ITEM
1. FINANCIAL STATEMENTS
HICKOK INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
|
|
|
(Unaudited)
March 31,
2017
|
|
|
September 30, 2016
|
|
|
ASSETS
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,174,522
|
|
|
$
|
3,060,734
|
|
|
Accounts receivable-less allowance for
doubtful accounts
|
|
|
1,585,503
|
|
|
|
1,354,199
|
|
|
Inventories-less allowance for obsolete
inventory
|
|
|
3,218,443
|
|
|
|
3,308,799
|
|
|
Prepaid expenses and other current assets
|
|
|
414,025
|
|
|
|
43,085
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
8,392,493
|
|
|
|
7,766,817
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
233,479
|
|
|
|
233,479
|
|
|
Buildings
|
|
|
1,477,312
|
|
|
|
1,448,978
|
|
|
Machinery and equipment
|
|
|
3,580,416
|
|
|
|
3,392,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,291,207
|
|
|
|
5,075,191
|
|
|
Less accumulated depreciation
|
|
|
3,888,340
|
|
|
|
3,771,268
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, Net
|
|
|
1,402,867
|
|
|
|
1,303,923
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,777,656
|
|
|
|
1,777,656
|
|
|
Customer list-less accumulated
amortization
|
|
|
1,192,727
|
|
|
|
1,250,909
|
|
|
Deferred income taxes-less valuation
allowance of $500,000
|
|
|
3,330,600
|
|
|
|
3,330,600
|
|
|
Other non-current assets
|
|
|
750
|
|
|
|
4,850
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Current Other Assets
|
|
|
6,301,733
|
|
|
|
6,364,015
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
16,097,093
|
|
|
$
|
15,434,755
|
|
See accompanying notes to consolidated financial statements.
HICKOK INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
|
|
|
(Unaudited)
March 31, 2017
|
|
|
September 30, 2016
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Convertible notes payable - related party
|
|
$
|
200,000
|
|
|
$
|
-
|
|
|
Short-term financing - related party
|
|
|
-
|
|
|
|
250,000
|
|
|
Notes payable – related party
|
|
|
403,387
|
|
|
|
379,761
|
|
|
Leases payable
|
|
|
51,825
|
|
|
|
59,369
|
|
|
Accounts payable
|
|
|
786,541
|
|
|
|
733,388
|
|
|
Accrued payroll and related expenses
|
|
|
227,695
|
|
|
|
301,054
|
|
|
Accrued expenses
|
|
|
630,835
|
|
|
|
593,378
|
|
|
Accrued income taxes
|
|
|
-
|
|
|
|
31,000
|
|
|
Deferred revenue
|
|
|
631,992
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,932,275
|
|
|
|
2,347,950
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Notes payable - related party
|
|
|
4,185,201
|
|
|
|
4,388,901
|
|
|
Leases payable
|
|
|
119,825
|
|
|
|
144,997
|
|
|
Convertible notes payable - related party
|
|
|
-
|
|
|
|
200,000
|
|
|
Deferred revenue
|
|
|
510,451
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Liabilities
|
|
|
4,815,477
|
|
|
|
4,733,898
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
Common shares - no par value
|
|
|
|
|
|
|
|
|
|
Class A 10,000,000 shares authorized, 2,090,394 shares issued
|
|
|
2,217,151
|
|
|
|
2,108,651
|
|
|
Class B 2,500,000 convertible shares authorized, 779,283 shares issued
|
|
|
710,272
|
|
|
|
710,272
|
|
|
Preferred 1,000,000 shares authorized, no shares outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Contributed capital
|
|
|
1,741,901
|
|
|
|
1,741,901
|
|
|
Treasury shares
|
|
|
(264,841
|
)
|
|
|
(253,341
|
)
|
|
Class A - 15,795 shares and
|
|
|
|
|
|
|
|
|
|
Class B - 5,667 and 667 shares
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
3,944,858
|
|
|
|
4,045,424
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
8,349,341
|
|
|
|
8,352,907
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
16,097,093
|
|
|
$
|
15,434,755
|
|
See accompanying notes to consolidated financial statements.
HICKOK INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SALES
|
|
$
|
3,346,315
|
|
|
$
|
1,046,624
|
|
|
$
|
5,703,241
|
|
|
$
|
2,423,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
1,968,801
|
|
|
|
694,544
|
|
|
|
3,742,489
|
|
|
|
1,435,065
|
|
|
Product development
|
|
|
217,316
|
|
|
|
272,710
|
|
|
|
456,326
|
|
|
|
519,483
|
|
|
Marketing and administrative EXPENSES
|
|
|
894,302
|
|
|
|
542,910
|
|
|
|
1,545,876
|
|
|
|
981,135
|
|
|
Interest charges
|
|
|
48,192
|
|
|
|
3,162
|
|
|
|
98,961
|
|
|
|
3,336
|
|
|
Legal matter
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
Other income
|
|
|
(3,563
|
)
|
|
|
(2,258
|
)
|
|
|
(5,972
|
)
|
|
|
(3,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses
|
|
|
3,125,048
|
|
|
|
1,511,068
|
|
|
|
5,787,680
|
|
|
|
2,935,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before Provision for Income Taxes
|
|
|
221,267
|
|
|
|
(464,444
|
)
|
|
|
(84,439
|
)
|
|
|
(511,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
8,127
|
|
|
|
-
|
|
|
|
16,127
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
213,140
|
|
|
$
|
(464,444
|
)
|
|
$
|
(100,566
|
)
|
|
$
|
(511,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Common Share - Basic
|
|
$
|
0.07
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss)
p
er
C
ommon S
hare -
Di
luted
|
|
$
|
0.07
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W
eighted average shares of common stock outstanding – Basic
|
|
|
2,877,493
|
|
|
|
1,638,215
|
|
|
|
2,865,165
|
|
|
|
1,638,215
|
|
|
W
eighted average shares of common stock outstanding – Diluted
|
|
|
2,964,729
|
|
|
|
1,638,215
|
|
|
|
2,865,165
|
|
|
|
1,638,215
|
|
See accompanying notes to consolidated financial statements.
HICKOK INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
CASH FLOW
(Unaudited)
|
|
Six Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Cash received from customers
|
|
$
|
6,821,937
|
|
|
$
|
3,127,079
|
|
|
Cash paid to suppliers and employees
|
|
|
(5,848,626
|
)
|
|
|
(3,059,419
|
)
|
|
Interest paid
|
|
|
(115,722
|
)
|
|
|
(2,991
|
)
|
|
Interest received
|
|
|
2,672
|
|
|
|
556
|
|
|
Income taxes paid
|
|
|
(51,500
|
)
|
|
|
-
|
|
|
Net Cash Provided by
Operating Activities
|
|
|
808,761
|
|
|
|
65,225
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(220,683
|
)
|
|
|
(247,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Investing Activities
|
|
|
(220,683
|
)
|
|
|
(247,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Payments on notes payable – related party
|
|
|
(180,074
|
)
|
|
|
-
|
|
|
Payments on short-term financing – related party
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
Borrowing from capital lease
|
|
|
-
|
|
|
|
233,115
|
|
|
Payments on capital lease
|
|
|
(32,716
|
)
|
|
|
(15,080
|
)
|
|
Purchase of Class B shares
|
|
|
(11,500
|
)
|
|
|
-
|
|
|
Net Cash
Provided by (Used in)
Financing Activities
|
|
|
(474,290
|
)
|
|
|
218,035
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in Cash and Cash Equivalents
|
|
|
113,788
|
|
|
|
35,438
|
|
|
Cash and Cash Equivalents at Beginning of
Period
|
|
|
3,060,734
|
|
|
|
346,405
|
|
|
Cash and Cash Equivalents at End of
Period
|
|
$
|
3,174,522
|
|
|
$
|
381,843
|
|
See accompanying notes to consolidated financial statements.
HICKOK INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
CASH FLOW
(Unaudited)
|
|
|
Six Months Ended March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(100,566
|
)
|
|
$
|
(511,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO
NET
CASH PROVIDED BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
175,254
|
|
|
|
63,000
|
|
|
Loss on disposal of assets
|
|
|
4,667
|
|
|
|
-
|
|
|
Non-cash share-based compensation expense
|
|
|
108,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGES IN ASSETS AND LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Decrease (Increase) in accounts receivable
|
|
|
(231,304
|
)
|
|
|
703,583
|
|
|
Decrease (Increase) in inventories
|
|
|
90,356
|
|
|
|
(48,859
|
)
|
|
Decrease (Increase) in prepaid expenses and other assets
|
|
|
(366,840
|
)
|
|
|
38,979
|
|
|
Increase (Decrease) in accounts payable
|
|
|
53,153
|
|
|
|
(37,012
|
)
|
|
(Decrease) in accrued payroll and related expenses
|
|
|
(73,359
|
)
|
|
|
(90,144
|
)
|
|
Increase (Decrease) in accrued expenses
|
|
|
37,457
|
|
|
|
(52,689
|
)
|
|
(Decrease) in accrued income taxes
|
|
|
(31,000
|
)
|
|
|
-
|
|
|
Increase in deferred revenue
|
|
|
1,142,443
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments
|
|
|
909,327
|
|
|
|
576,858
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
$
|
808,761
|
|
|
$
|
65,225
|
|
|
|
|
See accompanying notes to consolidated financial statements.
|
HICKOK INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2017
1.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with general accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-K. 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 and six months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ended September 30, 2017. 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, 2016.
During the six-month period ended March 31, 2017, there have been no changes to our significant accounting policies as determined in our Annual Report on Form 10-K for the fiscal year ended September 30, 2016.
2.
ACCOUNTS RECEIVABLE
The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The reserve for doubtful accounts was $10,141 and $10,000 at March 31, 2017 and September 30, 2016.
3. INVENTORY
Inventory is valued at the lower of cost (first-in, first-out) or market and consist of:
|
|
|
March 31,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and component parts
|
|
$
|
1,574,883
|
|
|
$
|
1,730,563
|
|
|
Work-in-process
|
|
|
535,981
|
|
|
|
438,447
|
|
|
Finished products
|
|
|
1,107,579
|
|
|
|
1,139,789
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net of reserve
|
|
$
|
3,218,443
|
|
|
$
|
3,308,799
|
|
The reserve for inventory obsolescence was $478,277
and $235,592 at March 31, 2017 and September 30, 2016, respectively.
4. GOODWILL AND OTHER INTA
NGIBLE ASSETS, NET
Intangible assets relate to the purchase of a business on July 1, 2016. Goodwill is not amortized, but will be reviewed on an annual basis for impairment. Amortization of other intangibles (Customer list) is being amortized on a straight-line basis over 11
years. Amortization of other intangibles was:
|
|
|
Three Months Ended
March 31,
|
|
|
Six Months Ended
March 31,
|
|
|
|
|
201
7
|
|
|
201
6
|
|
|
201
7
|
|
|
201
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Amortization
|
|
$
|
29,091
|
|
|
$
|
-
|
|
|
$
|
58,182
|
|
|
$
|
-
|
|
5. PROPERTY, PLANT AND EQUPMENT,
NET
Property, plant and equipment are recorded at cost and depreciated over their useful lives. Maintenance and repair costs are expenses as incurred. Depreciation expense was:
|
|
|
Three Months Ended
March 31,
|
|
|
Six Months Ended
March 31,
|
|
|
|
|
201
7
|
|
|
201
6
|
|
|
201
7
|
|
|
201
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation Expense
|
|
$
|
75,459
|
|
|
$
|
31,500
|
|
|
$
|
117,405
|
|
|
$
|
63,000
|
|
6. NOTES PAYABLE
Convertible Notes Payable
On December 30, 2011, management entered into a Convertible Loan Agreement (“Convertible Loan”) with Roundball, LLC (“Roundball”). The Convertible Loan provides approximately $467,000 of liquidity to meet on- going working capital requirements of the Company and allows $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.25%. Roundball, a major shareholder of the Company, is an affiliate of Steven Rosen and Matthew Crawford, Directors of the Company.
There have been several amendments to the original agreement over the years for the purpose of extending the existing terms of the Convertible Loan. On December 20, 2016, management entered into Amendment No. 5 of the Convertible Loan Agreement with Roundball. The amended Convertible Loan:
|
|
●
|
Continues to provide approximately $467,000 of liquidity to meet on going working capital requirements;
|
|
|
●
|
Continues to allow $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.34%; and
|
|
|
●
|
Extends the due date of the loan agreement from
December 30, 2016 to December 30, 2017.
|
The outstanding balance on the Convertible Loan as of March 31, 2017, and September 30, 2016 is $200,000.
As part of the Convertible Loan Agreement between the Company and Roundball, the parties 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. The warrant agreement, as amended, expires December 30, 2017.
Short-Term Financing
On June 3, 2016, management entered into an unsecured revolving credit agreement with First Francis Company Inc. First Francis Company Inc. became a major shareholder of the Company on July 1, 2016 when the Company completed the acquisition of Federal Hose Manufacturing Company, LLC. The agreement provides for a revolving credit facility of $250,000 with interest at 4.0% per annum and is unsecured. Each loan made under the credit arrangement will be due and payable in full on the expiration date of the revolver note. In addition, the agreement generally allows for borrowing based on an amount equal to eighty percent of eligible accounts receivables or $250,000. The revolving line of credit expires on May 31, 2017.
The Company had $250,000 outstanding borrowings on the credit facility at September 30, 2016. At March 31, 2017, the outstanding balance was $0.
Notes Payable – Related Party
Notes payable - related parties is a result of the acquisition of a business on July 1, 2016 and consists of the following:
|
|
|
Current
March 31,
201
7
|
|
|
Total
March 31
,
2017
|
|
|
Total
September 30
,
2016
|
|
|
In connection with the acquisition, the Company entered into a promissory note on July 1, 2016 for $2,000,000 loan due to First Francis Company, payable in quarterly installments of $60,911 beginning on October 31, 2016, bearing interest at 4%. The remaining balance of the note shall be payable in full on July 1, 2022. Collateralized by all of the assets of the Company.
|
|
$
|
169,182
|
|
|
$
|
1,924,476
|
|
|
$
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the acquisition, the Company entered into a promissory note on July 1, 2016 for $2,768,662 loan due to First Francis Company, payable in quarterly installments of $84,321 beginning on October 31, 2016, bearing interest at 4%. The remaining balance of the note shall be payable in full on July 1, 2022. Collateralized by all of the assets of the Company.
|
|
|
234,205
|
|
|
|
2,664,112
|
|
|
|
2,768,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
403,387
|
|
|
|
4,588,588
|
|
|
|
4,768,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
|
|
|
|
403,387
|
|
|
|
379,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,185,201
|
|
|
$
|
4,388,901
|
|
7.
EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per share.
|
|
|
Three Months Ended
March 31,
|
|
|
Six Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201
7
|
|
|
201
6
|
|
|
201
7
|
|
|
201
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share - Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
213,140
|
|
|
$
|
(464,444
|
)
|
|
$
|
(100,566
|
)
|
|
$
|
(511,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding - Basic
|
|
|
2,877,493
|
|
|
|
1,638,215
|
|
|
|
2,865,165
|
|
|
|
1,638,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share - Basic
|
|
$
|
0.07
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share - Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding - Basic
|
|
|
2,877,493
|
|
|
|
1,638,215
|
|
|
|
2,865,165
|
|
|
|
1,638,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and options
|
|
|
87,236
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Weighted average shares of common stock - Diluted
|
|
|
2,964,729
|
|
|
|
1,638,215
|
|
|
|
2,865,165
|
|
|
|
1,638,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
213,140
|
|
|
$
|
(464,444
|
)
|
|
$
|
(100,566
|
)
|
|
$
|
(511,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share - Diluted
|
|
$
|
0.07
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.31
|
)
|
8.
SEGMENT AND RELATED INFORMATION
The Company operates two reportable segments: 1) test and measurement and 2) industrial hose. The Company's management evaluates segment performance based primarily on operating earnings before taxes. Non-operating items such as marketing and general administrative expenses, interest income and interest expense are included in unallocated expenses. Depreciation expense on assets used in manufacturing are considered part of each segment's operating performance. Depreciation expense on non-manufacturing assets is included in unallocated expenses.
Test and Measurement
:
This segment consists of diagnostic tools and equipment sold to the automotive industry and indicators and gauges sold primarily to companies in the aircraft and locomotive industries. These products are sold to original equipment manufacturers and to the aftermarket using a variety of distribution methods.
Industrial
Hose:
This segment consists primarily of flexible metal and silicone hose products designed and manufactured or distributed primarily to the trucking industry and other industrial end-users. These products are sold to original equipment manufacturers and to the aftermarket using a variety of distribution methods.
Information by industry segment is set forth below:
|
|
|
Three Months Ended
March 31,
|
|
|
Six Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Test and Measurement
|
|
$
|
1,770,071
|
|
|
$
|
1,046,624
|
|
|
$
|
2,597,137
|
|
|
$
|
2,423,496
|
|
|
Industrial Hose
|
|
|
1,576,244
|
|
|
|
-
|
|
|
|
3,106,104
|
|
|
|
-
|
|
|
Total Sales
|
|
$
|
3,346,315
|
|
|
$
|
1,046,624
|
|
|
$
|
5,703,241
|
|
|
$
|
2,423,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Test and Measurement
|
|
$
|
734,228
|
|
|
$
|
79,370
|
|
|
|
688,818
|
|
|
|
468,948
|
|
|
Industrial Hose
|
|
|
425,970
|
|
|
|
-
|
|
|
|
815,607
|
|
|
|
-
|
|
|
Administrative and Other Expenses
|
|
|
(938,931
|
)
|
|
|
(543,814
|
)
|
|
|
(1,588,864
|
)
|
|
|
(980,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Provision for Income Taxes
|
|
$
|
221,267
|
|
|
$
|
(464,444
|
)
|
|
$
|
(84,439
|
)
|
|
$
|
(511,633
|
)
|
Geographical Information
The Company sells the majority (over 95%) of its product within the United States of America. All export sales to foreign countries, which include sales to Australia, Canada, England, Mexico, Taiwan, are made in United States of America Dollars.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
The Company did not incur any material impact to its financial condition or results of operations due to the adoption of any new accounting standards during the periods reported.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
.
The following discussion is intended to assist in the understanding of Hickok’s financial position at March 31, 2017 and September 30, 2016, results of operations for the three and six months ended March 31, 2017 and 2016, and cash flows for the six months ended March 31, 2017 and 2016, and should be read in conjunction with the consolidated financial statements and related notes included elsewhere this Quarterly Report on Form 10-Q and with the Company’s Annual Report on Form 10-K for the year ended September 30, 2016.
Summary
The Company has historically operated two divisions: 1) indicators and gauges that sell primarily to companies in the aircraft and locomotive industries and 2) automotive diagnostic tools and equipment that sell to OEMs and the aftermarket. These divisions are now being reported as the Test and Measurement segment. In July 2016, the Company expanded its markets with the acquisition of a manufacturer of flexible metal hose for use in heavy truck, drilling, and grain handling, as well as silicone hose sold to these same industries. The acquisition of this business resulted in a new segment for the Company, referred to as the Industrial Hose division.
Results of Operations – Three Months Ended March 31, 2017 and 2016
Sales for the fiscal quarter ended March 31, 2017 increased to $3.3 million, an increase of approximately $2.3 million and 220% from sales of $1.0 million in the same fiscal quarter of the prior year. This increase in sales was attributable to the addition of our Industrial Hose division, resulting in an increase in sales of approximately $1.6 million. In addition, sales increased approximately $0.7 million from our Test and Measurement division.
Cost of products sold in the fiscal quarter ended March 31, 2017 was $2.0 million or 59% of sales compared to $0.7 million or 66% of sales in the same fiscal quarter of the prior year. The increase in costs was associated with higher sales for the quarter in both the Industrial Hose division and the Test and Measurement division. Gross margin (sales less costs of products sold) was approximately 41% for second fiscal quarter of 2017 compared to 34% for the same fiscal quarter of 2016. The primary reason for the increase in margin is attributable to higher sales in the Test and Measurement division for the second quarter.
Product development expenditures were $0.2 million in the fiscal quarter ended March 31, 2017, which was consistent with expenses in same fiscal quarter of the prior year. Product development expenditures relate to the Test and Measurement division as there are no product development costs related to Industrial Hose division. The current level of product development expenses is expected to continue for the balance of the fiscal year. Management believes current resources will be sufficient to maintain current product development commitments and to continue to develop a reasonable flow of new products for both the OEM and aftermarket customers.
Marketing and administrative expenses in the fiscal quarter ended March 31, 2017 were $0.9 million or 27% of sales compared to $0.5 million or 52% of sales, respectively, in the same fiscal quarter of the prior year. The increase in marketing and administrative expenses was primarily related to costs related to the addition of the Industrial Hose division of approximately $0.3 million. In addition, the Company incurred higher sales expenses in support of higher sales and higher depreciation expenses related to the investment in the IT infrastructure.
Interest charges in the fiscal quarter ended March 31, 2017 were approximately $48 thousand compared to $3 thousand in the same fiscal quarter of the prior year. The current year interest expense is primarily due to the recording of interest expense on notes payable related to the acquisition of a business on July 1, 2016, as well as interest related the capital leases for the IT infrastructure replacement put in place a year ago. Other income was $4 thousand in the fiscal quarter ended March 31, 2017 compared with $2 thousand in the same fiscal quarter of the prior year. Other income consists primarily of interest income on cash and cash equivalents and proceeds from the sale of scrap metal shavings.
Income tax expense is expected to be minimal as the Company believes it will be able to utilize the majority of the net operating loss and research and development credit carryforwards before they expire; however, there are certain limitations to the use of these tax credits that are expected to result in a small amount of alternative minimum tax.
The net income in the fiscal quarter ended March 31, 2017 was $0.2 million or $0.07 per share as compared to the net loss of $0.5 million or $0.28 per share in the same fiscal quarter of the prior year.
Results of Operations
– Six Months Ended March 31, 2017 and 2016
Sales for the six months ended March 31, 2017 increased to $5.7 million, an increase of approximately $3.3 million and 135% from sales of $2.4 million in the same period a year ago. This increase in sales was attributable to the addition of our Industrial Hose division, resulting in an increase in sales of approximately $3.1 million. Sales from our Test and Measurement division increased $0.2 million, representing a modest increase from the prior period. Sales demand in this division increased substantially during the second quarter of fiscal 2017 and is expected to continue to be strong during the third fiscal quarter.
Cost of products sold in the six months ended March 31, 2017 was $3.7 million or 66% of sales compared to $1.4 million or 59% of sales in the same period a year ago. The increase in costs was a combination of the addition of costs related to the Industrial Hose division and costs from the Test and Measurement division. Gross margin (sales less costs of products sold) was approximately 34% for the six-month period ended March 31, 2017 compared to 41% for the same period a year ago. The primary reason for the decrease in margin is attributable to the lower sales in theTtest and Measurement during the first fiscal quarter of 2017. The Company expects margins to continue in line with the margins during the second quarter of 2017.
Product development expenditures in the six months ended March 31, 2017 were $0.5 million or 8% of sales compared to $0.5 million or 21%, respectively, in the same period a year ago. The current level of product development expenses is expected to continue for the balance of the fiscal year. Management believes current resources will be sufficient to maintain current product development commitments and to continue to develop a reasonable flow of new products for both the OEM and aftermarket customers.
Marketing and administrative expenses in the six months ended March 31, 2017 were $1.5 million or 27% of sales compared to $1.0 million or 40%, respectively, in the same period a year ago. The increase was primarily due to costs associated the Industrial Hose division, representing $0.5 million in costs, which includes intangible amortization.
Interest charges in the six-month period ended March 31, 2017 were $99 thousand compared to $3 thousand in the same period a year ago. The current year interest expense is primarily due to the recording of interest expense for the notes payable related to the acquisition of a business on July 1, 2016.
Other income was $6 thousand in the six-month period ended March 31, 2017 compared with $4 thousand in the same period a year ago. Other income consists primarily of interest income on cash and cash equivalents and proceeds from the sale of scrap metal shavings.
Income tax expense is expected to be minimal as the Company believes it will be able to utilize the majority of the net operating loss and research and development credit carryforwards before they expire; however, there are certain limitations to the use of these tax credits that are expected to result in a small amount of alternative minimum tax.
The net loss in the six-month period ended March 31, 2017 was $0.1 million or $0.04 per share as compared to the net loss of $0.5 million or $0.31 per share in the same period a year ago.
Liquidity and Capital Resource
s
Total current assets at March 31, 2017 increased to approximately $8.4 million from $7.8 million at September 30, 2016, an increase of $0.6 million. The increase in current assets is due to an increase in cash and cash equivalents of $0.1 million, accounts receivable of $0.2 million, and prepaid expenses and other assets of approximately $0.4 million, respectively. The increases were offset by a decrease in inventories of approximately $0.1 million.
The increase in cash and cash equivalents was due primarily to the addition of the Industrial Hose division and a $1.3 million cash deposit from a customer related to expected sales from that customer over the next few years. The increase in accounts receivable was due primarily to the increase in sales.
Working capital was approximately $5.5 million at March 31, 2017 as compared to working capital of $5.4 September 30, 2016. At March 31, 2017, current assets were 2.9 times current liabilities and the total of cash and cash equivalents and receivables was 1.6 times current liabilities. These ratios compare to 3.3 and 1.9 as of September 30, 2016.
Cash provided by operating activities in the six months ended March 31, 2017 was approximately $0.8 million and was adequate to fund the Company's investing activities consisting of capital expenditures of approximately $0.2 million, as well as service debt payments. Capital expenditures were needed for building improvements as well as for tooling, machinery and equipment for product manufacturing.
Cash used in financing activities of approximately $0.5 million was primarily related to the $0.3 million payment of the short-term financing and payment of approximately $0.2 million for the related party notes in accordance with the terms of the notes.
The Company has several borrowing arrangements as discussed in Note 4 of the
Company’s Annual Report on Form 10-K for the year ended September 30, 2016. The Convertible Notes provide liquidity to the Company for working capital. In December 2016, the Company entered into Amendment No. 5 of the Convertible Loan Agreement. The Convertible Loan Agreement, as amended, is between the Company and a major shareholder who is also affiliated with
two Directors, as discussed in Note 4 of the
Company’s Annual Report on Form 10-K for the year ended September 30, 2016.
The amended Convertible Loan:
|
|
●
|
Continues to provide approximately $467,000 of liquidity to meet on going working capital requirements;
|
|
|
●
|
Continues to allow $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.34%; and
|
|
|
●
|
Extends the due date of the loan agreement from
December 30, 2016 to December 30, 2017.
|
The outstanding balance on the Convertible Loan as of March 31, 2017 and September 30, 2016 is $200,000.
The Company expects positive cash flow from operations to be sufficient to fund working capital needs and service principal and interest payments due related to the notes payable. In addition, the Company had cash and cash equivalents of approximately $3.2 million as of March 31, 2017, and continues to maintain liquidity to operate the business. The Company currently has the ability to borrow against the convertible notes.
Management continues to tightly control expenses and will take actions as deemed necessary to maintain the necessary liquidity and generate positive cash flow from operations. Management believes the Company has adequate liquidity for working capital, capital expenditures and other strategic initiatives.
Off-Balance Sheet Arrangements
Hickok has no off-balance sheet arrangements (as defined in Regulation S-K Item 303 paragraph (a)(4)(ii)) that have or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Pronouncements
The Company’s critical accounting policies are as presented in Notes to Consolidated Financial Statements and Management’s Discuss and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended September 30, 2016.
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 ability to effectively integrate Federal Hose and manage the larger operations of the combined business, (b) the Company's dependence upon a limited number of customers and the automotive industry, (c) the highly competitive industry in which the Company operates, which includes several competitors with greater financial resources and larger sales organizations, (d) the acceptance in the marketplace of new products and/or services developed or under development by the Company including automotive diagnostic products and indicating instrument products, (e) the ability of the Company to further establish distribution and a customer base in the automotive aftermarket, (f) the Company's ability to capitalize on market opportunities including state automotive emissions programs and OEM tool programs, (g) the Company's ability to obtain cost effective financing and (h) the Company's ability to satisfy its interest payments.