity in practice in how certain transaction are classified in the consolidated statements of cash flows. This ASU is effective for annual periods and interim periods for those annual periods beginning after

December 15, 2017.

Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU

2016

on our consolidated financial statements. We do

not

expect the adoption of this guidance to have a material impact on our consolidated financial statements.

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 fiscal years beginning after

December 31, 2019.

The Company is currently in the process of evaluating the impact of adoption of this ASU on the consolidated financial statements.

March 2016,

the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU

2016

) a new standard that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows related to excess tax benefits will

longer be separately classified as a financing activity apart from the other income tax cash flows. The standard also allows the Company to repurchase more of an employee

’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our cash flow statements, and provides an accounting policy election to account for forfeitures as they occur. The new standard is effective for the Company beginning

October 1, 2017

. This new standard did

not

have a significant impact on the Company’s consolidated financial statements.

February 2016,

the FASB issued (ASU

2016

) 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 will be effective for the Company beginning

January 1, 2019,

with early adoption permitted. We are evaluating the impact this standard will have to our financial statements.

In

May 2014,

the FASB issued its final standard on the recognition of revenue from contracts with customers. The standard, issued as Accounting Standards Update (ASU)

2014

09,

outlines a single comprehensive model for entities to use in the accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. The core principle of this model is that “an entity recognizes revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.” The update is effective for financial statement periods beginning after

December 15, 2017,

with early adoption prohibited. We are continuing to assess the impact of adopting ASU

2014

on our financial position, results of operations, and related disclosures, and we have

not

yet determined the full impact that the standard will have on our reported revenue or results of operations, but expect to use the modified retrospective approach, under which the cumulative effect of initially applying the new guidance is recognized as an adjustment to the opening balance of retained earnings upon adoption effective

January 1, 2018.

We currently believe that the adoption of ASU

No.

2014

will

not

significantly change the recognition of revenues associated with product sales when performance obligations are met at a point in time as products are shipped. The Company will continue to assess the impact of the new standard in relation to performance obligations for commercial air handling units, which are measured over time using the cost-to-cost percentage completion method, as well as to the new required disclosures, along with industry trends and additional interpretive guidance, and it

may

adjust its implementation plan accordingly. We do

not

expect the adoption of ASU

2014

to have a material impact on our consolidated financial statements.

Concentration of Credit Risk

The Company sells its products and services primarily to customers in the United States of America and to a lesser extent overseas. All sales are made in U.S. dollars. The Company extends normal credit terms to its customers. With the acquisitions of Federal Hose in

July 2016

and Air Enterprises in

June 2017,

the Company has greatly expanded its customer base into a wide array of industries. During the

three

months ended

December 31, 2017,

there were sales to

two

customers in the Commercial Air Handling segment that were greater than

22%

of consolidated sales of the Company. In fiscal

2017,

there were

sales to any

one

customer greater than

10%

of consolidated sales of the Company. Sales to

one

customer in the Test and Measurement segment approximated

$1.3

million in

2016

and

$2.2

million in

2015.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that

may

affect the reported amounts of certain assets and liabilities and disclosure of contingencies at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Accounting for "Financial Instruments" requires the Company to disclose estimated fair values of financial instruments. Financial instruments held by the Company include, among others, accounts receivable, accounts payable, and convertible 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.

Revenue Recognition

The Company records sales as manufactured items are shipped to customers on an FOB shipping point arrangement, at which time title passes and the earnings process is complete. The Company primarily records service sales as the items are repaired. The customer does

not

have a right to return merchandise unless defective or warranty related and there are

formal customer acceptance provisions. Sales returns and allowances were immaterial during the

three

months ended

December 31, 2017 and 2016

and during each of the

three

years in the periods ending

September 30, 2017,

2016

and

2015.

Revenue from contracts is recognized on the percentage-of-completion method measured by the percentage of costs incurred to date to total estimated costs for each contract. Contract costs include all direct costs and allocations of indirect costs. Provisions for estimated losses on uncompleted contracts are made in the period in which it is determined a loss will be incurred. As long-term contracts extend over

one

or more years, revisions in costs and profits estimated during the work are reflected in the accounting period in which the facts requiring the changes become known.

Because of the inherent uncertainties in estimating costs, it is at least reasonably possible the estimates of costs and revenue will change in the next year. Revenue earned on contracts in progress in excess of billings are classified as an asset. Amounts billed in excess of revenue earned are classified as a liability. The length of the contracts varies, but is typically

three

six

months.

Revenue relating to replacement parts is recognized upon the shipment of goods or rendering of services to customers.

Unearned Revenue

Unearned revenue consists of customer deposits and costs and estimated earnings in excess of billings related to the Commercial Air Handling segment.

Deferred Commissions

Commissions are earned based on the percentage-of completion of the contract. Commissions are paid upon receipt of payment for units shipped.

Product Warranties

The Company provides a warranty for its custom air handling business covering parts for

months from startup or

months from shipment, whichever comes first. The warranty reserve is maintained at a level which, in management

’s judgment, is adequate to absorb potential warranties incurred. The amount of the reserve is based on management’s knowledge of the contracts and historical trends. Because of the uncertainties involved in the contracts, it is reasonably possible that management’s estimates

may

change in the near term. However, the amount of change that is reasonably possible cannot be precisely estimated at this time.

The Company warrants certain products against defects for primarily

months. The both warranty expense and reserve amounts are immaterial during

the

three

months ended

December 31, 2017 and 2016

and during each of the

three

years in the periods ended

September 30, 2017,

2016

and

2015.

Product Development Costs

Product development costs, which include engineering production support for the test and measurement business segment, are expensed as incurred. Research and development performed for customers represents

more than

of sales during the

three

months ended

December 31, 2017 and 2016

and during each of the

three

years in the periods ended

September 30, 2017,

2016

and

2015.

The arrangements do

not

include a repayment obligation by the Company.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a maturity of

three

months or less to be cash equivalents. From time to time the Company maintains cash balances in excess of the FDIC limits.

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.

Inventory

Inventory is valued at the lower of cost (

first

-in,

first

-out) or market. The Company establishes reserves for excess and obsolete inventory based upon historical inventory usage trends and other information.

Property, Plant and Equipment

Property, plant and equipment are carried at cost. Maintenance and repair costs are expensed as incurred. Additions and betterments are capitalized. The depreciation policy of the Company is generally as follows:

Class	Method	Estimated Useful Lives (years)

Buildings & Improvements	Straight-line	10	to	40
Machinery and equipment	Straight-line	3	to	10
Tools and dies	Straight-line		3

Valuation of Long-Lived Assets

Long-lived assets such as property, plant and equipment and software are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

may

not

be recoverable. If the total of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset.

Shipping and Handling Costs

Shipping and handling costs are classified as cost of product sold.

Income Taxes

The provision for income taxes is computed on domestic financial statement income. Where transactions are included in the determination of taxable income in a different year, deferred income tax accounting is used.

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus any change in deferred taxes during the year. Deferred taxes result from differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than

not

that a tax benefit will

not

be realized.

Income per Common Share

Income per common share information is computed on the weighted average number of shares outstanding during each period.