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WASHINGTON,
D.C. 20549 FORM 10-QSB X
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 HICKOK
INCORPORATED Check whether
the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X
No___As of August 2, 2004: 762,588 Hickok Incorporated
Class A Common Shares and 454,866 Class B Common Shares were outstanding.
Transitional
Small Business Disclosure Format (Check one): Yes___No
X PART I. FINANCIAL
INFORMATION ITEM 1. FINANCIAL
STATEMENTS: HICKOK INCORPORATED
SECURITIES AND
EXCHANGE COMMISSION
TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to _____ .
Commission File No. 0-147
_________________________________________________________________
(Exact name
of small business issuer as specified in its charter)
(State or other
jurisdiction of incorporation or organization)
10514 Dupont Avenue,
Cleveland, Ohio
(Address of principal
executive offices)
Registrant's
telephone number including area code
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
June
30,
Net Sales
Product Sales
Service Sales
Total
Net Sales
Costs and Expenses
Cost of Product
Sold
Cost of Service
Sold
Product Development
Marketing and Administrative
Expenses
Interest Charges
Other<Income>Expense
Total Costs and Expenses
Income <Loss> before
Provision for Income Taxes
Income <Recovery
of> Taxes
Net Income <Loss>
before cumulative effect of change in accounting principle,
net of tax
87,877
<153,753>
711,265
<633,961>
Cumulative effect of change
in accounting for goodwill, net of tax of $536,000
-
-
-
1,038,542
Net Income
<Loss>
$87,877
$<153,753>
$711,265
$<1,672,503>
Earnings per Common
Share:
Net Income <Loss>
before cumulative effect of change in accounting principle
$.07
$<.13>
$.58
$<.52>
Cumulative effect of change
in accounting for goodwill
-
-
-
<.85>
Net Income <Loss>
Earnings per Common Share
Assuming
Dilution:
Net Income <Loss>
before cumulative effect of change in accounting principle
$.07
$<.13>
$.57
$<.52>
Cumulative effect of change
in accounting for goodwill
-
-
-
<.85>
Net Income <Loss>
Dividends per Common Share
See Notes to Consolidated
Financial Statements
HICKOK INCORPORATED
CONSOLIDATED BALANCE
SHEETS
2004 (Unaudited) |
2003 (Note) |
2003 (Unaudited) |
|
Assets | |||
Current Assets | |||
Cash and Cash Equivalents |
$3,535,957
|
$1,347,971
|
$1,357,461
|
Short-term Investments |
- |
1,018,000 |
1,018,000 |
Trade Accounts Receivable - Net |
2,016,072
|
1,697,549
|
1,654,167
|
Inventories |
3,675,670
|
3,291,328
|
3,458,409
|
Deferred Income Taxes |
131,400
|
131,400
|
231,000
|
Prepaid Expenses |
65,137
|
47,381
|
96,077
|
Refundable Income Taxes |
-
|
-
|
-
|
|
9,424,236
|
7,533,629
|
7,815,114
|
Property, Plant and Equipment | |||
Land |
229,089
|
229,089
|
229,089
|
Buildings |
1,478,629
|
1,478,629
|
1,486,969
|
Machinery and Equipment |
2,679,382
|
2,600,444
|
2,729,335
|
4,387,100
|
4,308,162
|
4,445,393
|
|
Less: Allowance for Depreciation |
3,269,023
|
3,042,178
|
3,172,200
|
|
1,118,077
|
1,265,984
|
1,273,193
|
Other Assets | |||
Goodwill - Net of Amortization | - |
-
|
-
|
Deferred Income Taxes |
1,211,700
|
1,578,700
|
1,334,524
|
Deposits |
1,750
|
1,750
|
2,050
|
|
1,213,450
|
1,580,450
|
1,336,574
|
|
$11,755,763
|
$10,380,063
|
$10,424,881
|
Note: Amounts derived from audited financial statements previously filed with the Securities and Exchange Commission.
See Notes to Consolidated Financial Statements
(Unaudited) |
____2003___ (Note) |
2003 (Unaudited) |
|||
Liabilities | |||||
Current Liabilities | |||||
Current Portion of Long-term Debt |
$ -
|
$ -
|
$ -
|
||
Trade Accounts Payable |
341,113
|
294,216
|
287,945
|
||
Accrued Payroll & Related Expenses |
836,795
|
249,051
|
204,930
|
||
Accrued Expenses |
208,250
|
132,675
|
163,031
|
||
Accrued Taxes Other Than Income |
62,034
|
89,613
|
62,131
|
||
Accrued Income Taxes |
151,934
|
156,934
|
148,575
|
||
|
1,600,126
|
922,489
|
866,612
|
||
Long-term Debt |
-
|
-
|
-
|
||
Stockholders' Equity | |||||
Class A, $1.00 par value; authorized |
762,588
|
764,884
|
764,884
|
||
3,750,000 shares; 762,588 shares outstanding (764,884 at September 30, 2003 and June 30, 2003) excluding 9,586 shares in treasury | |||||
Class B, $1.00 par value; authorized |
454,866
|
454,866
|
454,866
|
||
1,000,000 shares; 454,866 shares outstanding excluding 20,667 shares in treasury | |||||
Contributed Capital |
987,147
|
998,053
|
998,053
|
||
Retained Earnings |
7,951,036
|
7,239,771
|
7,340,466
|
||
|
10,155,637
|
9,457,574
|
9,558,269
|
||
Stockholders' Equity |
$11,755,763
|
$10,380,063
|
$10,424,881
|
||
HICKOK INCORPORATED
CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE NINE MONTHS
ENDED JUNE 30,
(Unaudited)
2004 | 2003 | |
Cash Flows from Operating Activities: | ||
Cash received from customers |
$12,912,057
|
$9,015,807
|
Cash paid to suppliers and employees |
<11,675,200>
|
<9,040,416>
|
Interest paid |
<1,145>
|
<2,107>
|
Interest received |
31,414
|
26,586
|
Income taxes <paid> refunded |
<5,000>
|
226,084
|
Net Cash Provided by Operating Activities |
1,262,126
|
225,954
|
Cash Flows from Investing Activities: | ||
Capital expenditures |
<78,938>
|
<100,933>
|
Purchase of short-term
investments |
- |
<2,069,935> |
Sale of short-term investments | 1,018,000 |
1,051,935
|
Net Cash Provided By <Used In> Investing Activities |
939,062
|
<1,118,933>
|
Cash Flows from Financing Activities: | ||
Purchase of Class A common stock |
<13,202> |
- |
Payments on lease obligation |
-
|
<11,334>
|
Net Cash Provided By <Used In> Financing Activities |
<13,202>
|
<11,334>
|
Net increase <decrease> in cash and cash equivalents |
2,187,986
|
<904,313>
|
Cash and cash equivalents at beginning of year |
1,347,971
|
2,261,774
|
Cash and cash equivalents at end of third quarter |
$3,535,957
|
$1,357,461
|
See Notes to Consolidated Financial Statements. | ||
|
||
|
|
|
Reconciliation of Net Income
<Loss> to Net Cash Provided by Operating Activities: |
||
Net Income <Loss> |
$711,265
|
$<1,672,503>
|
Adjustments to reconcile net
income <loss> to net cash provided by operating activities: |
||
Depreciation and amortization |
226,845
|
288,522
|
Cumulative effect
of change in accounting for goodwill |
- |
1,574,542 |
Deferred income taxes |
367,000 |
<862,424> |
Loss on disposal of assets |
-
|
1,286
|
Changes in assets and liabilities: | ||
Decrease <Increase> in accounts receivable |
<318,523>
|
766,447
|
Decrease <Increase> in inventories |
<384,342>
|
131,134
|
Decrease <Increase> in prepaid expenses |
<17,756>
|
<59,386>
|
Decrease <Increase> in refundable income taxes |
-
|
253,000
|
Increase <Decrease> in trade accounts payable |
46,897
|
<86,079>
|
Increase <Decrease> in accrued payroll and
related expenses |
587,744
|
<145,109>
|
Increase <Decrease> in accrued expenses and accrued taxes other than income |
47,996
|
63,616
|
Increase <Decrease> in accrued income taxes |
<5,000>
|
<27,092>
|
Total Adjustments |
550,861
|
1,898,457
|
Net Cash Provided by Operating Activities |
$1,262,126
|
$225,954
|
HICKOK INCORPORATED
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2004
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-QSB and Article 10 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, 2004 are not necessarily indicative of the results that may be expected for the year ended September 30, 2004. 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, 2003.
2. Short-term
Investments
Investments are
considered as held-to-maturity with the cost approximating the market
value. The investments were corporate debt securities and matured
in less than one year from the date of purchase.
3. Inventories
Inventories are valued
at the lower of cost or market and consist of the following:
|
|
|
|
Components |
$2,172,840
|
$2,287,708
|
$2,334,491
|
Work-in-Process |
1,026,125
|
330,299
|
306,029
|
Finished Product |
476,705
|
673,321
|
817,889
|
$3,675,670
|
$3,291,328
|
$3,458,409
|
The above amounts are net of reserve for obsolete inventory in the amount of $264,457, $78,000 and $302,685 for the periods ended June 30, 2004, September 30, 2003 and June 30, 2003 respectively.
4. 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 127,900 Class A shares were outstanding at June 30, 2004 (129,900
shares at September 30, 2003 and 132,900 shares at June 30, 2003)
at prices ranging from $3.125 to $17.25 per share. Options for 1,000
shares were canceled during the three month period ended June 30,
2003 at prices ranging from $3.125 to $5.00 per share. Options for
2,000 shares and 17,000 shares were canceled during the three month
periods ended March 31, 2004 and March 31, 2003 respectively, at prices
ranging from $3.125 to $17.25 per share. Options for 500 shares were
canceled during the three month period ended December 31, 2002 at prices
ranging from $3.125 to $3.55 per share. All options granted under
the Employee Plans are exercisable at June 30, 2004.
No other options were
granted, exercised or canceled during the three or
nine month periods presented under the Employee Plans.
The Company's Outside Directors Stock Option Plans (collectively the "Directors Plans"), provide for the automatic grant of options to purchase up to 45,000 shares (less 33,000 options which were either canceled, expired or unissued)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 45,000 Class A shares were outstanding at June 30, 2004 (39,000 shares at September 30, 2003 and 39,000 shares at June 30, 2003) at prices ranging from $3.55 to $18.00 per share. Options for 6,000 shares were granted under the Directors Plans during each of the three month periods ended March 31, 2004 and March 31, 2003, at a price of $7.25 and $3.67 per share respectively. Options for 9,000 shares were canceled during the three month period ended March 31, 2003 at prices ranging from $3.55 to $18.00 per share. All outstanding options under the Directors Plans become fully exercisable on February 19, 2007.
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, 2004:
Employee
Plans |
Outstanding Stock Options Exercisable |
|
|
Range of exercise prices: | |||
$3.13 - 5.00 |
80,150
|
$3.78
|
7.8
|
$7.13 - 10.75 |
40,800
|
$9.37
|
3.8
|
$17.25 |
6,950
|
$17.25
|
2.0
|
127,900
|
$6.30
|
|
Directors
Plans |
|
|
Weighted Average
Remaining Life
|
Number of Stock Options
Exercisable |
Weighted Average Share
Price |
Range of exercise prices: | |||||
$3.55 - 4.25 |
16,000
|
$3.81
|
7.7
|
10,333 |
$3.91 |
$7.13 - 8.50 |
17,000
|
$7.82
|
4.9
|
11,000 |
$8.13 |
$12.25 - 18.00 |
12,000
|
$15.63
|
2.0
|
12,000 |
$15.63 |
45,000
|
$8.48
|
|
33,333 |
$9.52 |
The Company has adopted the disclosure only provisions
of SFAS 123, which allows a company to continue to measure
compensation costs for those plans using the intrinsic value-based
method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees". The Company has elected to
follow APB Opinion No. 25 and related interpretations in accounting
for its stock options for both employees and non-employee Directors.
Compensation costs for stock based awards is measured by the excess,
if any, of the fair market value price at the grant date of the underlying
stock over the amount the individual is required to pay for exercising
the stock based award. 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 disclosure
purposes. The Black-Scholes option pricing model requires the use
of subjective assumptions which can materially affect the fair value
estimates. As a result, management believes that the Black-Scholes
model may not necessarily provide a reliable single measure of the fair
value of the Company's stock options. The following weighted-average
assumptions were used in the option pricing model for the three
and nine month periods ended June 30, 2004 and 2003 respectively: a
risk free interest rate of 4.0% and 3.0%; an expected life of 6 and
6 years; an expected dividend yield of 0.0% and 0.0%; and a volatility
factor of .44 and .60.
The adoption of this statement
did not affect the Company's results of operations,
financial position or liquidity. The Company's pro forma
net income (loss) and earnings (loss) per share would have
been as follows:
Three months ended
June 30,
|
Nine months ended
June 30,
|
2004 |
2003 |
2004 |
2003 |
|
Net Income
<Loss> as reported |
$87,877 |
$<153,753> |
$711,265 |
$<1,672,503> |
Deduct:
Total stock-based employee and Director compensation
expense determined under fair value based method for all
awards, net of related tax effects |
2,723 |
2,348 |
7,794 |
6,992 |
Pro forma
Net Income <Loss> |
$85,154 |
$<156,101> |
$703,471 |
$<1,679,495> |
As Reported: |
||||
Basic
Income <Loss> per share |
$.07 |
$<.13> |
$.58 |
$<1.37> |
Diluted Income
<Loss> per share |
$.07 |
$<.13> |
$.57 |
$<1.37> |
Pro forma: |
||||
Basic
Income <Loss> per share |
$.07 |
$<.13> |
$.58 |
$<1.38> |
Diluted
Income <Loss> per share |
$.07 |
$<.13> |
$.56 |
$<1.38> |
Unissued shares
of Class A common stock (627,766 shares) are
reserved for the share-for-share conversion rights of
the Class B common stock and stock options under the Employee
Plans and the Directors Plans.
5. Recently Issued Accounting Pronouncements
In connection with
the adoption of the Financial Accounting
Standards Board SFAS No. 142, "Goodwill and
Other Intangible Assets", the Company discontinued
the amortization of goodwill as of October 1, 2002. In
lieu of amortization, the new standard requires that goodwill
be tested for impairment as of the date of adoption
and at least annually thereafter. The initial impairment
test indicated that the carrying values of our reporting units
exceeded the corresponding fair values due to prior year losses.
The fair values were determined by an asset approach. The implied
fair value of goodwill in these reporting units was then determined
through the allocation of the fair values to the underlying asset
and liability classes. The October 1, 2002 carrying value
of the goodwill in these reporting units exceeded its implied
fair value by $1,574,542. The $1,038,542 represents an entire
write-off of the Company's goodwill as of October 1, 2002, net
of $536,000 of related tax benefits, and has been reported as the
effect of a change in accounting principle in the accompanying
financial statements.
The Company has adopted
the disclosure only provisions of SFAS 123 and 148
(see note 4).
6. Earnings per Common Share
Earnings per common share are based on the provisions of FAS Statement
No. 128, "Earnings per Share." Accordingly, the adoption
of this statement did not affect the Company's results
of operations, financial position or liquidity. The effects
of applying FAS No. 128 on earnings per share and required
reconciliations are as follows:
|
June 30, |
June 30, |
|
|
|
|
|
Basic Income <Loss> per Share | ||||
Income <Loss> available
to common stockholders |
$87,877
|
$<153,753>
|
$711,265
|
$<1,672,503>
|
Shares denominator |
1,219,094
|
1,219,750
|
1,219,532
|
1,219,750
|
Per share amount |
$.07
|
$<.13>
|
$.58
|
$<1.37>
|
Effect of Dilutive Securities | ||||
Average shares outstanding |
1,219,094
|
1,219,750
|
1,219,532
|
1,219,750
|
Stock options |
33,830
|
-
|
33,830
|
-
|
1,252,924
|
1,219,750
|
1,253,362
|
1,219,750
|
|
Diluted Income <Loss> per Share | ||||
Income <Loss> available
to common stockholders |
$87,877
|
$<153,753>
|
$711,265
|
$<1,672,503>
|
Per share amount |
$.07
|
$<.13>
|
$.57
|
$<1.37>
|
Options to purchase 76,750 and 171,900 shares of common stock during the third quarter of fiscal 2004 and the third quarter of fiscal 2003, respectively, at prices ranging from $3.125 to $18.00 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 share.
During the nine month
period of fiscal 2004 and the nine month period of
fiscal 2003 options to purchase 76,750 and 171,900 shares
of common stock, respectively, at prices ranging from $3.125
to $18.00 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.
7. Segment and Related Information
The Company has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which changes the way the Company reports the information about its operating segments.
The Company's four 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
business 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 servicing of automotive electronic systems. 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 fastening control products used by large manufacturers
to monitor and control pneumatic and electric tools that tighten
threaded fasteners so as to provide high quality joint control
in assembly plants.
Information by industry segment is set forth below:
|
Three Months Ended
June 30,
|
June 30, |
|
|
|
|
|
Net Revenue | ||||
Indicators and Gauges |
$488,327
|
$407,322
|
$1,221,504
|
$1,008,375
|
Automotive Diagnostic Tools and Equipment |
3,300,201
|
2,480,334
|
12,009,076
|
7,240,985
|
$3,788,528
|
$2,887,656
|
$13,230,580
|
$8,249,360
|
|
Income (Loss) before provision for Income Taxes | ||||
Indicators and Gauges |
$108,878
|
$14,170
|
$267,088
|
$<25,048>
|
Automotive Diagnostic Tools and Equipment |
533,672
|
120,939
|
2,546,684
|
214,613
|
General Corporate Expenses |
<508,873> |
<367,462> |
<1,735,507> |
<1,150,126> |
Goodwill Amortization |
-
|
-
|
-
|
-
|
$133,677
|
$<232,353>
|
$1,078,265
|
$<960,561>
|
|
Asset Information | ||||
Indicators and Gauges |
$730,302
|
$715,046
|
||
Automotive Diagnostic Tools and Equipment |
4,941,016
|
4,318,230
|
||
Corporate |
6,084,445 |
5,391,605 | ||
Goodwill |
-
|
-
|
||
$11,755,763
|
$10,424,881
|
|||
Geographical Information | ||||
Included in the
consolidated financial statements are the following amounts related to geographical locations: |
||||
Revenue: | ||||
United States |
$3,692,182
|
$2,769,571
|
$12,940,782
|
$7,911,244
|
Canada |
74,739
|
74,485
|
188,725
|
200,809
|
Other foreign countries |
21,607
|
43,600
|
101,073
|
137,307
|
$3,788,528
|
$2,887,656
|
$13,230,580
|
$8,249,360
|
All export sales to
Canada and other foreign countries are made in United States of America Dollars.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations,
Third Quarter (April 1, 2004 through June 30, 2004)
Fiscal 2004 Compared
to Third Quarter Fiscal 2003
-------------------------------------------------------------------------------------
Reportable Segment Information
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 business and pleasure aircraft. Within the locomotive market, indicators and gauges are sold to both original equipment manufacturers and to operators of railroad equipment. Revenue in this segment was $488,327 and $407,322 for the third quarter of fiscal 2004 and fiscal 2003, respectively, and $1,221,504 and $1,008,375 for the first nine months of fiscal 2004 and fiscal 2003, respectively. The automotive diagnostic tools and equipment segment consists primarily of products designed and manufactured to support the servicing of automotive electronic systems. 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 fastening control products used primarily by large manufacturers to monitor and control the "nut running process" (the controlled tightening of threaded fasteners)in assembly plants. Revenue in this segment was $3,300,201 and $2,480,334 for the third quarter of fiscal 2004 and fiscal 2003, respectively, and $12,009,076 and $7,240,985 for the first nine months of fiscal 2004 and fiscal 2003, respectively.
Results of Operations
Product sales for the quarter ended June 30, 2004 were $3,402,631 versus $2,392,772 for the quarter ended June 30, 2003. The 42% increase in product sales during the current quarter of approximately $1,010,000 was volume related due primarily to increased sales of emissions products. Emission product sales increased approximately $679,000 largely as a result of a Pennsylvania emissions program. The program requires OBD II related emissions testing of vehicles in a number of the State's counties. The program was essentially completed during the Company's third fiscal quarter. Sales of indicator products and other automotive diagnostic products increased by approximately $68,000 and $338,000, respectively. Fastening system products sales declined by approximately $84,000. Product sales are expected to decline during the Company's fourth fiscal quarter to prior year levels because of the conclusion of the Pennsylvania emissions program.
Service sales for the quarter ended June 30, 2004 were $385,897 versus $494,884 for the quarter ended June 30, 2003. The decrease was volume related due to lower repair sales. The current level of service sales related to both product repair sales and training is expected to continue in the fourth quarter of the fiscal year.
Cost of product sold in the third quarter of fiscal 2004 was $1,630,608 (47.9% of product sales) as compared to $1,222,884 (51.1% of product sales) in the third quarter of 2003. The decrease in the cost of product sold percentage was due primarily to a change in product mix and higher product sales which absorbed more of the fixed costs. The current cost of product sold percentage is expected to increase modestly during the fourth quarter of the fiscal year due to product mix.
Cost of service sold for the quarter ended June 30, 2004 was $277,524 (71.9% of service sales) as compared to $340,020 (68.7% of service sales) in the quarter ended June 30, 2003. The percentage increase was due to an increase in lower margin sales of training services in the current fiscal quarter while the dollar decrease was due to lower repair sales. The current cost of services sold percentage is expected to continue in the fourth quarter of the fiscal year.
Product development expenses were $553,683 in the third quarter of fiscal 2004 (16.3% of product sales) as compared to $485,027 (20.2% of product sales) in the third quarter of fiscal 2003. The dollar increase was due primarily to increased labor cost while the percentage decrease was due to increased product sales volume in the current fiscal quarter compared to the year ago period. The current level of product development expenditures is expected to continue in the fourth quarter of fiscal 2004.
Marketing and administrative expenses were $1,209,885 (31.9% of total sales) in the third quarter of fiscal 2004 versus $1,086,913 (37.6% of total sales) for the same period a year ago. The percentage decrease was due to the increase in the level of total sales for the current fiscal quarter. Marketing expenses were approximately $684,000 in the third quarter of fiscal 2004 versus $705,000 for the same period a year ago. Within marketing expenses, increases were in commissions related to non-emission products ($36,000) and promotional expenses ($16,000), offset in part by a decrease in other variable sales expenses such as royalties and collection expenses and decreased salary expenses. Administrative expenses were approximately $526,000 in the third quarter of fiscal 2004 versus $382,000 for the same period a year ago. The dollar increase was due primarily to higher administrative labor costs primarily employee bonus provisions that took effect during the current year ($254,000) compared to no bonus provisions in the prior fiscal year. Also contributing to the higher administrative expenses in the current quarter was an increase in outside professional fees ($81,000) versus ($45,000) for the same period a year ago. The current level of marketing and administrative expenses is expected to decrease moderately because of lower volume related variable expenses.
Interest expense was $337 in the third quarter of fiscal 2004 which compares with $397 in the third quarter of fiscal 2003. The current level of interest expense is expected to continue in the fourth quarter of fiscal 2004.
Other income was $17,186 in the third quarter of fiscal 2004 which compares with $15,232 in the third quarter of fiscal 2003. Other income consists primarily of interest income on short-term investments and the proceeds from the sale of scrap metal shavings associated with the emissions products.
Net income in the third quarter of fiscal 2004 was $87,877 which compares with a net loss of $153,753 in fiscal 2003. The net income for the current quarter is primarily the result of sales from emission products in connection with the Pennsylvania emissions program and are viewed as a large event that does not represent the Company's core repetitive business. The prior year third quarter loss was due to lower than expected sales and an unfavorable product mix.
Unshipped customer orders as of June 30, 2004 were $1,760,000 versus $1,349,000 at June 30, 2003. The increase was due primarily to increased orders in the automotive diagnostic products of $353,000, specifically, ($159,000)for non-emission aftermarket products and ($194,000) for emission products. Also contributing to the increase was ($94,000) for indicators and gauges and ($47,000) for training programs. Fastening product backlog decreased by approximately $100,000. The backlog as of June 30, 2004 declined substantially compared to March 31, 2004 due to the completion of the Pennsylvania emissions program. The Company anticipates that approximately 51% of the backlog will be shipped in the fourth quarter of fiscal 2004.
Results of Operations,
Nine Months Ended June 30, 2004
Compared to Nine Months
Ended June 30, 2003
Product sales for the nine months ended June 30, 2004 were $12,051,381
versus $6,915,650 for the same period in fiscal 2003.
The 74% increase in product sales during the first nine months
of the current fiscal year of approximately $5,136,000 was
volume related due primarily to increased sales of emissions products.
Emission product sales increased approximately $5,000,000 largely
as a result of the Pennsylvania emissions program. They were also accompanied
by an increase in non-emission products sales of approximately $229,000,
offset by a decline in fastening systems product sales of approximately
$292,000. Sales of indicator products increased by approximately $193,000.
Product sales are expected to decline during the Company's
fourth fiscal quarter to prior year levels because of the conclusion of
the Pennsylvania emissions program the impact of which maybe offset partially
by an expected improvement in the Company's core business.
Service sales for the nine months ended June 30, 2004 were $1,179,199 compared with $1,333,710 for the same period in fiscal 2003. The decrease was volume related and primarily caused by lower repair sales. The current level of service sales is expected to continue in the last three months of the fiscal year.
Cost of product sold was $6,054,339 (50.2% of product sales) compared with $3,833,985 (55.4% of product sales) for the nine months ended June 30, 2003. The decrease in the cost of product sold percentage was due primarily to a change in product mix and higher product sales which absorbed more of the fixed costs. The cost of product sold percentage is expected to increase slightly for the balance of the fiscal year.
Cost of service sold was $704,875 (59.8% of service sales) compared with $831,102 (62.3% of service sales) for the nine months ended June 30, 2003. The dollar decrease was primarily due to a lower volume of repair sales in the current year. The current cost of services sold percentage is expected to increase slightly for the balance of the fiscal year.
Product development expenses were $1,602,938 (13.3% of product sales) compared to $1,464,381 (21.2% of product sales) for the nine months ended June 30, 2003. The dollar increase was due primarily to higher labor costs. The percentage decrease was due to higher product sales during the first nine months of the current fiscal year. The current level of product development expenditures is expected to continue in the fourth quarter of the fiscal year.
Marketing and administrative expenses were $3,842,323 for the nine months ended June 30, 2004 (29.0% of total sales) versus $3,127,500 (37.9% of total sales) for the nine months ended June 30, 2003. The percentage decrease was due to higher net sales during the first nine months of the current fiscal year. The dollar increase was due primarily to higher administrative labor costs including employee bonus provisions ($582,000)that took effect during the current fiscal year. Also contributing to the dollar increase were higher variable sales and marketing expenses applicable to both non-emission and emission automotive product sales volumes. The marketing cost increases were primarily in commissions ($154,000) and advertising and promotional expenses ($41,000) as the result of the higher sales volume, offset in part by lower collection expenses ($70,000). Marketing expense is expected to decrease moderately for the remainder of the fiscal year primarily related to a decrease in variable revenue related expenses. Administrative expense is expected to increase moderately because of expenses expected to be incurred due to the Company's determination to implement an Odd-Lot Offer to Purchase in an effort to deregister its Class A stock.
Interest expense was $1,145 for the nine months ended June 30, 2004, and $2,107 for the same period in 2003. This decrease was due to a reduction in employees deferred compensation account balances during the current fiscal year. The current level of interest expense is expected to continue for the remainder of fiscal 2004.
Other income of $53,305 compares with other income of $49,154 in the same period last year. Other income consists primarily of interest income on short-term investments and the proceeds from the sale of scrap metal shavings associated with emissions product. The increase is due primarily to an increase in proceeds from the sale of the scrap metal. The current level of other income is expected to continue for the remainder of fiscal 2004 due to the Company's intent to invest its excess cash in higher yield investments.
Net income for the nine months ended June 30, 2004 was $711,265 which compares with a net loss of $1,672,503 for the nine months ended June 30, 2003. The net income for the first nine months of fiscal 2004 is primarily the result of sales from emission products in connection with the Pennsylvania emissions program and are viewed as a large event that does not represent the Company's core repetitive business. The net loss in the first nine months of fiscal 2003 includes a $1,038,542 charge from a change in accounting for goodwill, resulting from the adoption of SFAS No. 142 in October 2002. The remaining net loss of $633,961 was primarily the result of lower sales due to the economic climate in the aircraft and automotive markets.
State automotive emissions programs tend to be large events the timing of which is largely unpredictable. The Company continues to participate in development for several possible future programs although timing and possible value to the Company are difficult to quantify. Management is optimistic that one or more programs will take place over the next several years. If and when they occur these programs could have a dramatic effect on the Company's revenues and profits. In addition, Management anticipates that as the economy improves future core business sales should increase. Management projects that current sales volume or future cost cutting measures will generate sufficient taxable income during the carryforward period to fully realize deferred tax benefits. The tax benefits have the effect of reducing future federal income taxes payable. The contribution, research and development credit and net operating loss carryforwards will begin to expire in 2019.
Liquidity and Capital Resources
Total current assets were $9,424,236, $7,533,629 and $7,815,114 at June 30, 2004, September 30, 2003 and June 30, 2003, respectively. The increase of approximately $1,609,000 from June to June is due primarily to an increase in cash, accounts receivable and inventory of approximately $2,179,000, $362,000 and $218,000 respectively. The increases were due to the increased sales volume. Short-term investments decreased by $1,018,000 due to the investments maturing. The increase from September 2003 to June 2004 of approximately $1,890,000 is due primarily to the increase in cash, accounts receivable and inventory of approximately $2,188,000, $318,000 and $385,000 respectively, due primarily to the increased sales levels in the current fiscal year. Short-term investments decreased by $1,018,000 due to the investments maturing. The matured investments added to the cash balance.
Working capital as of June 30, 2004 amounted to $7,824,110. This compares to $6,948,502 a year earlier. Current assets were 5.9 times current liabilities and total cash and receivables were 3.5 times current liabilities. These ratios compare to 9.0 and 4.6, respectively, at June 30, 2003.
Internally generated funds of $1,262,126 during the nine months ended June 30, 2004 were adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $78,938. The primary reason for the positive cash flow from operations was the net income during the period. Management believes that cash and cash equivalents together with funds anticipated to be generated by operations and funds available under the Company's credit agreement, will provide the liquidity necessary to support its current and anticipated capital expenditures through the end of fiscal 2004.
Shareholders' equity during the nine months ended June 30, 2004 increased by $698,063 which was the net income for the period of $711,265 less $13,202 for the purchase of 2,296 Class A common shares that were retired.
In February 2004 the Company
renewed its credit agreement with its financial lender. The agreement expires
in February 2005 and provides for a revolving credit facility of $1,000,000
with interest at the bank's prime commercial rate and is secured by the Company's
accounts receivable, inventory, equipment and general intangibles. The credit
agreement contains affirmative covenant requirements related to tangible
net worth minimums of $9,000,000, maintenance of a ratio of debt to tangible
net worth of not more than 1.00 to 1.00 and an interest coverage ratio of
not less than 1.25 to 1.00. The Company has had no outstanding balance under
this loan facility since May 2001.
Critical
Accounting Policies
Forward-Looking Statements
The foregoing discussion
includes forward-looking statements relating to the
business of the Company. These forward-looking statements,
or other statements made by the Company, are made based
on management's expectations and beliefs concerning future
events impacting the Company and are subject to uncertainties
and factors (including, but not limited to, those specified
below) which are difficult to predict and, in many instances, are
beyond the control of the Company. As a result, actual
results of the Company could differ materially from those expressed
in or implied by any such forward-looking statements. These
uncertainties and factors include (a) the Company's dependence upon
a limited number of customers, including Ford Motor Company, (b)
the highly competitive industry in which the company operates, which
includes several competitors with greater financial resources and
larger sales organizations, (c) the acceptance in the marketplace
of new products and/or services developed or under development by the
Company including automotive diagnostic products, fastening systems
products and indicating instrument products, (d) the ability of the
Company to further establish distribution and a customer base in the
automotive aftermarket, and (e)the Company's ability to capitalize on
market opportunities including state automotive emissions programs.
ITEM 3. CONTROLS AND PROCEDURES
As of June 30, 2004, an evaluation was performed, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer along with the Company's Vice President, Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Company's management, including the Chief Executive Officer along with the Company's Vice President, Finance and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2004 in ensuring that information required to be disclosed by the Company in the reports it files and submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. There have been no significant changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.
PART II. OTHER
INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are included herein: (11) Statement re: Computation of earnings per share; (31.1) Certification by the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002; (31.2) Certification by the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002; (32.1) Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002; (32.2) Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b) On April 9, 2004 the Company filed a Current Report on Form 8-K announcing it is voluntarily delisting its' stock from the NASDAQ Small Cap Market effective April 15, 2004. On May 10, 2004 the Company filed a Current Report on Form 8-K related to its' Second Quarter Earnings News Release. No other Form 8-K was filed during the period.
SIGNATURE
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.
Date:
August 11, 2004
(Registrant) |
/s/R. L. Bauman |
R. L. Bauman, Chief
Executive Officer, President, and Treasurer |
/s/G. M. Zoloty |
G. M. Zoloty, Chief Financial Officer |
FORM 10-QSB
EXHIBIT 11
HICKOK INCORPORATED
CONSOLIDATED
STATEMENT OF COMPUTATION OF EARNINGS
PER COMMON SHARE
AND COMMON SHARE EQUIVALENTS
Three Months Ended |
Nine Months Ended |
|
June 30, |
June 30, |
|
2004
2003 |
2004
2003 |
NET INCOME
|
$87,877 |
$<153,753> |
$711,265 |
$<1,672,503> |
|
||||
Net income <loss> applicable to common shares for diluted earnings per share |
$87,877 |
$<153,753> |
$711,265 |
$<1,672,503> |
|
|
|
|
|
SHARES
OUTSTANDING |
1,219,094 |
1,219,750 |
1,219,532 |
1,219,750 |
|
|
|
|
|
Net effect of dilutive stock options - based on the treasury stock method using year-end market price, if higher than average market price |
33,830 |
- * |
33,830 |
- * |
|
|
|
|
|
Total shares for diluted earnings per share |
1,252,924 |
1,219,750 |
1,253,362 |
1,219,750 |
|
|
|
|
|
Basic Earnings Per Common Share |
$.07 |
$<.13> |
$.58 |
$<1.37> |
|
|
|
|
|
Diluted Earnings Per Common Share |
$.07 |
$<.13> |
$.57 |
$<1.37> |
*
Net effect of stock options was antidilutive for the period.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
Robert L. Bauman, Chief Executive Officer
I, Robert L. Bauman, Chief Executive Officer, certify that:
I have reviewed this quarterly report on Form 10-QSB of Hickok Incorporated;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether
or not material, that involves management
or other employees who have a significant
role in the registrant's internal control over financial reporting.
Dated:August 11, 2004
/s/ R. L. Bauman
R. L. Bauman
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
Gregory M. Zoloty, Vice President, Finance and Chief Financial Officer
I, Gregory M. Zoloty, Vice President, Finance and Chief Financial Officer, certify that:
I have reviewed this quarterly report on Form 10-QSB of Hickok Incorporated;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether
or not material, that involves management
or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Dated:August 11, 2004
/s/ G. M. Zoloty
G. M. Zoloty
Vice President, Finance and Chief Financial Officer
Form 10-QSB
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hickok Incorporated (the "Company") on form 10-QSB for the period ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert L. Bauman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ R. L. Bauman
R. L. Bauman
Chief Executive Officer
August 11, 2004
Form 10-QSB
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly
Report of Hickok Incorporated (the "Company") on Form 10-QSB for the
period ending June 30, 2004 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Gregory M. Zoloty, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350,
as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
that:
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ G. M. Zoloty
G. M. Zoloty
Chief Financial Officer
August 11, 2004