Attached files
| file | filename |
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| EXCEL - IDEA: XBRL DOCUMENT - CRAWFORD UNITED Corp | Financial_Report.xls |
| EX-11 - EXHIBIT 11 - CRAWFORD UNITED Corp | ex11.htm |
| EX-23 - EXHIBIT 23 - CRAWFORD UNITED Corp | ex23.htm |
| EX-14 - EXHIBIT 14 - CRAWFORD UNITED Corp | ex14.htm |
| EX-21 - EXHIBIT 21 - CRAWFORD UNITED Corp | ex21.htm |
| EX-31 - EXHIBIT 31.1 - CRAWFORD UNITED Corp | ex311.htm |
| EX-31 - EXHIBIT 31.2 - CRAWFORD UNITED Corp | ex312.htm |
| EX-32 - EXHIBIT 32.1 - CRAWFORD UNITED Corp | ex321.htm |
| EX-32 - EXHIBIT 32.2 - CRAWFORD UNITED Corp | ex322.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2011
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)
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Registrant's telephone number (216) 541-8060
Securities registered pursuant to
Section
12(b)
of the Act:
NONE
Securities
registered pursuant to Section 12(g) of the Act:
Class
A
Common Shares, $1.00 par value
(Title of
Class)
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 whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]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 [X] No [ ]
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 smaller reporting company.
| Large accelerated filer [ ] |
Accelerated
filer [
] |
| Non-accelerated
filer
[ ] |
Smaller
reporting
company
[X] |
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, 2011, 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 672,620 shares of Class A Common Stock and 85,056 shares of Class B Common Stock. As of March 31, 2011, based on the closing price of $2.00 per Class A Common Share on the Over The Counter Bulletin Board, the aggregate market value of the Class A Common Stock held by such non-affiliates was approximately $1,345,240. There is no trading market in the shares of Class B Common Stock.
Documents Incorporated by Reference:
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PART
OF FORM
10-K
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DOCUMENT
INCORPORATED
BY REFERENCE
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Part
III (Items
10,
11, 12, 13 and 14)
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Portions
of the
Registrant's
Definitive Proxy Statement to be used in connection with its Annual
Meeting
of Shareholders to be held on March 7, 2012.
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Except as otherwise stated, the information contained in this Form 10-K is as of September 30, 2011.
Table of Contents
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ITEM 5. MARKET FOR REGISTRANT'S
COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
F-1: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2: CONSOLIDATED BALANCE SHEET
F-3: CONSOLIDATED LIABILITIES AND STOCKHOLDERS' EQUITY
F-4: CONSOLIDATED STATEMENT OF INCOME
F-5: CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
F-6: CONSOLIDATED STATEMENT OF CASH FLOWS
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3. NOTES RECEIVABLE
4. LONG-TERM FINANCING
5. LEASES
6. STOCK OPTIONS
7. CAPITAL STOCK, TREASURY STOCK, AND CONTRIBUTED CAPITAL
8. INCOME TAXES
9. EARNINGS PER COMMON SHARE
10. EMPLOYEE BENEFIT PLANS
11. SEGMENT AND RELATED INFORMATION
12. COMMITMENTS AND CONTINGENCIES
13. SUBSEQUENT EVENTS
14. BUSINESS CONDITION AND MANAGEMENT PLAN
15. QUARTERLY DATA (UNAUDITED)
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 25% of the Company's fiscal 2011 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 now concentrates on sales of automotive
diagnostic equipment sold through distribution for both dealer and
non-dealer servicers.
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 and subsequently delivered
equipment used in the State's testing program. The emission
equipment provides an on-going level of business maintaining equipment
in
existing programs. In recent years there have been no new programs of
significant size undertaken by the States. Most
new State 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-six 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 25% of the Company's sales for fiscal 2011 and 26% for fiscal 2010. An original grouping of products, DIGILOG Instruments, were certified with the FAA during fiscal 2002. Subsequently several additional models have also been certified. The Company also produces both movements and completed indicators that are used in high reliability applications on several active military aircraft.
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 41% of the Company's automotive diagnostic and specialty tool sales in fiscal 2011 and 46% for fiscal 2010. The percentage decrease was primarily because large OEM orders were lower in fiscal 2011 than in fiscal 2010. As a whole, automotive diagnostic tools and equipment represented approximately 75% of the Company's sales for fiscal 2011 and 74% for fiscal 2010.
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. The Company extended this product's capability to diesel and Gasoline Direct Injection (GDI) 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. The Company was able to license certain proprietary algorithms from Ford and develop its’ own software near factory level functionality.
In early 2009 the Company introduced a new product called NGS Mach II that updated the hardware platform and extended the software functionality to 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 at a functionality level well above other aftermarket scan tools for Ford vehicles. The NGS PC only addresses OBD II vehicles dating back to 1996 which is the same vehicle coverage as the Ford tool that replaced NGS classic. Since their introductions the Company has had limited success selling these products in spite of a heavy marketing emphasis.
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. A noticeable change in the Company’s OEM customers to reduce the number of shop tools they require their dealerships to acquire prompted a re-evaluation of the Company’s product strategy. The reevaluation resulted in a plan to target lower cost products that could be effectively sold to automotive technicians for personal use. That strategy has been in execution for about a year and is beginning to have a positive effect on the Company’s automotive aftermarket sales. The first significant products as a result of this strategy were introduced late in the third quarter of fiscal 2011. The first was a tester for Anti-lock Brake systems. It has been received by the market very well. Late in fiscal 2011 we introduced three more products that replaced and upgraded existing offerings. They too have been well received. In the mid-fall we introduced a technicians voltmeter that also has been well received by the market. We have two more of these products we are readying for introduction in the second quarter of fiscal 2012.
The Company continues an effort to reestablish close relationships with OEM customers. 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 Gasoline Direct Injection (GDI) gasoline engines that are expected to represent a significant percentage of all manufacturers' new engine introductions in the upcoming years. The Company introduced a Spark Ignited Direct Injection (SIDI) and Duramax Diesel Adapter to the AFIT product to GM dealers late in fiscal 2010. Initially they met with limited success but as fiscal 2011 progressed thanks to aggressive marketing efforts they have begun to penetrate the dealer market. The Company is just introducing a version of the product for diesel engine diagnosis to the aftermarket. 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. Both of these products offer significant value to medium class truck service organizations and the Company is investing substantial resources to develop a sales channel to these customers.
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 is used by most emissions equipment providers as the gas cap tester in their offerings. Fiscal 2007 fourth quarter and fiscal 2008 first quarter revenue were materially influenced by a product developed for the State of California to test the fuel system of vehicles for leaks. The Company continues to deliver limited quantities of this product to California customers.
Although the US EPA has de-emphasized evaporative emissions testing for new emissions testing programs this type of testing is demonstrably more cost effective than most other alternatives. With the continuing attention to environmental issues in North America, the Company is optimistic that the EPA will reevaluate the value of this testing. In addition, the scientific community has established a direct correlation between hydrocarbon emissions that these products detect and CO2. 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. There has been recent interest from overseas environmental programs in this type of testing equipment. It is too soon to tell if such a market may develop but we are hopeful it will and our proprietary position in these products will be of value.
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.
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 22% and sales to ESP also accounted for approximately 8% of the consolidated sales of the Company during fiscal 2011. During fiscal 2010 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 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. 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 2011 to General Motors Corporation amounted to approximately $1,116,000 and sales to ESP amounted to approximately $418,000. Sales to General Motors Corporation amounted to approximately $720,000 and sales to ESP amounted to approximately $295,000 during fiscal 2010. Sales to SGS amounted to approximately $1,102,000 and sales to General Motors Corporation amounted to approximately $512,000 during fiscal 2009.Backlog
The Company's order backlog as of September 30, 2011 totaled $593,000 as compared to $529,000 as of September 30, 2010 and $1,199,000 as of September 30, 2009. The increase in fiscal 2011 versus 2010 was primarily due to increased orders for indicators and gauges of $114,000. Automotive diagnostic products orders to OEM's increased by approximately $75,000 offset by a decrease of $106,000 for non-emission aftermarket products and $19,000 for emission products. 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.Government Contract Renegotiation
No major portion of the business is open to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. The amount of revenue derived from Government contracts is currently minimal and not material.
Competitive Conditions
The Company is engaged in a highly competitive industry and faces competition from domestic and international firms. Several of the Company's competitors have greater financial resources and larger sales organizations than the Company. Competition with respect to the Company's diagnostic tool business arises from the existence of a number of other significant manufacturers in the field, such as Snap-On, SPX Corporation, 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 2011, 2010 and 2009 years as well as the
poor economic conditions throughout the country, and the Company
anticipates that it will continue to face significant challenges until
conditions improve substantially. The two markets are driven by
different considerations. The OEM market tends to be driven by the need
for new tools due to the introduction of new technologies in vehicles
or excessive warranty costs. Because of dealership economics OEMs have
been reluctant to require dealers to purchase service tools for the
past several years. The aftermarket is largely driven by the economics
of fixing vehicles. During poor economic times purchases can be
delayed. Although aftermarket parts suppliers have done well during the
past few years aftermarket tool suppliers have not. Our strategy of
developing products that target the technician and low cost tools for
shop use is an outgrowth of these realities. We believe substantial
opportunities for growth depends primarily on economic recovery in the
sectors we service.
In addition to automotive service products
the Company diversified some years ago into the emissions testing
market. This market has also been depressed partially because EPA
requirements for state emissions testing program requirements have
changed and partially because state budgets have not allowed the
implementation of new testing programs. We believe improved economic
conditions will improve this market for the Company as well.
Research and Development Activities
The Company expensed as incurred product development costs of $987,114 in 2011, $1,069,707 in 2010 and $1,317,529 in 2009. 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, 2011 was 71 full-time employees which represents a 14% decrease from 83 employees in fiscal 2010 and a 12% reduction from 81 employees in fiscal 2009. 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, 2011, all manufacturing, research and
development
and administrative operations were conducted in the United States of
America.
Revenues derived from export sales approximated $214,000 in 2011,
$91,000
in 2010, and $189,000 in 2009. Shipments to
Australia,
Canada,
England, Germany and Mexico make
up the
majority
of export sales.
Not
Applicable.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
ITEM 2. PROPERTIES.
As
of January 10, 2012 the Company had facilities in the United States of
America as
shown below:
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| Cleveland, Ohio |
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Two-story brick construction; used for corporate administrative headquarters, marketing and product development with limited manufacturing. |
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| Greenwood, Mississippi |
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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 believes its plants and offices are in satisfactory operating condition, well maintained, adequate for the uses to which they are put and are adequately insured.
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. Currently
the proceedings are in the Request for Admissions and Claims
Construction phase. The Company is seeking damages estimated at
approximately $299,000 for
the gas cap testing patent infringement and approximately $3,148,000
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 2011 our Class A Common Shares were traded on The Nasdaq Over-The Counter Bulletin Board Market under the symbol HICKA.QB. 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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| Second Quarter |
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| Fourth Quarter |
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b) HOLDERS
As of January 10, 2012, there were approximately 197 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 2011, 2010 and
2009
the
Company paid no
dividends
on either of its Class A or Class B Common Shares. Pursuant
to the
Company's
Amended Articles of Incorporation, no dividends may be paid on Class B
Common
Shares until cash dividends of ten cents per share per fiscal year are
paid
on Class A Common Shares. Any determination to pay cash dividends in
the future
will be at the discretion of the Board of Directors after taking into
account
various factors, including the Company's financial condition, results
of
operations and current and anticipated cash needs.
ITEM 6. SELECTED FINANCIAL DATA.
FOR THE YEARS ENDED SEPTEMBER 30
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2011
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2010
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2009
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2008
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2007 | |||||||||
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| Net Sales |
$
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5,069
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$
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5,259
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$
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6,063
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$
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12,070
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$
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12,520
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| Net Income (Loss) |
$
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(673)
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$
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(949)
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$
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(3,674)
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$
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(770)
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$
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(649)
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| Working Capital |
$
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2,447
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$
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2,784
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$
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3,603
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$
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5,386
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$
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5,950
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| Total Assets |
$
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3,441
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$
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3,809
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$
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4,718
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$
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8,511
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$
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12,754
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| Long-term Debt |
$
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250
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$
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-0-
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$
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-0-
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$
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-0-
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$
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-0- | |||
| Total Stockholders' Equity |
$
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2,621
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$
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3,281
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$
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4,214
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$
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7,872
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$
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8,459
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| Net Income (Loss) Per Share |
$
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(.54)
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$
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(.76)
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$
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(2.94)
|
$
|
(.62)
|
$
|
(.53)
|
|||
| Dividends Declared | |||||||||||||
|
|
|||||||||||||
|
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
.10
|
|||
|
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
.10
|
|||
| Stockholders' Equity | |||||||||||||
|
|
$
|
2.10
|
$
|
2.63
|
$
|
3.38
|
|
6.31
|
$
|
6.92
|
|||
| Return on Sales |
(13.3%)
|
(18.1%)
|
(60.6%)
|
(6.4%)
|
(5.2%)
|
||||||||
| Return on Assets |
(18.6%)
|
(22.3%)
|
(55.6%)
|
(7.2%)
|
(5.2%)
|
||||||||
| Return on Equity |
(22.8%)
|
(25.3%)
|
(60.8%)
|
(9.4%)
|
(7.3%)
|
||||||||
| Closing Stock Price |
$
|
1.80
|
$
|
4.25
|
$
|
5.01
|
$
|
9.00
|
$
|
12.75
|
|||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Introduction
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-five 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 75% of its fiscal 2011 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.
Seventeen 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.
After the acquisition of Waekon the Company expanded aftermarket sales channels and added 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. During the intervening years there were large sales orders from emissions or OEM customers that caused aftermarket sales to remain less than 50% of total automotive product sales. In fiscal 2011, approximately 41% of the Company’s automotive diagnostic tool revenue was from aftermarket customers and 59% was from OEM and emissions customers. Aftermarket revenue declined to $1,496,000 from approximately $1,762,000 in fiscal 2010 largely as a result of lower sales of Shop targeted products. 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. 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. In late 2011 four aftermarket products were introduced and a sales emphasis on developing stronger relationships with key distributors was implemented as part of the Company’s short-term strategy. These efforts will continue during fiscal 2012.The Company has not abandoned efforts related to OEM customers. Because of changes at the OEMs our efforts have been re-directed at developing relationships and working with a large Tier I tool supplier to most OEMs. The efforts to date have resulted in the Company receiving modest orders for six products for delivery to several different OEMs. In addition we are continuing to regularly receive requests for quotes on products that are within our expertise. The orders to date have not had a material effect on results but we are optimistic that in the future this can become a significant revenue source for us.
The Company offers products for government sponsored emissions testing programs. The Company believes its gas cap testing products have become the de facto standard of gas cap testing in the United States and most major vendors use them in their equipment when gas cap testing is specified within a state program. The Company has patents on its proprietary method. The Company also developed a product to test for leaks in vehicle evaporative systems (gas tanks). The Company has patents for both of these technologies and is currently involved in a lawsuit with a Company that infringed its patents. Sales of these products in prior years resulted in revenues that ranged from several hundred thousand dollars to over $6,900,000 in fiscal 2008. Most new emissions testing programs emphasize OBD II testing and the EPA allows minimal credit for testing either gas caps or gas tanks on those vehicles. With the recent concern over CO2 emissions the EPA is reevaluating the credit for gas cap testing and the Company is hopeful they will realize the benefit of such tests.
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 and represented a brand defining product for customers in the aftermarket. In 2005 Ford made the decision to no longer support the NGS with software and introduced a new tool to take its place. The Company took over software development for the product. In mid fiscal 2008 the Company introduced a PC based version of NGS and in 2009 introduced an upgraded hardware version of the original NGS scan tool called NGS Mach II. In spite of significant marketing emphasis the Company has had limited success with these new products in the aftermarket however a recent announcement of Ford’s intention to replace their current scan tool may have a positive influence on future NGS product sales.
The Company developed a product for testing fuel injection systems on gasoline engines in the late 1990s but had only modest success in selling the technology until General Motors required the tool for all their dealers in 2007. Subsequently the Company was asked to develop the technology further for use on diesel and newly introduced direct injection gasoline engines. In July of 2010 GM recommended to all their dealers an Adapter to the original fuel injection tester for testing both Duramax Diesel and their new Spark Ignited Direct Injection (SIDI) engines. In 2008 a large truck OEM asked the Company to develop a tester for their diesel fuel injection system that was different than the system used by GM on their Duramax Diesel engines. This development resulted in significant revenues during the first quarter of fiscal 2010 and a novel product that helps diagnose an issue that has existed on certain engines since 2001. The Company introduced the product to aftermarket servicers in 2011 with limited success. The Company also intends to introduce a product similar to the product for GM Duramax engines to the aftermarket. To make these products successful the Company is taking steps to develop a sales channel to medium duty truck servicers.
The timing of order releases and large program implementations in the Company's automotive diagnostic equipment business can cause wide fluctuations in the Company's operating results both on a quarter-to-quarter and a year-to-year basis. Orders for such equipment can be large, are subject to customer schedules, and may result in substantial variations in quarterly and yearly sales and earnings. As an example, fiscal 2008 compared to fiscal 2007 is typical of the fluctuations these large programs can cause. The first quarter of fiscal 2008 resulted in substantial revenue growth and profitable operations because of the added revenue from the completion of the California emissions program. While the fourth quarter of fiscal 2007 resulted in substantial growth and profitable operations because of the added revenue of the start of the California emissions program. In addition, the fourth quarter of fiscal 2009 benefited from a smaller emissions program for the State of New Jersey and the fiscal 2010 first quarter benefited from delivery of a diesel fuel injection tester to a large truck OEM.
The Company’s indicator product revenue decreased 8% in fiscal 2011 and the percentage of total Company revenues decreased to 25% from 26% in fiscal 2010. The year to year decrease was primarily a result of the continued economic downturn and uncertainty in the markets the Company serves, customer delivery requirement timing and delays in government funding of programs for the military. The Company's indicator product revenue decreased 12% in fiscal 2010 and the percentage of total Company revenues increased to 26% from 25% in fiscal 2009. The year to year decrease was primarily a result of the economic downturn and uncertainty in the markets the Company serves, customer delivery requirement timing and delays in government funding of programs for the military. The Company anticipates indicator sales will continue at current levels in fiscal 2012 and into the foreseeable future. Management feels that resources dedicated to this segment are adequate at the present time.
Looking forward, the introduction of new automotive diagnostic products to the aftermarket on a regular basis is very important for the growth of the business segment. Management implemented steps to reduce expenses in early fiscal 2009 due to the economic downturn and uncertainty in the markets the Company serves including rate reductions for all employees. Additional personnel reductions were implemented during fiscal 2011 and a strategy to develop and market lower cost products directed primarily to technicians was implemented. Both the reductions and the strategy are expected to continue for fiscal 2012. The cutbacks have slowed the new product development process however the Company has taken precautions to maintain its technologies and continues to develop several novel products it believes will have substantial market appeal. With the uncertain conditions in the aftermarket and OEM revenues for fiscal 2012 management plans to continue tight control of expenses in marketing, engineering, administrative and sales related expenses until the business recovers significantly. As revenues decline certain variable sales related and marketing expenses such as commissions also decline. The Company's order backlog as of September 30, 2011 totaled $593,000 as compared to $529,000 as of September 30, 2010 and $1,199,000 as of September 30, 2009.
The increase in fiscal 2011 versus 2010 was primarily due to increased orders for indicators and gauges of $114,000. Automotive diagnostic products orders to OEM's increased by approximately $75,000 offset by a decrease of $106,000 for non-emission aftermarket products and $19,000 for emission products. The decrease in fiscal 2010 versus 2009 was primarily due to decreased orders in automotive diagnostic products of $410,000, specifically, $568,000 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 higher level of order backlog in fiscal 2009 was due primarily to increased orders for automotive diagnostic products of $556,000.
Expense Reduction Initiatives
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.
Management implemented additional expense reductions that were effective March 1, 2011 in the form of a substantial reduction in personnel and a wage reduction for the CEO. In addition, the Board of Directors reduced and then eliminated all Board of Directors fees until Company financial conditions improve. A senior sales executive resigned in March and management has determined not to replace that individual. These additional expense reductions were expected to save approximately $46,000 per month beginning in April 2011 or $552,000 on an annual basis. Management also believes its strategy to improve revenue and profitability will aid results during fiscal 2012.
The savings from the above cost cutting measures were
expected
to be realized in equal amounts per month with similar impact on both
future
earnings and cash flows. Major
expense
categories impacted are as follows:
| 2011 Cost Cutting Measures |
2009 Cost Cutting Measures |
Total |
|
|
|
|
|
|
| Applicable to
Manufacturing Production Overhead (Wages) |
$132,000 |
$866,000 |
$998,000 |
| Product
Development |
96,000 |
785,000 |
881,000 |
| Marketing and
Administration |
324,000 |
1,429,000 |
1,753,000 |
|
|
|
|
|
| Annual Total | $552,000 |
$3,080,000 |
$3,632,000 |
|
|
|
|
Reportable Segment Information
The Company is required to report segment information disclosures based on how management evaluates operating performance and resource allocations. The Company has determined that it has two reportable segments: 1) indicators and gauges, and 2) automotive related diagnostic tools and equipment.
Indicators and Gauges
This segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture or service business, 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, 2011 decreased to $5,068,613, a decrease of approximately 4% from fiscal 2010 sales of $5,259,012. This decrease in sales was volume-driven and attributable primarily to lower product sales of approximately $186,000. Service sales in fiscal 2011 decreased by approximately $5,000 and the reduction was volume related, compared to fiscal 2010. Product sales were $4,682,830 in fiscal 2011 compared to $4,868,635 in fiscal 2010. The decrease in product sales occurred in both the indicator and gauges segment, and the automotive diagnostic equipment segment. The dollar decreases were approximately $116,000 and $70,000 respectively. Within the automotive diagnostic products, OEM products and aftermarket products sales decreased approximately $1,000 and $269,000 respectively, offset in part by an increase in emission product sales of approximately $200,000. Fiscal 2011 benefited from several small state emissions programs requiring gas cap testing products while fiscal 2010 benefited from an OEM product supplied to all franchised dealers. The reduction in service sales was volume related and attributable to lower repair sales.
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 an OEM product supplied to all franchised dealers while fiscal 2009 benefited from a large state emissions program.
Cost of products sold in fiscal 2011 was $2,732,876 or 58.4% of net product sales compared to $2,689,469 or 55.2% of net product sales in fiscal 2010. Cost of products sold during fiscal 2009 was $3,683,049 or 65.4% of net product sales. The dollar and percentage increase in the cost of products sold to product sales between fiscal 2011 and 2010 was due primarily to a change in product mix. The decrease in the percentage of cost of products sold to product sales between fiscal 2010 and 2009 was due primarily to a change in product mix and by the continuation of the cost cutting measures and wage reductions implemented in fiscal 2009.Cost of services sold in fiscal 2011 was $293,641 or 76.1% of net service sales compared to $251,258 or 64.4% respectively in fiscal 2010. Cost of services sold during fiscal 2009 was $402,024 or 93.7% of net service sales.The dollar and percentage increase between fiscal 2011 and 2010 was due primarily to a lower volume of chargeable repairs and lower plant utilization.The dollar and percentage decrease between fiscal 2010 and 2009 was due primarily to a lower volume of warranty repairs, price increases for certain services and cost reductions. The higher cost of service sold percentage in fiscal 2009 was due primarily to higher warranty related costs associated with certain of the automotive diagnostic products.
Product development expenditures in fiscal 2011 were $987,114 or 21.1% of product sales compared to $1,069,707 or 22.0%, respectively, in fiscal 2010. Product development expenditures during fiscal 2009 were $1,317,529 or 23.4% of product sales. The dollar decrease between fiscal 2011 and fiscal 2010 was due primarily to the additional cost cutting measures implemented in fiscal 2011. Decreases were primarily in labor costs, research and experimental material expenses and travel expenses of approximately $49,000, $38,000 and $3,000 respectively. The dollar decrease between fiscal 2010 and fiscal 2009 was due primarily to the cost cutting measures and wage reductions implemented during fiscal 2009. Decreases were primarily in labor costs and travel expenses of approximately $232,000 and $4,000 respectively. In addition, management believes the current resources will be sufficient to maintain current product development commitments and continue to develop a reasonable flow of new diagnostic products for both the OEM and Aftermarket customers.
Marketing and administrative expenses amounted to $1,734,257 which was 34.2% of net sales in fiscal 2011, $2,217,520 or 42.2% of net sales in fiscal 2010 and $2,524,914 or 41.6% of net sales in fiscal 2009. The percentage and dollar decrease in fiscal 2011 compared to fiscal 2010 was due primarily to the additional cost cutting measures implemented in fiscal 2011. Marketing expenses were approximately $731,000 in fiscal 2011 compared to $1,026,000 a year ago. Within marketing expenses, decreases were primarily in labor costs of $105,000, outside consulting of $77,000, commissions of $70,000, advertising of $20,000, travel expense of $19,000 and fulfillment of $3,000. The decreases were offset in part by increases in royalties of $8,000, promotion expense of $8,000 and collection expense of $3,000. Administrative expenses were approximately $1,003,000 during the current fiscal year compared to $1,192,000 a year ago. The dollar decrease was due primarily to decreases in labor costs of $105,000, professional fees of $36,000, directors fees of $35,000, depreciation of $5,000 and travel expenses of $2,000. The decrease was offset in part by an increase in data processing fees of $2,000.
The dollar decrease in fiscal 2010 compared to fiscal 2009 was primarily due to a full year of the cost cutting measures implemented in fiscal 2009. Marketing expenses were approximately $1,026,000 in fiscal year 2010 compared to $1,280,000 in fiscal 2009. Within marketing expenses, decreases were primarily in labor costs of $308,000, travel expense of $27,000, advertising of $3,000, promotion expense of $2,000, collection expense of $3,000 and royalties of $3,000. The decreases were offset in part by increases in commissions of 37,000 and outside consulting of $70,000 related to an emissions equipment sales effort. Administrative expenses were approximately $1,192,000 during the current fiscal year compared to $1,245,000 in fiscal 2009. The dollar decrease was due primarily to decreases in labor costs of $64,000, data processing fees of $4,000 and depreciation of $5,000. The decrease was offset in part by an increase in directors fees of $11,000 and professional fees of $5,000.
Interest charges were $7,610 in fiscal 2011 compared with $542 in fiscal 2010 and $3,826 in fiscal 2009. The increase in interest charges in fiscal 2011 compared to fiscal 2010 was due primarily to interest on the Company's available credit facility during the current fiscal year and to interest paid on vendor accounts. The decrease in interest charges in fiscal 2010 compared to fiscal 2009 was due to no short-term borrowings during fiscal 2010. Interest charges for fiscal 2010 were incurred on the unused credit facility with our commercial bank during the first quarter of the year. The credit facility with our commercial bank was rescinded on December 17, 2009. The interest charges in fiscal 2009 were incurred on the unused credit facility with our commercial bank during fiscal 2009.
Other income was $14,350 in fiscal 2011 compared with $19,988 in fiscal 2010 and $39,514 in fiscal 2009. Other income consists primarily of interest income on cash and cash equivalents and proceeds from the sale of scrap metal shavings. The decrease in fiscal 2011 compared to fiscal 2010 and 2009 was due primarily to the lower level of excess cash available to invest in money market accounts and lower interest rates on the cash that was invested. Interest income and miscellaneous income amounted to approximately $600 and $10,000 respectively for fiscal 2011. Interest income and miscellaneous income amounted to approximately $5,000 and $15,000 respectively for fiscal 2010 and $23,000 and $17,000 respectively for fiscal 2009. Currently, excess cash is invested in a money market account.
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
fiscal 2011, management recorded a valuation allowance in
the amount of $255,600 on the current year deferred taxes. This represents
an effective income tax rate of 0%. In
fiscal 2010, management recorded a valuation allowance in
the amount of $310,500 on the current
year deferred taxes. This also 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. This
represents an effective income tax rate of 100%. It
is anticipated that the effective tax rate in fiscal 2012
will be similar to fiscal 2011.
The
deferred
tax benefits
begin to expire in 2015.
The Company has available a net operating loss carryforward of approximately $5,027,000 and research and development credit carryforwards of approximately $1,700,000 that begin to expire in 2015. During fiscal 2011 the Company recorded an additional valuation allowance on deferred tax expense in the amount of $255,600 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 $4,049,300 has been offset by a valuation allowance of $4,049,300. 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 $3,016,871 at September 30, 2011 were 5.3 times current liabilities and the total of cash and cash equivalents and receivables was 1.2 times current liabilities. These ratios compare to 6.3 and 2.1 respectively at the end of fiscal 2010. Cash and cash equivalents was $274,530 at September 30, 2011 and $768,647 at September 30, 2010. Total current assets decreased by approximately $296,000 from the previous year end due primarily to a decrease in cash and cash equivalents and inventory of approximately $494,000 and $159,000 respectively. The decrease was offset in part by an increase in accounts receivable of approximately $372,000. The increase in accounts receivable was due primarily to a higher sales volume in the fourth quarter of fiscal 2011 versus fiscal 2010. Inventory decreased due primarily to an increase in the obsolescence reserve during the current year.Working
capital at September
30, 2011 was
$2,447,080 as compared to $2,783,776 a year ago. The decrease of
approximately $337,000
was due primarily to a decrease in cash and cash equivalents and
inventory, an increase in accrued expenses of
approximately $494,000, $159,000 and $57,000 respectively,
offset
in part by an increase in accounts
receivable of
approximately $372,000. The increase in accounts
receivable
was due primarily to higher shipments in the fourth quarter of fiscal
2011.
Inventory
decreased due primarily to an increase in the obsolescence reserve in
the current year.
In addition, subsequent to September 30, 2011 management entered into several unsecured convertible loan agreements and an additional revolving line of credit which may provide approximately $1,179,000 of liquidity to meet on going working capital requirements. One agreement is with a current shareholder and the others are with an outside investor. These agreements are discussed below.
On December 30, 2011, Hickok Incorporated entered into a Convertible Loan Agreement with Roundball, LLC and the Aplin Family Trust. Under the Convertible Loan Agreement, the Company issued a convertible note to Roundball in the amount of $466,879.87 and a convertible note to the Aplin Family Trust in the amount of $208,591.20. In addition, Roundball, LLC shall have the right to cause the Company to borrow up to an additional $466,879.88 from Roundball, LLC. The notes are unsecured, bear interest at a rate of 0.20% per annum and will mature on December 30, 2012.
The notes may be converted by the Investors at any time into Class A Common Shares of the Company, at a conversion price of $1.85 per share, although up to no more than 504,735 Conversion Shares for Roundball and no more than 112,752 Conversion Shares for the Aplin Family Trust. The Company has the option to convert the notes at the expiration date, if the investors have not during the course of the agreement.
On December 30, 2011 Roundball converted $233,438.55 into Class A Common Shares of the Company. In addition, the Company sold 20,000 Class B Common Shares currently held in treasury to Roundball at a price of $1.85 per share per a subscription agreement between the Company and Roundball dated December 30, 2011.
On January 9, 2012, the Company also entered into a new Revolving Credit Agreement by and between the Company and a major shareholder who is also an employee of the Company extending the due date of the line of credit agreement from April 2012 to April 2013. The Company believes the above agreements along with internally generated funds will provide sufficient liquidity to meet ongoing working capital requirements.
During fiscal 2012 the Company's business may require a short-term increase in inventory and accounts receivables. Whenever there may be a requirement to increase inventory in fiscal 2012 there will be a negative but temporary impact on liquidity. As previously noted, management implemented expense reductions during fiscal 2009 and 2011 in response to the economic downturn and uncertainty in the markets the Company serves. These expense reductions continued for fiscal 2010 and 2011 and are anticipated to continue into fiscal 2012. The Company has reduced headcount, product development, and marketing, administrative and sales related expenses in order to appropriately manage its working capital.
Business Condition and Uncertainties
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 additional financing if needed. Management continues to review and revise 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, 2011, 2010 and 2009 the Company achieved the savings that were anticipated from the cost cutting measures implemented in January 2009 and April 2009.
Management implemented additional expense reductions that were effective March 1, 2011 in the form of a substantial reduction in personnel and a wage reduction for the CEO. In addition, the Board of Directors reduced and then eliminated all Board of Directors fees until Company financial conditions improve. A senior sales executive resigned in March and management has determined not to replace that individual. The Company achieved the savings that were anticipated from this additional cost cutting measure during fiscal 2011. The Company anticipates the cost cutting measures will continue into the fiscal year ended September 30, 2012. In addition, subsequent to the end of fiscal 2011, the Company entered into the financing arrangements described above under the caption Liquidity and Capital Resources.
Off-Balance Sheet Arrangements
Hickok has no off-balance sheet arrangements (as defined in Regulation S-K 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 is its revolving credit facility. The Company has a balance of $250,000 on its credit facility at September 30, 2011, which is subject to a variable rate of interest based on the prime commercial rate. As a result, the Company believes that the market risk relating to interest rate movements is minimal.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, 2011 and 2010, and the related consolidated statements of income, stockholders' equity , and cash flows for each of the years in the three-year period ended September 30, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly,
in all
material
respects, the consolidated financial position of Hickok Incorporated as
of
September 30, 2011 and 2010, and the consolidated results of their
operations
and their cash flows for each of the years in the three-year period
ended
September 30, 2011 in conformity with accounting principles generally
accepted
in the United States of America.
MEADEN
& MOORE, Ltd.
CERTIFIED
PUBLIC ACCOUNTANTS
JANUARY 10,
2012
CLEVELAND,
OHIO
F-1
|
2011
|
2010
|
||||
|
|
|||||
| CURRENT ASSETS: | |||||
| Cash and cash equivalents |
$274,530
|
$768,647
|
|||
| Accounts receivable-less allowance for |
722,731
|
350,386
|
|||
| doubtful accounts of $10,000 ($10,000, 2010) | |||||
| Notes receivable-current |
2,400 |
- |
|||
| Inventories-less allowance for obsolete |
1,963,943
|
2,122,972
|
|||
| inventory of $714,000 ($380,000, 2010) | |||||
| Deferred
income
taxes-less valuation |
|||||
| allowance of $270,100 ($156,300, 2010) | - |
- |
|||
| Prepaid expenses |
53,267
|
70,423
|
|||
|
|
|||||
| Total Current Assets |
3,016,871
|
3,312,428
|
|||
| PROPERTY, PLANT AND EQUIPMENT: | |||||
| Land |
233,479
|
233,479
|
|||
| Buildings |
1,429,718
|
1,429,718
|
|||
| Machinery and equipment |
2,336,995
|
2,336,995
|
|||
|
|
|||||
|
4,000,192
|
4,000,192
|
||||
|
|
3,613,913
|
3,504,989
|
|||
|
|
|||||
|
386,279
|
495,203
|
||||
| OTHER ASSETS: | |||||
| Deferred
income
taxes-less
valuation |
|||||
| allowance of $3,779,200 ($3,637,400, 2010) | - |
- |
|||
| Notes receivable-long-term |
35,700 |
- |
|||
| Deposits |
1,750
|
1,750
|
|||
|
|
|||||
|
37,450
|
1,750
|
||||
|
|
|||||
| Total Assets |
$3,440,600
|
$3,809,381
|
|||
|
|
|||||
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-2
2011
2010
CURRENT
LIABILITIES:
Accounts
payable
$173,848
$183,036
Accrued
payroll
and
related expenses
142,949
149,801
Accrued
expenses
205,208
148,850
Accrued
taxes
other
than income
47,786
46,965
Total
Current
Liabilities
569,791
528,652
Long-term financing
250,000
-
STOCKHOLDERS'
EQUITY:
Common
shares -
par
value $1.00
Class
A
3,750,000
shares authorized, 809,024
shares
issued
(809,024
shares 2010)
793,229
793,229
Class
B
1,000,000
convertible shares authorized,
475,533
shares
issued (475,533 shares 2010)
454,866
454,866
Contributed
capital
1,862,652
1,850,037
Treasury
shares
- 15,795
(2011 and 2010)
Class A shares and 20,667
(2011 and 2010)
Class B shares
(661,676)
(661,676)
Retained
earnings
171,738
844,273
Total
Stockholders'
Equity
2,620,809
3,280,729
Total
Liabilities
and Stockholders' Equity
$3,440,600
$3,809,381
F-3
CONSOLIDATED
STATEMENT OF INCOME
HICKOK
INCORPORATED
FOR THE
YEARS
ENDED SEPTEMBER 30
|
2011
|
2010
|
2009
|
|||
|
|
|||||
| NET SALES: | |||||
| Product sales |
$4,682,830
|
$4,868,635
|
$5,633,864
|
||
| Service sales |
385,783
|
390,377
|
428,912
|
||
|
|
|||||
| Total Net Sales |
5,068,613
|
5,259,012
|
6,062,776
|
||
| COSTS AND EXPENSES: | |||||
| Cost of product sold |
2,732,876
|
2,689,469
|
3,683,049
|
||
| Cost of services sold |
293,641
|
251,258
|
402,025
|
||
| Product development |
987,114
|
1,069,707
|
1,317,529
|
||
| Marketing and administrative |
1,734,257
|
2,217,520
|
2,524,914
|
||
| expenses | |||||
| Interest charges |
7,610
|
542
|
3,826
|
||
| Other income |
(14,350)
|
(19,988)
|
(39,514)
|
||
|
|
|||||
| Total Costs and Expenses |
5,741,148
|
6,208,508
|
7,891,829
|
||
|
|
|||||
| Loss before Provision for Income Taxes |
(672,535)
|
(949,496)
|
(1,829,053)
|
||
| Provision For Income Taxes: | |||||
| Deferred |
-
|
-
|
1,845,200
|
||
|
|
|||||
|
-
|
-
|
1,845,200
|
|||
|
|
|||||
| Net Loss |
$(672,535) |
$(949,496) |
$(3,674,253) |
||
|
|
|||||
| NET LOSS PER COMMON SHARE - BASIC | $(.54) | $(.76) | $(2.94) | ||
|
|
|||||
| NET
LOSS PER COMMON SHARE - DILUTED |
$(.54) | $(.76) | $(2.94) | ||
|
|
|||||
| WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING |
1,248,095
|
1,248,095
|
1,248,095
|
||
|
|
|||||
F-4
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
HICKOK
INCORPORATED
FOR THE
YEARS
ENDED SEPTEMBER 30, 2011, 2010, AND 2009
|
$1.00 PAR VALUE |
||||||
| RETAINED
EARNINGS |
CLASS A | CLASS B | CONTRIBUTED
CAPITAL |
TREASURY
SHARES |
TOTAL | |
| Balance at September 30, 2008 | $5,468,022 | $793,229 | $454,866 | $1,817,915 | $(661,676) | $7,872,356 |
| Share-based compensation expense | - |
- |
- |
16,077 |
- |
16,077 |
| Net
Loss |
(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 |
| Share-based compensation expense |
- |
- |
- |
16,045 |
- |
16,045 |
| Net
Loss |
(949,496) |
- |
- |
- |
- |
(949,496) |
|
|
||||||
| Balance
at September 30, 2010 |
$844,273 |
$793,229 |
$454,866 |
$1,850,037 |
$(661,676) |
$3,280,729 |
| Share-based compensation expense | - |
- |
- |
12,615 |
- |
12,615 |
| Net Loss | (672,535) |
- |
- |
- |
- |
(672,535) |
|
|
||||||
| Balance at September 30, 2011 | $171,738 |
$793,229 |
$454,866 |
$1,862,652 |
$(661,676) |
$2,620,809 |
|
|
||||||
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-5
CONSOLIDATED
STATEMENT OF CASH FLOWS
HICKOK
INCORPORATED
FOR THE
YEARS
ENDED SEPTEMBER 30
|
2011
|
2010
|
2009
|
||
|
|
||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
| Cash received from customers |
$4,696,268
|
$6,038,214
|
$5,783,951
|
|
| Cash
paid to
suppliers
and employees |
(5,396,080)
|
(5,972,126)
|
(7,043,959)
|
|
| Interest paid |
(6,849)
|
-
|
(3,826)
|
|
| Interest received |
644
|
4,824
|
22,816
|
|
|
|
||||
| Net Cash Provided by (Used in) Operating Activities |
(706,017)
|
70,912
|
(1,241,018)
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||
| Capital expenditures |
-
|
(19,456)
|
(34,674)
|
|
| Advances on notes receivable |
(38,100) |
- |
- |
|
| Proceeds on sale of assets |
-
|
325
|
-
|
|
|
|
||||
| Net Cash Provided by (Used in) Investing Activities |
(38,100)
|
(19,131)
|
(34,674)
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
| Long-term
borrowings |
250,000 |
- |
- |
|
|
|
||||
| Net Cash Provided by (Used in) Financing Activities |
250,000
|
-
|
-
|
|
|
|
||||
| Increase (Decrease) in Cash and Cash Equivalents |
(494,117)
|
51,781
|
(1,275,692)
|
|
| Cash and Cash Equivalents at Beginning of Year |
768,647
|
716,866
|
1,992,558
|
|
|
|
||||
| Cash and Cash Equivalents at End of Year |
$274,530
|
$768,647
|
$716,866
|
|
|
|
||||
| See
accompanying
summary
of accounting policies and notes to consolidated financial statements. |
||||
F-6
| 2011 |
2010 |
2009 |
|
|
|
|||
| RECONCILIATION
OF
NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|||
| Net
Loss |
$(672,535) |
$(949,496) |
$(3,674,253) |
| ADJUSTMENTS
TO
RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|||
| Depreciation |
108,924 |
131,800 |
167,492 |
| Loss
on
disposal of assets |
- |
1,938 |
739 |
| Share-based compensation expense |
12,615 |
16,045 |
16,077 |
| Deferred
income taxes |
- |
- |
1,845,200 |
| CHANGES
IN
ASSETS AND LIABILITIES: |
|||
| Decrease
(Increase)
in accounts receivable |
(372,345) |
779,202 |
(278,825) |
| Decrease in
inventories |
159,029 |
61,676 |
794,520 |
| Decrease in prepaid
expenses |
17,156 |
5,129 |
16,645 |
| Decrease in
refundable income taxes |
- |
- |
6,000 |
| Increase
(Decrease)
in accounts payable |
(9,188) |
25,709 |
(97,152) |
| Increase
(Decrease)
in accrued payroll and related expenses |
(6,852) |
10,459 |
(97,777) |
| Increase
(Decrease)
in other accrued expenses and accrued taxes other than income |
57,179 |
(7,590) |
56,356 |
| Increase
(Decrease)
in accrued income taxes |
- |
(3,960) |
3,960 |
|
|
|||
| Total
Adjustments |
(33,482) |
1,020,408 |
2,433,235 |
|
|
|||
| Net
Cash
Provided by (Used in) Operating Activities |
$(706,017) |
$70,912 |
$(1,241,018) |
|
|
|||
F-7
F-8
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
HICKOK
INCORPORATED
SEPTEMBER
30, 2011, 2010 AND 2009
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 |
2011
|
2010
|
2009
|
||||||
|
|
|
||||||||
| Automotive Test Equipment | |
75.3
|
% |
74.2
|
% |
74.6
|
% | ||
| Indicating Instruments |
24.7
|
25.8
|
25.4
|
||||||
|
|
|||||||||
| 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 77%
of outstanding receivables at September 30, 2011 (73%
in 2010).
Sales
to three customers approximated $1,116,000,
$418,000
and $0 (2011),
$720,000,
$295,000 and $10,000 (2010), $512,000,
$419,000
and $1,102,000
(2009), and accounts receivable to these customers amounted to
approximately $388,000,
$28,000 and $0 (2011),
$51,000,
$23,000 and $0 (2010).
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, 2011.
Product
Warranties :
The
Company warrants certain products against defects for
periods
ranging primarily from 12 to 48
months. The
Company's
estimated future warranty claims is included
in
"Accrued
expenses"
and are as follows:
|
2011
|
2010
|
2009
|
||
|
|
||||
| Balance
October 1 |
$3,415 |
$4,482 |
$5,640 |
|
| Current year provisions | 163 |
3,602 |
36,252 |
|
| Expenditures | (2,585) |
(4,669) |
(37,410) |
|
|
|
|
|
||
| Balance September 30 |
$993
|
$3,415
|
$4,482
|
|
|
|
||||
Product development costs, which include engineering production support, are expensed as incurred. Research and development performed for customers represents no more than 1% of sales in each year. The arrangements do not include a repayment obligation by the Company.
Cash
and
Cash
Equivalents :
For
purposes
of the Statement of Cash Flows, the Company considers all highly liquid
debt
instruments purchased with a maturity of three months or less to be
cash equivalents.
From time to time the Company maintains cash balances in excess of the
FDIC
limits. The cash balance at September 30, 2011 and 2010 amounted to $274,530
and
$768,647,
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 $108,924 (2011), $131,800 (2010), and $167,492 (2009).
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 $16,756
(2011),
$17,854 (2010)
and $36,899 (2009).
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
9.
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.
The Company has notes receivable with a current and former employee at an interest rate of three percent per annum. Selected details of notes receivable are as follows:
| Current Portion |
|
||
|
|
|||
| 2011 |
2011 |
2010 |
|
| Unsecured note receivable from current employee which bears interest at 3% per annum | $- | $4,100 | $- |
| Unsecured note receivable from former employee which bears interest at 3% per annum, currently paying $200 per month | $2,400 | 34,000 | - |
|
|
|
|
|
| $2,400 |
38,100 |
- |
|
|
|
|||
| Less current portion |
2,400 |
- |
|
|
|
|
||
| Long-term portion |
$35,700 |
$- |
|
|
|
|
||
The agreement provides for a revolving credit facility of $250,000 with interest generally equal to three percent per annum plus prime and is unsecured. In addition, the agreement generally allows for borrowing based on an amount equal to eighty percent of eligible accounts receivables or $250,000. The Company recorded interest expense of $4,765 through September 30, 2011. As of September 30, 2011 interest in the amount of $3,463 was paid. The Company had outstanding borrowings of $250,000 under this loan facility at September 30, 2011. Selected details of long-term borrowings are as follows:
| Amount |
Interest Rate |
|
|
|
||
| Balance at September 30, 2011 | $250,000 | 6.25% |
| Average during 2011 | $62,500 | 6.25% |
| Maximum during 2011 (month end) | $250,000 | 6.25% |
| Balance
at September
30,
2010 |
$- |
0.0% |
| Average
during 2010 |
$- |
0.0% |
| Maximum
during 2010
(month
end) |
$- |
0.0% |
Operating :
The Company leases a facility and certain equipment under operating leases expiring through January 2012. The Company's minimum commitment under these operating leases is $720 for 2012.
Rental expense under these commitments was $2,880 (2011), $5,782 (2010) and $24,120 (2009).
A facility held under a capital lease has a net book value of $0 at September 30, 2011. 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 26,850 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, 2011.
The Company's Outside Directors Stock Option Plans (collectively the "Directors Plans") provide for the automatic grant of options to purchase up to 38,000 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 24, 2014.
Non-cash compensation expense related to stock option plans for fiscal years ended September 30, 2011, 2010 and 2009 was $12,615, $16,045 and $16,077 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, ($3.55 per
share)
Exercisable
September
30,
Director
Plans:
Outstanding
October
1,
Granted
Canceled/expired
Exercised
Outstanding
September
30, ($2.925 to $11.00
per share)
Exercisable
September
30,
The following is a summary of the range of exercise prices for stock options outstanding and exercisable under the Employee Plans and the Directors Plans at September 30, 2011.
| Employee Plans | Outstanding
Stock Options Exercisable |
Weighted
Average Exercise Price |
Weighted
Average Remaining Life |
|
|
|||
| Range
of exercise Prices: |
|||
| $3.55 | 26,850 | $3.55 | .5 |
| 26,850 | $3.55 | ||
| 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 | 19,000 | $3.63 | 5.3 | 12,667 | $3.98 |
| $6.00 - 7.25 | 11,000 | $6.46 | 5.5 | 7,667 | $6.67 |
| $10.50 - 11.00 | 8,000 | $10.75 | 6.0 | 8,000 | $10.75 |
| 38,000 | $5.95 | 28,334 | $6.62 | ||
The Company accounts for Share-Based Payments under the modified prospective method for its stock options for both employees and non-employee Directors. Compensation cost for fixed based awards are measured at the grant date, and the Company uses the Black-Scholes option pricing model to determine the fair value estimates for recognizing the cost of employee and director services received in exchange for an award of equity instruments. The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect the fair value estimates. Employee stock options are immediately exercisable while Director's stock options are exercisable over a three year period. The fair value of stock option grants to Directors is amortized over the three year vesting period. During fiscal year ended September 30, 2011 and 2010, $12,615 and $16,045 respectively was expensed as share-based compensation. Total compensation costs related to nonvested awards not yet recognized is $9,759 (2012) and $4,293 (2013) and $665 (2014). The following weighted-average assumptions were used in the option pricing model for 2011 and 2010: a risk free interest rate of 5.5% and 5.5%; an expected life of 10 and 10 years; an expected dividend yield of 0.0% and 0.0%; and a volatility factor of .75 and .75.
7. CAPITAL STOCK, TREASURY STOCK, AND CONTRIBUTED CAPITAL
Unissued shares of Class A common stock (519,716 and 540,366 shares in 2011 and 2010 respectively) are reserved for the share-for-share conversion rights of the Class B common stock and stock options under the Employee Plans and the Directors Plans (see note 6). The Class A shares have one vote per share and the Class B shares have three votes per share, except under certain circumstances such as voting on voluntary liquidation, sale of substantially all the assets, etc. Dividends up to $.10 per year, noncumulative, must be paid on Class A shares before any dividends are paid on Class B shares.
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
255,600
310,500
2,505,200
Other
Deferred
tax assets (liabilities) consist of the following:
|
2011
|
2010
|
||
|
|
|||
| Current: | |||
| Inventories |
$244,300
|
$133,100
|
|
| Bad debts | 3,400 | 3,400 | |
| Accrued liabilities |
39,200
|
40,800
|
|
| Prepaid expense |
(16,800)
|
(21,000) | |
|
|
|||
| 270,100 |
156,300 |
||
| Valuation allowance | (270,100) |
(156,300) |
|
|
|
|||
| Total current deferred income taxes |
-
|
-
|
|
| Noncurrent: | |||
| Depreciation and amortization |
86,500
|
115,200
|
|
| Research and development and other credit carryforwards |
1,700,400
|
1,655,700
|
|
| Net operating loss carryforward | 1,709,000 | 1,587,500 | |
| Contribution carryforward |
250,400 | 250,400 | |
| Directors stock option plan |
32,900
|
28,600
|
|
|
|
|||
|
3,779,200
|
3,637,400
|
||
| Valuation allowance |
(3,779,200) |
(3,637,400) |
|
|
|
|
||
| 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 2008 through 2010. In addition, the Company is subject to state
and local income tax examinations for the tax years 2008 through 2010.
The
Company has
available a net operating loss carryforward of approximately $5,027,000
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 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, 2011, 2010 and 2009, the formula
produced
no bonus distribution.
The
bonus
distribution is determined by the Compensation Committee of the Board
of Directors.
11. 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
1,860,974
Corporate
758,268
1,344,140
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
26,945
44,377
20,776
Canada
England
28,924
-
23,501
Germany
-
4,718
16,067
Mexico
23,520
1,681
2,290
Other
foreign
countries
All
export
sales to Australia, Canada, England, Germany, Mexico and other foreign
countries are
made in United States of America Dollars.
Legal Matters
The Company is the plaintiff in a suit pursuing patent infringement against a competitor in the emissions market. Management believes that it is not currently possible to estimate the impact, if any, that the ultimate resolution of this matter will have on the Company's results of operations, financial position or cash flows.
The Company has analyzed its operations subsequent to September 30, 2011 through the date the financial statements were submitted to the Securities and Exchange Commission and has determined that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except as follows:
On December 30, 2011, Hickok Incorporated entered into a Convertible Loan Agreement with Roundball, LLC and the Aplin Family Trust. Under the Convertible Loan Agreement, the Company issued a convertible note to Roundball in the amount of $466,879.87 and a convertible note to the Aplin Family Trust in the amount of $208,591.20. In addition, Roundball, LLC shall have the right to cause the Company to borrow up to an additional $466,879.88 from Roundball, LLC. The notes are unsecured, bear interest at a rate of 0.20% per annum and will mature on December 30, 2012.
The notes may be converted by the Investors at any time into Class A Common Shares of the Company, at a conversion price of $1.85 per share, although up to no more than 504,735 Conversion Shares for Roundball and no more than 112,752 Conversion Shares for the Aplin Family Trust. The Company has the option to convert the notes at the expiration date, if the investors have not during the course of the agreement.
On December 30, 2011 Roundball converted $233,438.55 into Class A Common Shares of the Company.In addition, the Company sold 20,000 Class B Common Shares currently held in treasury to Roundball at a price of $1.85 per share per a subscription agreement between the Company and Roundball dated December 30, 2011.
On January 9, 2012, the Company also entered into a new Revolving Credit Agreement by and between the Company and a major shareholder who is also an employee of the Company extending the due date of the line of credit agreement from April 2012 to April 2013. The Company believes the above agreements along with internally generated funds will provide sufficient liquidity to meet ongoing working capital requirements.
14. BUSINESS CONDITION 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
additional financing if
needed. Management
continues to review and
revise 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.
Management implemented additional expense reductions that were effective March 1, 2011 in the form of a substantial reduction in personnel and a wage reduction for the CEO. In addition, the Board of Directors reduced and then eliminated all Board of Directors fees until Company financial conditions improve. A senior sales executive resigned in March and management has determined not to replace that individual. The Company achieved the savings that were anticipated from this additional cost cutting measure during fiscal 2011. The Company anticipates the cost cutting measures will continue into the fiscal year ended September 30, 2012. In addition, the Company obtained a $250,000 unsecured line of credit from one of the Company's major shareholders with terms extended until April 2013.
In addition, subsequent to September 30, 2011 management entered into several unsecured convertible loan agreements and an additional revolving line of credit which may provide approximately $1,179,000 of liquidity to meet on going working capital requirements. One agreement is with a current shareholder and the others are with an outside investor as discussed in Note 13.
15.
QUARTERLY DATA (UNAUDITED)
|
First
|
Second
|
Third
|
Fourth
|
||
|
|
|||||
| Net Sales | |||||
|
|
$1,112,643
|
$1,312,896
|
$1,276,544
|
$1,366,530
|
|
|
|
1,636,717
|
1,394,060
|
1,390,355
|
837,880
|
|
|
|
1,159,063
|
1,335,056
|
1,521,033
|
2,047,624
|
|
| Gross Profit | |
||||
|
|
422,618
|
552,725
|
483,899
|
582,854 | |
|
|
876,542
|
528,246
|
642,349
|
271,148
|
|
|
|
282,451
|
369,640
|
617,348
|
708,263
|
|
| Net Income (Loss) | |||||
|
|
(317,982)
|
(213,681)
|
(125,949)
|
(14,923)
|
|
|
|
64,709
|
(335,542)
|
(151,479)
|
(527,184)
|
|
|
|
(1,145,353)
|
(2,245,253)
|
(234,861)
|
(48,786)
|
|
| Net Income (Loss) per Common Share | |||||
| Basic | |||||
|
|
(.25)
|
(.17)
|
(.10)
|
(.02)
|
|
|
|
.05
|
(.27)
|
(.12)
|
(.42)
|
|
|
|
(.92)
|
(1.80)
|
(.19)
|
(.03)
|
|
| Diluted | |||||
|
|
(.25)
|
(.17)
|
(.10)
|
(.02)
|
|
|
|
.05
|
(.27)
|
(.12)
|
(.42)
|
|
|
|
(.92) |
(1.80)
|
(.19)
|
(.03)
|
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not
Applicable.
ITEM
9A.
CONTROLS AND PROCEDURES.
As
of September 30,
2011,
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, 2011 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, 2011 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, 2011, 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, 2011.
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
January
12, 2012
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 March 7, 2012, 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 March 7, 2012.
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 | 71 |
| Senior Vice President, Finance and Chief Financial Officer | Gregory M. Zoloty | 59 |
| Senior Vice President, Manufacturing | William A. Bruner | 69 |
| Senior
Vice President,
Engineering |
George
R. Hart |
54 |
*The description of Executive Officers called for in this Item is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K.
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 March 7, 2012, 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, 2011 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 March 7, 2012, 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 March 7, 2012,
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 March 7, 2012, 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, 2011 and 2010
F-2
Consolidated
Statement
of Income - Years Ended September 30, 2011, 2010 and 2009
F-4
Consolidated
Statement
of Stockholders' Equity - Years Ended
September
30, 2011, 2010 and 2009
F-5
Consolidated
Statement
of Cash Flows - Years Ended September 30, 2011, 2010 and 2009
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
Schedule II - Valuation and Qualifying Accounts
All other Schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
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: January 12,
2012
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 12th day of January, 2012:
| 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/ Jennifer A.
Elliott |
Director |
| Jennifer A. Elliott |
|
| /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/ 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). | |
| 10(f) |
Revolving Credit Agreement, dated April 13, 2011, by and
between the Company and Robert L. Bauman(incorporated herein by
reference to the appropriate exhibit to the Company's Form 8-K as filed
with the Commission on April 18, 2011) effective through April 13, 2012. |
|
| 10(g) |
Revolving Credit Promissory Note, dated April 13, 2011, by and between the Company and Robert L. Bauman (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on April 18, 2011) effective through April 13, 2012. | |
| 10(h) |
Convertible Loan Agreement, dated December 30, 2011, among the Company, the Investors, and solely with respect to Section 3 thereof, Robert L. Bauman (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 5, 2012) effective through December 30, 2012. | |
| 10(i) |
Convertible Promissory Note, dated December 30, 2011, issued by the Company to Roundball in the principal amount of $466,879.87 (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 5, 2012) effective through December 30, 2012. | |
| 10(j) |
Convertible Promissory Note, dated December 30, 2011, issued by the Company to the Aplin Trust in the principal amount of $208,591.20 (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 5, 2012) effective through December 30, 2012. | |
| 10(k) |
Registration Rights Agreement, dated December 30, 2011, among the Company and the Investors (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 5, 2012) effective through December 30, 2012. | |
| 10(l) |
Voting Agreement, dated December 30, 2011, among the Company, the Investors and the Class B Shareholders of the Company (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 5, 2012) effective through December 30, 2012. | |
| 10(m) |
Subscription Agreement, dated December 30, 2011, between the Company and Roundball (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 5, 2012) effective through December 30, 2012. | |
| 10(n) |
Form of Employment Agreement (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 5, 2012). | |
| 10(o) |
Revolving Credit Agreement, dated January 9, 2012, by and between the Company and Robert L. Bauman(incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 9, 2012) effective through April 13, 2013. | |
| 10(p) |
Revolving Credit Promissory Note, dated January 9, 2012, by and between the Company and Robert L. Bauman (incorporated herein by reference to the appropriate exhibit to the Company's Form 8-K as filed with the Commission on January 9, 2012) effective through April 13, 2013. | |
| 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. | |
| 101.INS** |
XBRL Instance |
|
| 101.SCH** |
XBRL Taxonomy Extension Schema |
|
| 101.CAL** |
XBRL Taxonomy Extension Calculation |
|
| 101.DEF** |
XBRL Extension Definition |
|
| 101.LAB** |
XBRL Taxonomy Extension Labels |
|
| 101.PRE** |
XBRL Taxonomy Extension Presentation |
-
*Reference
is made to the Company's basic documents filed as Exhibits 3(a) and
3(b)
to the Company's Registration Statement on Form S-1, dated September 1,
1959,
as supplemented by Amendments 1 and 2 thereto, dated respectively
October
15, 1959, and October 19, 1959 (the October 15, 1959 amendment
containing
an Amendment to Articles of Incorporation, dated September 29, 1959)
and
such exhibits are hereby incorporated by reference herein.
**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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, 2011 and 2010, and for each of the years in the three-year period
ended
September 30, 2011, and have issued our report thereon dated January 10, 2012;
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
January 10,
2012
Cleveland,
Ohio
HICKOK INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
----------------------- ---------- ------------------------------- --------- ------------
Additions
-------------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
----------------------------- ---------- ------------ ------------ ----------- ------------
Deducted from Asset Accounts:
Year Ended September 30, 2009
------------------------------
Reserve for doubtful accounts $ 10,000 $ (610) (1) $ 60 (2) $ (550) (3) $ 10,000
Reserve for inventory obsolescence $ 188,000 $ 522,484 $ - $ 255,484 (4) $ 455,000
Reserve for product warranty $ 5,640 $ 36,252 $ - $ 37,410 $ 4,482
Valuation allowance deferred taxes $ 978,000 $2,505,200 $ - $ - $3,483,200
Year Ended September 30, 2010
------------------------------
Reserve for doubtful accounts $ 10,000 $ (38) (1) $ - $ (38) (3) $ 10,000
Reserve for inventory obsolescence $ 455,000 $ 154,086 $ - $ 229,086 (4) $ 380,000
Reserve for product warranty $ 4,482 $ 3,602 $ - $ 4,669 $ 3,415
Valuation allowance deferred taxes $3,483,200 $ 310,500 $ - $ - $3,793,700
Year Ended September 30, 2011
------------------------------
Reserve for doubtful accounts $ 10,000 $ 8,313 (1) $ - $ 8,313 (3) $ 10,000
Reserve for inventory obsolescence $ 380,000 $ 334,568 $ - $ 568 (4) $ 714,000
Reserve for product warranty $ 3,415 $ 163 $ - $ 2,585 $ 993
Valuation allowance deferred taxes $3,793,700 $ 255,600 $ - $ - $4,049,300
(1) Classified as bad debt expense.
(2) Recoveries on accounts charged off in prior years.
(3) Accounts charged off during year as uncollectible.
(4) Inventory charged off during the year as obsolete.