|• FORM 10-Q MARCH 31 2012 • EXHIBIT 11 • EXHIBIT 31.1 • EXHIBIT 31.2 • EXHIBIT 32.1 • EXHIBIT 32.2 • EXHIBIT 101.INS • EXHIBIT 101.SCH • EXHIBIT 101.CAL • EXHIBIT 101.DEF • EXHIBIT 101.LAB • EXHIBIT 101.PRE|
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______ .
Commission File No. 0-147
the registrant (1) has filed all reports required to be filed by
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
(or for such shorter period that the registrant was required to file
reports), and (2) has been subject to such filing requirements for the
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a small reporting company.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No_X_
As of May 9, 2012: 919,412 Hickok Incorporated Class A Common Shares and 474,866 Class B Common Shares were outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
derived from audited financial statements previously filed with the
and Exchange Commission
to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31,
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, 2012 are not necessarily indicative of the results that may be expected for the year ended September 30, 2012. 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, 2011.2. Inventories
at the lower of cost or market and consist of the following:
are net of reserve for obsolete inventory in the amount of $810,000,
$714,000 and $476,181 for the periods ended
March 31, 2012, September 30, 2011 and March 31, 2011 respectively.
Company has notes receivable with a current and former employee at an
of three percent per annum. The Company does not anticipate repayment
within the next twelve months.
4. Convertible Notes Payable
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
unsecured, bear interest at a rate of 0.20% per annum and will mature
December 30, 2012.
Company has a
agreement of $250,000 with one of its major shareholders who is also an
employee of the Company. The agreement
was to expire in April 2012 but was modified on January 9, 2012 to
extend the maturity
date to April
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 April 2013 if it will
have a negative effect on the solvency of the Company.
6. Capital Stock, Treasury Stock, Contributed Capital and Stock Options
Company's Key Employees Stock Option Plans (collectively the "Employee
incentive stock options, in general, are exercisable for up to ten
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
and such other terms and conditions as the Compensation Committee of
Board of Directors may determine. No options may be granted at a price
than $2.925. Under the Employee Plans there are no options currently
available for grant and there are no options outstanding at March 31,
2012. Options for 26,850
Class A shares
were outstanding at September 30, 2011 and 27,650 shares at March 31,
2011 at prices
from $3.125 to $3.55. Options
for 26,850 shares at $3.55
per share expired during the three month period ended March 31,
2012. In addition,
options for 13,850 shares
at a price of $3.125 per share expired during the three month
31, 2010. No
other options were granted, exercised, canceled or
during the three or six month periods presented under the Employee
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 March 31, 2012:
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, 2012 and 2011 respectively $3,283 and $2,865; $6,148 and $6,885 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, 2012 and 2011 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.
Unissued shares of Class A common stock (1,008,170 shares) are reserved for the share-for-share conversion rights of the Class B common stock, stock options under the Directors Plans and conversion rights of the Convertible Promissory Notes.
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
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.
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
per share because the conversion rights of the Convertible Promissory
Notes effect was antidilutive.
During the second quarter and the first six month period of fiscal 2011, options to purchase 73,650 shares of common stock, 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 shares.
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.
Tools and Equipment
Information by industry segment is set forth below:
export sales to
Canada, Mexico, Taiwan and
other foreign countries are made in United States
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.
11. Subsequent Events
The Company has evaluated subsequent events through May 9, 2012, 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 resulting lower sales levels reduced the Company's accounts receivable and cash balances until the arrangements described below were consummated that substantially increased the cash availability of the Company. Management revised its strategic plan in late fiscal 2010 and has been executing that Plan since. It continues to believe 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 reverse the revenue trend and increase profitability in fiscal 2012, however, because of the inherent uncertainties there can be no assurance to that effect.
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 April 2011 including additional reductions in personnel and an additional wage reduction for the CEO due to the continued decline in sales to the markets the Company serves. A senior OEM sales executive resigned in March 2011 and management decided to eliminate that position from the Marketing department. Further, the Board of Directors reduced and then eliminated all Board of Directors fees until Company financial conditions improve. These additional expense reductions were expected to save approximately $46,000 per month beginning in April 2011 or $552,000 on an annual basis. For the three and six month periods ended March 31, 2012 the Company achieved the savings that were anticipated from the cost cutting measures implemented in April 2011.
On December 30, 2011, Management entered into two unsecured convertible loan agreements and an additional revolving line of credit that 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 4. The accompanying consolidated financial statements include the proceeds from the Roundball Convertible Loan Agreement of approximately $504,000 including the conversion of approximately $233,439 into Class A Common Shares of the Company and $37,000 from the sale of 20,000 Class B Common Shares. Proceeds from the Aplin Family Trust Convertible Loan Agreement of approximately $208,591 are also included in the accompanying consolidated financial statements. In addition, the Company was able to negotiate an extension until April 2013 of a $250,000 unsecured line of credit from one of the Company's major shareholders.
Management has determined that in light of the investments described below a more aggressive plan to increase sales is warranted. The short-term plan includes a limited increase in personnel and small increase in the compensation of existing personnel. These changes are intended to accelerate both the introduction of new products and to enhance the sales of existing products through improved market presence and promotion.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Second Quarter (January 1, 2012 through March 31, 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
$352,372 and $290,966 for the second quarter of fiscal 2012 and fiscal
2011, respectively and $730,375 and $534,772 for the first six months
of fiscal 2012 and fiscal 2011, respectively. The increased sales
was primarily due to the receipt of increased orders for the military.
Results of Operations
Service sales for the quarter ended March 31, 2012 were $108,587 versus $117,944 for the quarter ended March 31, 2011. 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 2012 was $710,841 (66.4% of product sales) as compared to $684,437 (57.3% of product sales) in the second quarter of fiscal 2011. The dollar and percentage increase in the cost of product sold was due to a change in product mix. The change in mix was largely reduced sales of emissions products and certain higher priced aftermarket products. Management's strategy of developing lower priced higher volume aftermarket products was developed in 2010 in response to a recognition that this was likely to occur due to economic and market conditions. The current cost of product sold percentage is expected to decrease moderately 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 2012 was $65,016 (59.9% of service sales) as compared to $75,734 (64.2% of service sales) in the second quarter of fiscal 2011. 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 $248,493 in the second quarter of fiscal 2012 (23.2% of product sales) as compared to $266,668 (22.3% of product sales) in the second quarter of fiscal 2011. The dollar decrease was due primarily to a decrease in labor costs of approximately $20,000. The current level of product development expenses is expected to increase slightly for the balance of the fiscal year due to a plan to add a resource and small wage increases effective in February 2012 for existing employees. The Company 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 $385,635 (32.7% of total sales) in the second quarter of 2012 versus $501,859 (38.2% of total sales) for the same period a year ago. Marketing expenses were approximately $156,000 in the second quarter of fiscal 2012 versus $222,000 for the same period a year ago. Within marketing expenses, labor costs, royalty expense, travel expenses and credit and collection expenses decreased by approximately $28,000, $19,000, $11,000 and $6,000 respectively. These decreases were offset in part by an increase in advertising expenses and outside consulting expenses of approximately $2,000 and $2,000 respectively. Administrative expenses were approximately $230,000 in the second quarter of fiscal 2012 versus $280,000 for the same period a year ago. The current quarter benefited from a decrease in labor costs, professional fees and directors fees of approximately $31,000, $8,000 and $7,000 respectively. The current level of marketing and administrative expenses are expected to increase slightly for the balance of the fiscal year due to the addition of a marketing resource, additional promotion, and a small wage increase for existing employees. These increases became effective in February and March of the current fiscal year.
During the second quarter of fiscal 2012 interest expense was $1,566 which compares to $0 in the second quarter of fiscal 2011. The Company did not have a credit facility in place during the first six months of fiscal 2011. Effective April 13, 2011 the Company obtained a limited unsecured line of credit. Interest expense is expected to decrease during the remainder of the fiscal year.
Other income was $8,232 in the second quarter of fiscal 2012 which compares with $2,121 in the second quarter of fiscal 2011. Other income consists primarily of interest income on cash and cash equivalents invested and the proceeds from the sale of scrap metal shavings. The increase 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 $2,400 during the current quarter.
Income taxes in the second quarter of fiscal 2012 was $0 which compares with income taxes of $0 in the second quarter of fiscal 2011. In the second quarter of fiscal 2012 and 2011 a recovery of income taxes was calculated at an effective tax rate of 37% offset by an increase in the valuation allowance netting to $0.
The net loss in the second quarter of fiscal 2012 was $224,781 which compares with a net loss of $213,681 in the second quarter of fiscal 2011. The net loss in fiscal 2012 and fiscal 2011 was primarily the result of low sales volumes.
Unshippped customer orders as of March 31, 2012 were $649,000 versus $723,000 at March 31, 2011. The decrease was due to decreased orders in automotive diagnostic products of approximately $234,000, specifically $122,000 for diagnostic products to automotive OEM's and orders to the aftermarket which includes emissions products of approximately $112,000. In addition, indicator products increased by approximately $160,000. The Company anticipates that most of the current backlog will be shipped in the last half of fiscal 2012.
Six Months Ended March 31, 2012
Product sales for the six months ended March 31, 2012 were $2,180,691
versus $2,207,009 for the same period in fiscal 2011. The decrease in
product sales during the first six months of the current fiscal year of
approximately $26,000 was volume related due primarily to decreased
sales of automotive diagnostic products, primarily, emission
aftermarket products and non-emmision aftermarket testing products of
approximately $220,000 and $32,000 respectively. Sales of diagnostic
testing products to OEM's increased by approximately $21,000. In
addition, sales of indicator products increased by approximately
$205,000. Management anticipates product
sales for the third and fourth quarter to increase slightly.
Total current assets were $3,063,976, $3,016,871 and $2,916,634 at
March 31, 2012, September 30, 2011 and March 31, 2011, respectively.
The increase of approximately $147,000 from March to March was due
primarily to the increase in cash and cash equivalents, accounts
receivable and notes receivable of approximately $389,000, $56,000 and
$2,000 respectively, offset in part by a decrease in inventory and
prepaid expenses of
approximately $287,000 and $13,000 respectively. The increase in cash
and cash equivalents was due primarily to the issuance of convertible
promissory notes in December 2011. The
decrease in inventory was due primarily to a higher obsolescence
reserve level during the period. The increase from September to March
of approximately $47,000
was due primarily to the increase in cash and cash equivalents of
approximately $380,000, offset in part by a decrease in accounts
receivable and inventory of approximately $211,000 and $139,000
respectively. The increase in
cash and cash equivalents was due primarily to the issuance of
convertible promissory notes in December 2011. The decrease in accounts
receivable was due to a decrease in sales during the current quarter.
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, 2011.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market RiskThe 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 risk is exposure related to interest rate risk. The Company's only debt subject to interest rate risk is its revolving credit facility, which is subject to a variable rate of interest based on the prime commercial rate. The current outstanding balance on this revolving credit facility is $0. As a result, the Company believes that the market risk relating to interest rate movements is minimal.
Item 4. Controls and Procedures.
As of March 31, 2012, 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 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 Vice President, Finance and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2012 in ensuring that information required to be disclosed by the Company in the reports 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 second fiscal quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
1. Legal Proceedings.
The Company is the plaintiff in a suit pursuing patent infringement against a competitor in the emissions market. There has been no material developments in this legal proceeding since the filing of Form 10-K for fiscal 2011. Management believes that it is not currently possible to estimate the impact, if any, that the ultimate resolution of the patent infringement matter will have on the Company's results of operations, financial position or cash flows.
Item 6. Exhibits.
** 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.