EVI INDUSTRIES, INC. (EVI) FY 2022 MD&A

Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussion
should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto contained in Item 8 of this
Report. See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I, Item 1 of this Report.

Overview

The Company, through its
wholly-owned subsidiaries, is a value-added distributor, and provides advisory and technical services. Through its vast sales organization,
the Company provides its customers with planning, designing, and consulting services related to their commercial laundry operations. The
Company sells and/or leases its customers commercial laundry equipment, specializing in washing, drying, finishing, material handling,
water heating, power generation, and water reuse applications. In support of the suite of products it offers, the Company sells related
parts and accessories. Additionally, through the Company’s robust network of commercial laundry technicians, the Company provides
its customers with installation, maintenance, and repair services.

The Company’s customers
include government, institutional, industrial, commercial and retail customers. Product purchases made by customers range from parts and
accessories, to single or multiple units of equipment, to large complex systems. The Company also provides its customers with the services
described above.

Prior to the completion
of the Company’s first acquisition pursuant to its “buy-and-build” growth strategy in October 2016, the Company’s
operations related to the activities described above consisted solely of the business and operations of Steiner-Atlantic Corp. (“Steiner-Atlantic”),
a wholly-owned subsidiary of the Company. Beginning in 2015, the Company implemented a “buy-and-build” growth strategy which
includes (i) the consideration and pursuit of acquisitions and other strategic transactions which management believes may complement the
Company’s existing business or otherwise offer growth opportunities for, or benefit, the Company and (ii) the implementation of
a growth culture at acquired businesses based on the exchange of ideas and business concepts among the management teams of the Company
and the acquired businesses as well as through certain additional initiatives, which may include investments in additional sales and service
personnel, new product lines, enhanced service operations and capabilities, new and improved facilities, and advanced technologies. See
“Buy-and-Build Growth Strategy” below for additional information regarding the Company’s “buy-and-build”
growth strategy, including information regarding certain acquisitions consummated by the Company since its implementation of the “buy-and-build”
growth strategy.

The Company reports its
results of operations through a single reportable segment.

Total revenues for the
fiscal year ended June 30, 2022 (“fiscal 2022”) increased by 10% compared to the fiscal year ended June 30, 2021 (“fiscal
2021”). The increase in revenues during fiscal 2022 is attributable to increases in revenues at certain of the Company’s legacy
businesses due to improved conditions in connection with the recovery from the COVID-19 pandemic, the completion during fiscal 2022 of
projects previously delayed by the COVID-19 pandemic, price increases established throughout the Company’s product lines and service
offerings aimed at maintaining or increasing margins to cover incremental product and operating costs, and revenues generated by businesses
acquired by the Company during fiscal 2022, primarily Consolidated Laundry Equipment, Inc. and Central Equipment Company, LLC (collectively
“CLK”), which was acquired during February 2022. The increase in revenues was also attributable to the revenues of businesses
acquired by the Company during fiscal 2021 whose results were consolidated in the Company’s financial statements for all of fiscal
2022 as compared to just the period of

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fiscal 2021 from the respective closing date
of the acquisition through the end of fiscal 2021, including primarily Yankee Equipment Systems, Inc. (“YES”), which was acquired
during November 2020.

Net income for fiscal 2022
decreased by 51% from fiscal 2021. While the Company experienced an increase in the Company’s revenues (as described above) and
an increase in the gross margin realized on the Company’s sales during fiscal 2022, there was an overall decrease to net income
that was primarily attributable to the approximately $7.0 million one-time gain recognized in fiscal 2021 in connection with the forgiveness
of the loans (the “PPP Loans”) previously obtained by the Company and certain of its subsidiaries under the Paycheck Protection
Program (the “PPP”) (as described in further detail below under “Impact of COVID-19 on the Company’s Business).
Additionally, the decrease to net income is due in part to an increase in operating expenses.

The Company’s operating
expenses consist primarily of (a) selling, general and administrative expenses, primarily salaries, and commissions and marketing expenses
that are variable and correlate to changes in sales, (b) expenses related to the operation of warehouse facilities, including a fleet
of installation and service vehicles, and facility rent, which are payable mostly under non-cancelable operating leases, and (c) operating
expenses at the parent company, including compensation expenses, fees for professional services, expenses associated with being a public
company, including increased expenses attributable to the Company’s growth, and expenses in furtherance of the Company’s “buy-and-build”
growth strategy.

Impact of COVID-19 on
the Company’s Business

The COVID-19 pandemic has
negatively impacted, and may continue to negatively impact, the Company’s business and results. Specifically, beginning at the end
of the quarter ended March 31, 2020, the COVID-19 pandemic and accompanying economic disruption caused delays and declines in the placement
of customer orders, the completion of equipment and parts installations, and the fulfillment of parts orders. In response to the economic
and business disruption during 2020, the Company took actions to reduce costs and spending across the organization, including changes
to inventory stock levels, renegotiating payment terms with suppliers, and reducing hiring activities. Factors arising from the COVID-19
pandemic that have impacted, or may in the future negatively impact, the Company’s business and results, including sales and gross
margin, include, but are not limited to: supply chain disruptions, which resulted in, and may continue to result in, delays in delivering
products or services to the Company’s customers as well as increases in product costs; labor shortages and increases in labor costs;
limitations on the ability of the Company’s employees to perform their work due to sickness or other impacts caused by the pandemic
or local, state, federal or foreign orders that may restrict the Company’s operations or the operations of its customers, or require
that employees be quarantined; limitations on the ability of carriers to deliver products to the Company’s facilities and customers;
risks associated with vaccine mandates, including the potential loss of employees, fines for noncompliance and loss of, or future inability
to secure, certain contracts, including with the federal government; adverse impacts of the pandemic on certain industries and customers
of the Company which operate in those industries, including the hospitality industry; and potential decreased demand for products and
services, including potential limitations on the ability of, or adverse changes in the desire of, the Company’s customers to conduct
their business, purchase products and services, and pay for purchases on a timely basis or at all. Further, the Company may continue to
experience adverse impacts to its business as a result of, among other things, any adverse impact that has occurred or may occur in the
future in the economy or markets generally, and changes in customer or supplier behavior, in each case, in connection with the pandemic.

As a precautionary measure
in order to increase its cash position and preserve financial flexibility in light of the uncertainties resulting from the COVID-19 pandemic,
during May 2020, the Company and certain of its subsidiaries received a total of twelve PPP Loans in the aggregate principal amount of

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approximately $6.9 million. During fiscal 2021,
the Company was notified by Fifth Third Bank, N.A., the lender with respect to the PPP Loans, that all twelve of the PPP Loans were fully
forgiven. The Company recognized a gain of $7.0 million during fiscal 2021 in connection with the forgiveness of the PPP Loans and the
related accrued interest. Additionally, in connection with its acquisition of YES during November 2020, the Company, indirectly through
its wholly-owned subsidiary, assumed the approximately $916,000 loan previously received by YES under the PPP. During fiscal 2021, the
loan to YES under the PPP was forgiven. The Company did not recognize any gain on extinguishment of this debt, as the seller of YES had
agreed to indemnify the Company with respect to any portion of this loan which was not forgiven.

Buy-and Build Growth Strategy

The Company’s acquisitions
under its “buy-and-build” growth strategy described above since its implementation in 2015 include, without limitation, those
set forth below. The acquired companies generally distribute commercial, industrial, and vended laundry products and provide installation
and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry.

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In addition to the YES Acquisition,
during fiscal 2021, the Company acquired (the “ELS Acquisition”) Massachusetts-based Baystate Business Ventures d/b/a Eastern
Laundry Systems (“ELS”). The acquisition was completed by the Company, indirectly through a wholly-owned subsidiary, which
purchased substantially all of the assets and assumed certain of the liabilities of ELS. The total consideration for the transaction consisted
of $400,000 in cash, net of $57,000 of cash acquired, and the issuance of 10,726 shares of the Company’s common stock. Based on
the Company’s preliminary analysis of working capital and valuation-related items, the Company recognized a bargain purchase gain
of $314,000 in connection with the ELS Acquisition during fiscal 2021.

In addition to the CLK Acquisition
and CDL Acquisition, during fiscal 2022, the Company acquired (the “LSS Acquisition”) Mississippi-based LS Acquisition, LLC
d/b/a Laundry South Systems and Repair (“LSS”), and the Company also acquired (the “SPR Acquisition”) Spynr, Inc.
(“SPR”), a Delaware-based digital marketing and technology company which provides digital marketing services to customers
and vendors within the commercial, industrial and vended laundry industries. The total consideration for the transactions consisted of
$3.2 million in cash and the issuance of 34,391 shares of the Company’s common stock. The purchase price allocations are considered
preliminary, as the Company is still assessing certain working capital and valuation-related items.

See Note 3 to the Consolidated
Financial Statements included in Item 8 of this Report for additional information about the acquisitions completed by the Company during
fiscal 2022 and fiscal 2021.

Acquisitions are generally effected
by the Company through a separate wholly-owned subsidiary formed by the Company for the purpose of effecting the transaction, whether
by an asset purchase or merger, and operating the acquired business following the transaction. In connection with each transaction, the
Company, indirectly through its applicable wholly-owned subsidiary, also assumed certain of the liabilities of the acquired business.
The financial position, including assets and liabilities, and results of operations of the acquired businesses following the respective
closing dates of the acquisitions are included in the Company’s consolidated financial statements.

Consolidated Financial Condition

The Company’s total assets
increased from $177.9 million at June 30, 2021 to $230.8 million at June 30, 2022. The increase in total assets was primarily attributable
to an increase in current assets, as described below under “Liquidity and Capital Resources,” and from the assets of the businesses
acquired by the Company during fiscal 2022 as described above. The Company’s total liabilities increased from $71.1 million at June
30, 2021 to $113.1 million at June 30, 2022, primarily due to increases in accounts payable and accrued expenses, customer deposits and
long-term debt, partially offset by a decrease in contract liabilities. The increase in long-term debt was attributable to borrowings
under the Company’s credit facility in excess of optional repayments. The changes in current liabilities, including the increases
in accounts payable and accrued expenses and customer deposits and decrease in contract liabilities, are described under “Liquidity
and Capital Resources” below.

Liquidity and Capital
Resources

The Company had approximately
$4.0 million of cash at June 30, 2022 compared to $6.1 million of cash at June 30, 2021. The decrease in cash was primarily due to cash
used for optional debt repayments under the Company’s credit facility, capital expenditures, and cash used to fund the cash consideration
paid

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in connection with the Company’s business
acquisitions during fiscal 2022, partially offset by earnings from operations and proceeds from changes in operating assets and liabilities.
The Company’s primary sources of cash are sales and borrowings under its credit facility. The Company’s primary uses of cash
are purchases of the products sold by the Company, employee related costs, and the cash consideration paid in connection with business
acquisitions.

The following table summarizes
the Company’s Consolidated Statements of Cash Flows (in thousands):

For fiscal 2022, operating
activities used cash of approximately $1.9 million compared to cash provided by operating activities of approximately $13.7 million in
fiscal 2021. The $15.6 million increase in cash used by operating activities was primarily attributable to changes in working capital,
including increases in cash used from operating activities from changes in operating assets such as accounts receivable and inventory
and from changes in operating liabilities such as contract liabilities and accounts payable and accrued expenses, partially offset by
decreases to the cash used by operating activities from changes in operating assets such as contract assets and from changes in operating
liabilities such as customer deposits.

Investing activities used
cash of approximately $15.9 million during fiscal 2022 compared to approximately $7.6 million in fiscal 2021. The $8.3 million increase
in cash used by investing activities is due primarily to an increase in cash consideration paid in connection with acquisitions and an
increase in capital expenditures.

Financing activities provided
cash of approximately $15.7 million in fiscal 2022 compared to cash used by financing activities of approximately $9.8 million in fiscal
2021. The cash provided by financing activities was attributable primarily to an increase in proceeds from borrowings during fiscal 2022
in excess of optional debt payments to fund changes in working capital.

On November 2, 2018, the Company
entered into a syndicated credit agreement (the “Credit Agreement”) for a five-year revolving credit facility in the maximum
aggregate principal amount of up to $100 million, with an accordion feature to increase the revolving credit facility by up to $40 million
for a total of $140 million. A portion of the revolving credit facility is available for swingline loans of up to a sublimit of $5 million
and for the issuance of standby letters of credit of up to a sublimit of $10 million. As of June 30, 2022, $34.1 million was available
to borrow under the revolving credit facility.

Prior to the amendment described
below, borrowings (other than swingline loans) under the Credit Agreement accrued interest at a rate, at the Company’s election
at the time of borrowing, equal to (a) LIBOR plus a margin that ranged from 1.25% to 1.75% depending on the Company’s consolidated
leverage ratio, which is a ratio of consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation and
amortization (EBITDA) (the “Consolidated Leverage Ratio”) or (b) the highest of (i) prime, (ii) the federal funds rate plus
50 basis points, and (iii) the one month LIBOR rate plus 100 basis points, plus a margin that ranged from 0.25% to 0.75% depending on
the Consolidated Leverage Ratio. Swingline loans accrued interest calculated at the base rate determined in accordance with clause (b)
of the preceding sentence plus a margin that ranged from 0.25% to 0.75% depending on the Consolidated Leverage Ratio. The Credit Agreement
had an initial term of five years with a scheduled maturity date of November 2, 2023.

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On May 6, 2022, the Company entered
into an amendment to the Credit Agreement. The amendment amended the Credit Agreement to, among other things, replace LIBOR with the Bloomberg
Short-Term Bank Yield Index rate (the “BSBY rate”) in connection with the phasing out of LIBOR. As a result, borrowings (other
than swingline loans) under the Credit Agreement will now bear interest, at a rate based on (a) the BSBY rate plus a margin that ranges
between 1.25% and 1.75% depending on the Company’s Consolidated Leverage Ratio or (b) the highest of (i) prime, (ii) the federal
funds rate plus 50 basis points, and (iii) the BSBY rate plus 100 basis points (such highest rate, the “Base Rate”), plus
a margin that ranges between 0.25% and 0.75% depending on the Consolidated Leverage Ratio. Swingline loans generally bear interest calculated
at the Base Rate plus a margin that ranges between 0.25% and 0.75% depending on the Consolidated Leverage Ratio. In addition, the amendment
also extended the maturity date of the Credit Agreement from November 2, 2023 to May 6, 2027.

The Credit Agreement contains
certain covenants, including financial covenants requiring the Company to comply with maximum leverage ratios and minimum interest coverage
ratios. The Credit Agreement also contains other provisions which may restrict the Company’s ability to, among other things, dispose
of or acquire assets or businesses, incur additional indebtedness, make certain investments and capital expenditures, pay dividends, repurchase
shares and enter into transactions with affiliates. As of June 30, 2022, the Company was in compliance with its covenants under the Credit
Agreement.

The obligations of the Company
under the Credit Agreement are secured by substantially all of the assets of the Company and certain of its subsidiaries, and are guaranteed,
jointly and severally, by certain of the Company’s subsidiaries.

On May 21, 2020, the Company and
certain of its subsidiaries received a total of twelve PPP Loans totaling approximately $6.9 million in principal amount from Fifth Third
Bank, N.A. (the “Lender”). The proceeds of the PPP Loans were used primarily for payroll costs. As described above, during
the fourth quarter of 2021, the Company was notified by the Lender that all twelve of the PPP Loans were fully forgiven. The Company recognized
a gain of $7.0 million during fiscal 2021 in connection with the forgiveness of the PPP Loans and the related accrued interest. Notwithstanding
the forgiveness of the PPP Loans, the SBA reserves the right to audit any PPP loan. The Company has not accrued any liability associated
with any potential adverse determination of the forgiveness of the PPP Loans which may result from any audit of the PPP Loans if the SBA
disagrees with any position taken by management with respect to the loan or forgiveness processes.

As previously described, in addition
to the PPP Loans obtained by the Company and certain of its subsidiaries during May 2020, in connection with the YES Acquisition during
November 2020, the Company, indirectly through its wholly-owned subsidiary, also assumed the approximately $916,000 loan previously obtained
by YES under the PPP. The terms and conditions of such PPP loan were substantially similar to those of the PPP Loans obtained by the Company
and its other subsidiaries. Under the merger agreement related to the YES Acquisition, the Company was entitled to indemnification for
any required repayment of the loan to YES under the PPP. During fiscal 2021, the loan to YES under the PPP was forgiven by the SBA. The
Company determined that the fair value of its right to indemnification was equal to the amount forgiven by the SBA. Accordingly, the Company
did not recognize any gain on the extinguishment of this debt.

The Company believes that its
existing cash, anticipated cash from operations and funds available under the Company’s Credit Agreement will be sufficient to fund
its operations and anticipated capital

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expenditures for at least the next twelve months from
the filing of this Report, and thereafter. The Company may also seek to raise funds through the issuance of equity and/or debt securities
or the incurrence of additional secured or unsecured indebtedness, including in connection with acquisitions or other transactions pursued
by the Company as part of its “buy-and-build” growth strategy.

Off-Balance Sheet Financing

As of June 30, 2022, the
Company had no off-balance sheet financing arrangements within the meaning of Item 303(a)(4) of Regulation S-K.

Results of Operations

Revenues

Revenues for fiscal 2022 increased
by approximately $25.3 million (10%) from fiscal 2021. The increase in revenues during fiscal 2022 are primarily attributable to improved
conditions in connection with the recovery from the COVID-19 pandemic during fiscal 2022 and the completion during fiscal 2022 of projects
previously delayed by the COVID-19 pandemic. Additionally, the increase in revenues was partially attributable to price increases established
throughout the Company’s product lines and service offerings aimed at maintaining or increasing margins to cover incremental product
and operating costs. In addition, the increase in revenues during fiscal 2022 was attributable to the revenues generated by (i) the businesses
acquired by the Company during fiscal 2022, primarily CLK, which was acquired during February 2022, and (ii) businesses acquired by the
Company during fiscal 2021 whose results were consolidated in the Company’s financial statements for all of fiscal 2022 as compared
to just the period of fiscal 2021 from the respective closing date of the acquisition through the end of fiscal 2021, including primarily
YES, the business of which was acquired during November 2020.

From time to time the Company
enters into longer-term contracts to fulfill large complex laundry projects for divisions of the federal government where the nature of,
and competition for, such contracts may result in a lower gross margin as compared to other equipment sales. During fiscal 2022, the Company
entered into a number of such lower-margin equipment sales. The Company believes that the increase in equipment sales provides a strong
foundation for the Company to further strengthen its customer relationships, including that they may in the future result in higher gross
margin opportunities from the sale of parts, accessories, supplies, and technical services related to the equipment. Despite the lower
gross margin from such longer-term contracts, the Company believes that the long-term benefit from the increase in its installed equipment
base will outweigh the possible short-term impact to gross margin.

Cost of Sales and Operating
Expenses

Cost of sales, expressed
as a percentage of revenues, decreased to 72.4% in fiscal 2022 from 75.3% in fiscal 2021, representing gross margins of 27.6% in fiscal
2022 and 24.7% in fiscal 2021. The decrease in cost of sales, as a percentage of revenues, and increase in gross margin were primarily
attributable to

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favorable changes in product and customer mix.
The increases are also attributable to the Company’s efforts to drive higher quality sales opportunities from promoting solution
selling as a value-added distributor. Longer-term federal government contracts entered into during fiscal 2022 lowered gross margins by
30 basis points.

Selling, general and administrative
expenses increased by approximately $10.7 million (19%) in fiscal 2022 compared to fiscal 2021. As a percentage of revenues, selling,
general and administrative expenses increased to 25.2% in fiscal 2022 from 23.4% in fiscal 2021. The increase is primarily attributable
to (a) operating expenses of acquired businesses, including additional operating expenses at the acquired businesses in pursuit of future
growth and in connection with the Company’s optimization initiatives, (b) increases in selling costs, including commissions, from
increases in revenues during the period, (c) increases in operating expenses and investments at the parent company level in connection
with the Company’s optimization initiatives, including expenses related to the consolidation of the Company’s operations and
the modernization of the Company’s operations through the implementation of advanced technologies, including a new ERP software
system, a new customer relations management system, and a completely digital sales and service operating platform, and (d) increased operating
expenses in support of the Company’s “buy-and-build” growth strategy.

Interest and other expense,
net increased by approximately $358,000 (112%) in fiscal 2022 compared to fiscal 2021. The increase is due primarily to the one-time $314,000
bargain purchase gain recognized in fiscal 2021 in connection with the Company’s acquisition of ELS and the recognition of interest
expense in connection with the write off of previously deferred financing costs upon the previously described Credit Agreement amendment
entered into during May 2022.

The Company’s effective
income tax rate was 28.3% for fiscal 2022 compared to 15.2% in fiscal 2021. The increase in the effective income tax rate in fiscal 2022
reflects the net impact of permanent book-tax differences resulting primarily from the gain recognized on the forgiveness of the PPP loans
during fiscal 2021, partially offset by the impact of deferred tax accounts on the effective rate.

Inflation

Inflation did not have a
significant effect on the Company’s operations during either of fiscal 2022 or 2021 as despite an increased in product costs, the
Company has to date been able to successfully increase the price of its products and services to offset such costs without an adverse
impact on sales.

Transactions with Related Parties

Certain of the Company’s
subsidiaries lease warehouse and office space from one or more of the principals (or former principals) of the Company or its subsidiaries.
These leases include the following:

On October 10, 2016, the
Company’s wholly-owned subsidiary, Western State Design, entered into a lease agreement pursuant to which it leases 17,600 square
feet of warehouse and office space from an affiliate of Dennis Mack, a director and Executive Vice President, Corporate Strategy of the
Company, and Tom Marks, Executive Vice President, Business Development and President of the West Region of the Company. The lease had
an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. Monthly base rental
payments were $12,000 during the initial term of the lease. The Company exercised its option to renew the lease for the first three-year
renewal term, which commenced in October 2021. Base rent for the first renewal term is $19,000 per month. In addition to base rent, Western
State Design is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments
under this lease totaled approximately $207,000 and $144,000 during fiscal 2022 and 2021, respectively.

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On October 31, 2017, the
Company’s wholly-owned subsidiary, Tri-State Technical Services, entered into lease agreements pursuant to which it leases a total
of 81,000 square feet of warehouse and office space from an affiliate of Matt Stephenson, President of Tri-State. Monthly base rental
payments total $21,000 during the initial terms of the leases. In addition to base rent, Tri-State is responsible under the leases for
costs related to real estate taxes, utilities, maintenance, repairs and insurance. Each lease has an initial term of five years and provides
for two successive three-year renewal terms at the option of the Company. Payments under these leases totaled approximately $252,000 during
each of fiscal 2022 and 2021.

On February 9, 2018, the
Company’s wholly-owned subsidiary, AAdvantage Laundry Systems, entered into a lease agreement pursuant to which it leases a total
of 5,000 square feet of warehouse and office space from an affiliate of Mike Zuffinetti, former Chief Executive Officer of AAdvantage.
Monthly base rental payments are $4,000 during the initial term of this lease. AAdvantage also leases warehouse and office space from
an affiliate of Mike Zuffinetti under a separate lease agreement. Monthly base rental payments under this lease are $36,000. In addition
to base rent, AAdvantage is responsible under each of these leases for costs related to real estate taxes, utilities, maintenance, repairs
and insurance. Each lease has an initial term of five years and provides for two successive three-year renewal terms at the option of
the Company. Payments under the leases described in this paragraph totaled approximately $481,000 during each of fiscal 2022 and 2021.

On September 12, 2018, the
Company’s wholly-owned subsidiary, Scott Equipment, entered into lease agreements pursuant to which it leases a total of 18,000
square feet of warehouse and office space from an affiliate of Scott Martin, President of Scott Equipment. Monthly base rental payments
total $11,000 during the initial terms of the leases. In addition to base rent, Scott Equipment is responsible under the leases for costs
related to real estate taxes, utilities, maintenance, repairs and insurance. Each lease has an initial term of five years and provides
for two successive three-year renewal terms at the option of the Company. Payments under these leases totaled approximately $137,000 during
each of fiscal 2022 and 2021.

On February 5, 2019, the
Company’s wholly-owned subsidiary, PAC Industries, entered into two lease agreements pursuant to which it leases a total of 29,500
square feet of warehouse and office space from an affiliate of Frank Costabile, former President of PAC Industries, and Rocco Costabile,
former Director of Finance of PAC Industries. Monthly base rental payments total $14,600 during the initial terms of the leases. In addition
to base rent, PAC Industries is responsible under the leases for costs related to real estate taxes, utilities, maintenance, repairs and
insurance. Each lease has an initial term of four years and provides for two successive three-year renewal terms at the option of the
Company. Payments under these leases totaled approximately $184,000 and $180,000 during fiscal 2022 and 2021, respectively.

On November 3, 2020, the
Company’s wholly-owned subsidiary, YES, entered into a lease agreement pursuant to which it leases a total of 12,500 square feet
of warehouse and office space from an affiliate of Peter Limoncelli, President of YES. Monthly base rental payments total $11,000 during
the initial term of the lease. In addition to base rent, YES is responsible under the lease for costs related to real estate taxes, utilities,
maintenance, repairs and insurance. The lease has an initial term of three years and provides for three successive three-year renewal
terms at the option of the Company. Payments under this lease totaled approximately $142,000 and $92,000 during fiscal 2022 and 2021,
respectively.

On February 7, 2022, the
Company’s wholly-owned subsidiary, CLK, entered into two lease agreements pursuant to which it leases a total of 20,300 square feet
of warehouse and office space from an affiliate of William Kincaid, President of CLK. Monthly base rental payments total $20,000 during
the initial term of the lease. In addition to base rent, CLK is responsible under the lease for costs related to real

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estate taxes, utilities, maintenance, repairs
and insurance. The lease has an initial term of three years and provides for three successive three-year renewal terms at the option of
the Company. Payments under this lease totaled approximately $80,000 during fiscal 2022.

Critical Accounting Policies

Use of Estimates

In
connection with the preparation of its financial statements in accordance with generally accepted accounting principles in the United
States (“GAAP”), the Company makes estimates and assumptions, including those that affect the reported amounts of assets and
liabilities, contingent assets and liabilities, and the reported amounts of revenues and expenses during the reported periods. Estimates
and assumptions made may not prove to be correct, and actual results may differ from the estimates. The accounting policies that the Company
has identified as critical to its business operations and to an understanding of the Company’s financial statements are set forth
below. The critical accounting policies discussed below are not intended to be a comprehensive list of all of the Company’s accounting
policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s
judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would
not produce a materially different result.

Revenue Recognition

Performance Obligations and Revenue Over
Time

Revenue primarily consists of
revenues from the sale or leasing of commercial and industrial laundry and dry cleaning equipment and steam and hot water boilers manufactured
by others; the sale of related replacement parts and accessories; and the provision of installation and maintenance services. The Company
generates revenue primarily from the sale of equipment and parts to customers. Therefore, the majority of the Company’s contracts
are short-term in nature and have a single performance obligation (to deliver products), and the Company’s performance obligation
is satisfied when control of the product is transferred to the customer. Other contracts contain a combination of equipment sales and
services expected to be performed in the near-term, which services are distinct and accounted for as separate performance obligations.
Significant judgment may be required by management to identify the distinct performance obligations within each contract. Revenue is recognized
on these contracts when control transfers to the Company’s customers via shipment of products or provision of services and the Company
has the right to receive consideration for these products and services. Additionally, from time to time, the Company enters into longer-termed
contracts which provide for the sale of equipment by the Company and the provision by the Company of related installation and construction
services. The installation on these types of contracts is usually completed within six to twelve months. The Company recognizes a portion
of its revenue over time using the cost-to-cost measure of progress, which measures a contract’s progress toward completion based
on the ratio of actual contract costs incurred to date to the Company’s estimated costs at completion adjusted for uninstalled materials,
as necessary.  Significant judgment may be required by management in the cost estimation process for these contracts, which is based
on the knowledge and experience of the Company’s project managers, subcontractors and financial professionals. Changes in job performance
and job conditions are factors that influence estimates of the total contract transaction price, total costs to complete those contracts
and the Company’s revenue recognition.  The determination of the total estimated cost
and progress toward completion requires management to make significant estimates and assumptions. Total estimated costs to complete projects
include various costs such as direct labor, material and subcontract costs. Changes in these estimates can have a significant impact on
the revenue recognized each

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period. From time to time, the Company also enters
into maintenance and service contracts. These longer-term contracts, maintenance and service contracts have a single performance obligation
where revenue is recognized over time using the cost-to-cost measure of progress, which best depicts the continuous transfer of control
of goods or services to the customer.

The Company measures revenue,
including shipping and handling fees charged to customers, as the amount of consideration it expects to be entitled to receive in exchange
for its products or services, net of any taxes collected from customers and subsequently remitted to governmental authorities. Costs associated
with shipping and handling activities performed after the customer obtains control are accounted for as fulfillment costs.

Revenue from products transferred
to customers at a point in time is recognized when obligations under the terms of the contract with the Company’s customer are satisfied,
which generally occurs with the transfer of control upon shipment.

Revenues that are recognized
over time include (i) longer-termed contracts that include an equipment purchase with installation and construction services, (ii) maintenance
contracts, and (iii) service contracts.

Contract Assets and Liabilities

Contract assets and liabilities
are presented in the Company’s condensed consolidated balance sheets. Contract assets consist of unbilled amounts resulting from
sales under longer-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount
billed to the customer. As noted above, the cost estimation process for these contracts may require significant judgment by management.
The Company typically receives progress payments on sales under longer-term contracts as work progresses, although for some contracts
the Company may be entitled to receive an advance payment. Contract assets also include retainage. Retainage represents a portion of the
contract amount that has been billed, but for which the contract allows the customer to retain a portion of the billed amount (generally,
from 5% to 20% of contract billings) until final contract settlement. Retainage amounts are generally classified as current assets within
the Company’s consolidated balance sheets. Retainage that has been billed, but is not due until completion of performance and acceptance
by customers, is generally expected to be collected within one year. Contract liabilities consist of advanced payments, billings in excess
of costs incurred and deferred revenue.

Goodwill

The Company evaluates goodwill
for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not
be recoverable. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine
whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does
not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. If the fair value is determined
to be less than the carrying value, a second step is performed to measure the amount of impairment loss. This step compares the current
implied goodwill in the reporting unit to its carrying amount. If the carrying amount of the goodwill exceeds the implied goodwill, an
impairment is recorded for the excess. The identification and measurement of goodwill impairment involves the estimation of the fair value
of the reporting unit and involves uncertainty because management must use judgment in determining appropriate assumptions to be used
in the measurement of fair value. The Company performed its annual impairment test on April 1 and determined there was no impairment.

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Table of Contents

Customer Relationships, Tradenames and Other Intangible
Assets

Customer relationships,
tradenames, and other intangible assets are stated at cost less accumulated amortization. These assets, except for tradenames, are amortized
on a straight-line basis over the estimated future periods to be benefited (5-10 years). The estimates
of fair value of the Company’s indefinite-lived intangibles and long-lived assets are based on information available as of the date
of the assessment and take into account management’s assumptions about expected future cash flows and other valuation techniques.
The Company reviews the recoverability of intangible assets that are amortized based primarily upon an analysis of undiscounted
cash flows from the intangible assets. In the event the expected future net cash flows become less than the carrying amount of the assets,
an impairment loss would be recorded in the period the determination is made based on the fair value of the related assets.

Income Taxes

The Company follows Financial
Accounting Standards Board (“FASB”) ASC Topic 740, “Income Taxes” (“ASC 740”). Under the asset and
liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. If it is determined that it is more likely than not that some portion
of a deferred tax asset will not be realized, a valuation allowance is recognized.

Significant judgment is
required in developing the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowances
that might be required against the deferred tax assets. Management evaluates the Company’s ability to realize its deferred tax assets
on a quarterly basis and adjusts its valuation allowance when it believes that it is more likely than not that the asset will not be realized.

See Note 13 to the Consolidated
Financial Statements included in Item 8 of this Report for additional information regarding income taxes.

Recently Issued Accounting Guidance

See Note 2 to the Consolidated
Financial Statements included in Item 8 of this Report for a description of Recently Issued Accounting Guidance.