Item
1. Financial
Statements.
HICKOK
INCORPORATED
CONSOLIDATED
INCOME STATEMENTS
(Unaudited)
|
Three
months ended
March
31,
|
Six
months ended
March
31,
|
|
2013
|
2012
|
2013
|
2012
|
Net
Sales
|
|
|
|
|
Product
Sales
|
$1,891,252
|
$1,069,951
|
$3,538,687
|
$2,180,691
|
Service
Sales
|
73,086
|
108,587
|
164,554
|
179,348
|
|
|
|
|
|
Total Net Sales
|
1,964,338
|
1,178,538
|
3,703,241
|
2,360,039
|
|
|
|
|
|
Costs
and Expenses
|
|
|
|
|
Cost
of Product Sold
|
1,064,770
|
710,841
|
1,956,903
|
1,439,946
|
Cost
of Service Sold
|
43,391
|
65,016
|
77,660
|
124,700
|
Product
Development
|
246,098
|
248,493
|
477,245
|
473,230
|
Marketing
and Administrative Expenses
|
468,755
|
385,635
|
885,998
|
735,276
|
Interest
Charges
|
22,823
|
1,566
|
45,678
|
5,561
|
Other
Income
|
(930)
|
(8,232)
|
(3,478)
|
(10,753)
|
|
|
|
|
|
Total Costs and Expenses
|
1,844,907
|
1,403,319
|
3,440,006
|
2,767,960
|
|
|
|
|
|
Income (Loss)
before Provision for Income Taxes
|
119,431
|
(224,781)
|
263,235
|
(407,921)
|
|
|
|
|
|
Provision
for (Recovery of) Income Taxes
|
-
|
-
|
-
|
-
|
|
|
|
|
|
Net
Income (Loss)
|
$119,431
|
$(224,781)
|
$263,235
|
$(407,921)
|
|
|
|
|
|
Earnings
per Common Share:
|
|
|
|
|
Net
Income (Loss)
|
$.08
|
$(.16)
|
$.17
|
$(.31)
|
|
|
|
|
|
Earnings
per Common Share
Assuming Dilution:
|
|
|
|
|
Net
Income (Loss)
|
$.07
|
$(.16)
|
$.16
|
$(.31)
|
|
|
|
|
|
Dividends
per Common Share
|
$-0-
|
$-0-
|
$-0-
|
$-0-
|
|
|
|
|
|
See
Notes to
Consolidated
Financial Statements
HICKOK
INCORPORATED
CONSOLIDATED
BALANCE SHEET
|
March
31,
2013
(Unaudited)
|
September
30,
2012
(Note)
|
March
31,
2012
(Unaudited)
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
Cash
and Cash
Equivalents
|
$883,341
|
$258,798
|
$654,713
|
Trade
Accounts
Receivable-Net
|
727,095
|
702,846
|
511,656
|
Notes Receivable - Current
|
3,600
|
3,600
|
2,400
|
Inventories
|
1,480,154
|
1,734,770
|
1,825,281
|
Prepaid
Expenses
|
84,596
|
123,957
|
69,926
|
|
|
|
|
Total
Current Assets
|
3,178,786
|
2,823,971
|
3,063,976
|
|
|
|
|
|
|
|
|
Property,
Plant
and
Equipment
|
|
|
|
Land
|
233,479
|
233,479
|
233,479
|
Buildings
|
1,429,718
|
1,429,718
|
1,429,718
|
Machinery
and
Equipment
|
2,378,319
|
2,374,319
|
2,340,232
|
|
|
|
|
|
|
4,041,516
|
4,037,516
|
4,003,429
|
|
|
|
|
Less:
Allowance
for
Depreciation
|
3,739,735
|
3,688,266
|
3,657,006
|
|
|
|
|
Total
Property - Net
|
301,781
|
349,250
|
346,423
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
Notes Receivable - Long-term
|
29,500
|
31,000
|
34,000
|
Deposits
|
1,750
|
1,750
|
1,750
|
|
|
|
|
Total
Other Assets
|
31,250
|
32,750
|
35,750
|
|
|
|
|
Total
Assets
|
$3,511,817
|
$3,205,971
|
$3,446,149
|
|
|
|
|
Note:
Amounts
derived from audited financial statements previously filed with the
Securities
and Exchange Commission
See
Notes
to Consolidated Financial Statements
|
|
March
31,
2013
(Unaudited)
|
September
30,
2012
(Note)
|
March
31,
2012
(Unaudited)
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Short-Term Financing
|
|
$-
|
$-
|
$-
|
Convertible Notes Payable
|
|
-
|
208,591
|
442,032
|
Trade
Accounts Payable
|
|
128,389
|
178,835
|
161,200
|
Accrued
Payroll
&
Related Expenses
|
|
154,344
|
149,636
|
159,820
|
Accrued
Expenses
|
|
383,226
|
306,475
|
202,378
|
Accrued
Taxes Other Than Income
|
|
21,533
|
44,559
|
25,480
|
Accrued
Income Taxes
|
|
-
|
-
|
-
|
|
|
|
|
|
Total
Current Liabilities
|
|
687,492
|
888,096
|
990,910
|
|
|
|
|
|
|
|
|
|
|
Long-Term Financing
|
|
-
|
-
|
-
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
Class
A, no
par
value; authorized
10,000,000
shares; 1,163,349 shares outstanding (1,045,597 shares outstanding at
September 30, 2012 and 919,412 March 31, 2012) excluding 15,795 shares
in
treasury
|
|
1,261,188
|
1,045,597
|
919,412
|
|
|
|
|
|
Class
B, no
par
value; authorized
2,500,000
shares; 474,866 shares outstanding (454,866 shares
outstanding at September 30, 2012 and March 31, 2012)
excluding 667 shares in treasury
|
|
474,866
|
474,866
|
474,866
|
|
|
|
|
|
Preferred, no par value; authorized
1,000,000 shares; no shares outstanding
|
|
-
|
-
|
-
|
|
|
|
|
|
Contributed
Capital
|
|
1,437,264
|
1,409,630
|
1,297,144
|
|
|
|
|
|
Retained
Earnings
|
|
(348,993)
|
(612,228)
|
(236,183)
|
|
|
|
|
|
Total
Stockholders' Equity
|
|
2,824,325
|
2,317,875
|
2,455,239
|
|
|
|
|
|
Total
Liabilities
and Stockholders' Equity
|
|
3,511,817
|
$3,205,971
|
$3,446,149
|
|
|
|
|
|
HICKOK
INCORPORATED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
SIX
MONTHS ENDED MARCH 31,
(Unaudited)
|
2013
|
2012
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
Cash
received from customers
|
$3,678,992
|
$2,571,114
|
Cash
paid to suppliers and employees
|
(3,030,303)
|
(2,603,182)
|
Interest
paid
|
-
|
(6,641)
|
Interest
received
|
279
|
550
|
Income
taxes (paid) refunded
|
-
|
-
|
|
|
|
Net
Cash Provided By (Used In) Operating Activities
|
648,968
|
(38,159)
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
Capital
expenditures
|
(4,000)
|
(21,093)
|
Payments received on notes receivable
|
1,500
|
1,700
|
Proceeds on sale of assets
|
-
|
9,500
|
|
|
|
Net
Cash Provided By (Used In) Investing Activities
|
(2,500)
|
(9,893)
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
Short-term borrowing
|
250,000
|
-
|
Payments on short-term borrowings
|
(250,000)
|
-
|
Cost for additional Authorized shares
|
(21,925)
|
-
|
Convertible Notes issue costs
|
-
|
(34,235)
|
Decrease in long-term financing
|
-
|
(250,000)
|
Increase in Convertible Notes Payable
|
-
|
675,470
|
Sale of Class B shares from treasury
|
-
|
37,000
|
|
|
|
Net
Cash Provided By (Used In) Financing Activities
|
(21,925)
|
428,235
|
|
|
|
Net
increase (decrease)
in cash and cash equivalents
|
624,543
|
380,183
|
|
|
|
Cash
and cash
equivalents
at beginning of year
|
258,798
|
274,530
|
|
|
|
Cash
and cash
equivalents
at end of second quarter
|
$883,341
|
$654,713
|
|
|
|
See
Notes
to Consolidated Financial Statements
|
|
|
2013
|
2012
|
|
|
|
Reconciliation
of Net Income (Loss) to Net Cash
Provided
By (Used In) Operating Activities:
|
|
|
|
|
|
Net
Income (Loss)
|
$263,235
|
$(407,921)
|
Adjustments
to reconcile Net Income (Loss) to net cash
provided
by operating activities:
|
|
|
Depreciation
|
51,469
|
54,997
|
Non-cash share-based
compensation expense
|
4,049
|
6,148
|
Non-cash professional service expense
|
7,000
|
-
|
Non-cash interest expense
|
45,500
|
-
|
Gain on disposal of assets
|
-
|
(3,548)
|
Changes
in assets and liabilities:
|
|
|
Decrease
(Increase)
in accounts receivable
|
(24,249)
|
211,075
|
Decrease (Increase) in inventories
|
254,616
|
138,662
|
Decrease
(Increase)
in prepaid expenses
|
39,361
|
(16,659)
|
Increase
(Decrease)
in accounts payable
|
(50,446)
|
(12,648)
|
Increase
(Decrease)
in accrued payroll and related expenses
|
4,708
|
16,871
|
Increase (Decrease) in accrued expenses and accrued
taxes
other than income
|
53,725
|
(25,136)
|
|
|
|
Total
Adjustments
|
385,733
|
369,762
|
|
|
|
Net
Cash
Provided
By (Used In) Operating Activities
|
$648,968
|
$(38,159)
|
|
|
|
|
|
|
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)
MARCH
31,
2013
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 and six month periods ended March 31, 2013
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:
|
March
31,
2013
|
September
30, 2012
|
March
31,
2012
|
|
|
|
|
Components
|
$942,802
|
$1,061,957
|
$1,087,525
|
Work-in-Process
|
341,766
|
451,733
|
508,251
|
Finished
Product
|
195,586
|
221,080
|
229,505
|
|
|
|
|
|
$1,480,154
|
$1,734,770
|
$1,825,281
|
|
|
|
|
The
above
amounts
are net of reserve for obsolete inventory in the amount of $916,903,
$851,000 and $810,000 for the periods ended
March 31, 2013, September 30, 2012 and March 31, 2012 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 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 three and six month periods ended March 31,
2013, $11,375 and $22,750
was expensed as non-cash interest expense. The following
weighted-average
assumptions were used in the option pricing model for the three and six
month
periods ended March 31, 2013: 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.
During the three
month period ended March 31, 2013 the Company borrowed $250,000 against
this loan facility and the Company repaid
the outstanding balance of $250,000 on the
Revolving Credit Agreement with Robert L. Bauman on February 21, 2013.
The
Company had no outstanding
borrowings under this loan facility at March 31, 2013.
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 three and six month periods ended March 31,
2013, $11,375
and $22,750 was expensed as non-cash interest expense. The following
weighted-average
assumptions were used in the option pricing model for the three and six
month month
periods ended March 31, 2013: 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
On February 27,
2013,
the Company's
2013 Omnibus Equity Plan was approved and adopted
by an
affirmative vote of a majority of the Company's Class A and
Class B Shareholders.
The 2013
Omnibus Plan will provide the Company with the flexibility to grant a
variety of share-based awards for covered employees, consultants and
Directors. The
2013 Omnibus Plan provides for the grant of the following types of
incentive awards: stock options, stock appreciation
rights, restricted shares, restricted share units, performance
shares and Class A Common Shares. Those who will be eligible
for
awards under the 2013 Omnibus Plan include employees who provide
services to the Company and its affiliates, executive officers,
non-employee Directors and consultants designated by the Compensation
Committee. The Plan has
150,000 Class A Common Shares reserved for
issuance. The Class A Common Shares may be either
authorized, but unissued, common shares or treasury shares. No
share-based awards have been granted under the 2013 Omnibus Equity
Plan as of March 31, 2013.
Under
the
Company's expired Key Employees Stock Option Plans (collectively the
"Employee
Plans"),
incentive stock options, in general, were exercisable for up to ten
years,
at an exercise price of not less than the market price on the date the
option is granted. Non-qualified stock options may be granted at such
exercise price
and such other terms and conditions as the Compensation Committee of
the
Board of Directors may determine. No options may be granted at a price
less
than $2.925. Under the expired Employee Plans there are no options
currently
available for grant and there are no options outstanding at March 31,
2013. Options
for 26,850 shares at $3.55
per share expired during the three month period ended March 31,
2012.
The
Company's expired Outside Directors
Stock
Option Plans (collectively the "Directors Plans"), have provided for
the
automatic grant of options to purchase up to 31,000 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 31,000 Class
A
shares were
outstanding at March 31, 2013 (33,000 shares at September 30, 2012 and
42,000
shares at March 31, 2012) at prices ranging from $2.925 to
$11.00 per share.
Options for
2,000 shares
expired during the
three month
period
ended March 31, 2013 at $3.67 per share.
Options for
7,000 shares
were granted under the expired Directors Plans during the three month
period
ended March 31, 2012, at a price of $2.925
per share.
In addition,
options for 3,000 shares
expired during the
three month
period
ended March 31, 2012 at $3.55 per share.
All outstanding options under the
expired 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 expired Directors Plans at March 31, 2013:
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
|
17,000
|
$3.34
|
7.2
|
11,000
|
$3.56
|
$6.00
- 7.25
|
8,000
|
$6.43
|
4.3
|
8,000
|
$6.43
|
$10.50
- 11.00
|
6,000
|
$10.75
|
4.5
|
6,000
|
$10.75
|
|
|
|
|
|
|
|
31,000
|
$5.57
|
|
25,000
|
$6.20
|
|
|
|
|
|
|
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 the three and
the
six month periods ended March 31, 2013 and 2012
respectively $1,208 and
$3,283; $4,049 and $6,148 was
expensed as
share-based compensation. The following
weighted-average
assumptions
were used in the option pricing model for the three and six month
periods
ended March 31, 2013 and 2012 respectively: a risk free interest rate
of
5.0% 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.
Unissued
shares of
Class A
common
stock (958,233 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
March
31,
|
Six
Months Ended
March
31,
|
|
2013
|
2012
|
2013
|
2012
|
Basic
Income (Loss) per Share
|
|
|
|
|
Income (Loss) available
to
common
stockholders
|
$119,431
|
$(224,781)
|
$263,235
|
$(407,921)
|
|
|
|
|
|
Shares
denominator
|
1,638,215
|
1,394,278
|
1,582,776
|
1,322,385
|
|
|
|
|
|
Per
share amount
|
$.08
|
$(.16)
|
$.17
|
$(.31)
|
|
|
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
Average
shares
outstanding
|
1,638,215
|
1,394,278
|
1,582,776
|
1,322,385
|
Stock
options
|
30,044
|
-
|
30,044
|
-
|
|
|
|
|
|
|
1,668,259
|
1,394,278
|
1,612,820
|
1,322,385
|
|
|
|
|
|
Diluted
Income (Loss) per Share
|
|
|
|
|
Income (Loss) available to common stockholders
|
$119,431
|
$(224,781)
|
$263,235
|
$(407,921)
|
|
|
|
|
|
Per
share amount
|
$.07
|
$(.16)
|
$.16
|
$(.31)
|
|
|
|
|
|
Options and warrants to purchase 31,000
and 200,000 shares of common
stock respectively during the second quarter and the first six months
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 42,000
shares of common
stock during the second quarter and the first six months 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
during
the second quarter and the first six months of fiscal 2012
at a price of $1.85 per share were
not included in the computation of diluted
earnings
per share 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, military and pleasure aircraft.
Within
the locomotive market, indicators and gauges are sold to both original
equipment
manufacturers and to operators of railroad equipment.
Automotive
Diagnostic
Tools and Equipment
This
segment
consists primarily of products designed and manufactured to support the
testing
or servicing of automotive systems using electronic means to measure
vehicle
parameters. These products are sold to OEM's and to the aftermarket
using
several brand names and a variety of distribution methods. Included in
this
segment are products used for state required testing of vehicle
emissions.
Information
by
industry
segment is set forth below:
|
Three
Months Ended
March
31,
|
Six
Months Ended
March
31,
|
|
2013
|
2012
|
2013
|
2012
|
Net
Sales
|
|
|
|
|
Indicators
and
Gauges
|
$417,607
|
$352,372
|
$827,833
|
$730,375
|
Automotive
Diagnostic
Tools and Equipment
|
1,546,731
|
826,166
|
2,875,408
|
1,629,664
|
|
|
|
|
|
|
$1,964,338
|
$1,178,538
|
$3,703,241
|
$2,360,039
|
|
|
|
|
|
Income
(Loss)
before
provision for Income Taxes
|
|
|
|
|
Indicators
and
Gauges
|
$113,216
|
$44,125
|
$224,840
|
$101,590
|
Automotive
Diagnostic
Tools and Equipment
|
297,435
|
(45,700)
|
604,900
|
(60,956)
|
General
Corporate
Expenses
|
(291,220)
|
(223,206)
|
(566,505)
|
(448,555)
|
|
|
|
|
|
|
$119,431
|
$(224,781)
|
$263,235
|
$(407,921)
|
|
|
|
|
|
Asset
Information
|
|
|
|
|
Indicators
and
Gauges
|
|
|
$807,464
|
$759,865
|
Automotive
Diagnostic
Tools and Equipment
|
|
|
1,398,266
|
1,575,177
|
Corporate
|
|
|
1,306,087
|
1,111,107
|
|
|
|
|
|
|
|
|
$3,511,817
|
$3,446,149
|
|
|
|
|
|
Geographical
Information
|
|
|
|
|
Included in
the consolidated
financial statements are the
following amounts
related to
geographical
locations:
|
|
|
|
|
|
Revenue:
|
|
|
|
|
United
States
|
$1,896,250
|
$1,143,642
|
$3,596,685
|
$2,256,275
|
Australia
|
14,231
|
23,556
|
14,231
|
35,609
|
Canada
|
22,644
|
-
|
50,698
|
13,752
|
Mexico
|
3,488
|
10,080
|
10,536
|
20,160
|
Taiwan
|
22,481
|
1,260
|
22,481
|
33,665
|
Other
foreign
countries
|
5,244
|
-
|
8,610
|
578
|
|
|
|
|
|
|
$1,964,338
|
$1,178,538
|
$3,703,241
|
$2,360,039
|
|
|
|
|
|
|
|
All
export sales to
Australia,
Canada, Mexico, 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 May 6, 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. Additionally, the Company has net operating loss
carryforwards, currently valued at $0, that offset taxable income.
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 revenues
generated from the large order
from a Tier 1 Supplier should provide the Company with the needed
working capital for the foreseeable future.
Item
2.
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
Results
of
Operations,
Second Quarter (January 1, 2013 through March 31, 2013)
Fiscal
2013
Compared to Second Quarter Fiscal 2012
-----------------------------------------------------------------------------------------
Reportable
Segment
Information
The Company has determined that it has two reportable segments: 1)
indicators and gauges and 2) automotive related diagnostic tools and
equipment. The indicators and gauges segment consists of products
manufactured and sold primarily to companies in the aircraft and
locomotive industry. Within the aircraft market, the primary customers
are those companies that manufacture or service business, military and
pleasure aircraft. Within the locomotive market, indicators and gauges
are sold to original equipment manufacturers, servicers of locomotives
and operators of railroad equipment. Revenue in this segment was
$417,607 and $352,372 for the second quarter of fiscal 2013 and fiscal
2012, respectively and $827,833 and $730,375 for the first six months
of fiscal 2013 and fiscal 2012, respectively.
The automotive diagnostic tools and equipment segment consists
primarily of products designed and manufactured to support the testing
or servicing of automotive systems using electronic means to measure
vehicle parameters. These products are sold to OEM's and to the
aftermarket using several brand names and a variety of distribution
methods. Included in this segment are products used for state required
testing of vehicle emissions. Revenue in this segment was $1,546,731
and $826,166 for the second quarter of fiscal 2013 and fiscal 2012,
respectively, and $2,875,408 and $1,629,664 for the first six months of
fiscal 2013 and fiscal 2012, respectively.
The increased sales
volume was primarily due to the large order from a Tier 1 OEM supplier.
Results
of
Operations
Product sales for the quarter ended March 31, 2013 were $1,891,252
versus $1,069,951 for the quarter ended March 31, 2012. The 77% increase
in product sales during the current quarter of approximately $821,000
was volume related due primarily to increased sales of automotive
diagnostic testing products to OEM's of approximately $689,000. Sales
of emission
products increased by approximately $108,000, offset in part by a
decrease in aftermarket sales of approximately $47,000. In addition,
sales of indicator products increased
by approximately $71,000. Management continues to be concerned
about the current economic conditions in the markets the Company
serves. Product sales are expected
to decrease slightly during the
remainder of fiscal 2013.
Service sales for the quarter ended March 31, 2013 were $73,086 versus
$108,587 for the quarter ended March 31, 2012. The decrease was volume
related and due primarily to a lower sales volume for chargeable
repairs. The current level of service sales related to product repair
sales is expected to continue for the balance of the fiscal year.
Cost of product sold in the second
quarter of fiscal 2013 was $1,064,770
(56.3% of product sales) as compared to $710,841 (66.4% of
product
sales) in the second quarter of fiscal 2012. The decrease in the cost
of product sold percentage was due primarily to a change in product
mix. The dollar increase is due to the volume increase of product sales
during the current quarter, primarily the completion of the order for a
Tier 1 OEM supplier. The current cost of
product sold
percentage is expected to increase
slightly for the balance of the
fiscal year due to an anticipated change in product mix.
Cost of service sold in the second
quarter of fiscal 2013 was $43,391
(59.4% of service sales) as compared to $65,016 (59.9% of
service
sales) in the second quarter of fiscal 2012. The dollar decrease was
due primarily to the decrease in service sales in the current quarter.
The
current cost of services sold percentage is anticipated to continue for
the balance of the fiscal year.
Product development expenses were
$246,098
in the second quarter
of
fiscal 2013 (13.0% of
product sales) as compared to $248,493 (23.2% of
product sales) in the second quarter of fiscal 2012. The percentage
decrease was due primarily to higher product sales during the current
quarter.
The
current level of
product
development expenses is expected to continue for the
balance
of the fiscal year. The
Company believes the existing resources will be sufficient
to continue
to
develop identified new products for both OEM and Aftermarket customers.
Marketing and
administrative
expenses were $468,755 (23.9% of total
sales) in the second quarter of 2013 versus $385,635 (32.7% of total
sales) for the same period a year ago. Marketing expenses were
approximately $199,000 in the second quarter of fiscal 2013 versus
$156,000 for the same period a year ago. Within marketing expenses,
royalty expense,
labor costs,
commissions and
advertising
expenses increased by approximately
$28,000, $11,000, $8,000 and
$2,000 respectively. These increases were offset in part by decreases
in outside consulting expenses, credit and collection expense and
travel expenses of
approximately
$2,000, $1,000 and $1,000 respectively. Administrative expenses were
approximately $269,000 in the second quarter of fiscal 2013 versus
$230,000 for the same period a year ago. Within administrative expenses
professional fees increased by approximately
$46,000, offset in part by a decrease in repairs and maintenance
computer equipment of approximately $8,000.
The
current level of marketing and administrative expenses are expected to
decrease slightly for the
balance
of the fiscal year.
Interest expense was $22,823
in
the second quarter of fiscal 2013
which compares
to $1,566 in the second quarter of fiscal 2012.
The increase in interest
charges in the current quarter compared to a year ago was was due to
recording as non-cash interest expense a portion of the present value
of the warrants issued in December 2012. Interest on the line of
credit
and convertible notes payable declined by approximately $1,273 and $220 respectively.
The current level of
interest expense is
expected to continue for the
remainder of the
fiscal year.
Other income was $930 in the second quarter of fiscal 2013 which
compares with $8,232 in the second quarter of fiscal 2012. Other income
consists primarily of interest income on cash and cash equivalents
invested and the proceeds from the sale of scrap metal shavings. The
decrease is due primarily to a gain of approximately $3,500 on the sale
of
a company vehicle
and a higher
level of scrap metal sales of approximately
$3,300 during the second quarter a year ago with no similar sales in
the
current year.
Income taxes in the second quarter of fiscal 2013 was $0 which compares
with income taxes of $0 in the second quarter of fiscal 2012.
In
the second quarter of
fiscal 2013 income taxes were
recorded at an
effective tax rate of 37%
offset by deferred taxes, specifically net
operating loss carryforwards. In
the second quarter of fiscal 2012 recovery of income taxes was
calculated at an
effective tax rate
of
37% offset by a increase in the valuation allowance netting to $0.
Net income in the second quarter of fiscal 2013 was $119,431 which
compares with a net loss of $224,781 in the second quarter of fiscal
2012. The net income in fiscal 2013
was primarily the
result of a higher sales volume.
Unshipped customer orders as of March 31, 2013 were $639,000
versus
$649,000 at March 31, 2012. The
decrease was due to decreased orders in
indicator products of approximately $83,000, offset in part
by an increase
in orders for automotive diagnostic products of
approximately $73,000,
specifically
$44,000 for diagnostic products to automotive OEM's
and orders to the aftermarket which includes emissions
products of approximately $29,000.
The Company
anticipates
that most
of the current backlog will be shipped in the last half of fiscal 2013.
Results
of Operations,
Six Months Ended March 31, 2013
Compared
to Six Months Ended March 31, 2012
Product sales for the six months ended March 31, 2013 were $3,538,687
versus $2,180,691 for the same period in fiscal 2012. The increase in
product sales during the first six months of the current fiscal year of
approximately $1,358,000 was volume related due primarily to increased
sales of automotive diagnostic testing products, primarily,
automotive
diagnostic testing products to OEM's of approximately $1,370,000.
Sales
of emission
products increased by approximately $31,000, offset in part by a
decrease in aftermarket sales of approximately $143,000. In addition,
sales of indicator products increased
by approximately $101,000. The increase in product sales to OEM's is
due to the large order completed
during the current year for a Tier 1 OEM supplier.
Management
anticipates
product
sales for the third and fourth quarter will decrease slightly.
Service
sales for the six
months ended March 31, 2013 were $164,554
compared with $179,348 for the same period in fiscal 2012. The decrease
was volume related and due primarily to a lower sales volume for
chargeable repairs. The current level of service sales related to
product repair sales is expected to continue for the balance of
the
fiscal year.
Cost of product sold was
$1,956,903 or (55.3% of product sales)
compared to $1,439,946 (66.0% of product sales) for the six months
ended March 31, 2012. The percentage decrease in the cost of
product
sold was due primarily to a higher sales volume, higher plant
utilization
and a change in product mix.
The
change in mix was largely increased sales of automotive diagnostic
testing products to OEM's.
The dollar
increase is due to the volume increase of product sales
during the current quarter. The current cost of
product sold
percentage is expected to increase slightly for
the
balance of the
fiscal year due to an anticipated change in product mix.
Cost of service sold was
$77,660 (47.2% of service sales) compared
with $124,700 (69.5% of service sales) for the six months ended March
31, 2012. The dollar and percentage decrease was due primarily to a
lower sales volume and product specifics of chargeable repairs. The
cost of services sold percentage is
expected to increase moderately for the balance of the fiscal year.
Product development expenses
were $477,245 (13.5% of product sales)
compared to $473,230 (21.7% of product sales) for the six months ended
March 31, 2012. The percentage decrease was due primarily to higher
product sales during the current six months of fiscal 2013. The current
level of
product development expenditures is expected to continue for
the balance of the fiscal year. Management believes the
existing and planned resources will be
sufficient to continue to develop identified new products for both OEM
and Aftermarket customers.
Marketing and administrative
expenses were $885,998 for the six months
ended March 31, 2013 (23.9% of total sales) versus $735,276 (31.2% of
total sales) for the six months ended March 31, 2012. The percentage
decrease was due
primarily
to the higher
level of total sales for the current six months of fiscal 2013.
Marketing expenses were
approximately $362,000 during the first six months of the current
fiscal year as compared to $282,000 for the same period a year ago.
Within marketing expenses, increases were primarily in royalties, labor
costs,
commissions and advertising
expense of
approximately $47,000, $28,000, $8,000 and
$3,000 respectively.
These increases
were offset in part by decreases
in credit and collection expense and
travel expenses of
approximately
$4,000, and $1,000 respectively.
Administrative
expenses were approximately $524,000 during the first six months of the
current fiscal year as compared to $454,000 for the same period a year
ago. The dollar increase was due primarily to increases in professional
fees, labor costs and travel expenses
of
approximately $78,000, $3,000 and $2,000 respectively, offset in part
by a decrease in
repairs and
maintenance
computer equipment of approximately $13,000
.
The current level of marketing and administrative expenses are expected
to decrease slightly for the remainder of the fiscal year.
Interest
expense was $45,678
for the six months ended March 31, 2013, and
$5,561 for the same period in 2012. The increase in interest charges in
the current six month period compared to a year ago was due primarily
to
recording as non-cash interest expense
a portion of the present value of the warrants issued in December 2012.
Interest on the line of
credit
and convertible notes payable declined by approximately $5,264 and $119 respectively.
The current level of interest expense is expected to continue for the
third and fourth quarters of the year due to the remaining present
value to be recorded as interest expense on the warrants issued in 2012.
Other
income of $3,478
for the six months ended March 31, 2013 compares
with other income of $10,753 in the same period last year. Other income
consists primarily of interest income on cash and cash equivalents
invested and the proceeds from the sale of scrap metal shavings. The
decrease is due primarily to the gain on the sale of a company vehicle
and an increase in the sale of scrap metal shavings of approximately
$3,500 and $3,000 respectively during the prior year six month period
with no similar
sales in the
current year
. The current level of other income is expected to decrease
for the
remainder of fiscal 2013.
Income taxes during the first six months of fiscal 2013 was $0 which
compares with income taxes of $0 in the first six months of fiscal
2012.
In
the first six months of
fiscal 2013 income taxes were
recorded at an
effective tax rate of 37%
offset by deferred taxes, specifically net
operating loss carryforwards. In
the first six months of fiscal 2012 recovery of income taxes was
calculated at an
effective tax rate
of
37% offset by a increase in the valuation allowance netting to $0.
Net income for
the six months ended March 31, 2013 was $263,235
compared with a net loss of $407,921 for the six months ended March 31,
2012. The net income for the first half of fiscal 2013 was primarily
the
result of a higher sales volume.
Liquidity
and
Capital Resources
Total current assets were $3,178,786, $2,823,971 and $3,063,976 at
March 31, 2013, September 30, 2012 and March 31, 2012, respectively.
The increase of approximately $115,000 from March to March was due
primarily to the increase in cash and cash equivalents, accounts
receivable and
prepaid expenses
of
approximately $229,000, $215,000 and
$15,000 respectively, offset by a decrease in inventory of
approximately $345,000. The
increase in cash
and cash equivalents and accounts receivable combined with the decrease
in inventory was due primarily to the increase in the sales volume
during the period. The decrease in inventory was due partially
to a higher obsolescence
reserve level, and in addition management's actions to reduce inventory
levels during
the period. The increase from September to March
of approximately $355,000
was due primarily to the increase in cash and cash equivalents of
approximately $625,000, offset in part by a decrease in inventory of
approximately $255,000.
The increase in
cash and cash equivalents was due primarily to the higher level of
sales and the subsequent collection of accounts receivable during the
period.
The decrease in inventory
was due partially
to a higher obsolescence
reserve level, and in addition management's actions to reduce inventory
levels during
the period.
Working capital as of March 31, 2013 amounted to $2,491,294 as compared
with $2,073,066 a year earlier. Current assets were 4.6 times current
liabilities compared to 3.1 a year ago. The quick ratio was 2.3
compared to 1.2 a year ago.
Internally generated funds during the six months ended March 31, 2013
were $648,968. Capital expenditures during the period were
$4,000. The primary reason for the positive cash flow from operations
was the net income generated from the large order from a Tier 1
Supplier to an OEM and the decrease in inventory during the period. The
Company does not anticipate any
material capital expenditures during fiscal 2013. In addition, the
Company believes that cash and cash equivalents, together with funds
anticipated to be generated by operations in addition to available
short-term financing will provide adequate funding of the Company's
working capital needs through the end of fiscal 2013.
Shareholders' equity during the six months ended March 31, 2013
increased by $506,450 which was the net income during the period of
$263,235,
sale of
Class A Conversion shares of $208,591,
issuance of
Class A Common shares for consulting services of $7,000,
share-based
compensation expense of $4,049, non-cash interest expense on warrants
issued of $45,500 and filing fees for the additional authorized common
shares
of $21,925.
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.
During
fiscal 2013 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 2013 there will be a
negative but temporary impact on liquidity. The Company has reduced
wages, headcount, product development,
and marketing, administrative and sales related expenses in order to
appropriately manage its working capital. The Company believes that
internally generated funds and
available short-term financing will provide sufficient liquidity to
meet ongoing working capital requirements.
Critical
Accounting
Policies
Our
critical accounting policies are as presented in Notes to Consolidated
Financial
Statements and Management's Discussion and Analysis of Financial
Condition
and Results of Operations in our Form 10-K for the year ended September
30,
2012.
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, (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, fastening systems 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.