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.

New Accounting Standards

The Company did not incur any material impact to its financial condition or results of operations due to the adoption of any new accounting standards during the periods reported.

March

2016,

the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU

2016

09)

a new standard that changes the accounting for certain aspects of share - based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from the other income tax cash flows. The standard also allows the Company to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our cash flow statements, and provides an accounting policy election to account for forfeitures as they occur. The new standard is effective for the Company beginning

October

2017,

with early adoption permitted. This new standard is not expected to have a significant impact on the Company’s financial statements.

February

2016,

the FASB issued (ASU

2016

02)

a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new standard will be effective for the Company beginning

October

2019,

with early adoption permitted. We are evaluating the impact this standard will have to our financial statements.

In

May

2014,

the FASB issued its final standard on the recognition of revenue from contracts with customers. The standard, issued as Accounting Standards Update (ASU)

2014

09,

outlines a single comprehensive model for entities to use in the accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. The core principle of this model is that “an entity recognizes revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.” The update is effective for financial statement periods beginning after

December

15,

2017,

with early adoption prohibited. The Company has not determined the impact of this pronouncement on its financial statements and related disclosure.

June

2016,

the FASB issued ASU

2016

13,

Financial Instruments - Credit Losses. The standard requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly - recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This standard will be effective for fiscal years beginning after

December

31,

2019.

The Company is currently in the process of evaluating the impact of adoption of this ASU on 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

% of outstanding receivables at

September

30,

2016

(80%

2015).

Sales to

one

customer approximated

$1,306,000

(2016),

$2,158,000

(2015),

$2,768,000

(2014),

and accounts receivable to this customer amounted to approximately

$52,000

(2016)

and

$741,000

(2015).

Use of Estimates in the Prepa

ration 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.

Fair

Value of Financial Instruments

Accounting for "Financial Instruments" requires the Company to disclose estimated fair values of financial instruments. Financial instruments held by the Company include, among others, accounts receivable, accounts payable, and convertible notes payable. The carrying amounts reported in the consolidated balance sheet for assets and liabilities qualifying as financial instruments is a reasonable estimate of fair value.

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,

2016.

Product Warranties

The Company warrants certain products against defects for primarily

months. The amounts are immaterial during each of the

three

years in the period ending

September

30,

2016.

Product Development Costs

Product development costs, which include engineering production support, are expensed as incurred. Research and development performed for customers represents no more than

of sales in each year. The arrangements do not include a repayment obligation by the Company.

Cash and Cash Equivalents

For purposes of the Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of

three

months or less to be cash equivalents. From time to time the Company maintains cash balances in excess of the FDIC limits. The cash balance at

September

30,

2016

and

2015

amounted to

$3,060,734

and

$346,405,

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.

Inventory

Inventory is valued at the lower of cost

(first

- in,

first

- out) or market and consist of:

	2016		2015

Raw materials and component parts	$	1,730,563	$	1,254,294
Work-in-process		438,447		499,752
Finished products		1,139,789		172,467

	$	3,308,799	$	1,926,513

The reserve for inventory obsolescence was

$235,592

and

$251,500

September

30,

2016

and

2015,

respectively.

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	Estimated Useful Lives (in years)

Buildings	Straight-line		10	to	40
Machinery and equipment	Straight-line		3	to	10
Tools and dies	Straight-line			3

Depreciation, including depreciation on capitalized leases, amounted to

$133,422

(2016),

$68,686

(2015),

and

$62,195

(2014).

Intangible Assets

Intangible assets relate to the purchase of Federal Hose Manufacturing LLC on

July

2016.

Goodwill is not amortized, but will be reviewed on an annual basis for impairment. Amortization of other intangible (Customer list) is being amortized on a straight - line basis over

years. Amortization of other intangibles was

$20,000

(2016),

(2015)

and

(2014).

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

$22,979

(2016),

$22,764

(2015)

and

$9,017

(2014).

Income Taxes

The provision for income taxes is computed on domestic financial statement income. Where transactions are included in the determination of taxable income in a different year, deferred income tax accounting is used (Note

10).

During the year, the Company adopted the provisions of FASB ASU

2015

17,

Balance Sheet Classification of Deferred Taxes

which requires that deferred taxes are classified as non - current assets and non - current liabilities in the consolidated balance sheet. This guidance has been retrospectively applied.

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

11.