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UNITED
STATES FORM
10-Q For the quarterly period ended March 31,
2010 or
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934 For
the transition
period
from _____ to ____ _ . HICKOK
INCORPORATED
Ohio 34-0288470 (State
or
other jurisdiction of incorporation or organization) (IRS
Employer Identification No.) 10514
Dupont
Avenue, Cleveland, Ohio 44108 (Address
of
principal executive offices) (Zip
Code) (Registrant's
telephone number, including area code) (216)
541-8060 Indicate
by check
whether
the registrant (1) has filed all reports required to be filed by
Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 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___ Item
1. Financial
Statements. HICKOK
INCORPORATED See
Notes to
Consolidated
Financial Statements HICKOK
INCORPORATED Note:
Amounts
derived from audited financial statements previously filed with the
Securities
and Exchange Commission. See
Notes
to Consolidated Financial Statements HICKOK
INCORPORATED The
accompanying
unaudited consolidated financial statements have been prepared in
accordance
with generally accepted accounting principles for interim financial
information
and with the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly,
they do not include all of the information and footnotes required by
generally
accepted accounting principles for complete financial statements. In
the
opinion of management, all adjustments (consisting of normal recurring
accruals)
considered necessary for a fair presentation have been included.
Operating
results for the three month and six month periods ended March 31, 2010
are
not necessarily indicative of the results that may be expected for the
year
ended September 30, 2010. For further information, refer to the
consolidated
financial statements and footnotes thereto included in the Company's
annual
report on Form 10-K for the year ended September 30, 2009.
Inventories
are
valued
at the lower of cost or market and consist of the following:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
(Exact name of registrant as specified in its charter)
Large accelerated filer [ ]
Accelerated
filer [
]
Non-accelerated
filer
[ ]
Small
reporting
company
[X]
CONSOLIDATED
INCOME STATEMENTS
(Unaudited)
March
31,
March
31,
Net
Sales
Product
Sales
Service
Sales
142,115
237,347
Total Net Sales
1,335,056
2,494,119
Costs
and Expenses
Cost
of Product Sold
866,161
1,653,348
Cost
of Service Sold
Product
Development
337,574
788,043
Marketing
and Administrative Expenses
1,431,817
Interest
Charges
948
542
2,545
Other
Income
Total Costs and Expenses
4,039,525
Income
<Loss>
before Provision for Income Taxes
Provision
for (Recovery of) Income Taxes
Net
Income
<Loss>
$<335,542>
$<2,245,253>
$<270,833>
$<3,390,606>
Earnings
per Common Share:
Net
Income <Loss>
$<.27>
$<1.80>
$<.22>
$<2.72>
Earnings
per Common Share Assuming Dilution:
Net
Income <Loss>
$<.27>
$<1.80>
$<.22>
$<2.72>
Dividends
per Common Share
CONSOLIDATED
BALANCE SHEET
2010
(Unaudited)
2009
(Note)
2009
(Unaudited)
Assets
Current
Assets
Cash
and Cash
Equivalents
Trade
Accounts
Receivable-Net
1,129,588
Inventories
Prepaid
Expenses
Property,
Plant
and
Equipment
Land
Buildings
Machinery
and
Equipment
4,044,357
Less:
Allowance
for
Depreciation
Other
Assets
Deposits
Total
Assets
2010
(Unaudited)
2009
(Note)
2009
(Unaudited)
Liabilities
and Stockholders' Equity
Current
Liabilities
Trade
Accounts Payable
Accrued
Payroll
&
Related Expenses
Accrued
Expenses
Accrued
Taxes Other Than Income
16,447
Accrued
Income Taxes
Stockholders'
Equity
Class
A, $1.00
par
value; authorized
3,750,000
shares; 793,229 shares outstanding excluding 15,795 shares in treasury
Class
B, $1.00
par
value; authorized
1,000,000
shares; 454,866 shares
outstanding
excluding 20,667
shares
in treasury
454,866
Contributed
Capital
Retained
Earnings
Total
Liabilities
and Stockholders' Equity
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
SIX
MONTHS ENDED MARCH 31,
(Unaudited)
2010
2009
Cash
Flows from Operating Activities:
Cash
received from customers
$3,465,294
$2,799,567
Cash
paid to suppliers and employees
<3,117,157>
<3,990,253>
Interest
paid
-
-
Interest
received
3,111
17,356
Income
taxes <paid> refunded
-
<12,000>
Net
Cash Provided By <Used In> Operating Activities
351,248
<1,185,330>
Cash
Flows from Investing Activities:
Capital
expenditures
<17,857>
<34,674>
Net
Cash Provided By <Used In> Investing Activities
<17,857>
<34,674>
Cash
Flows from Financing Activities:
Net
Cash
Provided
By <Used In> Financing Activities
-
-
Net
increase
<decrease>
in cash and cash equivalents
333,391
<1,220,004>
Cash
and cash
equivalents
at beginning of year
716,866
1,992,558
Cash
and cash
equivalents
at end of second quarter
$1,050,257
$772,554
See
Notes
to Consolidated Financial Statements
2010
2009
Reconciliation
of Net Income <Loss> to Net Cash
Provided
By <Used In> Operating Activities:
Net
Income <Loss>
$<270,833>
$<3,390,606>
Adjustments
to reconcile Net Income <Loss> to net cash
provided
by operating activities:
Depreciation
66,271
85,716
Share-based
compensation expense
8,005
8,025
Deferred
income taxes
-
1,845,200
Changes
in assets and liabilities:
Decrease
<Increase>
in accounts receivable
434,517
305,448
Decrease
<Increase> in inventories
132,631
89,932
Decrease
<Increase>
in prepaid expenses
<39,765>
<23,409>
Decrease
<Increase>
in refundable income taxes
-
6,000
Increase
<Decrease>
in accounts payable
53,967
<77,106>
Increase
<Decrease>
in accrued payroll and related expenses
33,213
33,553
Increase
<Decrease> in accrued expenses and accrued
taxes
other than income
<66,758>
<68,083>
Total
Adjustments
622,081
2,205,276
Net
Cash
Provided
By <Used In> Operating Activities
$351,248
$<1,185,330>
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH
31,
2010
1. Basis
of
Presentation
2010
2009
Components
Work-in-Process
Finished
Product
The
above
amounts
are net of reserve for obsolete inventory in the amount of $532,790,
$455,000 and $262,254 for the periods
ended
March 31, 2010, September 30, 2009 and March 31, 2009 respectively.
3. Short-term
Financing
The
Company had a
credit
agreement with its financial lender that was rescinded on December 17,
2009. The rescinded agreement provided for a secured revolving credit
facility of
$1,000,000 with interest generally equal to three percent per annum
plus one
month LIBOR. The agreement was set to expire in February 2010. The
agreement was secured by the Company's accounts receivable, inventory,
equipment and general intangibles. In addition, the credit agreement
contained affirmative
covenant
requirements, tested on an annual basis, that required 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 which were violated due to operating losses. The
Company was
unable to obtain waivers on the violated covenants from its financial
lender. The
Company had no
outstanding
borrowings under this loan facility since November 2007. The Company is
currently evaluating other short-term financing alternatives.
4. Capital Stock, Treasury Stock, Contributed Capital and Stock Options
Under the Company's Key Employees Stock Option Plans (collectively the "Employee Plans"), incentive stock options, in general, are exercisable for up to ten years, at an exercise price of not less than the market price on the date the option is granted. Non-qualified stock options may be granted at such exercise price and such other terms and conditions as the Compensation Committee of the Board of Directors may determine. No options may be granted at a price less than $2.925. Options for 41,500 Class A shares were outstanding at March 31, 2010 (59,400 shares at September 30, 2009 and 61,000 shares at March 31, 2009) at prices ranging from $3.125 to $5.00 per share. Options for 17,900 shares at prices ranging from $3.125 to $5.00 per share expired during the three month period ended December 31, 2009. Options for 1,600 shares at prices ranging from $3.125 to $3.55 were canceled during the three month period ended March 31, 2009. In addition, options for 10,800 shares at a price of $7.125 expired during the three month period ended December 31, 2008. No other options were granted, exercised or canceled or expired during the three or six month periods presented under the Employee Plans. All options granted under the Employee Plans are exercisable at March 31, 2010.
The Company's Outside Directors Stock Option Plans (collectively the "Directors Plans"), have provided for the automatic grant of options to purchase up to 44,000 shares of Class A Common Stock to members of the Board of Directors who are not employees of the Company, at the fair market value on the date of grant. Options for 44,000 Class A shares were outstanding at March 31, 2010 (41,000 shares at September 30, 2009 and 46,000 shares at March 31, 2009) at prices ranging from $2.925 to $11.00 per share. Options for 6,000 and 5,000 shares were granted under the Directors Plans during each of the three month periods ended March 31, 2010 and March 31, 2009, at a price of $6.00 and $2.925 per share respectively. In addition, options for 3,000 and 2,000 shares expired during the three month periods ended March 31, 2010 and March 31, 2009 at $8.50 and $7.125 per share respectively. All outstanding options under the Directors Plans become fully exercisable on February 25, 2013.
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 March 31, 2010:
Employee
Plans
Outstanding Stock
Options Exercisable
Share Price
Range
of exercise prices:
$3.125
- - 3.55
Directors
Plans |
|
Share Price |
Weighted
Average Remaining Life
|
Number
of Stock
Options
Exercisable |
Weighted
Average Share
Price |
Range of exercise prices: | |||||
$2.925 - - 5.25 |
20,000
|
$3.95
|
4.8
|
16,667 |
$4.15 |
$6.00 - - 7.25 |
14,000
|
$6.49
|
6.9
|
8,000 |
$6.85 |
$10.50 - - 11.00 |
10,000
|
$10.75
|
7.5
|
8,333 |
$10.70 |
|
|
||||
44,000
|
$6.30
|
|
33,000 |
$6.46 |
|
|
|
5. Recently Issued Accounting Pronouncements
The Company did not incur any material impact to its financial condition or results of operations due to the adoption of any new accounting standards during the periods reported.
Earnings per common share information is computed on the weighted average number of shares outstanding during each period based on the provisions of FASB Codification ASC Topic 260, "Earnings per Share." The required reconciliations are as follows:
March 31, |
March 31, |
|
|
|
|
|
Basic Income <Loss> per Share | ||||
Income
<Loss> available to common stockholders |
$<335,542>
|
$<2,245,253>
|
$<270,833>
|
$<3,390,606>
|
Shares denominator |
1,248,095
|
1,248,095
|
1,248,095
|
1,248,095
|
Per share amount |
$<.27>
|
$<1.80>
|
$<.22>
|
$<2.72>
|
|
|
|
|
|
Effect of Dilutive Securities | ||||
Average shares outstanding |
1,248,095 |
1,248,095
|
1,248,095 |
1,248,095
|
Stock options |
-
|
-
|
-
|
-
|
|
|
|
|
|
1,248,095
|
1,248,095
|
1,248,095
|
1,248,095
|
|
Diluted Income <Loss> per Share | ||||
Income <Loss> available to common stockholders |
$<335,542>
|
$<2,245,253>
|
$<270,833>
|
$<3,390,606>
|
Per share amount |
$<.27>
|
$<1.80>
|
$<.22>
|
$<2.72>
|
|
|
|
|
7. Segment and Related Information
The Company's four business units have a common management team and infrastructure that offer different products and services. The business units have been aggregated into two reportable segments: 1.) indicators and gauges and 2.) automotive related diagnostic tools and equipment.
Indicators and Gauges
This segment consists
of
products
manufactured and sold primarily to companies in the aircraft and
locomotive
industry. Within the aircraft market, the primary customers are those
companies
that manufacture or service business, military and pleasure aircraft.
Within
the locomotive market, indicators and gauges are sold to both original
equipment
manufacturers and to operators of
railroad equipment.
Automotive
Diagnostic
Tools and Equipment
This
segment
consists primarily of products designed and manufactured to support the
testing
or servicing of automotive systems using electronic means to measure
vehicle
parameters. These products are sold to OEM's and to the aftermarket
using
several brand names and a variety of distribution methods. Included in
this
segment are products used for state required testing of vehicle
emissions.
Information by industry segment is set forth below:
March 31, |
March 31, |
|
|
|
|
|||
Net Sales | ||||||
Indicators and Gauges |
$433,789
|
$496,566
|
$741,459
|
$952,156
|
||
Automotive Diagnostic Tools and Equipment |
960,271
|
838,490
|
2,289,318 |
1,541,963
|
||
|
|
|
|
|||
$1,394,060
|
$1,335,056
|
$3,030,777
|
$2,494,119
|
|||
|
|
|
|
|||
Income (Loss) before provision for Income Taxes | ||||||
Indicators and Gauges |
$23,892
|
$9,353
|
$39,866
|
$<72,338>
|
||
Automotive Diagnostic Tools and Equipment |
<55,330>
|
<312,125>
|
271,990
|
<821,857>
|
||
General
Corporate Expenses |
<304,104> |
<297,281> |
<582,689> |
<651,211> |
||
|
|
|
|
|||
$<335,542>
|
$<600,053>
|
$<270,833>
|
$<1,545,406>
|
|||
|
|
|
|
|||
Asset Information | ||||||
Indicators and Gauges |
$836,507
|
$863,131
|
||||
Automotive Diagnostic Tools and Equipment |
1,895,803
|
2,563,476
|
||||
Corporate |
1,743,498
|
1,590,179
|
||||
|
|
|||||
$4,475,808
|
$5,016,786
|
|||||
|
|
|||||
Geographical Information | ||||||
Included in
the consolidated
financial statements are the following amounts related to geographical locations: |
||||||
Revenue: | ||||||
United States |
$1,361,237
|
$1,273,130
|
$2,993,980
|
$2,390,217
|
||
Australia |
17,817 |
- |
17,817 |
- |
||
Canada |
13,006
|
35,579
|
15,169
|
69,642
|
||
England |
- |
23,501 | - |
23,501 |
||
Other foreign countries |
2,000
|
2,846
|
3,811
|
10,759
|
||
|
|
|
|
|||
$1,394,060
|
$1,335,056
|
$3,030,777
|
$2,494,119
|
|||
|
|
|
|
All
export sales to
Australia,
Canada, England and other foreign countries are made in United States
of
America Dollars.
Applicable to
Manufacturing Production Overhead (Wages) |
$866,000 |
|
Product
Development |
785,000 |
|
Marketing and
Administration |
1,429,000 |
|
|
||
Annual Total | $3,080,000 |
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results
of
Operations,
Second Quarter (January 1, 2010 through March 31, 2010)
Fiscal
2010
Compared to Second Quarter Fiscal 2009
-----------------------------------------------------------------------------------------
Reportable Segment Information
The
Company has
determined
that it has two reportable segments: 1) indicators and gauges and 2)
automotive
related diagnostic tools and equipment. The indicators and gauges
segment
consists of products manufactured and sold primarily to companies in
the
aircraft and locomotive industry. Within the aircraft market, the
primary
customers are those companies that manufacture or service business,
military
and pleasure aircraft. Within the locomotive market, indicators and
gauges
are sold to original equipment manufacturers, servicers of locomotives
and
operators of railroad equipment. Revenue in this segment was $433,789
and $496,566
for
the second quarter of fiscal 2010 and fiscal 2009, respectively and $741,459
and $952,156
for
the first six months of fiscal 2010 and fiscal 2009, respectively. The
reduced sales volume was primarily caused by lower orders for
locomotive replacement items for distributor inventories due to tight
credit and a slowing of business aircraft conversion activity.
The automotive diagnostic tools and equipment segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions. Revenue in this segment was $960,271 and $838,490 for the second quarter of fiscal 2010 and fiscal 2009, respectively, and $2,289,318 and $1,541,963 for the first six months of fiscal 2010 and fiscal 2009, respectively. The current year increase was due primarily to the completion of an order for automotive diagnostic testing equipment for an OEM.
Results of Operations
Product sales
for
the quarter ended March 31, 2010 were $1,286,077 versus $1,192,941 for
the
quarter ended March 31, 2009. The 8% increase in product sales during
the
current quarter of approximately $93,000 was volume related due
primarily
to increased sales of automotive diagnostic
products
of
approximately
$158,000.
Sales of diagnostic
products to OEM's and non- emission aftermarket
products
increased by approximately $7,000 and $205,000 respectively. Emission
products
declined by approximately $54,000. In
addition, indicator
products
decreased by approximately $65,000. Management
continues to be concerned about the current economic conditions in the
markets
the Company serves and anticipates product sales for the third and
fourth
quarter of fiscal 2010 to increase moderately above the sales levels
from
the second quarter. Management instituted cost cutting measures in two
stages
in fiscal 2009. Fiscal 2010 second quarter benefited from the January
and
April fiscal 2009 cost cutting measures while fiscal 2009 second
quarter
benefited from only the January cost cutting measures.
Cost of product sold in the second quarter of fiscal 2010 was $797,113 (62.0% of product sales) as compared to $866,161 (72.6% of product sales) in the second quarter of fiscal 2009. The dollar and percentage decrease in the cost of product sold was due primarily to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009. The current cost of product sold percentage is expected to decrease slightly for the balance of the fiscal year due to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009 and a change in product mix. For the quarter ended March 31, 2010 the Company achieved the savings that were anticipated from the cost cutting measures implemented in fiscal 2009.
Cost of service sold in the second quarter of fiscal 2010 was $68,701 (63.6% of service sales) as compared to $99,255 (69.8% of service sales) in the second quarter of fiscal 2009. The dollar and percentage decrease was due primarily to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009. The current cost of services sold percentage is anticipated to continue for the balance of the fiscal year due to price adjustments and the cost cutting measures. For the quarter ended March 31, 2010 the Company achieved the savings that were anticipated from the cost cutting measures implemented in January 2009.
Product development expenses were $283,439 in the second quarter of fiscal 2010 (22.0% of product sales) as compared to $337,574 (28.3% of product sales) in the second quarter of fiscal 2009. The dollar and percentage decrease was due primarily to decreased labor costs of approximately $52,000. The current level of product development expenses is expected to continue for the balance of the fiscal year due to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009. For the quarter ended March 31, 2010 the Company achieved the savings that were anticipated from the cost cutting measures implemented in fiscal 2009. Management believes the current resources will be sufficient to maintain current product development commitments and continue to develop some new products for both OEM and Aftermarket customers.
Marketing and administrative expenses were $585,072 (42.0% of total sales) in the second quarter of 2010 versus $640,840 (48.0% of total sales) for the same period a year ago. The dollar and percentage decrease was due primarily to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009. Marketing expenses were approximately $276,000 in the second quarter of fiscal 2010 versus $335,000 for the same period a year ago. Within marketing expenses, labor costs, travel expense, advertising expense, promotion expense and credit and collection expense decreased by approximately $68,000, $10,000, $12,000, 5,000 and $2,000 respectively. These decreases were offset in part by an increase in outside consulting expenses, commissions, industry association dues and royalty expenses of approximately $31,000 and $5,000, $4,000 and $3,000 respectively. Administrative expenses were approximately $309,000 in the second quarter of fiscal 2010 versus $306,000 for the same period a year ago. The current quarter benefited from a decrease in labor costs of approximately $4,000 offset by an increase in professional fees of $6,000. The current level of administrative expenses is expected to continue at current levels and marketing expenses are expected to decrease slightly for the remainder of the fiscal year due to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009. For the quarter ended March 31, 2010 the Company achieved the savings that were anticipated from the cost cutting measures implemented in fiscal 2009.
Interest expense was $0 in the second quarter of fiscal 2010 which compares with $948 in the second quarter of fiscal 2009. The credit facility was rescinded in December 2009 with no interest charges on an unused portion during the second quarter of fiscal 2010. The prior year interest was an interest charge on the $1,000,000 unused credit facility. The current level of interest expense is expected to continue for the third and fourth quarters of the year.
Other
income was
$4,723 in the second quarter of fiscal 2010 which compares with $9,669
in
the second quarter of fiscal 2009. Other income consists primarily of interest
income
on
cash and cash equivalents invested and the proceeds from the sale of
scrap
metal shavings. The decrease is due primarily to a lower interest rate
earned
on cash available
for investment during the current period.
Income taxes in the second quarter of fiscal 2010 was $0 which compares with income taxes of $1,645,200 in the second quarter of fiscal 2009. In the second quarter of fiscal 2010 a recovery of income taxes was calculated at an effective tax rate of 37% offset by an increase in the valuation allowance netting to $0. During the second quarter of fiscal 2009 management recorded a valuation allowance on the entire balance of deferred tax assets in the amount of $1,645,200 due to continued losses, the current economic uncertainties, the negative effects of the current economic crisis on all of the Company's markets and concern that a more likely than not expiration of the Company's net operating loss and research and development credit carryforwards could occur before they can be used.
The net loss in the second quarter of fiscal 2010 was $335,542 which compares with a net loss of $2,245,253 in the second quarter of fiscal 2009. The net loss for the prior year quarter was primarily the result of the increase in the valuation allowance of $1,645,200 and a lower sales volume.
Unshipped customer orders as of March 31, 2010 were $519,000 versus $755,000 at March 31, 2009. The decrease was due to decreased orders in automotive diagnostic products of approximately $115,000, specifically, $8,000 for diagnostic products to the aftermarket which includes emissions products and a decrease in orders for automotive diagnostic products to automotive OEM's of approximately $107,000. In addition, indicator products decreased by approximately $121,000. The Company anticipates that most of the current backlog will be shipped in the last half of fiscal 2010.
Results
of Operations,
Six Months Ended March 31, 2010
Compared
to Six Months Ended March 31, 2009
Service sales for the six months ended March 31, 2010 were $205,076 compared with $237,347 for the same period in fiscal 2009. The decrease was volume related and due primarily to a lower sales volume for chargeable repairs. The current level of service sales related to product repair sales is expected to continue for the balance of the fiscal year.
Cost of product sold was $1,500,955 or (53.1% of product sales) compared to $1,653,348 (73.3% of product sales) for the six months ended March 31, 2009. The percentage decrease in the cost of product sold was due primarily to a higher sales volume and a change in product mix. The dollar decrease was due primarily to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009. The current cost of product sold percentage is expected to decrease slightly for the balance of the fiscal year due to product mix and the continuation of cost cutting measures and wage reductions implemented in fiscal 2009. For the six month period ended March 31, 2010 the Company achieved the savings that were anticipated from the cost cutting measures implemented in fiscal 2009.
Cost of service sold was $125,034 (61.0% of service sales) compared with $188,680 (79.5% of service sales) for the six months ended March 31, 2009. The dollar and percentage decrease was due primarily to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009. The cost of services sold percentage is expected to continue for the balance of the fiscal year due to price adjustments and the continuation of the cost cutting measures. For the six month period ended March 31, 2010 the Company achieved the savings that were anticipated from the cost cutting measures implemented in fiscal 2009.
Product development expenses were $537,897 (19.0% of product sales) compared to $788,043 (34.9% of product sales) for the six months ended March 31, 2009. The dollar and percentage decrease was due primarily to higher product sales, and the continuation of of the cost cutting measures and wage reductions implemented in fiscal 2009. During the current six month period labor costs declined by approximately $239,000. The current level of product development expenditures is expected to continue for the balance of the fiscal year due to continuation of the cost cutting measures and wage reductions implemented in fiscal 2009. For the six month period ended March 31, 2010 the Company achieved the savings that were anticipated from the cost cutting measures implemented in fiscal 2009. Management believes the current resources will be sufficient to maintain current product development commitments and continue to develop some new products for both OEM and Aftermarket customers.
Marketing and
administrative
expenses were $1,149,794 for the six months ended March 31, 2010 (37.9% of
total sales) versus $1,431,817 (57.4% of total sales) for the
six
months ended March 31, 2009. The percentage
decrease was
primarily
due to the higher level of total sales during the first six months of
the
current fiscal year.
Marketing expenses were
approximately $555,000
during the first
six months of the current fiscal year versus $758,000 for the same
period
a year ago. Within
marketing
expenses, decreases were
primarily in
labor costs,
advertising, travel expense, promotion expense and collection expense of approximately
$227,000,
$26,000, $25,000,
$11,000
and $5,000
respectively.
These decreases were offset in part by increases in outside consulting,
commissions
and
royalties
of
approximately $60,000,
$39,000, and $3,000 respectively. Administrative
expenses were
approximately $595,000 during the first six months of the current
fiscal year versus $674,000 for the same period a year ago. The dollar
decrease was due
primarily
to decreases in labor costs and data processing expenses of
approximately
$80,000 and $6,000 respectively, offset in part by an increase in
professional
fees of approximately $12,000. The
current level of administrative expenses is expected to continue
at
current
levels and marketing expenses are expected to decrease slightly for the
remainder
of the fiscal year due to the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009.
Interest expense was $542 for the six months ended March 31, 2010, and $2,545 for the same period in 2009. The credit facility was rescinded in December 2009 with no interest charges on an unused portion during the second quarter of fiscal 2010. The prior year interest was an interest charge on the unused credit facility which was reduced from $2,500,000 to $1,000,000 in February 2009. The current level of interest expense is expected to continue for the third and fourth quarters of the year.
Other
income of $12,612
for the six months ended March 31, 2010 compares with other income of
$24,908
in the same period last year. Other
income
consists
primarily of interest
income on cash and cash equivalents invested and
the
proceeds from the sale of scrap metal shavings. The
decrease is due primarily to a lower interest rate earned on cash available
for
investment
during the current period.
The
current level of other income is expected to decrease for the remainder
of
fiscal 2010 due to a lower level of cash and cash equivalents invested
in
interest bearing accounts.
The net loss for the six months ended March 31, 2010 was $270,833 compared with a net loss of $3,390,606 for the six months ended March 31, 2009. The improvement was primarily due to the continuation of the cost cutting measures implemented in fiscal 2009 and a higher sales volume. The net loss for the first half of fiscal 2009 was primarily the result of the increase in the valuation allowance of $1,845,200 and a lower sales volume.
In
December of
2008 management took steps to reduce non-direct product related
expenses throughout the Company in response to the economic downturn
and
the uncertainty in the markets the Company serves. The steps included a
substantial
reduction in personnel, wage reductions for all personnel and
expenditure
restrictions in most aspects of the Company's operations. Management took additional steps in April 2009 and
made
additional
reductions in personnel throughout the Company due to the continued
decline
in sales to the markets the Company serves. The expected annual cost
savings
of approximately $3,080,000 takes into consideration possible increases
in other expenses that may occur. The savings are expected to be
realized in
equal amounts per month with similar impact on both future earnings and
cash
flows. Beginning in January 2009 through April 2009 the monthly savings
were
expected to be approximately $191,000 per month. Beginning in May 2009
the
monthly savings were expected to be approximately $257,000 per month. Major
expense
categories
impacted are as follows:
Applicable to Manufacturing Production Overhead (Wages) |
$866,000 |
Product Development |
785,000 |
Marketing and Administration |
1,429,000 |
|
|
Annual Total |
$3,080,000 |
|
For the quarter and the six months ended March 31, 2010 and March 31, 2009 the Company achieved the savings that were anticipated from the cost cutting measures implemented in fiscal 2009. The cost reduction measures are expected to continue for the remainder of the fiscal year.
The Company has available a net operating loss carryforward and research and development credit carryforwards that begin to expire in 2015. During fiscal 2009 the Company recorded a valuation allowance on the entire balance of deferred tax assets due to continued losses, the current economic uncertainties, the negative effects of the current economic crisis on all of the Company's markets and concern that a more likely than not expiration of the Company's net operating loss and research and development credit carryforwards could occur before they can be used. Because of the uncertainties involved with this significant estimate, it is reasonably possible that the Company's estimate may change.Liquidity and Capital Resources
Total current assets were $3,912,662, $4,106,654 and $4,322,711 at March 31, 2010, September 30, 2009 and March 31, 2009, respectively. The decrease of approximately $410,000 from March to March was due primarily to the decrease in inventory of approximately $837,000 offset in part by an increase in cash and cash equivalents and accounts receivable of approximately $278,000 and $150,000 respectively. Cash and cash equivalents and accounts receivable increased due to the higher sales volume during the period. The decrease from September to March of approximately $194,000 was due primarily to the decrease in accounts receivable and inventory of approximately $435,000 and $133,000 respectively, offset in part by an increase in cash and cash equivalents and prepaid expenses of approximately $333,000 and $40,000 respectively.
Working capital as of March 31, 2010 amounted to $3,388,206 as compared with $3,795,700 a year earlier. Current assets were 7.5 times current liabilities compared to 8.2 a year ago. The quick ratio was 3.3 compared to 2.5 a year ago.
Internally generated funds during the six months ended March 31, 2010 were $351,248 and were adequate to fund the Company's primary non-operating cash requirement consisting of capital expenditures of $17,857. The primary reason for the positive cash flow from operations was the decrease in accounts receivable and inventory during the period. The Company believes that cash and cash equivalents, together with funds anticipated to be generated by operations will provide the liquidity necessary to support its current and anticipated working capital and capital expenditure requirements through the end of fiscal 2010.
Shareholders' equity during the six months ended March 31, 2010 decreased by $262,828 which was the net loss during the period of $270,833 and $8,005 of share-based compensation expense.
The Company had a credit agreement with its financial lender that was rescinded on December 17, 2009. The rescinded agreement provided for a secured revolving credit facility of $1,000,000 with interest generally equal to three percent per annum plus one month LIBOR. The agreement was set to expire in February 2010. The agreement was secured by the Company's accounts receivable, inventory, equipment and general intangibles. In addition, the credit agreement contained affirmative covenant requirements, tested on an annual basis, that required 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 which were violated due to operating losses. The Company was unable to obtain waivers on the violated covenants from its financial lender. The Company had no outstanding borrowings under this loan facility since November 2007. During fiscal 2010 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 2010 there will be a negative but temporary impact on liquidity. As previously noted, management has implemented expense reductions during fiscal 2009 in response to the economic downturn and uncertainty in the markets the Company serves. The Company has reduced headcount, product development, and marketing, administrative and sales related expenses in order to appropriately manage its working capital. The Company believes that internally generated funds will provide sufficient liquidity to meet ongoing working capital requirements. In addition, the Company is currently evaluating other short-term financing alternatives but there can be no assurance that such arrangements will be available.Critical Accounting Policies
Forward-Looking Statements
Item
3. Quantitative
and
Qualitative Disclosures About Market Risk.
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 was its revolving credit facility. The Company had no outstanding borrowings on its credit facility since November 2007. Prior to its rescindment on December 17, 2009 the facility was subject to a variable rate of interest based on the LIBOR 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.Item 4. Controls and Procedures.
As
of
March 31, 2010, 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
March
31, 2010 in ensuring that information required to be disclosed by the
Company
in the reports it files
and submits under the Exchange Act is (1) 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
second
fiscal quarter ended March 31, 2010 that have materially affected, or
are
reasonably likely to materially affect, the Company's internal control
over
financial reporting.
PART II. OTHER INFORMATION
Item
1. Legal Proceedings.
The
Company is the
plaintiff
in a suit pursuing patent infringement against a competitor in the
emissions
market. Discovery
and initial depositions along with an
unsuccessful
effort at mediation have been completed. It is not possible, at this
time,
to estimate the timing of subsequent actions in the matter and management
believes
that it is not currently possible to estimate the impact, if any, that
the ultimate
resolution of the patent infringement matter will have on the Company's
results
of operations, financial position or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
At the
Company's
Annual
Meeting of Shareholders held on February 24, 2010, the following
individuals
were elected to the Board of Directors:
WithheldBroker
Non-Votes
Robert
L. Bauman
271,029
T.
Harold Hudson
271,029
James
T. Martin
271,029
Michael
L. Miller
271,029
Hugh
S.
Seaholm
1,668,180
17,635
271,029
Janet
H. Slade
271,029
Kirin
M. Smith
1,660,130
25,685
271,029
The following proposals were approved at the Company's Annual Meeting:
Votes | Votes | Votes | |||
For | Against | Withheld | |||
1. |
Ratification of Meaden & Moore, Ltd. as
independent
auditors |
1,943,359 |
11,075 |
2,410 |
|
Votes |
Votes |
Votes |
Broker |
||
For |
Against |
Withheld |
Non-Votes |
||
2. | Approval of the adoption of the 2010 Outside Directors Stock Option Plan | 1,573,840 | 97,249 | 14,726 | 271,029 |
Item 6. Exhibits.
Exhibit
No. |
Description |
|
11 |
Statement
Regarding Computation of Earnings Per share and
Common
Share Equivalents
|
|
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 |
In
accordance with the requirements
of the Exchange Act, the registrant caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
(Registrant) |
||
Date:
May 14, 2010 |
/s/ R. L. Bauman | |
R.
L. Bauman,
Chief
Executive Officer, President, and Treasurer |
||
Date:
May 14, 2010 |
/s/ G. M. Zoloty | |
G. M. Zoloty, Chief Financial Officer |
FORM 10-Q
EXHIBIT 11
HICKOK
INCORPORATED
CONSOLIDATED STATEMENT OF COMPUTATION OF EARNINGS
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
Three Months Ended |
Six Months Ended |
|
2010 |
2009 |
2010 |
2009 |
|
|
|
|
|
NET INCOME |
|
|
|
|
Net Income <loss> applicable to common shares for basic earnings per share |
$<335,542> |
$<2,245,253> |
$<270,833> |
$<3,390,606> |
|
|
|
|
|
Net Income <loss> applicable to common shares for diluted earnings per share |
$<335,542> |
$<2,245,253> |
$<270,833> |
$<3,390,606> |
|
|
|
|
|
SHARES OUTSTANDING |
|
|
|
|
Weighted average shares for basic earnings per share |
1,248,095 |
1,248,095 |
1,248,095 |
1,248,095 |
|
|
|
|
|
Net effect of dilutive stock options – based on the treasury stock method using year-end market price, if higher than average market price |
-* |
-* |
-* |
-* |
|
|
|
|
|
Total shares for diluted earnings per share |
1,248,095 |
1,248,095 |
1,248,095 |
1,248,095 |
|
|
|
|
|
Basic Earnings Per Common Share |
$<.27> |
$<1.80> |
$<.22> |
$<2.72> |
|
|
|
|
|
Diluted Earnings Per Common Share |
$<.27> |
$<1.80> |
$<.22> |
$<2.72> |
|
|
|
|
|
* Net effect of stock
options was antidilutive for the period.
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Robert L. Bauman, certify that:
I have reviewed this quarterly
report
on Form 10-Q of Hickok Incorporated (the "registrant");
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the
financial statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as
of, and for,
the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such
disclosure
controls and
procedures, or caused such disclosure controls and procedures to
be
designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
b) Designed such internal controls over
financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) Evaluated the effectiveness of
the registrant'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
d) Disclosed in this report any
change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent
fiscal quarter
(the registrant's fourth fiscal quarter in the case of an
annual
report) that has materially affected, or is reasonably likely to
materially
affect, the registrant's internal control over financial
reporting;
and
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
By:
/s/ R. L. Bauman
R. L. Bauman
Chief Executive
Officer
May 14, 2010
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Gregory M. Zoloty, certify that:
I have reviewed this quarterly
report
on Form 10-Q of Hickok Incorporated (the "registrant");
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the
financial statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as
of, and for,
the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such
disclosure
controls and
procedures, or caused such disclosure controls and procedures to
be
designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
b) Designed such internal controls over
financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) Evaluated the effectiveness of
the registrant'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
d) Disclosed in this report any
change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent
fiscal quarter
(the registrant's fourth fiscal quarter in the case of an
annual
report) that has materially affected, or is reasonably likely to
materially
affect, the registrant's internal control over financial
reporting;
and
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
By:
/s/ G. M. Zoloty
G. M. Zoloty
Senior Vice
President, Finance
and Chief Financial Officer
May 14, 2010
Form 10-Q
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hickok Incorporated (the "Company") on form 10-Q for the period ending March 31, 2010 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
May 14, 2010
Form 10-Q
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
Quarterly Report of Hickok Incorporated (the "Company") on Form 10-Q
for the
period ending March 31, 2010 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
May 14, 2010