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FORM
10-K
[ X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal
year ended September 30, 2010
OR
[
] TRANSITION
REPORT PURSUANT TO 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 (Exact
name
of registrant as specified in its charter) Registrant's
telephone number (216) 541-8060
Securities
registered pursuant to Section
12(b)
of the Act: Class
A
Common Shares, $1.00 par value Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined by
Rule 405 of the Securities Act. Yes
[ ] No
[X] Indicate
by check mark if the registrant is not required to file reports
pursuant to Section
13 or Section 15(d) of the Act. Yes
[ ] No
[X] Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation
S-K(229.405 of this chapter) is not contained herein, and will not 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-K or
any
amendment to this Form 10-K. [ ] Indicate
by check
mark
whether the registrant is a large accelerated filer, an accelerated
filer,
a non-accelerated
filer, or a small reporting company. Indicate
by
check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Act). Yes
[ ] No [X]
As of March
31, 2010,
the
Registrant had 793,229
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 647,614
shares
of Class A Common Stock and 233,098
shares of Class B Common Stock. As of March 31,
2010,
based on the closing price of $5.50
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 $3,561,877.
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 pursuant to Section 12(g) of the Act:
(Title of
Class)
Indicate by check mark whether
the
registrant has submitted electronically and posted on its corporate
Website, if any, every Interactive Data File required to be submitted
and posted pursuant to
Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding
12
months (or
for such shorter period that the registrant was required
to submit and post such files). Yes
[ ] No [
]
Large accelerated filer [ ]
Accelerated
filer [
]
Non-accelerated
filer
[ ]
Smaller
reporting
company
[X]
Except as otherwise stated, the information contained in this Form 10-K is as of September 30, 2010.
PART I
General Development of Business
Hickok Incorporated was founded in 1910 and 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 aftermarkets.
Until the mid 1980s 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 1980s 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 represented approximately 26% of the Company's fiscal 2010 revenue.
The Company
enjoyed
growing success with Ford Motor Co. in the late 1980s and early 1990s
ultimately
resulting in OEM business representing approximately 80% of revenue.
The
Company recognized that customer diversification was desirable and also
that
much of the technology that had been developed for OEMs could have
application
to the non-dealer service market known as the aftermarket. Initial
efforts
used internal staff for sales and development efforts. After several
years
of modest success the Company learned that the technology
developed
for
OEMs applied to the final product but the final product itself and
market development activities
required
were significantly different than those
for
an OEM customer.
In February 1998 the Company added new products, customers and an
established
aftermarket sales channel 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 Company uses the Waekon name 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.
The Company has developed a
reputation as a quality emission testing
product
provider. Our reputation for innovative emissions testing products
began
with the patented Model FPT27 Gas Cap Tester that has been used since
2000
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 Company began shipping
the
EVAP product in August 2007 and the bulk of units were shipped by
December 2007.
The California program implemented January 1, 2008.
The emission equipment provides an on-going level of business but most
programs
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.
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-five 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, military, 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 26% of the Company's sales for fiscal 2010 and 25% for fiscal 2009. 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 1980s 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 OEMs, and to the aftermarket using jobbers, wholesalers and mobile distributors. Since the late 1990s 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 OEMs requirements significantly affected revenues. In fiscal 2008, 2007 and 2004 emissions products significantly affected revenues. The aftermarket accounted for approximately 46% of the Company's automotive diagnostic and specialty tool sales in fiscal 2010 and 37% for fiscal 2009. The percentage increase was primarily because large OEM orders were lower in fiscal 2010 than in fiscal 2009. As a whole, automotive diagnostic tools and equipment represented approximately 74% of the Company's sales for fiscal 2010 and 75% for fiscal 2009.
The Company's primary expertise is electronic measurement of physical properties and it 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 OEMs dealerships was delivered in 2006 and 2007. For two years the Company has worked on extending this product's capability to diesel and Spark Ignited Direct Injection (SIDI) fuel injection systems. The Company feels it has a unique product for these new to the North American market vehicles that will be of interest to numerous OEMs and the Aftermarket.
New Generation Star (NGS) is an automotive scan tool that was supported by Ford Motor Company as a primary diagnostic tool for their vehicles from 1992 to 2005. 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. Without access to certain Ford proprietary algorithms the Company could not maintain the tool's functionality to the standards it had been previously. In late 2006 the Company was able to license the security algorithm from Ford. By late 2007 the software the Company developed returned the NGS tool to the factory developed software level of performance. In early 2009 the Company introduced a new product called NGS Mach II that updated the hardware platform and extended the software functionality to current dealership standards while maintaining functionality for Ford vehicles back to 1984.
In
addition the Company
introduced NGS PC in 2007. This product is essentially a PC based
implementation
of the classic NGS product and is also at factory level
functionality.
The NGS PC only addresses OBD II vehicles dating back to 1996 which is
the same vehicle coverage as the new Ford tool that replaced NGS
classic. The Company is putting major marketing emphasis on the NGS
products in an effort
to return these products to significant revenue generators. In
addition, the Company believes these products represent brand defining
products and have a significant influence on the ability to sell other
products to aftermarket customers.
Because
of the Company's
measurement
technology and automotive knowledge the Company has been able to design
and
manufacture innovative tools for both OEMs and aftermarket customers
and
the Company has developed a reputation for delivering advanced tools
that save
expense
and technician time. During the automotive and economic crisis of the
past several years by necessity the Company had to reduce
expenses
and staff to
accommodate
lower revenue levels. These changes will result in fewer new
product
developments however the Company has been cautious not to lose the
expertise
that
enabled the “innovative” reputation. Although there are less resources,
the Company is
compensating by being more critical in the projects it devotes
resources
to
in order to develop products that have both OEM and aftermarket
application.
The Company is also making an effort to expand its product offerings to
the new
technologies
that will affect the North American automotive and truck markets
because
of the strong emphasis on fuel economy and emissions.
The Company has successfully made an effort to reestablish the close
association
with OEMs it enjoyed in the 1980s and 1990s. The Active Fuel Injector
Tester
selected by GM for all their North American dealers added to both
fiscal
2006 and 2007 revenues. In an effort to build on the success of the
AFIT product, the Company worked closely with GM
engineers to
extend
the applicability of the AFIT to diesel engines and the new Spark
Ignited
Direct Injection (SIDI)gasoline engines that are expected to represent
a
significant percentage of all manufacturers'
new
engine introductions in the upcoming years. The Company introduced a
SIDI and Duramax Diesel Adapter to the AFIT product to GM dealers late
in fiscal 2010 and will
be introducing a similar product to the aftermarket in early fiscal
2011. The Company worked
closely with
Navistar/International
to develop a tool for testing diesel fuel injectors on their engines.
The Company sold a substantial quantity of units to Navistar in fiscal
2010. The Company also developed a version of the product it introduced
to the aftermarket in late fiscal 2010. The strategy is to
address new and old engine systems, such as fuel injection,
that are difficult to diagnose and strike a balance between the OEM
type projects that often 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 2009 fourth
quarter revenue was positively affected by a gas cap tester program
implemented in
the State of New Jersey. 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. A direct correlation between the hydrocarbon
emissions
that these products detect and CO2 has been established by the
scientific
community. The Company is actively promoting this connection in an
effort
to enhance the probability that these kinds of testing will be
incorporated
in any environmental legislation that may result from concerns over
CO2.
The Company also remains sensitive to other measurement needs that may
arise
to develop products for measuring other emissions related parameters.
Indicator revenues have remained fairly consistent for the past several
years
and are expected to remain consistent in foreseeable future years.
Although
the Company does not view this segment as a high growth potential, it
does
contribute significant revenues and margins. The Company believes 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 currently has two important patents, the most important patent is related to the testing of evaporative emissions systems that was the basis for the Company's product offering in 2007 and 2008 for the State of California. This patent expires in the year 2022. The second patent is related to vehicle fuel cap testing that expires in 2018. The Company monitors the marketplace for infringement of its patents and intends to pursue its rights should an infringement take place. The Company is currently engaged in such a proceeding. See Item 3 Legal Proceedings. 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. As examples, the New Jersey emissions program had a significant affect on the Company's fourth quarter results of fiscal 2009, and the California evaporative emissions systems program had a significant affect on the Company's first quarter of fiscal 2008 and fourth quarter 2007 results.
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 General Motors Corporation amounted to approximately 14% and sales to ESP also accounted for approximately 6% of the consolidated sales of the Company during fiscal 2010. During the fiscal year ended September 30, 2009, sales to SGS Testcom, Inc. amounted to approximately 18% and sales to General Motors Corporation also accounted for approximately 8% of the consolidated sales of the Company. During the fiscal year ended September 30, 2008, sales to ESP amounted to approximately 53% and sales to General Motors Corporation accounted for approximately 7% of the consolidated sales of the Company. The Company has no long-term contractual relationships with SGS Testcom, Inc. or General Motors. The Company does have an exclusive supply agreement with ESP for the Tank Tester product. Several aftermarket distribution companies and several equipment OEMs have become significant sources of revenue. Sales in fiscal 2010 to General Motors Corporation amounted to approximately $720,000 and sales to ESP amounted to approximately $295,000. Sales to SGS amounted to approximately $1,102,000 and sales to General Motors Corporation amounted to approximately $512,000 during fiscal 2009. Sales to ESP amounted to approximately $6,395,000 and sales to General Motors Corporation amounted to approximately $878,000 of the consolidated sales of the Company for fiscal 2008. 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
The Company's order backlog as of September 30, 2010 totaled $529,000 as compared to $1,199,000 as of September 30, 2009 and $794,000 as of September 30, 2008. The decrease in fiscal 2010 versus 2009 was primarily due to decreased orders in automotive diagnostic products of $410,000, specifically, $568,000 for automotive diagnostic products to OEMs offset in part by an increase of $85,000 for non-emission aftermarket products and $63,000 for emission products. Indicators and gauges backlog also declined $260,000. The increase in fiscal 2009 versus 2008 was primarily due to increased orders in automotive diagnostic products of $529,000, specifically, $556,000 for automotive diagnostic products to OEMs and $42,000 for non-emission aftermarket products offset in part by a decrease of $69,000 for emission products.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, and Bosch 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.
The Company depends on the automotive industry for sales of its OEM and aftermarket products. The Company's results of operations were adversely affected by the deterioration in the automotive industry's performance during the fiscal 2010, 2009 and 2008 years, and the Company anticipates that it will continue to face significant challenges until industry conditions improve substantially. While it has diversified its OEM projects to include emissions equipment sold to non-automotive OEMs to meet governmental testing mandates, the Company anticipates that its ability to maintain current business levels and to grow its OEM and aftermarket business will continue to depend to a significant extent on the health of the automotive industry.
Research and Development Activities
The Company expensed as incurred product development costs of $1,069,707 in 2010, $1,317,529 in 2009 and $1,920,851 in 2008. 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, 2010 was 83 full-time employees which represents a 2% increase from the fiscal 2009 and a 30% reduction from the fiscal 2008 levels. 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, 2010, all manufacturing, research and
development
and administrative operations were conducted in the United States of
America.
Revenues derived from export sales approximated $91,000 in 2010,
$189,000
in 2009, and $248,000 in 2008. Shipments to
Australia,
Canada,
England and Germany make
up the
majority
of export sales.
Not
Applicable.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
As
of December
15, 2010 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 the plaintiff
in a suit pursuing patent infringement against a competitor in the
emissions
market (Hickok Incorporated v. Systech International, LLC and Delphi
Corporation) currently pending in the United States District Court for
the Northern District of Ohio. The suit alleges infringement by the
defendants on two of
the Company's emission product patents. On one patent, which is related
to gas cap testing, there were multiple items sold by Systech
International, LLC in several markets over a period of several years.
On the second patent, which relates to the Company's method for
evaporative emissions testing used in California, there were multiple
items sold into the California market during 2007 by Systech
International, LLC and Delphi Corporation. The suit against Systech
International, LLC was filed in the United States District Court for
the Northern District of Ohio Eastern Division on November 16, 2007
alleging the gas cap testing
infringement. In January 2008 infringement of the Company's evaporative
emissions
patent was added to the suit. In June of 2008 Delphi Corporation was
added
to the suit as a defendant however the Company is currently taking
steps to
remove Delphi from the suit. Currently
the proceedings are in the
expert witness identification stage that is expected to be completed
early in the first quarter of
2011.
The Company is seeking damages estimated at approximately $225,000 for
the gas cap testing patent infringement and approximately $2,300,000
for the evaporative emissions testing patent infringement.
Management believes that it is not currently possible to estimate the
impact, if any, that the ultimate resolution of these matters will have
on the Company's
results of operations, financial position or cash flows.
ITEM 4. (REMOVED AND RESERVED).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
a) MARKET INFORMATION
During fiscal 2010 and 2009 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.
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First Quarter |
|
|
|
|
|
Second Quarter |
|
|
|
|
|
Third Quarter |
|
|
|
|
|
Fourth Quarter |
|
|
|
|
b) HOLDERS
As of December 15, 2010, there were approximately 255 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 2010, 2009 and
2008
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.
FOR THE YEARS ENDED SEPTEMBER 30
2010
|
2009
|
2008
|
2007
|
2006 | |||||||||
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|||||||||||||
|
|||||||||||||
Net Sales |
$
|
5,259
|
$
|
6,063
|
$
|
12,070
|
$
|
12,520
|
$
|
15,878
|
|||
Net Income (Loss) |
$
|
(949)
|
$
|
(3,674)
|
$
|
(770)
|
$
|
(649)
|
$
|
804
|
|||
Working Capital |
$
|
2,784
|
$
|
3,603
|
$
|
5,386
|
$
|
5,950
|
$
|
6,790
|
|||
Total Assets |
$
|
3,809
|
$
|
4,718
|
$
|
8,511
|
$
|
12,754
|
$
|
12,107
|
|||
Long-term Debt |
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0- | |||
Total Stockholders' Equity |
$
|
3,281
|
$
|
4,214
|
$
|
7,872
|
$
|
8,459
|
$
|
9,256
|
|||
Net Income (Loss) Per Share |
$
|
(.76)
|
$
|
(2.94)
|
$
|
(.62)
|
$
|
(.53)
|
$
|
.66
|
|||
Dividends Declared | |||||||||||||
|
|||||||||||||
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
.10
|
$
|
-0-
|
|||
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
.10
|
$
|
-0-
|
|||
Stockholders' Equity | |||||||||||||
|
$
|
2.63
|
$
|
3.38
|
$
|
6.31
|
|
6.92
|
$
|
7.64
|
|||
Return on Sales |
(18.1%)
|
(60.6%)
|
(6.4%)
|
(5.2%)
|
5.1%
|
||||||||
Return on Assets |
(22.3%)
|
(55.6%)
|
(7.2%)
|
(5.2%)
|
7.2%
|
||||||||
Return on Equity |
(25.3%)
|
(60.8%)
|
(9.4%)
|
(7.3%)
|
9.0%
|
||||||||
Closing Stock Price |
$
|
4.25
|
$
|
5.01
|
$
|
9.00
|
$
|
12.75
|
$
|
5.90
|
|||
Until the mid 1980s 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-four 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 74% of its fiscal 2010 revenue from designing and manufacturing diagnostic tools for automotive diagnostics and testing. These tools enable service technicians to identify problems in electronic systems and other non-electronic systems in automobiles and trucks.
Sixteen 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 OEMs on a year to year basis. The Company recognized that the OEMs 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.
Since the acquisition of Waekon, the Company further expanded aftermarket sales channels and added numerous new product offerings. Those efforts resulted in aftermarket revenues steadily rising as a result of new products developed for aftermarket servicers and success selling the NGS Scan Tool for Ford to aftermarket customers until fiscal 2007. During recent years there have been large sales orders from emissions or OEM customers that caused aftermarket sales to remain less than 50% of total automotive product sales. In fiscal 2010 approximately 46% of the Company's automotive diagnostic tool revenue was from aftermarket customers and 54% was from OEM and emissions customers. Aftermarket revenues rose to approximately $1,762,000 on the strength of technician targeted products while there was a slight decline in Shop targeted products. In fiscal 2009, approximately 37% of the Company's automotive diagnostic tool revenue was from aftermarket customers and 63% was from OEM and emissions customers. Aftermarket revenue declined from approximately $2,300,000 in fiscal 2008 to $1,668,000 in fiscal 2009 largely as a result of lower sales of the Company's NGS product. In fiscal 2008, approximately 22% of the Company's automotive diagnostic tool revenue was from aftermarket customers and 78% was from OEM and emissions customers. The depressed conditions in the OEM and emissions markets were largely responsible for the sharp decline in their revenues over the past several years. The Company intends to continue to pursue OEM and emissions opportunities; however the development emphasis for fiscal 2010 and fiscal 2011 is on aftermarket products. A number of the aftermarket products are expected to be introduced in early calendar 2011. Several of these products relate to proprietary fuel injection system diagnosis technology that was developed working with OEM customers.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, 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.
Automotive Diagnostic Tools and Equipment
This segment consists primarily of products designed and manufactured to support the testing or servicing of automotive and truck systems using electronic means to measure vehicle parameters. These products are sold to OEMs 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.
Results of Operations
Sales for the fiscal year ended September 30, 2010 decreased to $5,259,012, a decrease of approximately 13% from fiscal 2009 sales of $6,062,776. This decrease in sales was volume-driven and attributable primarily to lower product sales of approximately $765,000. Service sales in fiscal 2010 decreased by approximately $39,000 and the reduction was volume related, compared to fiscal 2009. Product sales were $4,868,635 in fiscal 2010 compared to $5,633,864 in fiscal 2009. The decrease in product sales occurred in both the indicator and gauges segment, and the automotive diagnostic equipment segment. The dollar decreases were approximately $180,000 and $585,000 respectively. Within the automotive diagnostic products, emission product sales decreased approximately $1,162,000 offset in part by an increase in OEM products and aftermarket products of approximately $487,000 and $90,000 respectively. Fiscal 2010 benefited from a small OEM program while fiscal 2009 benefited from a small emissions program. The reduction in service sales was volume related and attributable to lower repair sales. The current level of service revenue is expected to continue for fiscal 2011.
Sales
for the fiscal year ended
September 30, 2009 decreased to $6,062,776, a decrease of approximately
50% from fiscal 2008 sales of $12,070,326. This decrease in sales was
volume-driven and attributable
primarily to lower product sales of approximately $5,919,000. Service
sales in fiscal 2009 decreased by approximately $89,000 and the
reduction was volume
related, compared to fiscal 2008. Product sales were $5,633,894 in
fiscal 2009 compared to $11,552,499 in fiscal 2008. The decrease in
product sales occurred in both the indicator and gauges segment, and
the automotive diagnostic
equipment segment. The dollar decreases were approximately $210,000 and
$5,709,000 respectively. Within the automotive diagnostic products,
emission product
sales and
aftermarket products decreased
approximately $5,113,000 and
$601,000
respectively offset by an increase in OEM products of $5,000. Fiscal
2009
benefited from a
small emissions program while fiscal 2008 benefited from a large state
emissions program.
Management
recorded a valuation allowance on the entire balance of deferred tax
assets at September 30, 2009 in the amount of $1,845,200 due to the
continued losses during
the past several years, the current economic uncertainties, the
negative effects of the current economic crisis on all of the Company's
markets and concern that 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. In
addition, management recorded a valuation allowance in
the amount of $310,500 on the current year deferred taxes. This represents
an effective income tax rate of 0%. Income
taxes in
fiscal 2009 were $1,845,200 due to the increase in the
valuation allowance on deferred income taxes of $2,505,200. This
represents an effective income tax rate of 100%.
Income taxes in
fiscal 2008 were $200,007 which includes an increase in
the valuation allowance on deferred income taxes of $535,000. This
represents an effective income tax rate of 35%. The tax
rate in fiscal 2008 was lower than
the normal tax rate of 37% due
to the recording of a valuation allowance.
It
is anticipated that the effective tax rate in fiscal 2011
will be similar to fiscal 2010.
The
deferred
tax benefits
begin to expire in 2015.
In
December of
2008 management took steps to reduce direct and 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 took into
consideration
possible increases in other expenses. The savings were
expected
to be realized in equal amounts per month with similar impact on both
future
earnings and cash flows. Beginning in January 2009 and continuing
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 years
ended September 30, 2010 and 2009 the Company achieved the savings that
were
anticipated from
the cost
cutting
measures implemented in January 2009 and April 2009. The Company anticipates the cost
cutting
measures will continue for the fiscal year ended September 30, 2011.
The
Company has available a net operating loss carryforward of
approximately $4,670,000
and
research and development credit carryforwards of approximately$1,700,000 that
begin to expire in 2015.
During
fiscal
2010 the Company recorded an additional valuation allowance on deferred
tax expense in the amount
of
$310,500 due to additional losses, deterioration of the markets the
Company
serves, economic uncertainty, and an increased likelihood of tax
credits
expiring before being utilized. The
Company's
entire deferred tax asset of $3,793,700 has been offset by a valuation
allowance of $3,793,700. Because
of the uncertainties involved with this significant
estimate,
it is reasonably possible that the Company's estimate may change.
Liquidity and Capital Resources
Current assets of $3,312,428 at September 30, 2010 were 6.3 times current liabilities and the total of cash and cash equivalents and receivables was 2.1 times current liabilities. These ratios compare to 8.1 and 3.7 respectively at the end of fiscal 2009. Cash and cash equivalents was $768,647 at September 30, 2010 and $716,866 at September 30, 2009. Total current assets decreased by approximately $794,000 from the previous year end due primarily to a decrease in accounts receivable and inventory of approximately $779,000 and $62,000 respectively. The decrease was offset in part by an increase in cash and cash equivalents of approximately $52,000. The decrease in accounts receivable was due primarily to a lower sales volume in the fourth quarter of fiscal 2010 versus fiscal 2009. Inventory decreased due primarily to lower production levels during the current year.Working capital at September 30, 2010 was $2,783,776 as compared to $3,602,620 a year ago. The decrease of approximately $819,000 was due primarily to a decrease in accounts receivable and inventory and prepaid expenses of approximately $779,000, $62,000, and $5,000 respectively, offset in part by an increase in cash and cash equivalents, accounts payable and accrued payroll and related expenses of approximately $52,000, $26,000 and $10,000 respectively. The decrease in accounts receivable was due primarily to lower shipments in the fourth quarter of fiscal 2010. Inventory decreased due to lower production levels in the current year.
Internally generated funds in fiscal 2010 were $70,912 and were adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $19,456. The primary reason for the positive cash flow from operations in fiscal 2010 was the reduction in accounts receivable and inventory of $779,202 and $61,676 respectively offset in part by the net loss of $949,496 and non-cash depreciation and share-based compensation of $131,800 and $16,045 respectively. Internally generated funds in fiscal 2009 were a negative $1,241,018 and were not adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $34,674. The primary reason for the negative cash flow from operations in fiscal 2009 was the net loss of $3,674,253. The negative cash flow was financed through internally generated funds from fiscal 2008. Internally generated funds in fiscal 2008 were $3,296,780 and were adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $127,510. The primary reason for the positive cash flow from operations in fiscal 2008 was the reduction in accounts receivable and inventory of $3,772,292 and $1,606,384 respectively offset in part by the net loss of $769,699 and a $1,634,208 reduction in trade payables. The Company does not anticipate any material capital expenditures during fiscal 2011. In addition, the Company expects there will be internally generated funds in fiscal 2011 from operating activities in addition to available short-term financing to provide adequate funding of the Company's working capital needs.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-K. 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. 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.
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 and the automotive industry, (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 and indicating instrument products, (d)
the ability of the Company to further establish distribution and a
customer base in the automotive aftermarket, (e) the Company's
ability
to capitalize on market opportunities including state automotive
emissions
programs and OEM tool programs, and (f) the Company's ability to obtain
cost effective financing.
ITEM 7A. 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 which was rescinded on December 17, 2009. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The
following
pages contain the Financial Statements and Supplementary Data as
specified
for Item 8 of Part II of Form 10-K.
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, 2010 and 2009, 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, 2010. 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, 2010 and 2009, and the consolidated results of their
operations
and their cash flows for each of the years in the three-year period
ended
September 30, 2010 in conformity with accounting principles generally
accepted
in the United States of America.
MEADEN
& MOORE, Ltd.
CERTIFIED
PUBLIC ACCOUNTANTS
DECEMBER
14,
2010
CLEVELAND,
OHIO
F-1
2010
|
2009
|
||||
|
|||||
CURRENT ASSETS: | |||||
Cash and cash equivalents |
$768,647
|
$716,866
|
|||
Accounts receivable-less allowance for |
350,386
|
1,129,588
|
|||
doubtful accounts of $10,000 ($10,000, 2009) | |||||
Inventories-less allowance for obsolete |
2,122,972
|
2,184,648
|
|||
inventory of $380,000 ($455,000, 2009) | |||||
Deferred
income
taxes-less valuation |
|||||
allowance of $156,300 ($178,600, 2009) | - |
- |
|||
Prepaid expenses |
70,423
|
75,552
|
|||
|
|||||
Total Current Assets |
3,312,428
|
4,106,654
|
|||
PROPERTY, PLANT AND EQUIPMENT: | |||||
Land |
233,479
|
233,479
|
|||
Buildings |
1,429,718
|
1,429,718
|
|||
Machinery and equipment |
2,336,995
|
2,327,551
|
|||
|
|||||
4,000,192
|
3,990,748
|
||||
|
3,504,989
|
3,380,938
|
|||
|
|||||
495,203
|
609,810
|
||||
OTHER ASSETS: | |||||
Deferred
income
taxes-less
valuation |
|||||
allowance of $3,637,400 ($3,304,600, 2009) | - |
- |
|||
Deposits |
1,750
|
1,750
|
|||
|
|||||
1,750
|
1,750
|
||||
|
|||||
Total Assets |
$3,809,381
|
$4,718,214
|
|||
|
F-2
2010
2009
CURRENT
LIABILITIES:
Accounts
payable
$183,036
$157,327
Accrued
payroll
and
related expenses
149,801
139,342
Accrued
expenses
148,850
131,535
Accrued
taxes
other
than income
46,965
71,870
Accrued
income
taxes
-
3,960
Total
Current
Liabilities
528,652
504,034
STOCKHOLDERS'
EQUITY:
Common
shares -
par
value $1.00
Class
A
3,750,000
shares authorized, 809,024
shares
issued
(809,024
shares 2009)
793,229
793,229
Class
B
1,000,000
convertible shares authorized,
475,533
shares
issued (475,533 shares 2009)
454,866
454,866
Contributed
capital
1,850,037
1,833,992
Treasury
shares
- - 15,795
(2010 and 2009)
Class A shares and 20,667
(2010 and 2009)
Class B shares
(661,676)
(661,676)
Retained
earnings
844,273
1,793,769
Total
Stockholders'
Equity
3,280,729
4,214,180
Total
Liabilities
and Stockholders' Equity
$3,809,381
$4,718,214
F-3
CONSOLIDATED
STATEMENT OF INCOME
HICKOK
INCORPORATED
FOR THE
YEARS
ENDED SEPTEMBER 30
2010
|
2009
|
2008
|
|||
|
|||||
NET SALES: | |||||
Product sales |
$4,868,635
|
$5,633,864
|
$11,552,499
|
||
Service sales |
390,377
|
428,912
|
517,827
|
||
|
|||||
Total Net Sales |
5,259,012
|
6,062,776
|
12,070,326
|
||
COSTS AND EXPENSES: | |||||
Cost of product sold |
2,689,469
|
3,683,049
|
6,802,006
|
||
Cost of services sold |
251,258
|
402,025
|
540,896
|
||
Product development |
1,069,707
|
1,317,529
|
1,920,851
|
||
Marketing and administrative |
2,217,520
|
2,524,914
|
3,454,382
|
||
expenses | |||||
Interest charges |
542
|
3,826
|
9,974
|
||
Other income |
(19,988)
|
(39,514)
|
(88,091)
|
||
|
|||||
Total Costs and Expenses |
6,208,508
|
7,891,829
|
12,640,018
|
||
|
|||||
Loss before Provision for Income Taxes |
(949,496)
|
(1,829,053)
|
(569,692)
|
||
Provision For Income Taxes: | |||||
Deferred |
-
|
1,845,200
|
200,007
|
||
|
|||||
-
|
1,845,200
|
200,007
|
|||
|
|||||
Net Loss |
$(949,496) |
$(3,674,253) |
$(769,699) |
||
|
|||||
NET LOSS PER COMMON SHARE - BASIC | $(.76) | $(2.94) | $(.62) | ||
|
|||||
NET
LOSS PER COMMON SHARE - DILUTED |
$(.76) | $(2.94) | $(.62) | ||
|
|||||
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING |
1,248,095
|
1,248,095
|
1,239,449
|
||
|
F-4
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE
INCOME
HICKOK
INCORPORATED
FOR THE
YEARS
ENDED SEPTEMBER 30, 2010, 2009, AND 2008
$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, 2007 |
$6,237,721 | $766,779 | $454,866 | $1,661,527 | $- |
$(661,676) | $8,459,217 | $(754,281) |
|
||||||||
Sale of Class A shares under option |
- |
26,450 |
- |
140,559 |
- |
- |
167,009 |
- |
Share-based compensation expense | - |
- |
- |
15,829 |
- |
- |
15,829 |
- |
Net
Loss |
(769,699) |
- |
- |
- |
- |
- |
(769,699) |
(769,699) |
|
||||||||
Balance
at September 30, 2008 |
$5,468,022 |
$793,229 |
$454,866 |
$1,817,915 |
$- |
$(661,676) |
$7,872,356 |
$(769,699) |
|
||||||||
Share-based compensation expense |
- |
- |
- |
16,077 |
- |
- |
16,077 |
- |
Net
Loss |
(3,674,253) |
- |
- |
- |
- |
- |
(3,674,253) |
(3,674,253) |
|
||||||||
Balance
at September 30, 2009 |
$1,793,769 |
$793,229 |
$454,866 |
$1,833,992 |
$- | $(661,676) |
$4,214,180 |
$(3,674,253) |
|
||||||||
Share-based compensation expense | - |
- |
- |
16,045 |
- |
- |
16,045 |
- |
Net Loss | (949,496) |
- |
- |
- |
- |
- |
(949,496) |
(949,496) |
|
||||||||
Balance at September 30, 2010 | $844,273 |
$793,229 |
$454,866 |
$1,850,037 |
$- |
$(661,676) |
$3,280,729 |
$(949,496) |
|
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
2010
|
2009
|
2008
|
||
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
Cash received from customers |
$6,038,214
|
$5,783,951
|
$15,842,618
|
|
Cash
paid to
suppliers
and employees |
(5,972,126)
|
(7,043,959)
|
(12,576,618)
|
|
Interest paid |
-
|
(3,826)
|
(28,562)
|
|
Interest received |
4,824
|
22,816
|
65,342
|
|
Income taxes (paid) |
-
|
-
|
(6,000)
|
|
|
||||
Net Cash Provided by (Used in) Operating Activities |
70,912
|
(1,241,018)
|
3,296,780
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||
Capital expenditures |
(19,456)
|
(34,674)
|
(127,510)
|
|
Proceeds on sale of assets |
325
|
-
|
2,000
|
|
|
||||
Net Cash Provided by (Used in) Investing Activities |
(19,131)
|
(34,674)
|
(125,510)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
Short-term
borrowings |
- |
- |
888,000 |
|
Payments on short-term borrowings |
-
|
-
|
(2,835,700)
|
|
Sale of Class A shares under option |
- |
- |
167,009 |
|
|
||||
Net Cash Provided by (Used in) Financing Activities |
-
|
-
|
(1,780,691)
|
|
|
||||
Increase (Decrease) in Cash and Cash Equivalents |
51,781
|
(1,275,692)
|
1,390,579
|
|
Cash and Cash Equivalents at Beginning of Year |
716,866
|
1,992,558
|
601,979
|
|
|
||||
Cash and Cash Equivalents at End of Year |
$768,647
|
$716,866
|
$1,992,558
|
|
|
||||
See
accompanying
summary
of accounting policies and notes to financial statements. |
F-6
2010 |
2009 |
2008 |
|
|
|||
RECONCILIATION
OF
NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|||
Net
Loss |
$(949,496) |
$(3,674,253) |
$(769,699) |
ADJUSTMENTS
TO
RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|||
Depreciation |
131,800 |
167,492 |
196,490 |
(Gain)Loss
on
disposal of assets |
1,938 |
739 |
2,981 |
Share-based compensation expense |
16,045 |
16,077 |
15,829 |
Deferred
income taxes |
- |
1,845,200 |
200,007 |
CHANGES
IN
ASSETS AND LIABILITIES: |
|||
Decrease
(Increase)
in accounts receivable |
779,202 |
(278,825) |
3,772,292 |
Decrease
(Increase)
in inventories |
61,676 |
794,520 |
1,606,384 |
Decrease
(Increase)
in prepaid expenses |
5,129 |
16,645 |
(13,178) |
Decrease
(Increase)
in refundable income taxes |
- |
6,000 |
(6,000) |
Increase
(Decrease)
in accounts payable |
25,709 |
(97,152) |
(1,634,208) |
Increase
(Decrease)
in accrued payroll and related expenses |
10,459 |
(97,777) |
(38,739) |
Increase
(Decrease)
in other accrued expenses and accrued taxes other than income |
(7,590) |
56,356 |
(35,379) |
Increase
(Decrease)
in accrued income taxes |
(3,960) |
3,960 |
- |
|
|||
Total
Adjustments |
1,020,408 |
2,433,235 |
4,066,479 |
|
|||
Net
Cash
Provided by (Used in) Operating Activities |
$70,912 |
$(1,241,018) |
$3,296,780 |
|
|||
F-7
F-8
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
HICKOK
INCORPORATED
SEPTEMBER
30, 2010, 2009 AND 2008
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 technicians to test the various electronic systems in automobiles and trucks, and emissions testing equipment specified by various states for testing vehicle emissions. 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 |
2010
|
2009
|
2008
|
||||||
|
|
||||||||
Automotive Test Equipment | |
74.2
|
% |
74.6
|
% |
85.2
|
% | ||
Indicating Instruments |
25.8
|
25.4
|
14.8
|
||||||
|
|||||||||
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 73%
of outstanding receivables at September 30, 2010 (89%
in 2009).
Sales
to three customers approximated $720,000,
$295,000
and $10,000 (2010),
$512,000,
$419,000 and $1,102,000 (2009), $878,000,
$6,395,000
and $0
(2008), and accounts receivable to these customers amounted to
approximately $51,000,
$23,000 and $0 (2010),
$35,000,
$23,000 and $760,000 (2009).
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 Company primarily records service sales as the items are
repaired.
The customer does not have a right to return merchandise unless
defective
or warranty related and there are no formal customer acceptance
provisions.
Sales
returns and allowances were immaterial during each of
the
three years in the period ending September 30, 2010.
Product
Warranties :
The
Company warrants certain products against defects for
periods
ranging primarily from 12 to48
months. The
Company's
estimated future warranty claims is included
in
"Accrued
expenses"
and are as follows:
2010
|
2009
|
2008
|
||
|
||||
Balance
October 1 |
$4,482 |
$5,640 |
$13,764 |
|
Current year provisions | 3,602 |
36,252 |
99,307 |
|
Expenditures | (4,669) |
(37,410) |
(107,431) |
|
|
|
|
||
Balance September 30 |
$3,415
|
$4,482
|
$5,640
|
|
|
||||
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, 2010 and 2009 amounted to $768,647
and
$716,866,
respectively.
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:
Raw
materials
and
component parts
Work-in-process
Finished
products
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 $131,800 (2010), $167,492 (2009), and $196,490 (2008).
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 $17,854
(2010),
$36,899 (2009)
and $41,337 (2008).
Income
Taxes :
The provision
for
income taxes is determined using the asset and liability approach of
accounting for
income taxes. Under this approach, deferred taxes represent the future
tax
consequences expected to occur when the reported amounts of assets and
liabilities
are recovered or paid. The provision for income taxes represents income
taxes
paid or payable for the current year plus any change in deferred taxes
during
the year. Deferred taxes result from differences between the tax basis
of
assets and liabilities and their reported amounts in the consolidated
financial
statements and are adjusted for changes in tax rates and tax laws when
changes
are enacted. Valuation allowances are recorded to reduce deferred tax
assets
when it is more likely than not that a tax benefit will not be realized.
Income
per Common Share :
Income per
common
share information is computed on the weighted average number of shares
outstanding
during each period as disclosed in Note 8.
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.
Operating :
2011
|
$2,880
|
|
2012
|
720
|
|
|
||
Total |
$3,600
|
|
|
Rental expense under these commitments was $5,782 (2010), $24,120 (2009) and $39,231 (2008).
A facility held under a capital lease has a net book value of $0 at September 30, 2010. 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. All options granted under the Employee Plans are exercisable at September 30, 2010.
The Company's Outside Directors Stock Option Plans (collectively the "Directors Plans") provide for the automatic grant of options to purchase up to 44,000 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 25, 2013.
Non-cash compensation expense related to stock option plans for fiscal years ended September 30, 2010, 2009 and 2008 was $16,045, $16,077 and $15,829 respectively.
Transactions
involving
the plans are summarized as follows:
Exercise
Exercise
Exercise
Option
Shares
Employee
Plans:
Outstanding
October
1,
Granted
Canceled/expired
Exercised
Outstanding
September
30,
2010 ($3.125 to $3.55
per
share)
Exercisable
September
30,
Director
Plans:
Outstanding
October
1,
Granted
Canceled/expired
Exercised
Outstanding
September
30, 2010 ($2.925 to $11.00 per share)
Exercisable
September
30,
Employee Plans | Outstanding
Stock Options Exercisable |
Weighted
Average Exercise Price |
Weighted
Average Remaining Life |
|
|||
Range
of exercise Prices: |
|||
$3.125 - - 3.55 | 41,500 | $3.41 | .4 |
41,500 | $3.41 |
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: |
|||||
$2.925 - - 5.25 | 20,000 | $3.95 | 4.3 | 16,667 | $4.15 |
$6.00 - - 7.25 | 14,000 | $6.49 | 6.4 | 8,000 | $6.85 |
$10.50 - - 11.00 | 10,000 | $10.75 | 7.0 | 8,333 | $10.70 |
44,000 | $6.30 | 33,000 | $6.46 |
6. CAPITAL STOCK, TREASURY STOCK, AND CONTRIBUTED CAPITAL
Unissued shares of Class A common stock (540,366 and 555,266 shares in 2010 and 2009 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 5). 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.
A
reconciliation of
the provision (recovery) of income taxes to the statutory Federal
income
tax rate is as follows:
Income
(Loss)
Before
Provision for Income Taxes
Statutory
rate
Permanent
differences
Research
and
development
credit - net
Valuation allowance
310,500
2,505,200
535,000
Other
Deferred
tax assets (liabilities) consist of the following:
2010
|
2009
|
||
|
|||
Current: | |||
Inventories |
$133,100
|
$155,900
|
|
Bad debts | 3,400 | 3,400 | |
Accrued liabilities |
40,800
|
42,100
|
|
Prepaid expense |
(21,000)
|
(22,800) | |
|
|||
156,300 |
178,600 |
||
Valuation allowance | (156,300) |
(178,600) |
|
|
|||
Total current deferred income taxes |
-
|
-
|
|
Noncurrent: | |||
Depreciation and amortization |
115,200
|
145,700
|
|
Research and development and other credit carryforwards |
1,655,700
|
1,624,600
|
|
Net operating loss carryforward | 1,587,500 | 1,269,700 | |
Contribution carryforward |
250,400 | 241,400 | |
Directors stock option plan |
28,600
|
23,200
|
|
|
|||
3,637,400
|
3,304,600
|
||
Valuation allowance |
(3,637,400) |
(3,304,600) |
|
|
|
||
Total long-term deferred income taxes |
- |
- |
|
|
|||
Total |
$-
|
$-
|
|
|
The
Company did not
incur any material impact to its financial condition or results of
operations due to the financial statement recognition and measurement
of a tax position taken
or expected to be taken in a tax return.
The
Company is
subject to U.S federal jurisdiction income tax examinations for the tax
years 2006 through 2009. In addition, the Company is subject to state
and local income tax examinations for the tax years 2006 through 2009.
The Company has available a net operating loss carryforward of approximately $4,670,000 and a contribution carryforward of approximately $736,000. The net operating loss and research and development credit carryforwards will begin to expire in 2015. The valuation allowance was increased in 2010 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. 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.
Basic
Loss Per Share
Loss
available
to common stockholders
Shares
denominator
Per
share
amount
Effect
of Dilutive Securities
Average
shares
outstanding
Stock
options
Diluted
Loss Per Share
Loss
available
to common stockholders
Per
share
amount
The
Company
has a formula based profit sharing bonus plan for officers and key
employees.
For fiscal years ended September 30, 2010, 2009 and 2008, the formula
produced
no bonus distribution.
The
bonus
distribution is determined by the Compensation Committee of the Board
of Directors.
10. SEGMENT AND RELATED INFORMATION
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 OEMs 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:
Years
Ended
September
30,
Net
Sales
Indicators
and
Gauges
Automotive
Diagnostic Tools and Equipment
Income
(Loss)
Before
Provision for Income Taxes
Indicators
and
Gauges
Automotive
Diagnostic
Tools and Equipment
General
Corporate
Expenses
Asset
Information
:
Years
Ended
September
30,
Identifiable
Assets
Indicators
and
Gauges
Automotive
Diagnostic Tools and Equipment
2,646,281
Corporate
1,344,140
1,413,949
Geographical Information :
Included
in
the consolidated financial statements are the following amounts related
to
geographic locations:
Years
Ended
September
30,
Revenue:
United
States
of
America
Australia
44,377
20,776
31,541
Canada
England
-
23,501
55,472
Germany
4,718
16,067
8,645
Other
foreign
countries
All
export
sales to Australia, Canada, England, Germany and other foreign
countries are
made in United States of America Dollars.
13. GOING
CONCERN AND
MANAGEMENT PLAN
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has suffered
recurring losses from operations during the past several years due
primarily to decreasing sales of existing product lines and a general
economic downturn in all markets the Company serves. The resulting
lower sales levels have reduced the Company's accounts receivable and
cash balances, if this situation continues it may prevent the Company
from generating sufficient
cash flow to sustain its operations.
The
ability of the Company to continue as a going concern is dependent on
improving the Company's profitability and cash flow and securing
financing if needed. During the past year management reviewed and
revised its strategic plan and believes in the viability of its
strategy to increase revenues and profitability through increased sales
of existing products and the introduction of new products to the market
place. Management believes
that the actions presently being taken by the Company will provide the
stimulus for it to continue as a going concern, however, because of the
inherent uncertainties there can be no assurances to that effect. These
consolidated financial statements do not include any adjustments that
might result
from the outcome of this uncertainty.
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. For the years ended September
30,
2010 and 2009 the Company achieved the savings
that
were anticipated from
the cost
cutting
measures implemented in January 2009
and April 2009. The
Company anticipates the cost cutting measures will continue for the
fiscal year ended September 30, 2011.
Management is also
prepared to make additional expense reductions if its strategy to
improve revenue and profitability does not show significant results. In
addition, management has identified a possible source of limited
short-term financing if it were to become necessary.
Management
recorded
a valuation allowance on the entire
balance
of deferred tax assets at September 30, 2009 due to the continued
losses during the past
several years,
the current
economic uncertainties, the negative effects of the current economic
crisis on all 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.
In addition, management recorded a valuation allowance in the amount of $310,500 on the current year deferred taxes.
14.
QUARTERLY DATA (UNAUDITED)
First
|
Second
|
Third
|
Fourth
|
||
|
|||||
Net Sales | |||||
|
$1,636,717
|
$1,394,060
|
$1,390,355
|
$837,880
|
|
|
1,159,063
|
1,335,056
|
1,521,033
|
2,047,624
|
|
|
7,241,412
|
1,699,468
|
1,704,816
|
1,424,630
|
|
Gross Profit | |
||||
|
876,542
|
528,246
|
642,349
|
271,148 | |
|
282,451
|
369,640
|
617,348
|
708,263
|
|
|
3,314,079
|
438,084
|
437,612
|
537,649
|
|
Net Income (Loss) | |||||
|
64,709
|
(335,542)
|
(151,479)
|
(527,184)
|
|
|
(1,145,353)
|
(2,245,253)
|
(234,861)
|
(48,786)
|
|
|
1,108,889
|
(474,456)
|
(535,657)
|
(868,475)
|
|
Net Income (Loss) per Common Share | |||||
Basic | |||||
|
.05
|
(.27)
|
(.12)
|
(.42)
|
|
|
(.92)
|
(1.80)
|
(.19)
|
(.03)
|
|
|
.90
|
(.38)
|
(.43)
|
(.71)
|
|
Diluted | |||||
|
.05
|
(.27)
|
(.12)
|
(.42)
|
|
|
(.92)
|
(1.80)
|
(.19)
|
(.03)
|
|
|
.85 |
(.38)
|
(.43)
|
(.66)
|
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not
Applicable.
ITEM
9A.
CONTROLS AND PROCEDURES.
As
of September 30,
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 as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended ("Exchange Act") were effective as of September
30, 2010 to ensure that information required
to be disclosed by the Company in reports that 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 fourth fiscal
quarter
ended September 30, 2010 that have materially affected, or are
reasonably
likely to materially affect the Company's internal control over
financial
reporting.
The
Company's internal
control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with generally accepted accounting principles. The Company's
internal control over financial reporting includes
policies and procedures that (1) pertain to maintaining records that,
in reasonable
detail, accurately and fairly reflect the transactions and dispositions
of
the Company assets, (2) provide reasonable assurance that transactions
are
recorded as necessary to permit preparation of financial statements in
accordance
with generally accepted accounting principles, and that the Company's
receipts
and expenditures are being made only in accordance with authorization
of
the Company's management and directors, and (3) provide reasonable
assurance regarding prevention or the timely detection of unauthorized
acquisition, use or disposal of the company's assets that could have a
material effect on the financial statements.
Management, including the Company's Chief Executive Officer along with the Company's Senior Vice President, Finance and Chief Financial Officer, does not expect that the Company's internal controls will prevent or detect all errors and all fraud. An internal control system no matter how well designed and operated can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or by management override of the control. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Hickok Incorporated is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of management, including the Company's Chief Executive Officer along with the Company's Senior Vice President, Finance and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of September 30, 2010, as required by Rule 13a-15(c) of the Securities Exchange Act of 1934, as amended. In making this assessment, we used the criteria set forth in the framework in Internal Control-Integrated Framework for Small Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework for Small Public Companies, our management concluded that our internal control over financial reporting was effective as of September 30, 2010.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
/s/ R. L. Bauman
R.
L. Bauman
Chief Executive Officer
/s/ G. M. Zoloty
G.
M. Zoloty
Chief Financial Officer
December
22, 2010
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item 10 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 23, 2011, 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 10 as to the Executive Officers of the Company is included in Part III of this Annual Report on Form 10-K. 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 Reporting Compliance" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 23, 2011.
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.
EXECUTIVE OFFICERS OF THE REGISTRANT
OFFICE | OFFICER | AGE |
President and Chief Executive Officer | Robert L. Bauman | 70 |
Senior Vice President, Finance and Chief Financial Officer | Gregory M. Zoloty | 58 |
Senior Vice President, Manufacturing | William A. Bruner | 68 |
Senior Vice President, OEM, National Accounts Sales and Marketing | Michael R. Cable | 61 |
Senior
Vice President,
Engineering |
George
R. Hart |
53 |
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 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 23, 2011, 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. 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, 2010 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 12 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 23, 2011, 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The
information
required by this Item 13 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 23, 2011,
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 14. PRINCIPAL ACCOUNTING 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 23, 2011, 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 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) (1) FINANCIAL STATEMENTS
The
following
Consolidated
Financial Statements of the Registrant and its subsidiaries are
included
in Part
II, Item 8:
Report
of
Independent
Registered Public Accounting Firm
F-1
Consolidated
Balance
Sheet - As of September 30, 2010 and 2009
F-2
Consolidated
Statement
of Income - Years Ended September 30, 2010, 2009 and 2008
F-4
Consolidated
Statement
of Stockholders' Equity and Comprehensive Income - Years Ended
September
30, 2010, 2009 and 2008
F-5
Consolidated
Statement
of Cash Flows - Years Ended September 30, 2010, 2009 and 2008
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 15 hereof.
SEQUENTIAL
PAGE
Report
of
Independent
Registered Public Accounting Firm
as to
Schedules
Reference is made to the Exhibit Index set forth herein.
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
Robert
L. Bauman
President
and Chief Executive Officer
Date: December 22,
2010
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 22th day of December, 2010:
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/ Hugh S. Seaholm | Director |
Hugh S. Seaholm | |
/s/ Kirin M. Smith | Director |
Kirin M. Smith |
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) | 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(b) | 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(c) | 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(d) | 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). |
|
10(e) | Hickok Incorporated 2010 Outside Directors Stock Option Plan (incorporated herein by reference to Appendix A of the Company's definitive proxy statement for its 2010 annual meeting of shareholders as filed with the Commission on January 26, 2010). | |
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, 2010 and 2009, and for each of the years in the three-year period
ended
September 30, 2010, and have issued our report thereon dated December
14, 2010;
such
consolidated financial statements and report are included in Part
II, Item 8
of
this Form 10-K. Our audits also included the consolidated financial
statement
schedules ("schedules") of the Company listed
in
Part IV, Item 15.
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
December
14,
2010
Cleveland,
Ohio
Years Ended September 30, |
2010 |
2009 |
2008 |
NET INCOME |
|||
Net loss applicable to common shares for basic
earnings per share |
$(949,496) |
$(3,674,253) |
$(769,699) |
Net loss applicable to common shares for diluted
earnings per share |
$(949,496) |
$(3,674,253) |
$(769,699) |
SHARES OUTSTANDING |
|||
Weighted average shares for basic earnings per share |
1,248,095 |
1,248,095 |
1,239,449 |
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 |
1,239,449 |
Basic Earnings Per Common Share |
$(.76) |
$(2.94) |
$(.62) |
Diluted Earnings Per Common Share |
$(.76) |
$(2.94) |
$(.62) |
* 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-K of Hickok Incorporated for the year ended
September 30, 2010.
/s/ Meaden & Moore, Ltd.
MEADEN & MOORE, Ltd.
Certified Public Accountants
December 20, 2010
Cleveland, Ohio
I have reviewed this annual report
on Form 10-K 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 control 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
December 22,
2010
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I have reviewed this annual report
on Form 10-K 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 control 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
December 22, 2010
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-K for the period ending September 30, 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
December 22, 2010
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-K for the
period
ending September 30, 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
December 22, 2010