HICKOK
INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31,
(Unaudited)
|
2012
|
2011
|
|
|
|
|
Cash
Flows
from Operating Activities:
|
|
|
|
Cash
received from customers
|
$1,312,344
|
$1,337,846
|
|
Cash
paid to suppliers and employees
|
(1,493,998)
|
(1,277,898)
|
|
Interest
paid
|
-
|
(3,950)
|
|
Interest
received
|
93
|
170
|
|
|
|
|
Net Cash Provided By (Used In) Operating
Activities
|
(181,561)
|
56,168
|
|
|
|
|
Cash
Flows
from Investing Activities:
|
|
|
|
Capital
expenditures
|
-
|
(9,029)
|
Payments received on notes receivable
|
900
|
800
|
|
|
|
|
Net Cash Provided By (Used In)
Investing
Activities
|
900
|
(8,229)
|
|
|
|
|
Cash
Flows
from Financing Activities:
|
|
|
Cost for additional Authorized shares
|
(21,925)
|
-
|
Increase in Short-term borrowings
|
100,000
|
-
|
Increase in Convertible Notes Payable
|
-
|
466,879
|
Sale of Class B shares from treasury
|
-
|
37,000
|
|
|
|
|
Net Cash Provided By (Used In) Financing
Activities
|
78,075
|
503,879
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
(102,586)
|
551,818
|
|
|
|
|
Cash
and
cash equivalents at beginning of year
|
258,798
|
274,530
|
|
|
|
|
Cash
and
cash equivalents at end of first quarter
|
$156,212
|
$826,348
|
|
|
|
|
|
See
Notes
to Consolidated Financial Statements
|
|
|
|
|
|
|
|
2012
|
2011
|
|
|
|
|
Reconciliation
of Net Income (Loss) to Net Cash Provided By (Used
In)
Operating Activities:
|
|
|
|
|
|
|
Net
Income (Loss)
|
$143,804
|
$(183,140)
|
|
Adjustments
to reconcile net income (loss) to
net cash provided by operating
activities:
|
|
|
|
Depreciation
|
25,735
|
27,499
|
Non-cash share-based compensation
expense
|
2,841
|
2,865
|
Non-cash
professional service expense
|
7,000
|
-
|
Non-cash
interest expense
|
22,750
|
-
|
Deferred income taxes
|
-
|
-
|
|
Changes in assets and liabilities:
|
|
|
|
Decrease (Increase) in accounts
receivable
|
(426,559)
|
156,345
|
|
Decrease (Increase) in inventories
|
(135,349)
|
130,527
|
|
Decrease (Increase) in prepaid
expenses
|
50,141
|
(36,190)
|
|
Increase (Decrease) in accounts
payable
|
113,506
|
(30,692)
|
|
Increase (Decrease) in accrued payroll
and related
expenses
|
(17,193)
|
(20,044)
|
|
Increase (Decrease) in accrued
expenses
and accrued
taxes
other than income
|
31,763
|
8,998
|
|
|
|
|
Total
Adjustments
|
(325,365)
|
239,308
|
|
|
|
|
Net
Cash Provided By (Used
In)
Operating
Activities
|
$(181,561)
|
$56,168
|
|
|
|
|
|
|
Supplemental Schedule
of Non-Cash Financing Activities:
|
|
|
Conversion of convertible notes payable
to Class A shares
|
$208,591
|
$233,438
|
|
|
|
HICKOK
INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
DECEMBER 31, 2012
1.
Basis
of Presentation
The
accompanying
unaudited consolidated financial statements have been prepared in
accordance
with generally accepted accounting principles for interim financial
information
and with the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered
necessary for a fair presentation have been included. Operating results
for
the three month period ended December 31, 2012 are not necessarily
indicative
of the results that may be expected for the year ended September 30,
2013.
For further information, refer to the consolidated financial statements
and
footnotes thereto included in the Company's annual report on Form 10-K
for
the year ended September 30, 2012.
2.
Inventories
Inventories
are
valued at
the lower of cost or market and consist of the following:
|
December
31,
2012
|
September
30,
2012
|
December
31,
2011
|
|
|
|
|
|
Components
|
$1,036,824
|
$1,061,957
|
$1,051,776
|
|
Work-in-Process
|
596,926
|
451,733
|
486,813
|
|
Finished
Product
|
236,369
|
221,080
|
294,827
|
|
|
|
|
|
$1,870,119
|
$1,734,770
|
$1,833,416
|
|
|
|
|
The above
amounts
are net of reserve for obsolete inventory in the amount of $883,903,
$851,000
and $762,000 for the periods ended December 31,
2012,
September 30, 2012 and December 31, 2011 respectively.
3.
Notes
Receivable
The
Company has notes receivable with
a current and former employee at an interest rate of three percent per
annum. The
Company does not
anticipate repayment within the next twelve months.
4.
Convertible Notes Payable
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 and a convertible note to the
Aplin Family Trust in the amount of $208,591. In
addition, Roundball, LLC shall have the right to cause the Company to
borrow up to an additional $466,880 from Roundball, LLC. The notes were
unsecured, bore interest at a rate of 0.20% per annum and were set to
mature
on
December 30, 2012.
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.
The notes were convertible 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 had the option to convert the notes at
the expiration date, if the investors
had not during the course of the agreement. On
December 30, 2011, Roundball converted $233,438 into Class A Common
Shares
of the Company. In addition, on August 20, 2012 Roundball converted the
remaining $233,441 under the Convertible Loan Agreement into Class A
Common Shares of the Company.
On December 28, 2012, the Aplin Family Trust
converted the
$208,591 under the Convertible Loan Agreement into Class A Common
Shares of the Company.
On December 30,
2012 management entered into an amended
Convertible Loan Agreement with Roundball which may provide
approximately $467,000 of
liquidity to meet on going working capital requirements. The amended
Convertible Loan Agreement is by
and
between the Company and a major shareholder who is also a Director
modifying the terms and
extending the due date of the loan agreement from December
30, 2012 to December 31, 2013 and modifying the terms to allow $250,000
of borrowing on the agreement at the Company's discretion at an
interest rate of 0.24%.
In partial
consideration for Amendment No. 1, the Company and Roundball
entered into a Warrant Agreement, dated December 30, 2012,
whereby the Company issued a warrant to
the Roundball to purchase, at its option, up to 100,000 shares of Class
A Common Stock of the Company at an exercise price of $2.50 per share,
subject to certain anti-dilution and other adjustments. If not
exercised, this warrant will expire on December 30, 2015. Roundball is
an affiliate of Steven Rosen, a Director of the Company.
The Company used the
Black-Scholes
option pricing model to determine the fair value estimate for
recognizing
the cost of 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. The warrants are immediately
exercisable and expire in December 2015.
The fair value of the warrants issued is amortized over
the one year amended convertible loan agreement period. During
the quarter
ended December 31,
2012, $11,375
was expensed as non-cash interest expense. The following
weighted-average
assumptions were used in the option pricing model for the three month
period ended December 31, 2012: a risk free interest rate of 0.42%; an
expected life of 3
years; an expected
dividend
yield of 0.0%; and a
volatility
factor of .84.
5.
Short-term Financing
The
Company had a
credit
agreement of $250,000 with Robert L. Bauman, one of its major
shareholders who is also an
employee of the Company. The agreement
was to expire in April 2013 but was modified on December 31, 2012 to
extend the maturity
date to December 2013. Effective October 30, 2012
for the remainder of the agreement, the lender may terminate the
agreement with 45 days written notice, but it is at the discretion of
the Company to deny the termination notice until December 2013 if it
will
have a negative effect on the solvency of the Company.
The agreement provides for a
revolving credit
facility of
$250,000 with interest at 0.24% per annum and is unsecured and includes
a three year warrant for 100,000 shares of Class A common stock at a
price of $2.50 per share. 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 had outstanding
borrowings of $100,000 under this loan facility at December 31, 2012.
In partial
consideration for the extension of the revolving credit
facility the Company and
Bauman entered into a Warrant Agreement, dated December 30, 2012
whereby the Company issued a warrant
to Bauman to purchase, at his option, up to 100,000 shares of Class A
Common Stock of the Company at an exercise price of $2.50 per share,
subject to certain anti-dilution and other adjustments. If not
exercised, this warrant will expire on December 30, 2015.
The Company used the
Black-Scholes
option pricing model to determine the fair value estimate for
recognizing
the cost of 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. The warrants are immediately
exercisable and expire in December 2015.
The fair value of the warrants issued is amortized over
the one year credit agreement period. During
the quarter
ended December 31,
2012, $11,375
was expensed as non-cash interest expense. The following
weighted-average
assumptions were used in the option pricing model for the three month
period ended December 31, 2012: a risk free interest rate of 0.42%; an
expected life of 3
years; an expected
dividend
yield of 0.0%; and a
volatility
factor of .84.
6.
Capital Stock, Treasury Stock,
Contributed Capital and Stock Options
Under the Company's Key Employees Stock Option Plans (collectively the
"Employee Plans"), incentive stock options, in
general, are exercisable for up to ten years, at an exercise price of
not less than
the market price on the date the option is granted. Under the Employee
Plans there are no options currently available for grant and there are
no options outstanding at December 31, 2012. Options for
26,850 Class A shares were outstanding at December 31, 2011 at a price
of $3.55 per share.
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
to members
of the Board of Directors who are not employees of the Company, at the
fair
market value on the date of grant. Options for 42,000 Class A shares
were
outstanding at December 31, 2012 (42,000 shares at September 30, 2012
and 38,000 shares at December 31, 2011) at prices ranging from $2.925
to
$11.00
per share. All outstanding options under the Directors Plans become
fully
exercisable on March 8, 2015.
The
following is a summary of the range of exercise prices for stock
options outstanding and exercisable under the Directors Plans at
December 31, 2012:
Directors
Plans
|
Outstanding
Stock Options
|
Weighted
Average
Share
Price
|
Weighted
Average Remaining
Life
|
Number
of Stock
Options
Exercisable
|
Weighted
Average
Share
Price
|
|
Range
of exercise
prices:
|
|
|
|
|
|
|
$2.925
- $5.25
|
23,000
|
$3.43
|
6.3
|
12,667
|
$3.84
|
|
$6.00
- $7.25
|
11,000
|
$6.46
|
4.3
|
9,333
|
$6.55
|
|
$10.50
- $11.00
|
8,000
|
$10.75
|
4.8
|
8,000
|
$10.75
|
|
|
|
|
|
|
|
|
|
42,000
|
$5.62
|
|
30,000
|
$6.52
|
|
|
|
|
|
|
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 were 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
the quarter
ended December 31,
2012 $2,841
was expensed as share-based compensation. During
the quarter
ended December 31,
2011 $2,865
was expensed as share-based compensation. The following
weighted-average
assumptions were used in the option pricing model for the three month
periods ended December 31, 2012 and
2011
respectively: 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 .87
and .75.
On October 11,
2012,
the Company's
Amended Articles of Incorporation and the Amended Code of Regulations
were adopted
by an
affirmative vote of more than two-thirds of the Company's Class A and
Class B Shareholders.
The Amended Articles amend and restate the Current Articles in a number
of significant ways and are primarily as follows: increased the number
of Class A Shares and Class B Shares from 3,750,000 and 1,000,000 to
10,000,000 and 2,500,000 respectively, and added a class of 1,000,000
Serial Preferred Shares; eliminated par value for for Class A Shares
and Class B Shares; updated certain provisions relating to the payment
of dividends; removed restrictions on the issuance of additional Class
A Shares; clarified the method by which the Company may repurchase its
shares; reduced the percentage of shareholder vote required to
authorize corporate actions from two-thirds of the voting power to a
majority of the voting power; and made other technical or conforming
changes.
The Amended Regulations amend and restate the Current Regulations
in a number of
significant ways and are primarily as follows: updated certain
provisions relating to the Company's meetings of shareholders in order
to provide more consistency in the regulations regarding the Company's
practices in this area; further clarifying the roles of the Company's
officers and directors in conducting the Company's business; updated
the Company's policy regarding the indemnification of its directors,
officers, employees, and others;
revised
provisions allowing for the Board of Directors to adopt amendments to
the Amended Regulations to the extent permitted by Ohio law; and
made other
technical or conforming changes.
Detailed information related to the two changes approved by
shareholders may be
found in the 2012 Proxy Statement for the Special Meeting held October
11, 2012 which was filed with the Securities and Exchange Commission on
September 14, 2012.
Unissued
shares of Class A common stock (769,233 shares) are
reserved for
the share-for-share conversion rights of the Class B common stock,
stock options under the Directors Plans, conversion rights of the
Convertible Promissory Note and available warrants.
7.
Recently
Issued Accounting
Pronouncements
The
Company did not incur
any material impact to its financial condition or results of operations
due
to the adoption of any new accounting standards during the periods
reported.
8.
Earnings
per
Common
Share
Earnings
per common share information is computed on the
weighted
average number of shares outstanding during each period based on the
provisions
of FASB Codification ASC Topic 260, "Earnings per Share." The
required
reconciliations are as follows:
|
Three
Months ended
December 31,
|
|
2012
|
2011
|
|
Basic
Income (Loss) per Share
|
|
|
|
Income
(Loss)
available
to common stockholders
|
$143,804
|
$(183,140)
|
|
|
|
|
Shares
denominator
|
1,528,541
|
1,251,273
|
|
|
|
|
Per
share
amount
|
$.09
|
$(.15)
|
|
|
|
|
Effect
of Dilutive Securities
|
|
|
|
Average
shares
outstanding
|
1,528,541
|
1,251,273
|
|
Stock
options
|
12,942
|
-
|
|
|
|
|
1,541,483
|
1,251,273
|
|
|
|
|
Diluted
Income (Loss) per Share
|
|
|
|
Income
(Loss)
available to common stockholders
|
$143,804
|
$(183,140)
|
|
|
|
|
Per
share
amount
|
$.09
|
$(.15)
|
|
|
|
Options and warrants to purchase
42,000 and 200,000 shares
of common
stock respectively during the first quarter of fiscal 2013
at prices ranging from $2.50
to $11.00
per share
were outstanding but were not included in the computation of diluted
earnings
per share because the option's and warrant's effect was antidilutive or
the exercise
price
was greater than the average market price of the common share.
Options to purchase
64,850
shares of common
stock during the first quarter of fiscal 2012
at prices ranging from $2.925
to $11.00
per share
were outstanding but were not included in the computation of diluted
earnings
per share because the option's effect was antidilutive or the exercise
price
was greater than the average market price of the common share.
In
addition, conversion rights to purchase 491,304 shares of common stock
at a price of $1.85 per share were
not included in the computation of diluted
earnings
per share during the first quarter of fiscal 2012 because the
conversion rights of the Convertible Promissory
Notes effect was antidilutive
or
the exercise
price
was greater than the average market price of the common share
.
9.
Segment
and
Related Information
The
Company's four
business units have a common management team and infrastructure that
offer different products and services. The business units have been
aggregated into two reportable segments: 1.)indicators and gauges and
2.)automotive related diagnostic tools and equipment.
Indicators
and
Gauges
This segment consists of products manufactured and sold primarily to
companies
in the aircraft and locomotive industry. Within the aircraft market,
the
primary customers are those companies that manufacture or service
business
and pleasure aircraft. Within the locomotive market, indicators and
gauges
are sold to both original equipment manufacturers and to operators of
railroad equipment.
Automotive
Diagnostic
Tools and Equipment
This segment consists primarily of products designed and manufactured
to
support the testing or servicing of automotive systems using electronic
means
to measure vehicle parameters. These products are sold to OEM's and to
the
aftermarket using several brand names and a variety of distribution
methods.
Included in this segment are products used for state required testing
of
vehicle emissions.
Information
by
industry
segment is set forth below:
|
Three
Months Ended
December 31,
|
|
|
2012
|
2011
|
|
Net
Sales
|
|
|
|
Indicators
and Gauges
|
$410,226
|
$378,003
|
|
Automotive
Diagnostic Tools and Equipment
|
1,328,677
|
803,498
|
|
|
|
|
$1,738,903
|
$1,181,501
|
|
|
|
|
Income
(Loss) before Provision for Income Taxes
|
|
|
|
Indicators
and Gauges
|
$111,624
|
$57,465
|
|
Automotive
Diagnostic Tools and Equipment
|
307,465
|
(15,256)
|
|
General
Corporate
Expenses
|
(275,285)
|
(225,349)
|
|
|
|
|
$143,804
|
$(183,140)
|
|
|
|
|
Asset
Information
|
|
|
|
Indicators
and Gauges
|
$831,059
|
$729,421
|
|
Automotive
Diagnostic Tools and Equipment
|
2,167,252
|
1,667,391
|
|
Corporate
|
590,206
|
1,325,654
|
|
|
|
|
$3,588,517
|
$3,722,466
|
|
|
|
|
Geographical
Information
|
|
|
Included
in the
consolidated
financial statements are the following amounts related to geographical
locations:
|
|
|
|
|
Revenue:
|
|
|
|
United
States
|
$1,700,435
|
$1,112,633
|
Australia
|
-
|
12,053
|
|
Canada
|
28,054
|
13,752
|
Taiwan
|
-
|
32,405
|
|
Other
foreign
countries
|
10,414
|
10,658
|
|
|
|
|
$1,738,903
|
$1,181,501
|
|
|
|
All
export sales to
Australia, Canada, Taiwan and other foreign countries are made in
United States
of America
Dollars.
10.
Commitments
and
Contingencies
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 is a named defendant along with numerous other companies in a
suit in the State of Michigan regarding asbestos harm to the plaintiff.
The Company has engaged a Michigan attorney to provide representation.
The Company believes the suit is without merit and is pursuing
dismissal of the case.
11.
Subsequent
Events
The Company has evaluated subsequent events through February 7, 2013,
which is the date the financial statements were available to be issued,
and
has determined there were no subsequent events to recognize or disclose
in
these financial statements.
12.
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 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 took steps to reduce expenses throughout the Company in
fiscal 2009, 2010 and 2011 in the form of substantial reductions in
personnel, wage reductions for all personnel and expenditure
restrictions in most aspects of the Company’s operations. Anticipated
cost savings were achieved during the past four years and management
expects these measures to continue through fiscal 2013. During the
first quarter of fiscal 2012 management entered into two unsecured
convertible loan agreements that have provided approximately $675,000
of cash to date. One of the
convertible loan agreements was fully
converted during fiscal 2012 and the other on December 28, 2012.
In
addition, on December 30, 2012 management entered into an
amended unsecured convertible loan agreement and an additional
revolving line of credit which may provide approximately $717,000 of
liquidity to meet on going working capital requirements. One agreement
is an unsecured revolving line of credit with a major shareholder
who is also an employee and the other is an unsecured convertible loan
agreement with a major shareholder who is also a Director as discussed
in Notes 4 and 5.
These facilities are available through December 2013.
The above available financing resources together with
management’s revised strategic plan to increase revenues and
profitability through increased sales of existing products, the
introduction of new products to the market place and the large order
from a Tier 1 Supplier should provide the Company with the needed
working capital for the foreseeable future.
