-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
BAyDWWi+a5KUDLRcCfYmeAznW0jHuk8uxUug8UpYN8rKXFDgfxfmHMQlpfk1r3yy
8XSuyTWk5TLTt2JoSZYfVg==
FORM 10-KSB
[X] ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal
year ended September 30, 2007 OR
[ ] TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition
period from Not Applicable to Not Applicable Commission
file number: 0-147 HICKOK
INCORPORATED (Name of small
business issuer in its charter) Issuer's telephone
number (216) 541-8060 Securities
registered under Section 12(b)
of the Exchange Act: Class A
Common Shares, $1.00 par value 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[ ]
Check if there
is no disclosure of delinquent filers in response to Item 405 of Regulation
S-B contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year. $12,520,061
As of December
7, 2007, the Registrant had
774,029 voting shares of Class A Common Stock outstanding and 454,866
voting shares of Class B Common Stock outstanding. As of such date, non-affiliates
held 706,671 shares of Class A
Common Stock and 233,098 shares of Class B
Common Stock. As of December 7, 2007, based on the closing
price of $17.00 per Class A Common
Share on the Over The Counter Bulletin Board, the aggregate market value of
the Class A Common Stock held by such non-affiliates was approximately $12,013,407. There is no trading
market in the shares of Class B Common Stock. Documents Incorporated
by Reference:
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
NONE
Securities registered
under Section 12(g) of the Exchange Act:
(Title of Class)
Transitional Small Business Disclosure Format. Yes [ ] No [X]
Except as otherwise stated, the information contained in this Form 10-KSB is as of September 30, 2007.
For the fiscal years ended September 30, 2007, 2006 and 2005, Hickok Incorporated had revenues of less than $25,000,000 and less than $25,000,000 in outstanding voting and non-voting common equity held by non-affiliates. As a result, Hickok met the definition of a small business issuer under Regulation S-B and has elected to submit its future periodic reports in accordance with the disclosure requirements for small business issuers under Regulation S-B.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business
Hickok Incorporated was organized in 1915 as an Ohio corporation, and first offered its securities to the public in 1959. Except as otherwise stated, the terms "Company" or "Hickok" as used herein mean Hickok Incorporated and its two wholly-owned subsidiaries, Supreme Electronics Corp. and Waekon Corporation. Hickok develops and manufactures products used by companies in the transportation industry. Primary markets served are automotive, emissions testing, aircraft, and locomotive with sales both to original equipment manufacturers (OEM's) and to the automotive aftermarket.
Until the mid 1980's Hickok was known primarily for its ability to develop and manufacture electronic instruments for electronic servicers, precision indicating instruments for aircraft, locomotive, and industrial applications, and electronic teaching systems for vocational schools. Since the mid 1980's the Company has focused this expertise to develop and manufacture electronic diagnostic tools and equipment used by automotive technicians in the automotive market. This is now the Company's largest business segment. The Company continues to design and manufacture precision indicating instruments. This segment represents approximately 15% of the Company's current revenue.
In the early 1990's the Company had become dependent on a few large OEM customers for the majority of its business. After recognizing this dependency the Company tried several approaches to expand both its customer base and its product lines utilizing its existing expertise and acquisitions with modest success. The Company then determined that it was crucial that it expand its automotive business by designing products and opening sales channels to the automotive aftermarket. In February 1998 the Company added new products and customers within the automotive aftermarket with the acquisition of Waekon Industries.
In addition to the acquisition of Waekon Industries, the Company
embarked on development programs to design tools specifically tailored to
the needs of the automotive aftermarket and develop a variety of sales channels
to the market. Since the acquisition, the Waekon name is used by the Company
as a trademark to market its products to technicians in the automotive aftermarket
and for certain emission inspection grade equipment it manufactures. Also
the name Waekon-Hickok is used as a trademark for higher complexity equipment
primarily aimed at automotive service shops as a shop tool. The Hickok brand
is used for a family of products that are related to OEM grade tools sold
to automotive dealerships and manufacturers. These efforts have resulted in
a more balanced revenue stream.
Over the past several
years the Company has developed a reputation as a quality emissions testing
product provider. Our reputation for innovative emissions testing products
began with the Model FPT27 Gas Cap Tester that has been used in numerous state
programs by emissions testing equipment suppliers. In 2004 the Company developed
and marketed a complete emissions testing platform for a State of Pennsylvania
program. From 2002 until 2007 the Company worked with the State of California
to develop a patented product for testing leaks in vehicle evaporative emissions
systems. The California program entered the implementation phase on December
1, 2007. These emissions programs generally result in large short-term revenues
for the Company with some residual benefits to future years.
The Company's operations are currently concentrated in the United States of America. Sales are primarily to domestic customers although the Company also makes sales to international customers through domestically based distribution companies. The Company established select market international service center arrangements during fiscal 1995.
Operating Segment Information
The Company's operations are combined into two reportable business segments: 1) indicators and gauges and 2) automotive diagnostic tools and equipment. Reference is made to "Segment and Related Information" included in the notes to the financial statements.
Indicators and Gauges
For over ninety-two years the Company has developed and manufactured precision indicating instruments used in aircraft, locomotives and other applications. In recent years the Company has specialized in aircraft and locomotive cockpit instruments. Within the aircraft market, instruments are sold primarily to manufacturers or servicers of business and pleasure aircraft. Within the locomotive market, indicators are sold to both original equipment manufacturers and to operators of railroad equipment. Indicators and gauges represented approximately 15% of the Company's sales for fiscal 2007 and 13% for fiscal 2006. An original grouping of products, DIGILOG Instruments, were certified with the FAA during fiscal 2002. Subsequently several additional models have also been certified. The DIGILOG instrument is a customizable indicator that is a combination analog/digital indicator for the aircraft market. It can be adapted to display a wide variety of aircraft parameters.
Automotive Diagnostic Tools and Equipment
Since the mid 1980's
the Company has concentrated on designing and marketing instruments used to
diagnose automotive electronic systems. These products were initially sold
to Ford Motor Company but are now sold to several automotive OEM's, and to
the aftermarket using jobbers, wholesalers and mobile distributors. Since
the late 1990's sales of products designed specifically to OEM requirements
have been balanced with products developed for automotive aftermarket servicers
and the emissions testing industry. In fiscal 2007 and 2006 orders from a
supplier to OEMs for products designed to the OEM's requirements significantly
affected revenues. In fiscal 2007 and 2004 emissions products significantly
affected revenues. The aftermarket accounted for approximately 26% of the
Company's automotive diagnostic and specialty tool sales in fiscal 2007 and
29% for fiscal 2006. As a whole, automotive diagnostic tools and equipment
represented approximately 85% of the Company's sales for fiscal 2007 and
87% for fiscal 2006.
The Company has cultivated
a reputation for developing innovative tools for automotive diagnostics and
uses that reputation as leverage when it introduces new offerings. Being innovative
sometimes adds to the difficulty of training the sales channels and technician
market on the benefits of the product. An example of this is the On-Car Injector
Flow Bench (OCIFB), that the Company introduced several years ago to the
aftermarket. Sales of the product had been slowly increasing as the market
began to understand its value. In 2004 a major automotive OEM became interested
in the product's ability to measure the actual flow of fuel injectors on
the vehicle. By enabling the dealership technician to obtain flow information
they expected to substantially reduce their "no trouble found" warranty returns
of fuel injectors. A major order for the OEM's dealerships was delivered
in fiscal 2006 and an additional order for additional dealership coverage
was delivered in fiscal 2007. The order, along with a smaller order for another
innovative product that the Company has offered since 1999, resulted in almost
$7,100,000 of revenue in 2006 and $3,400,000 in 2007.
New Generation Star (NGS) is an automotive scan tool that was supported
by Ford Motor Company as a primary diagnostic tool for their vehicles since
1992. The Company had considerable success selling the NGS tool to aftermarket
customers starting in 2000. Sales of NGS both to dealerships and aftermarket
customers was a major revenue source for the Company. In 2005 Ford made the
decision to no longer support the NGS with software and introduced a new
tool to take its place. The Company decided to undertake a program to develop
its own software for NGS to cover new vehicles as they are introduced primarily
for aftermarket customers. Unfortunately, without access to a proprietary
algorithm owned by Ford there are a number of important functions that could
not be implemented on the tool. As a consequence, sales of NGS in the aftermarket
have deteriorated substantially over the past couple years.
In late 2006 the Company was able to license the security algorithm from
Ford. By late 2007 the software the Company has developed has returned the
NGS tool to factory developed software level of performance. In addition
the Company has introduced NGS PC. This product is essentially a PC based
implementation of the classic NGS product and it too is at factory level functionality.
The Company intends to put major marketing emphasis on the NGS products during
2008 and believes it can return these products to significant revenue generators.
The Company believes these products also have a significant influence on the
ability to sell other products to aftermarket customers.
The Company has developed a reputation for introducing innovative aftermarket
products. New products are essential for growth in the aftermarket business.
Because of the demands on its resources associated with major OEM and emission
projects over the past few years, new product aftermarket rollouts were fewer
than in previous years. Significant resources were devoted in 2007 and will
be devoted in 2008 to developing new aftermarket products. The Company has
a number of products well along in development that it intends to introduce
during 2008. While new product introductions were less than in previous years
the Company partly maintained its reputation with the aftermarket sales channels
for innovation because of innovative policies, promotional concepts and field
support.
Since reestablishing contacts with OEMs three years ago, the Company has
had significant success with products to these customers. The Active
Fuel Injector Tester selected by GM for all their North American dealers
added to both fiscal 2006 and 2007 revenues. It is also expected to add to
fiscal 2008 revenues because of a project currently underway to extend its
capabilities to diesel type engines. The Company also has other programs
it is working with for OEM customers that may result in significant revenues
in the future. Many of these products may also have application in the aftermarket.
The Company is striking a balance between assigning resources to the OEM
type projects that generally result in large one-time orders and aftermarket
products that generally have longer product life and consistent revenue potential
spread over longer time periods.
Vehicle emissions testing products are used by state inspection programs
to determine if vehicles comply with environmental regulations. The Company
developed a gas cap testing product in 2000 that has been very successful
and is used by most emissions equipment providers as the gas cap tester in
their offerings. Fiscal 2007 fourth quarter and fiscal 2008 first quarter
revenue were materially influenced by a product developed for the State of
California to test the fuel system of vehicles for leaks. In California,
the Company partnered with Environmental Systems Products (ESP), a major provider
of emissions testing equipment. ESP provided sales and service to customers
and the Company designed and manufactured the product. Both of these products
incorporate patented methods for making the measurements. With the continuing
attention to environmental issues in North America, the Company is optimistic
that both products will contribute to future revenues. In addition, the Company
remains sensitive to other needs that may arise to develop products for measuring
emissions related parameters.
Indicator revenues have recovered from the depressed levels of 2002 and 2003
that were due to economic conditions in the business aircraft and locomotive
markets. Although the Company does not view this segment as a high growth
potential, it does contribute significant revenues and margins. Over the
past couple of years the market appears to have flattened and year to year
variation of revenue is more dependent on customer timing than any general
market direction. Digilog, a higher margin product developed several years
ago, continues to grow modestly in importance to the product segment.
Sources and Availability of Raw Materials
Raw materials essential to the business are acquired from a large number of United States of America manufacturers and some materials are now purchased from European and Southeast Asian sources. Materials acquired from the electronic components industry include transistors, integrated circuits, resistors, capacitors, switches, potentiometers, micro controllers, and other passive parts. Fabricated metal or plastic parts are generally purchased from local suppliers or manufactured by the Company from raw materials. In general, the required materials are available, if ordered with sufficient lead times, from multiple sources at current prices.
Importance of Patents, Licenses, Franchises, Trademarks and Concessions
The Company presently has several patents and patent applications that relate to several of its products. The Company believes that its position in the industry is dependent upon its present level of engineering skill, research, sales relationships, production techniques and service. However, the Company does have several basic methodology patents related to products it offers that it considers very important to future revenue. The Company has three important patents, one related to vehicle fuel cap testing that expires in 2018 and a second patent related to gasoline fuel injector testing expiring in 2008. The most important patent is related to the testing of evaporative emissions systems that is the basis for the Company's product offering for the State of California. This patent expires in the year 2022. The Company monitors the marketplace for infringement of its patents and intends to pursue its rights should an infringement take place.Other than the names "Hickok" and "Waekon", the Company does not have any material licenses, trademarks, franchises or concessions.
Seasonality
The Company believes that there is a seasonality to the automotive aftermarket revenues. Typically the first and fourth quarters tend to be weaker than the other two quarters in this market. Orders for OEM or emissions testing products are primarily subject to customer timing requirements and have no known seasonality aspect to them. As a result, operating results can fluctuate widely from quarter to quarter and year to year. During fiscal 2007 the California evaporative emissions systems program substantially affected the fourth quarter results. During fiscal 2006 two significant OEM programs muted the seasonality of the first quarter and added to the third and fourth quarter results. The California evaporative emissions systems program will also have a significant affect on the Company's first quarter results of fiscal 2008.
Practices Relative to Working Capital Items
The nature of the Company's business requires it to maintain sufficient levels of inventory to meet rapid delivery requirements of customers. The Company provides its customers with payment terms prevalent in the industry.
Dependence on Single or Few Customers
Sales to ESP amounted to approximately 29% and sales to
General Motors Corporation also accounted for approximately 29% of the consolidated
sales of the Company during fiscal 2007. During the fiscal year ended September 30, 2006, sales to
Ford and General Motors Corporation
accounted for approximately
9% and 48% respectively of the consolidated sales of the Company. This compares
with 11% and 6% respectively during the prior fiscal year. The Company has
no long-term contractual relationships with either Ford or General Motors.
Several aftermarket distribution companies and several equipment OEM's have
become a significant source of revenue. Sales in fiscal 2007 to ESP amounted
to approximately $3,620,000 and sales to General Motors Corporation amounted
to approximately $3,683,000. Sales to General
Motors Corporation amounted to approximately
$7,100,000 or 45% of the consolidated sales of the Company for fiscal 2006
compared to approximately $211,000 or 2%
for fiscal 2005. The Company does not
feel that it is dependent on any one customer but it is dependent on sales
to this class of customers.
Backlog
At September 30, 2007, the unshipped customer order backlog totaled $5,756,000 compared to $1,621,000 at September 30, 2006 and $3,047,000 at September 30, 2005. The increase in fiscal 2007 is primarily due to increased orders in automotive diagnostic products of $4,118,000, specifically, $4,974,000 for emissions products, offset in part by decreases in automotive diagnostic products to OEM's of $830,000 and $26,000 for non-emission aftermarket products. Also contributing to the backlog increase was $24,000 for indicators and gauges. The Company expects to ship essentially the entire backlog in fiscal 2008. The decrease in fiscal 2006 versus 2005 is primarily due to decreased orders for automotive diagnostic products to OEM's and the aftermarket of $1,016,000 and $133,000 respectively. Also contributing to the backlog decrease in 2006 was $72,000 for indicators and gauges, $135,000 for emission products and $68,000 for fastening systems products.
Government Contract Renegotiation
No major portion of the business is open to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. The amount of revenue derived from Government contracts is currently minimal and not material.
Competitive Conditions
The Company is engaged in a highly competitive industry and faces competition from domestic and international firms. Several of the Company's competitors have greater financial resources and larger sales organizations than the Company. Competition with respect to the Company's diagnostic tool business arises from the existence of a number of other significant manufacturers in the field, such as Snap-On, SPX Corporation, Teradyne, and Vetronix which dominate the available market in terms of total sales. The instrumentation industry is composed primarily of companies that specialize in the production of particular items as compared to a full line of instruments. The Company believes that its competitive position in this field is in the area of smaller, specialized products, an area in which the Company has operated since 1915 and in which the Company has established itself competitively by offering high-quality, high-performance products in comparison to high-volume, mass-produced items.
Research and Development Activities
The Company expensed as incurred product development costs of $2,020,312 in 2007, $1,840,182 in 2006 and $2,059,401 in 2005. These expenditures included engineering product support and development of manuals for both of the Company's business segments.
Compliance with Environmental Provisions
The Company's capital expenditures, earnings and competitive position are not materially affected by compliance with federal, state and local environmental provisions which have been enacted or adopted to regulate the distribution of materials into the environment.
Number of Persons Employed
Total employment by the Company at September 30, 2007 was 160 full-time employees. The Company has no part-time employees. None of the employees are represented by a union. The Company considers its relations with its employees to be good.
Financial Information Concerning Foreign and Domestic Operations and Export Sales
During the fiscal
year ended September 30, 2007, all manufacturing, research and development
and administrative operations were conducted in the United States of America.
Revenues derived from export sales approximated $274,000 in 2007, $1,359,000
in 2006, and $322,000 in 2005. Shipments to Australia, Canada
and Germany make up the majority
of export sales.
ITEM 2. DESCRIPTION OF PROPERTY
As of December 7,
2007 the Company had facilities in the United States of America as shown below:
|
|
|
|
Cleveland, Ohio |
|
Two-story brick construction; used for corporate administrative headquarters, marketing and product development with limited manufacturing. |
|
Greenwood, Mississippi |
|
One-story modern concrete block construction; used for manufacturing instruments, test equipment, and fastening systems products. | Leased, with annual renewal options extending through 2061. |
The Company
is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS
OF THE REGISTRANT
The following is
a list of the executive officers of the Company as of September 30, 2007.
The executive officers are elected each year and serve at the pleasure of
the Board of Directors. Mr. Robert Bauman was elected Chairman by the Board
of Directors in July 1993 and served as chairman until May 2001. He has been
President since 1991 and Chief Executive Officer since 1993. For at least
five years prior to 1991 he held the office of Vice President. The Board of
Directors elected Mr. Gregory Zoloty Senior Vice President of Finance and
Chief Financial Officer in February 2004. Mr. Zoloty was Vice President of
Finance and Chief Financial Officer since May 2001. Mr. Zoloty was Vice President
of Accounting and Chief Accounting Officer since 1994. He joined the Company
in 1986. Mr. Thomas Bauman was elected Senior Vice President of Sales and
Marketing by the Board of Directors in February 2004. Mr. Thomas Bauman was
elected Vice President of Sales and Marketing by the Board of Directors in
May 1999. He joined the Company in April 1998. In 1996 and 1997 he was President
and CEO of C&K Manufacturing. Mr. Robert Bauman and Mr. Thomas Bauman
are brothers. Mr. William Bruner was elected Senior
Vice President of Manufacturing by the Board of Directors in February 2004.
Mr. Bruner was elected Vice President of Manufacturing in August 1993. He joined
the Company in January 1974.
OFFICE | OFFICER | AGE |
President and Chief Executive Officer | Robert L. Bauman | 67 |
Senior Vice President, Finance and Chief Financial Officer | Gregory M. Zoloty | 55 |
Senior Vice President, Sales and Marketing | Thomas F. Bauman | 64 |
Senior
Vice President, Manufacturing
|
William A. Bruner |
65 |
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
a) MARKET INFORMATION
During fiscal 2007 and 2006 our Class A Common Shares were traded on The Nasdaq Over-The-Counter Bulletin Board Market under the symbol HICKA.OB. There is no market for the Registrant's Class B Common Shares.
The following table
sets forth the per share range of high and low bids (Over-The-Counter Bulletin
Board) for the Registrant's Class A Common Shares for the periods indicated.
The Over-The-Counter Bulletin Board prices reflect inter-dealer prices without
retail markup, markdown or commissions and may not represent actual transactions.
Data was supplied by Nasdaq.
|
|||||
|
|
||||
|
|
|
|
||
First Quarter |
|
|
|
|
|
Second Quarter |
|
|
|
|
|
Third Quarter |
|
|
|
|
|
Fourth Quarter |
|
|
|
|
b) HOLDERS
As of December 7, 2007, there were approximately 357 shareholders of record of the Company's outstanding Class A Common Shares and 5 holders of record of the Company's outstanding Class B Common Shares.
c) DIVIDENDS
In fiscal 2007 and 2005
the Company paid a special dividend of $.10 per share on its Class A and Class
B Common Shares. In fiscal 2006 the Company paid no dividends
on either of its Class A or Class B Common Shares. Pursuant to the Company's
Amended Articles of Incorporation, no dividends may be paid on Class B Common
Shares until cash dividends of ten cents per share per fiscal year are paid
on Class A Common Shares. Any determination to pay cash dividends in the
future will be at the discretion of the Board of Directors after taking into
account various factors, including the Company's financial condition, results
of operations and current and anticipated cash needs.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
Until the mid 1980's Hickok was known primarily for its ability to develop and manufacture electronic instruments for electronic servicers, precision indicating instruments for aircraft, locomotive, and industrial applications, and electronic teaching systems for vocational schools. For the past twenty-one years the Company has used this expertise to develop and manufacture electronic diagnostic tools and equipment used by automotive technicians in the automotive service market. This is now the Company's largest business segment. The Company generated approximately 85% of its fiscal 2007 revenue from designing and manufacturing diagnostic tools for automotive diagnostics and testing. These tools enable automotive service technicians to identify problems in electronics systems and other non-electronic systems in automobiles.
Thirteen years ago two large automotive OEM companies comprised
over 80% of the company's business. A substantial portion of this business
was contingent on large programs initiated by these OEM's on a year to year
basis. The Company recognized that the OEM's were changing and that the likelihood
of the continuation of these yearly large programs was diminishing. As a
result, the Company initiated a strategy to use existing technical and manufacturing
expertise and to develop sales and marketing skills applicable to the automotive
aftermarket service industry. The strategy was aided by the acquisition of
Waekon Industries in 1998. The Company uses Waekon as the brand of its products
that are primarily intended as a technician's personal tool. The acquisition
of Waekon immediately gave the Company aftermarket products and access to
certain sales channels to that market.
The
Company also offers products for emissions testing programs. Our gas cap
testing products have become the defacto standard of gas cap testing in the
United States and most major vendors use our gas cap testers in their equipment
when gas cap testing is specified within a state program. As a result of
participation in the emissions testing market the Company developed an ability
to test for leaks in vehicle evaporative systems (gas tanks) and participated
in a New Jersey state emissions testing initiative in 1999 that did not result
in significant sales. California announced a similar initiative in mid 2003.
The Company decided to pursue this opportunity and has since devoted significant
resources to the extension of the New Jersey product to meet the California
requirements. It applied for and received a patent on the methodology it
developed for New Jersey and uses for the California product. In fiscal 2004
the Company signed an exclusive supply agreement with Environmental Services
Products (ESP) that is supplying sales, marketing, and service for the tank
testing product in the state of California. During late fiscal 2007 the California
emissions program became official and the Company's product was certified
by the State of California. The program resulted in substantial revenues
in fiscal 2007 and management believes most of the Company's backlog for
this program will be shipped and allow for positive operating results in
the first quarter of fiscal 2008.
Emissions revenue in fiscal 2007 was approximately $3,900,000, 37% of automotive
diagnostic tool revenue compared to $730,000 or 5% of fiscal 2006 diagnostic
tool revenue.
The timing of order releases and large program implementations in the Company's automotive diagnostic equipment business can cause wide fluctuations in the Company's operating results both on a quarter-to-quarter and a year-to-year basis. Orders for such equipment can be large, are subject to customer schedules, and may result in substantial variations in quarterly and yearly sales and earnings. As an example, fiscal 2007 compared to fiscal 2006 is typical of the fluctuations these large programs can cause. The fourth quarter of fiscal 2007 resulted in substantial growth and profitable operations because of the added revenue of the California emissions program. While fiscal 2006 resulted in substantial revenue growth and profitable operations for the year because of the added revenue of the OEM orders.
The Company's indicator product revenue decreased 8% in fiscal 2007 and the percentage of total Company revenues increased from 13% in fiscal 2006 to 15% in 2007 largely as a result of customer delivery requirement timing. The indicator percentage increase in total Company revenues was primarily a result of decreased total sales in fiscal 2007. In fiscal 2006 indicator product revenue increased 8% and the percentage of total Company revenues decreased to 13% from 19% in 2005. The indicator percentage decrease in total Company revenues was primarily a result of increased sales of automotive diagnostic products. The Company anticipates indicator sales will continue at current levels in fiscal 2008 and into the foreseeable future. The Company's Digilog products have added new customers to this segment that the Company anticipates will continue to grow in importance to indicator revenues and margins. Management feels that resources dedicated to this segment are adequate at the present time.The Company's order backlog as of September 30, 2007 totaled $5,756,000 as compared to $1,621,000 as of September 30, 2006 and $3,047,000 as of September 30, 2005. The increase in fiscal 2007 is primarily due to increased orders in automotive diagnostic products of $4,118,000, specifically, $4,974,000 for emissions products, offset in part by decreases in automotive diagnostic products to OEM's of $830,000 and $26,000 for non-emission aftermarket products. Also contributing to the backlog increase was $24,000 for indicators and gauges. The Company estimates that approximately 90% of the backlog at September 30, 2007 will be shipped in the first quarter of fiscal 2008. The decrease in fiscal 2006 versus 2005 is primarily due to decreased orders for automotive diagnostic products to OEM's and the aftermarket of $1,016,000 and $133,000 respectively. Also contributing to the 2006 backlog decrease was $72,000 for indicators and gauges, $135,000 for emission products and $68,000 for fastening systems products. The lower level of backlog in 2006 is more typical for the Company than the current year's large backlog.
Reportable Segment Information
In accordance with Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company is required to report segment information disclosures based on how management evaluates operating performance and resource allocations. The Company has determined that it has two reportable segments: 1) indicators and gauges, and 2) automotive related diagnostic tools and equipment.
Indicators and Gauges
This segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture or service business and pleasure aircraft. Within the locomotive market, indicators and gauges are sold to original equipment manufacturers, servicers of locomotives, and operators of railroad equipment.
Automotive Diagnostic Tools and Equipment
This segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions. Also 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. This equipment provides high quality joint control and documentation.
Results of Operations
Sales for the fiscal year
ended September 30, 2007 decreased to $12,520,061, a decrease of approximately
21% from fiscal 2006 sales of $15,877,719. This decrease in sales was volume-driven
and attributable primarily
to lower product sales of approximately $3,180,000. Service sales in fiscal
2007 decreased by approximately $178,000 and the reduction was volume related,
compared to fiscal 2006.Product sales were $11,950,863
in fiscal 2007 compared to $15,130,872 in fiscal 2006. The decrease in product
sales occurred in both the indicator and gauges segment, and the automotive
diagnostic equipment segment. The dollar decreases were approximately $176,000
and $3,004,000 respectively.Within the automotive diagnostic
products, emission product sales increased approximately $3,177,000 and aftermarket products and
OEM products decreased approximately $1,171,000 and $4,908,000 respectively.
Fastening systems products sales declined by $100,000. Fiscal 2007 benefited from a large state emissions program while
fiscal 2006 benefited
from two large orders for proprietary diagnostic products to the dealership
network of a major vehicle OEM. Fiscal 2008 product sales
are expected to increase modestly including the balance of the emissions
testing program for the State of California.The reduction in service
sales was volume related and attributable to lower repair sales. The current level of service
revenue is expected to decline slightly for fiscal 2008.
Sales for the fiscal year ended September 30, 2006 increased to $15,877,719, an increase of approximately 64% from fiscal 2005 sales of $9,670,694. This increase in sales was volume-driven and attributable primarily to higher product sales of approximately $6,439,000. Service sales in fiscal 2006 decreased by approximately $232,000 and the reduction was volume related compared to fiscal 2005.Product sales were $15,130,872 in fiscal 2006 compared to $8,691,822 in fiscal 2005. The increase in product sales occurred in both the indicator and gauges segment and the automotive diagnostic equipment segment. The dollar increases were approximately $123,000 and $6,316,000 respectively. Within the automotive diagnostic products, OEM product sales and emission product sales increased approximately $7,382,000 and $87,000 respectively offset by a decline in aftermarket product sales and fastening systems products sales of approximately $930,000 and $95,000 respectively. Fiscal 2006 benefited from two large orders for proprietary diagnostic products to the dealership network of a major vehicle OEM with no similar orders for fiscal 2005. The reduction in service sales was volume related and attributable to lower repair sales.
Cost of products sold in fiscal 2007 was $7,240,071 or 60.6% of net product sales compared to $8,183,500 or 54.1% of net product sales in fiscal 2006. Cost of products sold during fiscal 2005 was $5,197,059 or 59.8% of net product sales. The increase in the percentage of cost of products sold to product sales between fiscal 2007 and 2006 was due primarily to lower product sales which absorbed less of the fixed costs and to a change in product mix. The decrease in the percentage of cost of products sold to product sales between fiscal 2006 and fiscal 2005 was due primarily to higher product sales which absorbed more of the fixed costs and to a change in product mix. The cost of products sold percentage in fiscal 2008 is expected to decline slightly, although it is not expected to reach the levels experienced in fiscal 2006.
Cost of services sold
in fiscal 2007 was $552,313 or 97.0% of net service sales compared to $602,659
or 80.7% respectively in fiscal 2006. Cost of services sold during fiscal
2005 was $836,371 or 85.4% of net service sales. The increase in
the cost of services sold as a percentage of net service sales between fiscal
2007 and 2006 was due primarily to a lower sales volume for chargeable repairs
and higher warranty related
costs associated with certain of the automotive diagnostic products.The percentage and dollar
decrease in the cost of services sold between fiscal 2006 and
2005 was due primarily to lower warranty related
costs associated with certain of the automotive diagnostic products and to a lower sales
volume of chargeable repairs. The percentage of
cost of services sold relative to net service sales is expected to continue
at approximately the current levels in fiscal 2008.
The percentage decrease in fiscal 2006 compared to fiscal 2005 was due to higher total sales in fiscal year 2006. Marketing expenses were approximately $2,446,000 in fiscal year 2006 compared to $2,674,000 in fiscal 2005. Within marketing expenses, decreases were primarily in promotional expenses of $49,000, advertising of $48,000, travel expense of $57,000, fulfillment expenses of $37,000, credit and collection expense of $29,0000, freight of $22,000 royalty expense of $12,000 and commissions of $7,000. The decline in marketing expenses was offset in part by an increase primarily in labor costs of $36,000 as a result of a special bonus paid to marketing employees in late September 2006 and outside consulting of $19,000. Administrative expenses were approximately $1,963,000 in fiscal year 2006 compared to $1,571,000 in fiscal 2005. The dollar increase was due primarily to an employee bonus provision during fiscal 2006, which was included in accrued payroll and related expenses, of approximately $392,000 compared to no bonus provision in fiscal year 2005. In addition wages increased primarily due to a special bonus paid to administrative employees in late September 2006 of $39,000 and an increase in staff of $16,000, offset in part by a decrease in outside professional fees of $25,000. Fiscal 2005 also benefited slightly in the fourth quarter from temporary wage and staff reductions which were implemented in August 2005.
Interest charges were $49,477 in fiscal 2007 compared with $64,582
in fiscal 2006 and $21,465 in fiscal 2005. The decrease
in interest charges in fiscal 2007 compared to fiscal 2006 was due to lower
levels of short-term borrowings during fiscal 2007. The increase in interest charges in fiscal 2006 compared to fiscal
2005 was due to increased short-term borrowings to fund the higher sales volume.
The Company anticipates interest expense to decrease slightly in fiscal 2008.
Income taxes
in fiscal 2007 were $8,000 which includes a valuation allowance of $443,000
representing an effective income tax rate of 1%. The tax rate in fiscal
2007 was lower than the normal tax
rate of 37% due to the recording of a valuation allowance. Income taxes in fiscal 2006
were $273,500 which represents an effective income tax rate of 25%. The tax
rate in fiscal 2006 was lower than the normal tax
rate of 37% due to the utilization of research and development tax credits. Income taxes in fiscal
2005 were a negative $912,300 which represents a recovery of income taxes
at a 37% effective tax rate. It is anticipated
that the effective tax rate in fiscal 2008 will be similar to fiscal 2006. Management anticipates
that future business will generate sufficient taxable income (approximately $6,015,000) during the carryforward
period to realize the deferred tax benefits. The deferred tax benefits
begin to expire in 2015. The valuation allowance was recorded in 2007 as
a conservative measure due to the additional
loss and the increased likelihood of tax credits expiring before being
utilized.
The net loss
in fiscal 2007 was $649,412, or $.53 per share which was a decrease of $1,453,025
as compared to the net income of $803,613, or $.66 per share in fiscal 2006.
The change in fiscal 2007 versus fiscal 2006 was due primarily
to a lower sales volume. The California emissions
program became official and the Company's product was certified by the State
in late fiscal 2007. Although the Company had sufficient orders there was
not sufficient time to produce enough product to attain a profitable fiscal
2007. The net loss in fiscal 2005 was $1,573,772, or $1.30
per share. The change in fiscal 2006 versus fiscal 2005 was due primarily
to a higher sales volume. Fiscal 2006 benefited from a large
order for a proprietary diagnostic product to the dealership network of a
major vehicle OEM with no similar order for fiscal 2005.
Liquidity and Capital Resources
Current assets of $10,244,505 at September 30, 2007 were 2.4 times current liabilities and the total of cash and cash equivalents, short-term investments and receivables was 1.2 times current liabilities. These ratios compare to 3.4 and 1.9 respectively at the end of fiscal 2006. Total current assets increased by approximately $603,000 from the previous year end due primarily to an increase in cash and cash equivalents, accounts receivable and inventory of approximately $541,000, $241,000 and $822,000 respectively. The increase was offset in part by a decrease in short-term investments and deferred income taxes of approximately $849,000 and $170,000 respectively. The decrease in short-term investments was due to the sale of all the mutual fund investments late in the fourth quarter. The increase in accounts receivable was due primarily to a higher sales volume in the fourth quarter of fiscal 2007 versus fiscal 2006. Inventory increased due to the production of the California emissions product. The Company began delivering part of the California emissions program referred to elsewhere herein during the fourth quarter of fiscal 2007 effectively masking any seasonality aspect of the Company's business and primarily causing the increase in accounts receivable. Most of this order will be completed by the end of the first quarter of fiscal 2008.
Working capital at September 30, 2007 was $5,949,832 as compared to $6,790,066 a year ago. The decrease of approximately $840,000 was due primarily to an increase in short-term financing and accounts payable of approximately $600,000 and $1,524,000 respectively offset in part by decreases in accrued payroll and related expenses and accrued expenses of approximately $390,000 and 157,000 respectively. In addition, short-term investments and deferred income taxes decreased approximately $849,000 and $170,000 respectively, offset in part by an increase in cash and cash equivalents, accounts receivable and inventory of approximately $541,000, $241,000 and $882,000 respectively. The decrease in short-term investments was due to the management's decision to sell all mutual fund investments during the fourth quarter of fiscal 2007 due to the volatility of the stock market. The increase in accounts receivable and inventory was due primarily to the delivery of initial units of the California emissions program order referred to elsewhere herein during the fourth quarter of fiscal 2007.
Internally generated funds in fiscal 2007 were a negative $816,918 and were not adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $150,142. The primary reason for the negative cash flow from operations in fiscal 2007 was the net loss of $649,412 and an increase in accounts receivable and inventory of $240,672 and $822,478 respectively. Also contributing to the negative cash flow was a decrease in accrued payroll and related expenses and accrued expenses of $390,195 and $157,325 respectively. The negative cash flow was financed through short-term borrowings with the Company's lender. Internally generated funds in fiscal 2006 were a negative $1,939,527 and were not adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $93,773. The primary reason for the negative cash flow from operations in fiscal 2006 was the increase in accounts receivable of $3,351,366. The negative cash flow was financed through short-term borrowings with the Company's lender. Internally generated funds in fiscal 2005 were a negative $2,336,927 and were not adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $235,470. The primary reason for the negative cash flow from operations in fiscal 2005 was the net loss of $1,573,772 and a $466,100 reduction in accrued payroll and related expenses. The Company expects internally generated funds in fiscal 2008 from operating activities to be adequate to fund approximately $200,000 of capital expenditures. Most of the capital expenditures will be made to upgrade information technology and manufacturing equipment.The Company has a credit agreement with its financial lender that provides for a secured revolving credit facility of $2,500,000 with interest generally equal to two and one half percent per annum plus one month LIBOR. The agreement is set to expire in February 2008. The agreement is secured by the Company's accounts receivable, inventory, equipment and general intangibles. The credit agreementcontains affirmative covenant requirements, tested on an annual basis, that require the Company to maintain a tangible net worth of $8,000,000 and a pre-tax interest coverage ratio of not less than 3.0 to 1.0. In addition, a borrowing base addendum generally allows for borrowing based on an amount equal to eighty five percent of eligible receivables, plus an amount equal to the lesser of either forty percent of eligible inventory or $1,000,000. The revolving credit facility is subject to a review by the Company's lender in 2008. The Company had outstanding borrowings of $1,947,700 under this loan facility at September 30, 2007. The Company violated the pre-tax interest coverage ratio covenant due to a loss at September 30, 2007 and obtained a waiver from its financial lender. The Company is in compliance with its other loan covenant. During fiscal 2008 the Company's business may require a short-term increase in inventory and accounts receivables. Whenever there may be a requirement to increase inventory in fiscal 2008 there will be a negative but temporary impact on liquidity. The Company believes that internally generated funds and the revolving line of credit will provide sufficient liquidity to meet ongoing working capital requirements.
Off-Balance Sheet Arrangements
Hickok has no off-balance sheet arrangements (as defined in Regulation S-B Item 303 paragraph (c)(2)) that have or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The Company describes its significant accounting policies in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-KSB. However, in response to the SEC's Release No. FR-60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies", issued December 12, 2001, the Company has identified the policies it believes are most critical to an understanding of the Company's financial statements. Since application of these accounting policies involves the exercise of judgment and use of estimates, actual results could differ from those estimates.
Revenue Recognition - - Revenue is recognized as manufactured items are shipped to customers, legal title has passed, and all significant contractual obligations of the Company have been satisfied. Revenue from development contracts is recorded as agreed upon milestones are achieved.
Inventory Valuation and Reserves - Inventories are valued at the lower of cost or market using the first-in, first-out (FIFO) method. The Company's business may require an increase in inventory of component parts, work-in-process and finished goods in order to meet anticipated delivery schedules of customers. However, we are responsible for excess and obsolete inventory purchases in excess of inventory needed to meet customer demand forecasts, as well as inventory purchases generally not covered by supply agreements, or parts that become obsolete before use in production. If our forecasts change or excess inventory becomes obsolete, the inventory reserves included in our financial statements may be understated.
Deferred Taxes - - Deferred income taxes are provided for temporary differences between financial and tax reporting in accordance with the provisions of Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes." Significant factors considered by the Company in estimating the probability of the realization of deferred taxes include expectations of future earnings and taxable income, as well as application of tax laws in the jurisdictions in which the Company operates.
The Company does not have off-balance sheet arrangements, financing, or other relationships with unconsolidated entities or persons, also known as "special purpose entities" (SPEs).
Impact of Inflation
In
recent years, inflation has had a minimal effect on the Company because of
low rates of inflation and the Company's policy minimizing the acceptance
of long-term fixed rate contracts without provisions permitting adjustment
for inflation.
Market
Risk
The Company
is exposed to certain market risks from transactions that are entered into
during the normal course of business. The Company has not entered into derivative
financial instruments for trading purposes. The Company's primary market risks
are exposure related to interest rate risk and equity market fluctuations.
The Company's only debt subject to interest rate risk is its revolving credit
facility. The Company has a balance of $1,947,700 on its revolving credit
facility at September 30, 2007, which is subject to a variable rate of interest
based on the prime commercial rate. As a result, the Company believes that
the market risk relating to interest rate movements is minimal. In addition,
the Company maintains investments in a number of mutual funds from time to
time. These funds are subject to normal equity
market fluctuations. The Company
believes the equity market fluctuation risk is acceptable because the funds
can be sold on demand.
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, (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 and OEM tool programs.
The following
pages contain the Financial Statements and Supplementary Data as specified
for Item 7 of Part II of Form 10-KSB.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SHAREHOLDERS AND
BOARD OF DIRECTORS
HICKOK INCORPORATED
CLEVELAND,
OHIO
We have audited the accompanying consolidated balance sheet of HICKOK INCORPORATED as of September 30, 2007 and 2006, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended September 30, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board "United States". Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement. The Company has determined it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Hickok Incorporated as of
September 30, 2007 and 2006, and the consolidated results of their operations
and their cash flows for each of the years in the three-year period ended
September 30, 2007 in conformity with accounting principles generally accepted
in the United States of America.
As discussed
in Note 6 to the financial statements, the Company was required to adopt SFAS
123(r), Share-Based Payment, in 2007.
/s/ Meaden & Moore, Ltd.
MEADEN &
MOORE, Ltd.
CERTIFIED
PUBLIC ACCOUNTANTS
NOVEMBER
29, 2007
CLEVELAND,
OHIO
F-1
CONSOLIDATED BALANCE SHEET
HICKOK
INCORPORATED
SEPTEMBER
30
ASSETS
2007
|
2006
|
||||
|
|||||
CURRENT ASSETS: | |||||
Cash and cash equivalents |
$601,979
|
$61,363
|
|||
Short-term investments - - available for sale | - | 848,698 | |||
Accounts receivable-less allowance for |
4,623,055
|
4,382,383
|
|||
doubtful accounts of $10,000 ($75,000, 2006) | |||||
Inventories-less allowance for obsolete |
4,585,552
|
3,763,074
|
|||
inventory of $472,000 ($675,000, 2006) | |||||
Deferred income taxes |
354,900
|
524,400
|
|||
Prepaid expenses |
79,019
|
61,749
|
|||
|
|||||
Total Current Assets |
10,244,505
|
9,641,667
|
|||
PROPERTY, PLANT AND EQUIPMENT: | |||||
Land |
233,479
|
229,089
|
|||
Buildings |
1,461,892
|
1,492,161
|
|||
Machinery and equipment |
2,524,296
|
2,581,618
|
|||
|
|||||
4,219,667
|
4,302,868
|
||||
|
3,402,339
|
3,412,447
|
|||
|
|||||
817,328
|
890,421
|
||||
OTHER ASSETS: | |||||
Deferred income taxes-less
valuation allowance of $443,000 ($-0-, 2006) |
1,690,307
|
1,573,400
|
|||
Deposits |
1,750
|
1,750
|
|||
|
|||||
1,692,057
|
1,575,150
|
||||
|
|||||
Total Assets |
$12,753,890
|
$12,107,238
|
|||
|
F-2
2007 | 2006 | |
|
||
CURRENT LIABILITIES: | ||
Short-term financing | $1,947,700 | $1,348,000 |
Accounts payable | 1,888,687 | 364,702 |
Accrued payroll and related expenses | 275,858 | 666,053 |
Accrued expenses | 110,543 |
270,959 |
Accrued taxes other than income | 71,885 | 68,794 |
Accrued income taxes | - | 133,093 |
|
||
Total Current Liabilities | 4,294,673 | 2,851,601 |
STOCKHOLDERS' EQUITY: | ||
Common shares - par value $1.00 | ||
Class A 3,750,000 shares authorized, 782,574 shares | ||
issued (772,174 shares 2006) | 766,779 | 756,379 |
Class B 1,000,000 convertible shares authorized, | ||
475,533 shares issued | 454,866 | 454,866 |
Accumulated comprehensive income (net of tax) | - | 104,869 |
Contributed capital | 1,661,527 | 1,592,942 |
Treasury shares - 15,795 (2007 and 2006) | ||
Class A shares and 20,667 (2007 and 2006) | ||
Class B shares | (661,676) | (661,676) |
Retained earnings | 6,237,721 | 7,008,257 |
|
||
Total Stockholders' Equity | 8,459,217 | 9,255,637 |
|
||
Total Liabilities and Stockholders' Equity | $12,753,890 | $12,107,238 |
|
F-3
CONSOLIDATED STATEMENT OF INCOME
HICKOK INCORPORATED
FOR THE YEARS
ENDED SEPTEMBER 30
2007
|
2006
|
2005
|
|||
|
|||||
NET SALES: | |||||
Product sales |
$11,950,863
|
$15,130,872
|
$8,691,822
|
||
Service sales |
569,198
|
746,847
|
978,872
|
||
|
|||||
Total Net Sales |
12,520,061
|
15,877,719
|
9,670,694
|
||
COSTS AND EXPENSES: | |||||
Cost of product sold |
7,240,071
|
8,183,500
|
5,197,059
|
||
Cost of services sold |
552,313
|
602,659
|
836,371
|
||
Product development |
2,020,312
|
1,840,182
|
2,059,401
|
||
Marketing and administrative |
3,630,598
|
4,408,798
|
4,243,632
|
||
expenses | |||||
Interest charges |
49,477
|
64,582
|
21,465
|
||
Other income |
(346,161)
|
(299,115)
|
(201,162)
|
||
|
|||||
Total Costs and Expenses |
13,146,610
|
14,800,606
|
12,156,766
|
||
|
|||||
Income (Loss) before Provision for Income Taxes |
(626,549)
|
1,077,113
|
(2,486,072)
|
||
Provision For (Recovery
Of) Income Taxes: |
|||||
Current |
(106,593)
|
29,000 |
(25,000)
|
||
Deferred |
114,593
|
244,500
|
(887,300)
|
||
|
|||||
8,000
|
273,500
|
(912,300)
|
|||
|
|||||
Income (Loss) before |
|||||
cumulative effect of change in accounting principle |
$(634,549) | $803,613 | $(1,573,772) | ||
Cumulative effect of change |
|||||
in accounting for stock based compensation, net of tax of $8,000 |
14,863 |
- |
- |
||
|
|||||
Net Income (Loss) |
$(649,412) |
$803,613 |
$(1,573,772) |
||
|
|||||
Income (Loss) per Common |
|||||
share before cumulative effect of change in accounting principle |
$(.52) |
$.66 |
$(1.30) |
||
Cumulative effect of change | |||||
in accounting for stock based compensation, net of tax of $8,000 | (.01) |
- |
- |
||
|
|||||
NET INCOME (LOSS) PER COMMON SHARE - BASIC | $(.53) | $.66 | $(1.30) | ||
|
|||||
Income (Loss) per Common |
|||||
share assuming dilution: |
|||||
Income (Loss) per Common |
|||||
share before cumulative effect of change in accounting principle |
$(.52) |
$.64 |
$(1.30) |
||
Cumulative effect of change | |||||
in accounting for stock based compensation, net of tax of $8,000 |
(.01) |
- |
- |
||
|
|||||
NET INCOME (LOSS)
PER COMMON SHARE - DILUTED |
$(.53) | $.64 | $(1.30) | ||
|
|||||
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING |
1,213,984
|
1,211,245
|
1,211,629
|
||
|
F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
HICKOK INCORPORATED
FOR THE YEARS
ENDED SEPTEMBER 30, 2007, 2006, AND 2005
$1.00 PAR VALUE |
||||||||
RETAINED
EARNINGS |
CLASS A | CLASS B | CONTRIBUTED
CAPITAL |
ACCUMULATED COMPREHEN-
SIVE INCOME |
TREASURY
SHARES |
TOTAL | COMPREHEN-
SIVE INCOME |
|
Balance at
September 30, 2004 |
$7,899,541 | $762,588 | $454,866 | $1,592,942 |
$34,863 |
$(639,095) | $10,105,705 | $ - |
Purchase and
Retirement of Class A shares tendered |
- | (6,209) | - | - | - | (22,581) | (28,790) | - |
Unrealized
Gain on Investments and Reclassification adjustment for gain/loss included in net earnings (see note 3)(net of tax) |
- | - | - | - | 183,275 | - | 183,275 | 183,275 |
Dividend of $.10 per Class A and B shares |
(121,125) |
- |
- |
- |
- |
- |
(121,125) |
- |
Net Loss |
(1,573,772) | - | - | - | - | - | (1,573,772) | (1,573,772) |
|
||||||||
Balance at
September 30, 2005 |
$6,204,644 | $756,379 | $454,866 | $1,592,942 | $218,138 | $(661,676) | $8,565,293 | $(1,390,497) |
|
||||||||
Unrealized Gain on Investments and Reclassification adjustment
for gain/loss included in net earnings (see note 3) (net of tax) |
- |
- |
- |
- |
(113,269) |
- |
(113,269) |
$(113,269) |
Net Income |
803,613 |
- |
- |
- |
- |
- |
803,613 |
803,613 |
|
||||||||
Balance at September 30, 2006 |
$7,008,257 |
$756,379 |
$454,866 |
$1,592,942 |
$104,869 |
$(661,676) |
$9,255,637 |
$690,344 |
|
||||||||
Unrealized Gain on Investments and Reclassification adjustment
for gain/loss included in net earnings (see note 3) (net of tax) |
- |
- |
- |
- |
(104,869) |
- |
(104,869) |
$(104,869) |
Sale of Class A shares under option |
- |
10,400 |
- |
32,320 |
- |
- |
42,720 |
- |
Cumulative effect of change in accounting for stock based compensation |
- |
- |
- |
22,863 |
- |
- |
22,863 |
- |
Share-based compensation expense |
- |
- |
- |
13,402 |
- |
- |
13,402 |
- |
Dividend of $.10 per Class A and B shares |
(121,124) |
- |
- |
- |
- |
- |
(121,124) |
- |
Net Loss |
(649,412) |
- |
- |
- |
- |
- |
(649,412) |
(649,412) |
|
||||||||
Balance at September 30, 2007 |
$6,237,721 |
$766,779 |
$454,866 |
$1,661,527 |
$ - - | $(661,676) |
$8,459,217 |
$(754,281) |
|
||||||||
See accompanying summary of accounting policies and notes to financial statements.
F-5
CONSOLIDATED STATEMENT OF CASH FLOWS
HICKOK INCORPORATED
FOR THE YEARS
ENDED SEPTEMBER 30
2007
|
2006
|
2005
|
|
|
|||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||
Cash received from customers |
$12,279,389
|
$12,526,353
|
$10,088,121
|
Cash paid to suppliers
and employees |
(13,056,172)
|
(14,412,343)
|
(12,409,036)
|
Interest paid |
(38,328)
|
(57,144)
|
(21,465)
|
Interest received |
24,693
|
3,448
|
10,453
|
Income taxes (paid) refunded |
(26,500)
|
159
|
(5,000)
|
|
|||
Net Cash Provided by (Used in) Operating Activities |
(816,918)
|
(1,939,527)
|
(2,336,927)
|
CASH FLOWS FROM INVESTING ACTIVITIES: | |||
Capital expenditures |
(150,142)
|
(93,773)
|
(235,470)
|
Proceeds on sale of assets |
-
|
774
|
11,941
|
Purchase of short-term investments | (900,247) | - | (500,000) |
Sale of short-term investments |
1,886,627
|
1,400,000
|
849,841
|
|
|||
Net Cash Provided by (Used in) Investing Activities |
836,238
|
1,307,001
|
126,312
|
CASH FLOWS FROM FINANCING ACTIVITIES: | |||
Increase in short-term financing
|
599,700 |
548,000 |
800,000 |
Purchase of Class A shares |
-
|
-
|
(62,090)
|
Sale of Class A shares under option |
42,720 |
- |
- |
Dividends paid |
(121,124) |
- |
(121,125) |
|
|||
Net Cash Provided by (Used in) Financing Activities |
521,296
|
548,000
|
616,785
|
|
|||
Increase (Decrease) in Cash and Cash Equivalents |
540,616
|
(84,526)
|
(1,593,830)
|
Cash and Cash Equivalents at Beginning of Year |
61,363
|
145,889
|
1,739,719
|
|
|||
Cash and Cash Equivalents at End of Year |
$601,979
|
$61,363
|
$145,889
|
|
|||
See accompanying summary
of accounting policies and notes to financial statements. |
F-6
2007 |
2006 |
2005 |
|
|
|||
RECONCILIATION OF
NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|||
Net Income (Loss) |
$(649,412) |
$803,613 |
$(1,573,772) |
ADJUSTMENTS
TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|||
Depreciation |
221,160 |
237,291 |
267,180 |
Dividends reinvested |
(45,008) |
(69,783) |
(77,085) |
Gain on disposal of investments |
(251,543) |
(202,014) |
(90,788) |
(Gain)Loss
on disposal of assets |
2,075 |
77 |
(4,014) |
Cumulative effect of change in accounting principle |
22,863 |
- |
- |
Share-based compensation expense |
13,402 |
- |
- |
Deferred income
taxes |
106,593 |
244,500 |
(887,300) |
CHANGES
IN ASSETS AND LIABILITIES: |
|||
Decrease (Increase)
in accounts receivable |
(240,672) |
(3,351,366) |
417,427 |
Decrease (Increase)
in inventories |
(822,478) |
(78,445) |
175,596 |
Decrease (Increase)
in prepaid expenses |
(17,270) |
(19,605) |
4,193 |
Increase (Decrease)
in accounts payable |
1,523,985 |
59,545 |
(111,029) |
Increase (Decrease)
in accrued payroll and related expenses |
(390,195) |
405,961 |
(466,100) |
Increase (Decrease)
in other accrued expenses and accrued taxes other than income |
(157,325) |
1,540 |
38,765 |
Increase (Decrease)
in accrued income taxes |
(133,093) |
29,159 |
(30,000) |
|
|||
Total Adjustments |
(167,506) |
(2,743,140) |
(763,155) |
|
|||
Net Cash
Provided by (Used in) Operating Activities |
$(816,918) |
$(1,939,527) |
$(2,336,927) |
|
|||
F-7
F-8
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
HICKOK INCORPORATED
SEPTEMBER
30, 2007, 2006 AND 2005
Hickok Incorporated and its wholly-owned domestic subsidiaries ("Company") develop and manufacture products used by companies in the transportation and emissions testing industries. Among the products are indicators and gauges sold to companies in aircraft and locomotive markets. On a much larger scale, the Company manufactures diagnostic equipment used by automotive technicians to test the various electronic systems in automobiles and emissions testing equipment specified by various states for testing vehicle emissions. Also within the automotive segment, the Company manufactures equipment to control the nut running process in assembly plants. The Company serves the automotive, locomotive and general aviation markets predominately in North America. Sales in the Company's principal product classes, as a percent of consolidated sales, are as follows:
Product Classes |
2007
|
2006
|
2005
|
||||||
|
|
||||||||
Automotive Test Equipment |
85.1
|
% |
86.4
|
% |
78.2
|
% | |||
Fastening Systems |
0.0
|
.9
|
2.4
|
||||||
Indicating Instruments |
14.9
|
12.7
|
19.4
|
||||||
Other Product Classes |
0.0
|
0.0
|
0.0
|
||||||
|
|||||||||
Total |
100.0
|
% |
100.0
|
% |
100.0
|
% | |||
|
Current operating properties consist of a manufacturing plant in Greenwood, Mississippi, and a corporate headquarters, marketing and product development facility in Cleveland, Ohio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation :
The consolidated
financial statements include the accounts of Hickok Incorporated and its wholly-owned
domestic subsidiaries. Significant intercompany transactions and balances
have been eliminated in the financial statements.
Concentration
of Credit Risk :
The Company
sells its products and services primarily to customers in the United States
of America and to a lesser extent overseas. All sales are made in United States
of America dollars. The Company extends normal credit terms to its customers.
Customers in the automotive industry comprise 95% of outstanding receivables
at September 30, 2007 (93% in 2006). Sales
to two customers approximated $3,683,000 and $3,620,000 (2007), $7,100,000 and $147,000
(2006), $211,000 and $143,000 (2005),
and accounts receivable to these customers amounted to approximately $1,552,000 and $3,042,000
(2007), $3,470,000 and $31,000
(2006).
Use of
Estimates in the Preparation of Financial Statements :
The preparation
of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that may affect the
reported amounts of certain assets and liabilities and disclosure of contingencies
at the date of the financial statements, and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Revenue
Recognition :
The Company
records sales as manufactured items are shipped to customers on an FOB shipping
point arrangement, at which time title passes and the earnings process is
complete. The customer does not have a right to return merchandise unless
defective or warranty related and there are no formal customer acceptance
provisions. The Company warrants certain products against defects for periods
ranging primarily from 12 to 36 months. Charges against income
for warranty expense amounted to $60,299 (2007), $37,861 (2006)
and $133,234 (2005). Sales returns and allowances were immaterial during
each of the three years in the period ending September 30, 2007. An estimate
for future warranty claims of $13,764 (2007) and $20,855
(2006) is included in "Accrued expenses".
Product
Development Costs :
Product development
costs, which include engineering production support, are expensed as incurred.
Research and development performed for customers represents no more than 1%
of sales in each year. The arrangements do not include a repayment obligation
by the Company.
Cash and
Cash Equivalents :
For purposes
of the Statement of Cash Flows, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. From time to time the Company maintains cash balances in excess
of the FDIC limits. The cash balance at September 30, 2007 amounted to $601,979.
Short-term Investments :
Investments were comprised of marketable securities in the form
of mutual funds. Marketable securities were classified as available-for-sale
and were recorded at their fair market value. Unrealized gains or losses resulting
from changes in fair value were recorded as a component of comprehensive income
(loss). During fiscal 2007
all short-term investments were sold.
Accounts Receivable
:
The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
Inventories :
Inventories
are valued at the lower of cost (first-in, first-out) or market and consist
of:
2007
|
2006
|
|
|
||
Raw materials and component parts |
$2,801,869
|
$2,392,394
|
Work-in-process |
1,260,911
|
648,607
|
Finished products |
522,772
|
722,073
|
|
||
$4,585,552
|
$3,763,074
|
|
|
Property,
Plant and Equipment :
Property, plant
and equipment are carried at cost. Maintenance and repair costs are expensed
as incurred. Additions and betterments are capitalized. The depreciation policy
of the Company is generally as follows:
Class | Method |
|
|
||
Buildings | Straight-line | 10 to 40 years |
Machinery and equipment | Straight-line | 3 to 10 years |
Tools and dies | Straight-line | 3 years |
Depreciation
amounted to $221,160 (2007), $237,291 (2006), and $267,180 (2005).
Valuation
of Long-Lived Assets :
Long-lived assets
such as property, plant and equipment and software are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the total of the expected future undiscounted cash
flows is less than the carrying amount of the asset, a loss is recognized
for the difference between the fair value and carrying value of the asset.
Shipping and Handling
Costs :
Shipping and
handling costs are classified as cost of product sold.
Advertising Costs
:
Advertising
costs are expensed as incurred and amounted to $37,519 (2007), $60,327
(2006) and $159,626 (2005).
Income
Taxes :
The Company
records income taxes under the provisions of Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes."
Reclassifications
:
Certain 2006 balances have been reclassified to agree with 2007 presentation.
Income
per Common Share :
Income per common
share information is computed on the weighted average number of shares outstanding
during each period as disclosed in Note 9.
Adoption
of New Accounting Standards :
In July 2006,
the Financial Accounting Standards Board issued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes. The Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax
return. The Interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company will adopt the provisions
of Interpretation No. 48 effective October
1, 2007. The Company does not anticipate any material impact to its financial
condition or results of operations due to the adoption of Interpretation No.
48.
In September
2006, the Financial Accounting
Standards Board issued SFAS No. 157, Fair Value Measurements.
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosure about
fair value measurements. The Company will adopt this pronouncement effective
October 1, 2008. The Company does not anticipate any material impact to its financial
condition or results of operations due to the adoption of SFAS No. 157.
In February 2007,
the Financial
Accounting Standards Board issued SFAS No. 159, Fair Value Option for Financial
Assets and Financial Liabilities - Including and Amendment of FASB Statement
No. 115. This statement permits an entity to choose to measure many financial
instruments and certain other items at fair value. The fair value option established
by FSAS No. 159 permits entities to choose to measure eligible items at fair
value at specified election dates. Unrealized gains and losses on items for
which the fair value option has been elected are to be recognized in earnings
at each subsequent reporting date. The Company will adopt this pronouncement
effective October 1, 2008. The Company does not anticipate any material impact
to its financial condition or results of operations due to the adoption of
FSAS No. 159.
In September 2006, the SEC staff issued Staff Accounting Bulletin Topic 1N, Financial Statements - - Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides guidance on how prior year misstatements should be evaluated when determining the materiality of misstatements in the current year financial statements. SAB 108 requires materiality to be determined by considering the effect of prior year misstatements on both the current year balance sheet and income statement, with consideration of their carryover and reversing effects. SAB 108 also addresses how to correct material misstatements. The Company will adopt the provisions of this bulletin effective October 1, 2007. The Company does not anticipate any material impact to its financial condition or results of operations due to the adoption of SAB 108.
3. SHORT-TERM INVESTMENTS AND COMPREHENSIVE INCOME
During fiscal 2007 all short-term investments were sold.
Short-term
investments are as follows:
2007 | 2006 | |||
COST | MARKET | COST | MARKET | |
|
||||
Mutual funds | $
- - |
$ - - | $689,829 |
$848,698 |
Less Cost | - | 689,829 |
||
|
|
|||
Gross unrealized gains on short-term investments | - | 158,869 |
||
Deferred income taxes | - | 54,000 |
||
|
|
|||
Accumulated comprehensive income (net of tax) | $ - - | $104,869 |
||
|
|
|||
Gains (Losses): |
||||
Gross unrealized gains |
$
- - |
$158,869 |
||
Gross unrealized losses |
- |
- |
||
|
|
|||
$
- - |
$158,869 |
|||
|
|
The following table sets forth the computation of comprehensive income.
2007
|
2006
|
2005
|
||
|
||||
Net Income (Loss) | $(649,412) |
$803,613 |
$(1,573,772) |
|
Unrealized gain on investments (net of tax) of $-0- in 2007, $15,758 in 2006 and $101,189 in 2005 | - |
30,590 |
196,426 |
|
Reclassification adjustment
for gain included in net earnings (net of tax) of $54,000 in 2007, $74,109
in 2006 and $6,775 in 2005 |
(104,869) |
(143,859) |
(13,151) |
|
|
||||
Comprehensive Income (Loss) | $(754,281) |
$690,344 |
$(1,390,497) |
|
|
||||
Gains (Losses): | ||||
Gross realized gains |
$251,543
|
$202,014
|
$90,788
|
|
Gross realized losses |
- |
- |
- |
|
The Company has a secured credit agreement of $2,500,000 with its financial lender. The agreement expires in February 2008 and provides for a secured revolving credit facility of $2,500,000 with interest generally equal to two and one half percent per annum plus one month LIBOR. The agreement is secured by the Company's accounts receivable, inventory, equipment and general intangibles. The credit agreement contains affirmative covenant requirements, tested on an annual basis, that require the Company to maintain a tangible net worth of $8,000,000 and a pre-tax interest coverage ratio of not less than 3.0 to 1.0. In addition, a borrowing base addendum generally allows for borrowing based on an amount equal to eighty five percent of eligible receivables, plus an amount equal to the lesser of either forty percent of eligible inventory or $1,000,000. The revolving credit facility is subject to a review by the Company's lender in 2008. The Company had outstanding borrowings of $1,947,700 under this loan facility at September 30, 2007 and $1,348,000 at September 30, 2006. The Company violated the pre-tax interest coverage ratio covenant due to a loss at September 30, 2007 and obtained a waiver from its financial lender. The Company is in compliance with its other loan covenant. Selected details of short-term borrowings are as follows:
Amount |
Interest Rate |
|
|
||
Balance at September 30, 2007 | $1,947,700 | 7.6% |
Average during 2007 | $577,000 | 7.8% |
Maximum during 2007 (month end) | $1,947,700 | 7.8% |
Balance at September 30,
2006 |
$1,348,000 |
7.8% |
Average during 2006 |
$836,000 |
7.5% |
Maximum during 2006 (month
end) |
$1,500,000 |
7.9% |
Operating
:
The Company
leases a facility and certain equipment under operating leases expiring through
November 2009.
The Company's minimum commitments under operating leases are as follows:
2008
|
$25,990
|
|
2009
|
16,372
|
|
2010
|
450
|
|
2011 | - | |
|
||
Total |
$42,812
|
|
|
Rental expense under these commitments was $39,810 (2007), $33,107 (2006) and $38,735 (2005).
A facility held under a capital lease has a net book value of $0 at September 30, 2007. Future minimum lease payments which extend through 2061 are immaterial.
Under the Company's Key Employees Stock Option Plans (collectively the "Employee Plans") the Compensation Committee of the Board of Directors has the authority to grant options to Key Employees to purchase up to 47,200 Class A shares, net of granted options. The options are exercisable for up to 10 years. Incentive stock options are available at an exercise price of not less than market price on the date the option is granted. However, options available to an individual owning more than 10% of the Company's Class A shares at the time of grant must be at a price not less than 110% of the market price. Non-qualified stock options may be issued at such exercise price and on such other terms and conditions as the Compensation Committee may determine. No options may be granted at a price less than $2.925. Non-cash compensation expense related to stock option plans for fiscal years ended September 30, 2007, 2006 and 2005 was $13,402, $0 and $0 respectively. All options granted under the Employee Plans are exercisable at September 30, 2007.
The Company's Outside Directors Stock Option Plans (collectively the "Directors Plans") provide for the automatic grant of options to purchase up to 51,000 shares of Class A common stock over a three year period to members of the Board of Directors who are not employees of the Company, at the fair market value on the date of grant. The options are exercisable for up to 10 years. All options granted under the Directors Plans become fully exercisable on February 22, 2010.
Transactions involving
the plans are summarized as follows:
Exercise |
Exercise |
Exercise |
|||||
|
|
|
|
|
|
||
|
|||||||
Option Shares | |||||||
Employee Plans: | |||||||
Outstanding October 1, |
117,450
|
$5.60
|
125,000
|
$6.25
|
125,000
|
$6.25
|
|
Granted |
-
|
-
|
-
|
-
|
-
|
-
|
|
Canceled/expired |
(13,900)
|
10.75
|
(7,550)
|
16.33
|
-
|
-
|
|
Exercised |
(10,400)
|
4.11
|
-
|
-
|
-
|
-
|
|
Outstanding September 30, 2007 ($3.13 to $10.50 per share) |
93,150
|
5.00
|
117,450
|
5.60
|
125,000
|
6.25
|
|
Exercisable September 30, |
93,150
|
5.00
|
117,450
|
5.60
|
125,000
|
6.25
|
|
Director Plans: | |||||||
Outstanding October 1, |
48,000
|
$7.45
|
45,000
|
$7.15
|
45,000
|
$8.44
|
|
Granted |
6,000
|
10.50
|
6,000
|
5.25
|
6,000
|
6.45
|
|
Canceled/expired |
(3,000)
|
8.50
|
(3,000)
|
18.00
|
(6,000)
|
16.13
|
|
Exercised |
-
|
-
|
-
|
-
|
-
|
-
|
|
Outstanding September 30, 2007 ($3.55 to $12.25 per share) |
51,000
|
6.63
|
48,000
|
6.27
|
45,000
|
7.19
|
|
Exercisable September 30, |
39,000
|
6.19
|
36,000
|
6.36
|
33,000
|
7.52
|
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 September
30, 2007.
Employee Plans | Outstanding
Stock Options Exercisable |
Weighted
Average Exercise Price |
Weighted
Average Remaining Life |
|
|||
Range of exercise Prices: |
|||
$3.13 - 5.00 | 69,350 | $3.74 | 3.2 |
$7.13 - 10.50 | 23,800 | $8.69 | .8 |
93,150 | $5.00 |
Directors Plans | Outstanding
Stock Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Life |
Number of
Stock Options Exercisable |
Weighted
Average Exercise Price |
|
|||||
Range of exercise prices: |
|||||
$3.55 - 5.25 | 22,000 | $4.21 | 5.6 | 18,000 | $3.97 |
$6.45 - 8.50 | 20,000 | $7.30 | 5.1 | 18,000 | $7.40 |
$10.50 - 12.25 | 9,000 | $11.08 | 6.5 | 3,000 | $12.25 |
51,000 | $6.63 | 39,000 | $6.19 |
On October 1, 2006, the Company adopted Statement of Financial
Standards SFAS No. 123(r), Share-Based Payment, under the modified prospective
method for its stock options for both employees and non-employee Directors.
The adoption of SFAS No. 123(r) did not have a significant impact on the
Company's operations and are presented as a cumulative effect of change in
accounting principle on the Consolidated Statement of Income. The Company
previously accounted for stock-based compensation plans under the disclosure
only provisions of SFAS 123, which allowed the 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".
Compensation cost for fixed based awards are measured at the grant date, and the Company uses the Black-Scholes option pricing model to determine the fair value estimates for recognizing the cost of employee and director services received in exchange for an award of equity instruments. The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect the fair value estimates. Employee stock options are immediately exercisable while Director's stock options are exercisable over a three year period. The fair value of stock options grants to Directors is amortized over the three year vesting period. During fiscal year ended September 30, 2007, $13,402 was expensed as share-based compensation. Total compensation costs related to nonvested awards not yet recognized is $10,369 (2008), $7,096 (2009) and $1,598 (2010). The following weighted-average assumptions were used in the option pricing model for 2007: a risk free interest rate of 6.0%; an expected life of 10 years; an expected dividend yield of 1.9%; and a volatility factor of .37.
Prior to adopting the provisions of SFAS 123(r),
the Company adopted the disclosure only provisions of SFAS 123,
which allowed a company 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 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
used 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. The following weighted-average assumptions were used in the option pricing model
for 2006 and 2005 respectively: a risk free interest rate of 6.0% and 4.9%; an expected
life of 8 and 8 years; an expected dividend yield of 0.0% and 0.0%; and a volatility
factor of .35 and .41.
Had compensation cost for fixed price stock options granted in 2006 and 2005 been determined using the fair value method, pro forma net income (loss) and earnings (loss) per share would have been as follows:
2006
|
2005
|
|||||||
|
||||||||
Net Income (Loss) | - as reported |
$803,613
|
$(1,573,772)
|
|
||||
Deduct: Total stock based employee and Director compensation expense determined under fair value based method for all awards, net of related tax effects | 12,047 | 11,747 | ||||||
|
||||||||
- pro forma |
$791,566
|
$(1,585,519)
|
|
|||||
Basic Income (Loss) per share | - as reported | $.66 | $(1.30) | |||||
Diluted Income (Loss) per share | - as reported | $.64 | $(1.30) | |||||
Basic Income (Loss) per share | - pro forma |
$.65
|
$(1.31)
|
|||||
Diluted Income (Loss) per share | - pro forma |
$.64
|
$(1.31)
|
|
The effects of applying FAS No. 123 in this pro forma disclosure
are not necessarily indicative of future amounts.
7. CAPITAL STOCK, TREASURY STOCK, AND CONTRIBUTED CAPITAL
Unissued shares of Class A common stock (599,016 and 620,316 shares in 2007 and 2006 respectively) 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 (see note 6). The Class A shares have one vote per share and the Class B shares have three votes per share, except under certain circumstances such as voting on voluntary liquidation, sale of substantially all the assets, etc. Dividends up to $.10 per year, noncumulative, must be paid on Class A shares before any dividends are paid on Class B shares.
During fiscal 2005, the Company purchased shares in conjunction with a tender offer (see note 12).
A reconciliation
of the provision (recovery) of income taxes to the statutory Federal income
tax rate is as follows:
2007
|
2006
|
2005
|
||
|
||||
Income (Loss) Before Provision for Income Taxes |
$(626,549)
|
$1,077,113
|
$(2,486,072)
|
|
Statutory rate |
34%
|
34%
|
34%
|
|
|
||||
(213,027)
|
366,218
|
(845,264)
|
||
Permanent differences |
(6,700)
|
9,900
|
9,800
|
|
Research and development credit - net |
(100,300)
|
(93,400)
|
(103,800)
|
|
Expiration of contribution
carryforward |
- |
- |
49,000 |
|
Valuation allowance |
443,000 |
- |
- |
|
Adjustment to accrued income taxes |
(106,600) |
- |
- |
|
Other |
(8,373)
|
(9,218)
|
(22,036)
|
|
|
||||
$8,000
|
$273,500
|
$(912,300)
|
||
|
2007
|
2006
|
|||
|
||||
Current: | ||||
Inventories |
$162,900
|
$245,400
|
||
Bad debts | 3,400 | 25,500 | ||
Unrealized gains on short-term investments | - | (54,000) | ||
Accrued liabilities |
76,200
|
226,200
|
||
Prepaid expense |
(23,600)
|
(20,700) | ||
Net operating loss carryforward |
136,000 |
102,000 |
||
|
||||
Total current deferred income taxes |
354,900
|
524,400
|
||
Noncurrent: | ||||
Depreciation and amortization |
209,700
|
239,900
|
||
Research and development and other credit carryforwards |
1,403,200
|
1,251,300
|
||
Net operating loss carryforward | 435,100 | 82,200 | ||
Contribution carryforward |
65,900 |
- |
||
Directors stock option plan |
12,300
|
-
|
||
Other |
7,107 |
- |
||
|
||||
2,133,307
|
1,573,400
|
|||
Valuation allowance |
(443,000) |
- |
||
|
|
|||
Total long-term deferred income taxes |
1,690,307 |
1,573,400 |
||
|
||||
Total |
$2,045,207
|
$2,097,800
|
||
|
The Company has available a net operating loss carryforward of approximately $1,680,000 and a contribution carryforward of approximately $194,000. The net operating loss and research and development credit carryforwards will begin to expire in 2015. The valuation allowance was recorded in 2007 due to additional losses and an increased likelihood of tax credits expiring before being utilized.
The Company's ability to realize the entire benefit of its deferred tax assets requires that the Company achieve certain future earning levels prior to the expiration of its net operating loss and research and development credit carryforwards. The Company could be required to record a valuation allowance for a portion or all of its deferred tax assets if market conditions deteriorate and future earnings are below, or projected to be below, its current estimates. Because of the uncertainties involved with this significant estimate, it is reasonably possible that the Company's estimate may change in the near term.
The following table
sets forth the computation of basic and diluted earnings per share.
2007
|
2006
|
2005
|
|
|
|||
Basic Income (Loss) Per Share | |||
Income (Loss) available to common stockholders |
$(649,412)
|
$803,613
|
$(1,573,772)
|
Shares denominator |
1,213,984
|
1,211,245
|
1,211,619
|
Per share amount |
$(.53)
|
$.66
|
$(1.30)
|
|
|||
Effect of Dilutive Securities | |||
Average shares outstanding |
1,213,984
|
1,211,245
|
1,211,629
|
Stock options |
-
|
34,937
|
-
|
|
|||
1,213,984
|
1,246,182
|
1,211,629
|
|
Diluted Income (Loss) Per Share | |||
Income (Loss) available to common stockholders |
$(649,412)
|
$803,613
|
$(1,573,772)
|
Per share amount |
$(.53)
|
$.64
|
$(1.30)
|
|
The Company has a formula based profit sharing bonus plan for officers and key employees. For fiscal years ended September 30, 2007 and 2005, the formula produced no bonus distribution. In addition the Board of Directors approved an additional bonus plan for fiscal year ended September 30, 2006. The bonus distribution was determined by the Compensation Committee of the Board of Directors. For fiscal year ended September 30, 2006, bonus expense amounted to approximately $575,000.
The Company has a 401(k) Savings and Retirement Plan covering all full-time employees. Company contributions to the plan, including matching of employee contributions, are at the Company's discretion. For fiscal years ended September 30, 2007, 2006 and 2005, the Company made no matching contributions to the plan.
The Company terminated its deferred compensation plan during 2006 which permitted selected management and highly compensated employees to make tax deferred contributions in the form of salary reductions. For fiscal years ended September 30, 2006 and 2005, approximately $-0- and $7,500 respectively, were allocated by the participants to this plan and was included in "Accrued Payroll and Related Expenses." The funds were distributed to the plan participants in February 2006. The Company does not provide any other post retirement benefits to its employees.
11. SEGMENT AND RELATED INFORMATION
The Company 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. The indicators and gauges unit has different technologies and customers than the other business units. Therefore, the business units have been aggregated into two reportable segments: 1.) indicators and gauges and 2.) automotive related diagnostic tools and equipment. The Company's management evaluates segment performance based primarily on operating earnings before taxes. Non-operating items such as interest income and interest expense are included in general corporate expenses. Depreciation expense on assets used in manufacturing are considered part of each segment's operating performance. Depreciation expense on non-manufacturing assets are included in general corporate expenses.
Indicators and Gauges
This segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture or service business and pleasure aircraft. Within the locomotive market, indicators and gauges are sold to both original equipment manufacturers and to operators of railroad equipment.
Automotive Diagnostic Tools and Equipment
This segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions. Also 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. This equipment provides high quality joint control and documentation.
Information
by industry segment is set forth below:
Years Ended September 30, |
2007
|
2006
|
2005
|
||||||||
|
|||||||||||
Net Sales | |||||||||||
Indicators and Gauges |
|
$1,866,095
|
|
$2,024,122
|
|
$1,875,286
|
|||||
Automotive Diagnostic Tools and Equipment |
10,653,966
|
13,853,597
|
7,795,408
|
||||||||
|
|||||||||||
|
$12,520,061
|
|
$15,877,719
|
|
$9,670,694
|
||||||
|
|||||||||||
Income (Loss) Before Provision for Income Taxes | |||||||||||
Indicators and Gauges |
|
$188,296
|
|
$356,615
|
|
$(4,735)
|
|||||
Automotive Diagnostic Tools and Equipment |
468,238
|
2,448,525
|
(1,089,842)
|
||||||||
General Corporate Expenses |
(1,283,083)
|
(1,728,027)
|
(1,391,495)
|
||||||||
|
|||||||||||
|
$(626,549)
|
|
$1,077,113
|
|
$(2,486,072)
|
||||||
Asset Information
:
Years Ended September 30, |
2007
|
2006
|
|||||
|
|||||||
Identifiable Assets | |||||||
Indicators and Gauges |
|
$779,534
|
|
$898,811
|
|||
Automotive Diagnostic Tools and Equipment |
8,416,846
|
7,227,331 | |||||
Corporate | 3,557,510 | 3,981,096 | |||||
|
|||||||
|
$12,753,890
|
|
$12,107,238
|
||||
|
|||||||
Geographical Information :
Included in
the consolidated financial statements are the following amounts related to
geographic locations:
Years Ended September 30, |
2007
|
2006
|
2005
|
|
|
||||
Revenue: | ||||
United States of America |
$12,245,924
|
$14,518,239
|
$9,348,925
|
|
Australia |
48,888 |
33,629 |
2,115 |
|
Canada |
125,658
|
684,225
|
245,988
|
|
Germany |
89,358 |
617,857 |
12,240 |
|
Other foreign countries |
10,233
|
23,769
|
61,426
|
|
|
||||
$12,520,061
|
$15,877,719
|
$9,670,694
|
||
|
All export
sales to Australia, Canada, Germany and other foreign countries are made in
United States of America Dollars.
On August 11, 2004, the Company filed a Schedule 13E-3 with the Securities and Exchange Commission in connection with a Tender Offer to purchase for cash all Class A common shares, $1 par value, held by holders of 99 or fewer shares as of the close of business on August 2, 2004. The purpose of the tender offer was generally to reduce the number of shareholders of record to fewer than 300 to allow the Company to terminate its reporting obligations under the Securities Exchange Act of 1934. The Company paid $10 per Class A common share properly tendered by eligible shareholders. The offer expired on December 15, 2004.
The Board of Directors and management pursued this offer under
the belief that the Company derives little benefit from the status of being
a public company. In addition, the costs associated with certain provisions
of the Sarbanes-Oxley Act, which are required to be in place in fiscal 2008 and 2009 become
even more significant given our size and the relative benefits we can derive
from being public. Although well intended,
Sarbanes-Oxley compliance could mean significant increases for the Company
in annual accounting, legal and insurance costs for remaining public and could
significantly affect the size of the Board of Directors and the time management
will be able to devote to operating the business.
13. QUARTERLY DATA (UNAUDITED)
First
|
Second
|
Third
|
Fourth
|
||
|
|||||
Net Sales | |||||
|
$2,191,630
|
$1,540,952
|
$2,817,235
|
$5,970,244
|
|
|
2,703,224
|
3,613,401
|
4,221,159
|
5,339,935
|
|
|
2,064,891
|
2,842,081
|
2,761,122
|
2,002,600
|
|
Gross Profit | |
||||
|
757,496
|
387,274
|
1,108,334
|
2,474,573 | |
|
1,227,951
|
1,316,035
|
2,000,299
|
2,547,275
|
|
|
717,076
|
1,258,885
|
1,115,843
|
545,460
|
|
Income (Loss) before cumulative effect of change in accounting principle |
|||||
2007 |
(375,881) |
(741,416) |
31,321 |
451,427 |
|
2006 |
104,503 |
(105,972) |
293,975 |
511,107 |
|
2005 |
(483,758) |
(255,610) |
(342,537) |
(491,867) |
|
Net Income (Loss) | |||||
|
(1)(390,744)
|
(741,416)
|
31,321
|
451,427
|
|
|
104,503
|
(105,972)
|
293,975
|
511,107
|
|
|
(483,758)
|
(255,610)
|
(342,537)
|
(491,867)
|
|
Income (Loss) per Common Share before cumulative effect of change
in accounting principle |
|||||
Basic |
|||||
2007 |
(.31) |
(.61) |
.02 |
.38 |
|
2006 |
.09 |
(.09) |
.24 |
.42 |
|
2005 |
(.40) |
(.21) |
(.28) |
(.41) |
|
Diluted |
|||||
2007 |
(.31) |
(.61) |
.02 |
.38 |
|
2006 |
.08 |
(.09) |
.24 |
.41 |
|
2005 |
(.40) |
(.21) |
(.28) |
(.41) |
|
Net Income (Loss) per Common Share | |||||
Basic | |||||
|
(.32)
|
(.61)
|
.02
|
.38
|
|
|
.09
|
(.09)
|
.24
|
.42
|
|
|
(.40)
|
(.21)
|
(.28)
|
(.41)
|
|
Diluted | |||||
|
(.32)
|
(.61)
|
.02
|
.38
|
|
|
.08
|
(.09)
|
.24
|
.41
|
|
|
(.40) |
(.21)
|
(.28)
|
(.41)
|
|
(1) The
first quarter 2007 includes a $14,863 charge from a change in accounting for
stock-based compensation, net of tax of $8,000. |
|||||
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED SEPTEMBER 30
2007
|
2006
|
2005
|
2004
|
2003 | |||||||||
|
|||||||||||||
|
|||||||||||||
Net Sales |
$
|
12,520
|
$
|
15,878
|
$
|
9,671
|
$
|
15,721
|
$
|
11,038
|
|||
Net Income (Loss) |
$
|
(649)
|
$
|
804
|
$
|
(1,574)
|
$
|
660
|
$
|
(1,773)
|
|||
Working Capital |
$
|
5,950
|
$
|
6,790
|
$
|
6,127
|
$
|
7,654
|
$
|
6,611
|
|||
Total Assets |
$
|
12,754
|
$
|
12,107
|
$
|
10,373
|
$
|
11,715
|
$
|
10,380
|
|||
Long-term Debt |
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0- | |||
Total Stockholders' Equity |
$
|
8,459
|
$
|
9,256
|
$
|
8,565
|
$
|
10,106
|
$
|
9,458
|
|||
Net Income (Loss) Per Share |
$
|
(.53)
|
$
|
.66
|
$
|
(1.30)
|
$
|
.54
|
$
|
(1.45)
|
|||
Dividends Declared | |||||||||||||
|
|||||||||||||
|
$
|
.10
|
$
|
-0-
|
$
|
.10
|
$
|
-0-
|
$
|
-0-
|
|||
|
$
|
.10
|
$
|
-0-
|
$
|
.10
|
$
|
-0-
|
$
|
-0-
|
|||
Stockholders' Equity | |||||||||||||
|
$
|
6.92
|
$
|
7.64
|
$
|
7.07
|
$
|
8.30
|
$
|
7.75
|
|||
Return on Sales |
(5.2%)
|
5.1%
|
(16.3%)
|
4.2%
|
(16.1%)
|
||||||||
Return on Assets |
(5.2%)
|
7.2%
|
(14.3%)
|
6.0%
|
(15.6%)
|
||||||||
Return on Equity |
(7.3%)
|
9.0%
|
(16.9%)
|
6.7%
|
(17.1%)
|
||||||||
Closing Stock Price |
$
|
12.75
|
$
|
5.90
|
$
|
4.80
|
$
|
5.30
|
$
|
4.10
|
|||
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEM 8A. CONTROLS AND PROCEDURES
As of September 30, 2007,
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 Senior 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
Senior Vice President, Finance and Chief Financial Officer, concluded that
the Company's disclosure controls and procedures were effective as of September
30, 2007 in ensuring that information required to be disclosed by the Company
in the reports it files and submits under the Exchange Act (1)is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms, and (2) is accumulated and communicated to
the Company's management, including its principal executive and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure. There were no changes in the Company's internal controls over
financial reporting during the fourth fiscal quarter ended September 30, 2007
that have materially affected, or are reasonably likely to materially affect
the Company's internal control over financial reporting.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item 9 as to the Directors of the Company is incorporated herein by reference to the information set forth under the caption "Information Concerning Nominees for Directors" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 20, 2008, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. Information required by this Item 9 as to the Executive Officers of the Company is included in Part I of this Annual Report on Form 10-KSB. Information required by this Item as to the Audit Committee, the Audit Committee financial expert, the procedures for recommending nominees to the Board of Directors and compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the information set forth under the captions "Information Regarding Meetings and Committees of the Board of Directors" and "Section 16(a)Beneficial Ownership Compliance" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 20, 2008.
The Company has
historically operated under informal ethical guidelines, under which the Company's
principal executive, financial, and accounting officers, are held accountable.
In accordance with these guidelines, the Company has always promoted honest,
ethical and lawful conduct throughout the organization and has adopted a written Code of Ethics for the Chief Executive
Officer and Chief Financial Officer. In addition, the Company
adopted and the Board of Directors approved a written Code of Business Conduct
for all officers and employees. The Company also implemented a system to
address the "Whistle Blower" provision of the Sarbanes-Oxley Act of 2002.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 is incorporated by reference to the information set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 20, 2008, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table provides
information as of September 30, 2007 with respect to compensation plans (including
individual compensation arrangements) under which Common Stock of the Company
is authorized for issuance under compensation plans previously approved and
not previously approved by shareholders of the Company.
|
|
|
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
________________________________________________________________________________
Equity compensation plans approved by security holders |
|
|
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
Total |
|
|
Other information required by this Item 11 is incorporated by reference to the information set forth under the captions "Principal Shareholders" and "Share Ownership of Directors and Officers" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 20, 2008, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 12 is incorporated by reference to the information set forth under the caption "Transactions with Management" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 20, 2008, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A.
(a) (1) FINANCIAL STATEMENTS
The following Consolidated
Financial Statements of the Registrant and its subsidiaries are included in
Part II, Item 7:
PAGE
|
Report of Independent Registered Public Accounting Firm | F-1 |
Consolidated Balance Sheet - As of September 30, 2007 and 2006 | F-2 |
Consolidated Statement of Income - Years Ended September 30, 2007, 2006 and 2005 | F-4 |
Consolidated Statement of Stockholders' Equity and Comprehensive Income - Years Ended September 30, 2007, 2006 and 2005 | F-5 |
Consolidated Statement of Cash Flows - Years Ended September 30, 2007, 2006 and 2005 | F-6 |
Notes to Consolidated Financial Statements | F-8 |
(a) (2) FINANCIAL STATEMENT SCHEDULES
The following Consolidated Financial Statement Schedules of the Registrant and its subsidiaries are included in Item 13 hereof.
SEQUENTIAL PAGE
Report of Independent Registered Public Accounting Firm as to Schedules | |
Schedule VIII-Valuation and Qualifying Accounts | |
Schedule IX-Short-term Borrowings |
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(a) (3) EXHIBITS
Reference is made to the Exhibit Index set forth herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required
by this Item 14 is incorporated by reference to the information set forth
under the caption "Independent Public Accountants" in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on February
20, 2008, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
In accordance with Section
13 or 15(d) of the Exchange Act, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HICKOK INCORPORATED By:
/s/ Robert L. Bauman |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated and on the 26th day of December, 2007:
SIGNATURE: | TITLE |
/s/ Janet H. Slade | Chairman |
Janet H. Slade | |
/s/ Robert L. Bauman | President and Chief Executive Officer |
Robert L. Bauman | (Principal Executive Officer) |
/s/ Gregory M. Zoloty | Senior Vice President and Chief Financial |
Gregory M. Zoloty | Officer |
(Principal Financial and Accounting Officer) | |
/s/ T. Harold Hudson | Director |
T. Harold Hudson | |
/s/ James T. Martin | Director |
James T. Martin | |
/s/ Michael L. Miller | Director |
Michael L. Miller | |
/s/ Jim N. Moreland | Director |
Jim N. Moreland | |
/s/ Hugh S. Seaholm | Director |
Hugh S. Seaholm |
EXHIBIT NO.: | DOCUMENT |
3(a) | Articles of Incorporation and Code of Regulations.* | |
3(b) | Amendment to Articles of Incorporation (incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, File No. 0-147). | |
10(a)(i) |
Promissory Note Modification Agreement, dated September 25, 2006,
by and between the Company and National City Bank (incorporated herein by
reference to the appropriate exhibit to the Company's Form 8-K as filed with
the Commission on September 29, 2006) effective through February 28, 2008. |
|
10(a)(ii) |
Commercial Note, dated March 27, 2006, by and between the Company
and National City Bank (incorporated herein by reference to the appropriate
exhibit to the Company's Form 8-K as filed with the Commission on March 31,
2006) effective through February 28, 2007. |
|
10(a)(iii) |
Addendum to Commercial Note, dated March 27, 2006, by and between
the Company
and National City Bank (incorporated herein by reference to the appropriate
exhibit to the Company's Form 8-K as filed with the Commission on March 31,
2006) effective through February 28, 2007. |
|
10(a)(iv) |
Borrowing Base Addendum to Commercial Note, dated March 27, 2006, by
and between the Company and National City Bank (incorporated herein by reference
to the appropriate exhibit to the Company's Form 8-K as filed with the Commission
on March 31, 2006) effective through February 28, 2007. |
|
10(a)(v) |
Business Loan Agreement, dated February 28, 2006, by and between
the Company and Huntington National Bank (incorporated herein by
reference to the appropriate exhibit to the Company's Form 8-K as filed with
the Commission on March 6, 2006) effective through April 30, 2006. |
|
10(a)(vi) |
Change in Terms Agreement, dated February 28, 2006, by and between
the Company and Huntington National Bank (incorporated herein by
reference to the appropriate exhibit to the Company's Form 8-K as filed with
the Commission on March 6, 2006) effective through April 30, 2006. |
|
10(b) | Hickok Incorporated 1997 Outside Directors Stock Option Plan (incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-8 as filed with the Commission on September 17, 1998). | |
10(c) | Hickok Incorporated 1997 Key Employees Stock Option Plan (incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-8 as filed with the Commission on September 17, 1998). | |
10(d) | Hickok Incorporated 2000 Outside Directors Stock Option Plan (incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-8 as filed with the Commission on June 6, 2001). | |
10(e) | Hickok Incorporated 2000 Key Employees Stock Option Plan (incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-8 as filed with the Commission on June 6, 2001). | |
10(f) | Hickok Incorporated 2003 Outside Directors Stock Option Plan (incorporated
herein by reference to the appropriate exhibit to the Company's Registration
Statement on Form S-8 as filed with the Commission on June 9, 2005). |
|
11 | Computation of Net Income Per Common Share. | |
14 |
Hickok Incorporated Financial
Code of Ethics for the Chief Executive Officer and Specified Financial Officers.
|
|
21 | Subsidiaries of the Registrant. | |
23 | Consent of Independent Registered Public Accounting Firm. | |
31.1 | Rule 13a-14(a)/15d-14(a)Certification by the Chief Executive Officer. | |
31.2 | Rule 13a-14(a)/15d-14(a)Certification by the Chief Financial Officer. | |
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. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AS TO CONSOLIDATED SCHEDULES
To the Shareholders
and Board of Directors
Hickok Incorporated
Cleveland, Ohio
We have audited the consolidated
financial statements of HICKOK INCORPORATED (the "Company") as of September
30, 2007 and 2006, and for each of the years in the three-year period ended
September 30, 2007, and have issued our report thereon dated November 29,
2007; such consolidated financial statements and report are included in Part II, Item 7 of
this Form 10-KSB. Our audits also included the consolidated financial statement
schedules ("schedules") of the Company listed in
item 13. These schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information
set forth therein.
/s/ Meaden & Moore, Ltd.
MEADEN &
MOORE, Ltd.
Certified Public
Accountants
November 29, 2007
Cleveland, Ohio
HICKOK INCORPORATED
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col.C Col. D&nb sp; Col. E
----------------------- ---------- ------------------------------- ----------- ------------
Additions
-------------------------------
&nbs p; Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description &nb sp; of Period Expenses Accounts Deductions of Period
----------------------------- ---------- ------------ ------------- ----------- ------------
Deducted from Asset Accounts:
Year Ended September 30, 2005
------------------------------
Reserve for doubtful accounts $ 10,000 $ 42,467 (1) $ 94 (2) $ 2,561 (3) $ 50,000
Reserve for inventory obsolescence $ 106,000 $ 389,990 $ - $ 70,990 (4) $ 425,000
Year Ended September 30, 2006
& nbsp; ------------------------------
Reserve for doubtful accounts $ 50,000 $ 22,482 (1) $ 4,244 (2) $ 1,726 (3) $ 75,000
Reserve for inventory obsolescence $ 425,000 $ 337,761 $ - $ 87,761 (4) $ 675,000
  ; Year Ended September 30, 2007
------------------------------
Reserve for doubtful accounts $ 75,000 $ (69,686) (1) $ - (2) $ (4,686) (3) $ 10,000
Reserve for inventory obsolescence $ 675,000 $ 106,259 $ - $ 309,259 (4) $ 472,000
(1) Classified as bad debt expense.
(2) Recoveries on accounts charged off in prior y ears.
(3) Accounts charged off during year as uncollectible.
(4) Inventory charged off during the year as obsolete.
HICKOK INCORPORATED
SCHEDULE IX - SHORT-TERM BORROWINGS
Col. A Col. B Col. C Col. D Col. E & nbsp; Col. F
-------- ---------- --------- --------------- -------------- --------------------
Weighted Maximum Amount Average Amount Weighted Average
Balance at Average Outstanding Outstanding &n bsp; Interest Rate
Category of Aggregate End of Interest During the During the During the
Short-term Borrowings Period Rate Period Period (2) Period (3)
------------------------ ---------- --------- --------------- -------------- --------------------
Year Ended September 30, 2005
-----------------------------
Note Payable to Bank $ 800,000 6.75% $ 800,000 $ 341,667 6.18%
Year Ended September 30, 2006
& nbsp; -----------------------------
Note Payable to Bank (1) $1,348,000 7.54% $1,550,000 $ 835,583 7.47%
Year Ended September 30, 2007
  ; -----------------------------
Note Payable to Bank (1) $1,947,700 7.69% $1,947,700 $ 534,575 7.78%
(1) Note payable to bank represents borrowings under a revolving credit facility which expires
February 28, 2008.
(2) The average amount outstanding during the period was computed by dividing the total of
daily outstanding principal balances by 365.
(3) The weighted average interest rate during the period was computed by dividing the actual
interest by the average short-term debt outstanding.
Years Ended September 30, |
2007 |
2006 |
2005 |
NET INCOME |
|||
Net income (loss) applicable to common shares for basic
earnings per share |
$(649,412) |
$803,613 |
$(1,573,772) |
Net income (loss) applicable to common shares for diluted
earnings per share |
$(649,412) |
$803,613 |
$(1,573,772) |
SHARES OUTSTANDING |
|||
Weighted average shares for basic earnings per share |
1,213,984 |
1,211,245 |
1,211,629 |
Net effect of dilutive
stock options - based on the treasury stock method using year-end
market
price, if higher than average market price |
- -* |
34,937 |
-* |
Total shares for diluted earnings per share |
1,213,984 |
1,246,182 |
1,211,629 |
Basic Earnings Per Common Share |
$(.53) |
$.66 |
$(1.30) |
Diluted Earnings Per Common Share |
$(.53) |
$.64 |
$(1.30) |
* Net effect of stock
options was antidilutive for the period. |
|||
HICKOK INCORPORATED
Subsidiaries of Registrant COMPANY NAME STATE OF INCORPORATION Supreme Electronics Corp. Mississippi Waekon Corp. Ohio
CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement No. 33-68196 on Form S-8
dated September 1, 1993, Registration Statement No. 333-63597 on Form S-8 dated
September 17, 1998 and Registration Statement No. 333-125672 on Form S-8 dated
June 9, 2005 of our report on the consolidated financial statements and report as to
schedules included in the Annual Report on Form 10-KSB of Hickok Incorporated for the year ended
September 30, 2007.
/s/ Meaden & Moore, Ltd.
MEADEN & MOORE, Ltd.
Certified Public Accountants
November 29, 2007
Cleveland, Ohio
Robert L. Bauman, Chief Executive Officer
I, Robert L. Bauman, Chief Executive Officer, certify that:
I have reviewed this annual report on Form 10-KSB of Hickok Incorporated (the "small business issuer");
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 small business issuer as of, and for, the periods presented in this annual report;
The small business issuer'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 small business issuer 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 small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure 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 small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting.
By:
/s/ R. L. Bauman
R. L. Bauman
Chief Executive Officer
December 26, 2007
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER
Gregory M. Zoloty, Senior Vice President, Finance and Chief Financial Officer
I, Gregory M. Zoloty, Senior Vice
President, Finance and Chief Financial Officer, certify that:
I have reviewed this annual report on Form 10-KSB of Hickok Incorporated (the "small business issuer");
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 small business issuer as of, and for, the periods presented in this annual report;
The small business issuer'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 small business issuer 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 small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure 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 small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 small business issuer'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 small business issuer's internal control over financial reporting.
By:
/s/ G. M. Zoloty
G. M. Zoloty
Senior Vice President, Finance and Chief Financial Officer
December 26, 2007
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 Annual Report of Hickok Incorporated (the "Company") on Form 10-KSB for the period ending September 30, 2007 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
December 26, 2007
Exhibit 32.2
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 Annual
Report of Hickok Incorporated (the "Company") on Form 10-KSB for the
period
ending September 30, 2007 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
December 26, 2007