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EXCEL - IDEA: XBRL DOCUMENT - HICKOK INCFinancial_Report.xls
EX-11 - EXHIBIT 11 - HICKOK INCexhibit11.htm
EX-31 - EXHIBIT 31.2 - HICKOK INCexhibit312.htm
EX-32 - EXHIBIT 32.2 - HICKOK INCexhibit322.htm
EX-31 - EXHIBIT 31.1 - HICKOK INCexhibit311.htm
EX-32 - EXHIBIT 32.1 - HICKOK INCexhibit321.htm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

or

[ ] 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

HICKOK INCORPORATED
_____________________________________________________________
(Exact name of registrant as specified in its charter)


Ohio

34-0288470

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)



10514 Dupont Avenue, Cleveland, Ohio

44108

(Address of principal executive offices)

(Zip Code)



(Registrant's telephone number, including area code)

(216) 541-8060

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes X No___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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.

Large accelerated filer [ ]
Accelerated filer [ ]     
Non-accelerated filer   [ ]
Small reporting company [X]


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 August 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.

HICKOK INCORPORATED
CONSOLIDATED INCOME STATEMENTS
(Unaudited)


 

Three months ended
  June 30, 
Nine months ended
    June 30, 
 
2012
2011
2012
2011
Net Sales
 

  Product Sales
$1,187,294
$1,186,989
$3,367,985
$3,393,998
  Service Sales
84,509
89,555
263,857
308,085
 



    Total Net Sales
1,271,803
1,276,544
3,631,842
3,702,083
   
 
Costs and Expenses        
  Cost of Product Sold
739,091
732,777
2,179,037
2,029,511
  Cost of Service Sold
53,523
59,868
178,223
213,330
  Product Development
233,490
233,205
706,720
755,207
  Marketing and
   Administrative
Expenses
419,022
381,611
1,154,298
1,370,617
  Interest Charges
223
1,039
5,784
1,039
  Other (Income) Expense
(2,571)
(6,007)
(13,324)
(10,009)
 



    Total Costs and Expenses
1,442,778
1,402,493
4,210,738
4,359,695
 



Income (Loss) before Provision for Income Taxes
(170,975)
(125,949)
(578,896)
(657,612)
Income (Recovery of) Taxes
-
-
-
  -
 



   Net Income (Loss)
$(170,975)
$(125,949)
$(578,896)
$(657,612)





Earnings per Common Share:  
 
  Net Income (Loss)
$(.12)
$(.10)
$(.43)
$(.52)
 



Earnings per Common Share  
 
  Assuming Dilution:  
 
  Net Income (Loss)
$(.12)
$(.10)
$(.43)
$(.52)
 



Dividends per Common Share
$ - 0 -
$ - 0 -
$ - 0 -
$ - 0 -





See Notes to Consolidated Financial Statements
 


 

HICKOK INCORPORATED
CONSOLIDATED BALANCE SHEET

   
 


June 30,
  2012 
(Unaudited)
September 30,
   2011 
 (Note) 
 June 30, 
  2011 
 (Unaudited) 
Assets      
Current Assets      
  Cash and Cash Equivalents
$591,857
$274,530
$112,269
  Trade Accounts Receivable - Net
465,240
722,731
660,804
  Notes Receivable - Current
2,400
2,400
-
  Inventories
1,754,574
1,963,943
2,123,122
  Prepaid Expenses
39,350
53,267
62,714
 


Total Current Assets
2,853,421
  3,016,871
  2,958,909
 


       
Property, Plant and Equipment      
  Land
233,479
233,479
233,479
  Buildings
1,429,718
1,429,718
1,429,718
  Machinery and Equipment
2,349,901
  2,336,995
  2,336,995




 
4,013,098
4,000,192
4,000,192
       
  Less: Allowance for Depreciation
3,684,504
  3,613,913
  3,587,483
 


Total Property - Net
328,594
  386,279
  412,709
 


       
Other Assets      
  Notes Receivable - Long-term
      33,100
      35,700
      38,500
  Deposits
1,750
1,750
1,750




Total Other Assets
34,850
  37,450
  40,250
 


Total Assets
$3,216,865
$3,440,600
$3,411,868
 


Note:  Amounts derived from audited financial statements previously filed with the Securities and Exchange Commission.

See Notes to Consolidated Financial Statements


 
 
 
 
 
 


June 30,
  2012 
(Unaudited)
September 30,
____2011___
(Note) 
June 30, 
  2011   
(Unaudited)
Liabilities and Stockholders' Equity
     
Current Liabilities      
  Short-term Financing
$-
$-
$185,000
  Convertible Notes Payable
442,032
-
-
  Trade Accounts Payable
134,293
173,848
197,447
  Accrued Payroll & Related Expenses
108,544
142,949
151,050
  Accrued Expenses
211,259
205,208
187,682
  Accrued Taxes Other Than Income
34,074
47,786
     57,822
  Accrued Income Taxes 
-
  -
-




Total Current Liabilities
930,202
  569,791
 779,001
 






  Long-Term Financing
-
250,000
-
   

Stockholders' Equity      
Class A, $1.00 par value; authorized 
919,412
793,229
793,229

3,750,000 shares; 919,412 shares outstanding (793,229 shares outstanding at September 30, 2011 and June 30, 2011) excluding 15,795 shares in treasury
       
Class B, $1.00 par value; authorized 
474,866
454,866
454,866

1,000,000 shares; 474,866 shares outstanding (454,866 shares outstanding at September 30, 2011 and June 30, 2011) excluding 667 shares in treasury (20,667 shares in treasury at September 30, 2011 and June 30, 2011)
Contributed Capital
1,299,543
1,200,976
1,198,111
Retained Earnings
(407,158)
  171,738
186,661
 


Total Stockholders' Equity
2,286,663
2,620,809
2,632,867
 


 Total Liabilities and
 Stockholders' Equity
$3,216,865
$3,440,600
$3,411,868
 




   

HICKOK INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30,
(Unaudited)


 


 2012   2011 

   
Cash Flows from Operating Activities:    
  Cash received from customers
$3,889,333
$3,391,665
  Cash paid to suppliers and employees
(3,975,789)
(4,194,386)
  Interest paid
(6,641)
(685)
  Interest received
850
528
  Income taxes (paid) refunded
-
-
 

   Net Cash Provided By (Used In) Operating Activities
(92,247)
(802,878)
     
Cash Flows from Investing Activities:    
  Capital expenditures
(30,761)
-
  Payments received (advances) on notes receivable
2,600
(38,500)
  Proceeds on sale of assets
9,500
-
 

   Net Cash Provided By (Used In) Investing Activities
(18,661)
(38,500)
     
Cash Flows from Financing Activities:    
  Convertible Notes issue costs
(34,235)
-
  Decrease in long-term financing
(250,000)
-
  Increase in short-term financing
-
185,000
  Increase in Convertible Notes Payable
675,470
-
  Sale of Class B shares from treasury
37,000
-



  Net Cash Provided By (Used In) Financing Activities
428,235
   185,000
 

Net increase (decrease) in cash and cash equivalents
317,327
(656,378)
     
Cash and cash equivalents at beginning of year
274,530
    768,647
 

Cash and cash equivalents at end of third quarter
$591,857
$112,269
 

See Notes to Consolidated Financial Statements  

 


 

2012
2011

 
Reconciliation of Net Income (Loss) to Net
Cash Provided By (Used In) Operating Activities:
 
   
  Net Income (Loss)
$(578,896)
$(657,612)
     
Adjustments to reconcile Net Income (Loss)
 to net cash provided by operating activities:
   
 Depreciation
82,494
82,494
 Share-based compensation expense
8,547
9,750
 Gain on disposal of assets
(3,548)
-
    Changes in assets and liabilities:    
      Decrease (Increase) in trade accounts receivable
257,491
(310,418)
      Decrease (Increase) in inventories
209,369
(150)
      Decrease (Increase) in prepaid expenses
13,917
7,709
      Increase (Decrease) in accounts payable
(39,555)
 14,411
      Increase (Decrease) in accrued payroll and 
        related expenses 
(34,405)
 1,249
      Increase (Decrease) in accrued expenses and
        accrued taxes other than income  
(7,661)
49,689
 

        Total Adjustments
486,649
(145,266)
 

   Net Cash Provided By (Used In) Operating Activities
$(92,247)
$(802,878)





    

HICKOK INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2012


1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended June 30, 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

Inventories are valued at the lower of cost or market and consist of the following:
 
   


June 30,
   2012 
Sept. 30,
   2011 
June 30,
   2011 
       
Components
$968,712
$1,145,278
$1,298,682
Work-in-Process
537,914
515,885
517,717
Finished Product
247,948
302,780
306,723
 



$1,754,574
$1,963,943
$2,123,122







The above amounts are net of reserve for obsolete inventory in the amount of $845,415, $714,000 and $524,476 for the periods ended June 30, 2012, September 30, 2011 and June 30, 2011 respectively.

3. Notes Receivable

The Company has notes receivable with a current and former employee at an interest rate of three percent per annum. The Company does not anticipate repayment within the next twelve months.

4. Convertible Notes Payable

On December 30, 2011, Hickok Incorporated entered into a Convertible Loan Agreement with Roundball, LLC and the Aplin Family Trust. Under the Convertible Loan Agreement, the Company issued a convertible note to Roundball in the amount of $466,879.87 and a convertible note to the Aplin Family Trust in the amount of $208,591.20. In addition, Roundball, LLC shall have the right to cause the Company to borrow up to an additional $466,879.88 from Roundball, LLC. The notes are unsecured, bear interest at a rate of 0.20% per annum and will mature on December 30, 2012.

The notes may be converted by the Investors at any time into Class A Common Shares of the Company, at a conversion price of $1.85 per share, although up to no more than 504,735 Conversion Shares for Roundball and no more than 112,752 Conversion Shares for the Aplin Family Trust. The Company has the option to convert the notes at the expiration date, if the investors have not during the course of the agreement. On December 30, 2011, Roundball converted $233,438.55 into Class A Common Shares of the Company.

In addition, the Company sold 20,000 Class B Common Shares currently held in treasury to Roundball at a price of $1.85 per share per a subscription agreement between the Company and Roundball dated December 30, 2011.

5. Long-term Financing

The Company has a credit 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.

The agreement provides for a revolving credit facility of $250,000 with interest generally equal to three percent per annum plus prime and is unsecured. In addition, the agreement generally allows for borrowing based on an amount equal to eighty percent of eligible accounts receivables or $250,000.

The Company repaid the outstanding balance of $250,000 on the Revolving Credit Agreement with Robert L. Bauman on February 1, 2012.
The Company had no outstanding borrowings under this loan facility at June 30, 2012.

6. Capital Stock, Treasury Stock, Contributed Capital and Stock Options

Under the Employee Plans there are no options currently available for grant and there are no options outstanding at June 30, 2012.

Under the Company's Key Employees Stock Option Plans (collectively the "Employee Plans"), incentive stock options, in general, are exercisable for up to ten years, at an exercise price of not less than the market price on the date the option is granted. 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. Options for 26,850 Class A shares were outstanding at September 30, 2011 and 41,500 shares at June 30, 2011 at prices ranging from $3.125 to $5.00 per share. Options for 26,850 shares at $3.55 per share expired during the three month period ended March 31, 2012. Options for 800 shares at a price of $3.55 per share were canceled during the three month period ended June 30, 2011. Options for 13,850 shares at prices ranging from $3.125 to $3.55 per share expired during the three month period ended December 31, 2010. No other options were granted, exercised, canceled or expired during the three or nine month periods presented under the Employee Plans.

The Company's Outside Directors Stock Option Plans (collectively the "Directors Plans"), provide for the automatic grant of options to purchase up to 38,000 shares of Class A Common Stock to members of the Board of Directors who are not employees of the Company, at the fair market value on the date of grant. Options for 42,000 Class A shares were outstanding at June 30, 2012 (38,000 shares at September 30, 2011 and 38,000 shares at June 30, 2011) at prices ranging from $2.925 to $11.00 per share. Options for 8,000 shares at prices ranging from $2.925 to $11.00 were canceled during the three month period ended June 30, 2011. Options for 7,000 and 5,000 shares were granted under the Directors Plans during each of the three month periods ended March 31, 2012 and March 31, 2011, at a price of $2.925 per share. In addition, options for 3,000 shares expired during the three month periods ended March 31, 2012 and March 31, 2011, at $3.55 and $4.25 per share respectively. All outstanding options under the Directors Plans become fully exercisable on March 8, 2015.

The following is a summary of the range of exercise prices for stock options outstanding and exercisable under the Employee Plans and the Directors Plans at June 30, 2012:

   

Employee Plans
Outstanding Stock Options Exercisable 
Weighted Average Share Price
Weighted Average Remaining Life
Range of exercise prices:       
$-
-
$-
-
 



-
$-






   

Directors Plans
Outstanding Stock Options
Weighted Average Share Price
Weighted Average Remaining Life
Number of Stock Options  Exercisable
Weighted Average Share Price
Range of exercise prices:       

$2.925 - 5.25
23,000
$3.43
6.8
12,667
$3.84
$6.00 - 7.25
11,000
$6.46
4.8
9,333
$6.55
$10.50 -11.00
8,000
$10.75
5.3
8,000
$10.75
 
   

 
42,000
$5.62

30,000
$6.52






The Company accounts for Share-Based Payments under the modified prospective method for its stock options for both employees and non-employee Directors. Compensation cost for fixed based awards are measured at the grant date, and the Company uses the Black-Scholes option pricing model to determine the fair value estimates for recognizing the cost of employee and director services received in exchange for an award of equity instruments. The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect the fair value estimates. Employee stock options 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 nine month periods ended June 30, 2012 and June 30, 2011 respectively $2,841 and $8,547 ; $2,865 and $9,750 was expensed as share-based compensation. The following weighted-average assumptions were used in the option pricing model for the three and nine month periods ended June 30, 2012 and 2011 respectively: a risk free interest rate of 5.5% and 5.5%; an expected life of 10 and 10 years; an expected dividend yield of 0.0% and 0.0%; and a volatility factor of .87 and .75.


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:
 
 
Three Months Ended
      June 30, 
Nine Months Ended 
  June 30, 

  2012 
  2011 
  2012 
  2011 
Basic Income (Loss) per Share        
Income (Loss) available
  to common stockholders
$(170,975)
$(125,949)
$(578,896)
$(657,612)
 
 
 
Shares denominator
1,394,278
1,248,095
1,346,261
1,248,095
 
 
 
Per share amount
$(.12)
$(.10)
$(.43)
$(.52)
 



Effect of Dilutive Securities 
 
 
Average shares outstanding
1,394,278
1,248,095
1,346,261
1,248,095
Stock options
-
-
-
-





 
1,394,278
1,248,095
1,346,261
1,248,095
 
 
 
Diluted Income (Loss) per Share
 
 
Income (Loss) available
  to common stockholders
$(170,975)
$(125,949)
$(578,896)
$(657,612)
 
 
 
Per share amount
$(.12)
$(.10)
$(.43)
$(.52)






  

Options to purchase 42,000 shares of common stock during the third quarter and the first nine 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 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.

During the third quarter and the first nine month period of fiscal 2011, options to purchase 64,850 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 three 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
         June 30,  
Nine Months Ended
      June 30, 

  2012 
  2011 
  2012 
  2011 
Net Revenue        
Indicators and Gauges
$537,903
$372,606
$1,268,278
$907,378
Automotive Diagnostic
 Tools and Equipment
733,900
903,938
2,363,564
2,794,705





 
$1,271,803
$1,276,544
$3,631,842
$3,702,083





Income (Loss) before provision for Income Taxes
 
 
Indicators and Gauges
$115,290
$79,907
$216,880
$69,444
Automotive Diagnostic
 Tools and Equipment
(53,096)
5,434
(114,052)
53,321
General Corporate Expenses
(233,169)
(211,290)
(681,724)
(780,377)
 



 
$(170,975)
$(125,949)
$(578,896)
$(657,612)





Asset Information
 
 
Indicators and Gauges
 
$772,433
$728,078
Automotive Diagnostic
Tools and Equipment

 
1,444,989
2,050,784
Corporate


999,443
633,006
 
 

 
 
$3,216,865
$3,411,868
 
 

Geographical Information
 
 
Included in the consolidated financial statements are the following amounts related to geographical locations:

 
Revenue:
 
 
   United States
$1,255,112
$1,202,466
$3,511,387
$3,510,973
   Australia -
-
35,609
26,945
   Canada
8,799
41,794
22,551
108,974
   England
-
28,924
-
28,924
   Mexico
3,360
3,360
23,520
20,160
   Taiwan
1,270
-
34,935
-
   Other foreign countries
3,262
-
3,840
6,107
 



 
$1,271,803
$1,276,544
$3,631,842
$3,702,083





All export sales to Australia, Canada, England, 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 New York regarding asbestos harm to the plaintiff. The Company has been informed by the plaintiff's attorney that we will be dismissed from the suit.

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 expects it will be able to obtain a dismissal for similar reasons a dismissal is imminent in the New York action.

11. Subsequent Events

The Company has evaluated subsequent events through August 3, 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 the future, 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 nine month periods ended June 30, 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 above 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.

Results of Operations, Third Quarter (April 1, 2012 through June 30, 2012)
Fiscal 2012 Compared to Third Quarter Fiscal 2011
-------------------------------------------------------------------------------------

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 $537,903 and $372,606 for the third quarter of fiscal 2012 and fiscal 2011, respectively, and $1,268,278 and $907,378 for the first nine months of fiscal 2012 and fiscal 2011, respectively. The increased sales volume in the current year was primarily due to increased orders for military programs.

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 $733,900 and $903,938 for the third quarter of fiscal 2012 and fiscal 2011, respectively, and $2,363,564 and $2,794,705 for the first nine months of fiscal 2012 and fiscal 2011, respectively. The reduced sales volume was due primarily to reduced orders for automotive diagnostic testing equipment for the aftermarket and emissions related products.

Results of Operations

Product sales for the quarter ended June 30, 2012 were $1,187,294 versus $1,186,989 for the quarter ended June 30, 2011. Sales of indicator products increased during the current quarter by approximately $176,000 and was volume related and was offset by decreased sales of automotive diagnostic products of approximately $176,000. Within automotive diagnostic products sales of emission products increased by $21,000 and diagnostic products to OEM's and the aftermarket decreased by approximately $131,000 and $66,000 respectively and were volume related. Management continues to be concerned about the current economic conditions in the markets the Company serves. Although the current economic uncertainties make forecasting difficult, product sales are expected to increase slightly during the fourth quarter of the fiscal year. 

Service sales for the quarter ended June 30, 2012 were $84,509 versus $89,555 for the quarter ended June 30, 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 in the fourth quarter of the fiscal year.

Cost of product sold in the third quarter of fiscal 2012 was $739,091 (62.3% of product sales) as compared to $732,777 (61.7% of product sales) in the third quarter of 2011. The dollar and percentage increase in the cost of product sold was due primarily to a change in product mix. 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 slightly during the fourth quarter of the fiscal year due to an anticipated change in product mix.

Cost of service sold for the quarter ended June 30, 2012 was $53,523 (63.3% of service sales) as compared to $59,868 (66.9% of service sales) in the quarter ended June 30, 2011. The dollar decrease was due primarily to the lower sales volume in the current quarter. The current cost of services sold percentage is anticipated to continue in the fourth quarter of the fiscal year. 

Product development expenses were $233,490 in the third quarter of fiscal 2012 (19.7% of product sales) as compared to $233,205 (19.6% of product sales) in the third quarter of fiscal 2011. During the current quarter there was an increase in labor costs and a decrease in research and experimental material of approximately $4,000 and $6,000 respectively. The current level of product development expenses is expected to increase slightly in the fourth quarter of the fiscal year due to a plan to add a temporary resource and small wage increases effective in February 2012 for existing employees. 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 $419,022 (32.9% of total sales) in the third quarter of fiscal 2012 versus $381,611 (29.9% of total sales) for the same period a year ago. The dollar increase in expenses for the current fiscal quarter was due to the addition of a marketing resource, additional promotion and a small wage increase for existing employees effective in February and March 2012. Marketing expenses were approximately $183,000 in the third quarter of fiscal 2012 versus $165,000 for the same period a year ago. Within marketing expenses, labor costs, outside consulting, commissions, royalties, promotion and travel expenses increased by approximately $18,000, $3,000, $2,000, $2,000, $2,000 and $1,000 respectively. These increases were offset in part by a decrease in advertising expense and credit and collection expense of approximately $8,000 and $1,000 respectively. Administrative expenses were approximately $236,000 in the third quarter of fiscal 2012 versus $216,000 for the same period a year ago. Within administrative expenses, professional fees and labor costs increased approximately $11,000 and $3,000 respectively. The current level of marketing and administrative expenses is expected to continue during the fourth quarter.

Interest expense was $223 in the third quarter of fiscal 2012 which compares with $1,039 in the third quarter of fiscal 2010. Interest expense for the current quarter was due to interest on the convertible promissory notes payable. Interest expense for the prior year third quarter was due primarily to borrowings on the Company's available credit facility and interest paid on vendor accounts. The current level of interest expense is expected to continue for the fourth quarter of the fiscal year.

Other income was $2,571 in the third quarter of fiscal 2012 which compares with $6,007 in the third quarter of fiscal 2011. Other income consists primarily of the proceeds from the sale of scrap metal shavings, purchase discounts and interest income on cash and cash equivalents invested. The decrease is due primarily to a lower level of scrap metal sales during the current quarter of approximately $3,100.

Income taxes in the third quarter of fiscal 2012 and 2011 was $-0-. In the third 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 third quarter of fiscal 2012 was $170,975 which compares with a net loss of $125,949 in fiscal 2011. The net loss increase for the current quarter was the result of a lower sales volume, product mix and increased marketing and administrative expenses.

Unshipped customer orders as of June 30, 2012 were $574,000 versus $600,000 at June 30, 2011. The decrease was due primarily to decreased orders in automotive diagnostic products of $69,000, specifically, $158,000 for emissions products, $49,000 for aftermarket products offset in part by an increase of $138,000 for OEM products. In addition, indicators and gauges increased by approximately $43,000. The Company estimates that approximately 84% of the current backlog will be shipped in the last quarter of fiscal 2012.  

Results of Operations, Nine Months Ended June 30, 2012
Compared to Nine Months Ended June 30, 2011

Product sales for the nine months ended June 30, 2012 were $3,367,985 versus $3,393,998 for the same period in fiscal 2011. The decrease in product sales during the first nine months of the current fiscal year of approximately $26,000 was volume related due to decreased sales of automotive diagnostic products. Sales of indicator products increased during the first nine months of the current fiscal year by approximately $380,000 and was volume related and was offset by decreased sales of automotive diagnostic products of approximately $406,000. Within automotive diagnostic products sales of emission products decreased by $199,000 and diagnostic products to OEM's and the aftermarket decreased by approximately $110,000 and $97,000 respectively and were volume related. Management anticipates product sales for the fourth quarter of the fiscal year to increase slightly. 

Service sales for the nine months ended June 30, 2012 were $263,857 compared with $308,085 for the same period in fiscal 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 in the last three months of the fiscal year.

Cost of product sold was $2,179,037 (64.7% of product sales) compared with $2,029,511 (59.8% of product sales) for the nine months ended June 30, 2011. The percentage increase in the cost of product sold was due primarily to a lower sales volume, lower plant utilization and a change in product mix. 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 slightly during the fourth quarter of the fiscal year due to an anticipated change in product mix.

Cost of service sold was $178,223 (67.5% of service sales) compared with $213,330 (69.2% of service sales) for the nine months ended June 30, 2011. The dollar and percentage increase was due primarily to the lower sales volume. The cost of services sold percentage is expected to continue in the fourth quarter of the fiscal year.

Product development expenses were $706,720 (21.0% of product sales) compared to $755,207 (22.3% of product sales) for the nine months ended June 30, 2011. The percentage and dollar decrease was due primarily to lower engineering expenses during the first nine months of the fiscal year. During the current nine month period labor costs and research and experimental material expenses declined by approximately $41,000 and $9,000 respectively. The current level of product development expenditures is expected to increase slightly for the fourth quarter of the fiscal year due to a plan to add a temporary resource and the small wage increases for existing employees effective February 2012. 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 $1,154,298 for the nine months ended June 30, 2012 (31.8% of total sales) versus $1,370,617 (37.0% of total sales) for the nine months ended June 30, 2011. The percentage and dollar decrease during the first nine months of the current fiscal year was due primarily to the cost reductions implemented in fiscal 2011. Marketing expenses were approximately $465,000 during the first nine months of the current fiscal year versus $581,000 for the same period a year ago. Within marketing expenses, decreases were primarily in labor costs, travel expenses, advertising expense, royalties, credit and collection expense, commissions and industry association dues of approximately $41,000, $26,000, $16,000, $12,000, $9,000, $3,000 and $3,000 respectively. These decreases were offset in part by an increase in outside consulting expense of approximately $3,000. Administrative expenses were approximately $689,000 during the first nine months of the current fiscal year versus $789,000 for the same period a year ago. The dollar decrease during the first nine months of the current fiscal year was due primarily to decreases in labor costs, directors fees and professional fees of approximately $74,000, $20,000 and $5,000 respectively. The current level of marketing and administrative expenses are expected to increase slightly for the remainder of the fiscal year due to the addition of a marketing resource, additional promotion and the small wage increase for existing employees. These increases became effective in February and March of the current fiscal year.

Interest expense was $5,784 for the nine months ended June 30, 2012, and $1,039 for the same period in 2011. The increase during the current nine months was due primarily to borrowings on the Company's available credit facility. Effective April 2011 the Company obtained a limited unsecured line of credit. Interest expense is expected to continue at the third quarter level during the fourth quarter of the fiscal year due to no anticipated borrowing requirements.

Other income of $13,324 compares with other income of $10,009 in the same period last year. Other income consists primarily of the proceeds from the sale of scrap metal shavings, purchase discounts and interest income on cash and cash equivalents invested. The increase is due primarily to the gain on the sale of a company vehicle of approximately $3,500 during the current period. The current level of other income is expected to decrease for the remainder of fiscal 2012.

Income taxes during the first nine months of fiscal 2012 were $0 which compares with income taxes of $0 in the first nine months of fiscal 2011. In 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 for the nine months ended June 30, 2012 was $578,896 which compares with a net loss of $657,612 for the nine months ended June 30, 2011. The net loss for the first nine months of fiscal 2012 was primarily the result of lower margins due to product mix, pricing pressure, a lower sales volume and that the 2010 management strategic plan has not had sufficient time to be fully effective offset in part by the cost reduction measures.

Management took several steps to reduce direct and non-direct product related expenses throughout the Company in response to the economic downturn and the uncertainty in the markets the Company serves. The steps included a substantial reduction in personnel, wage reductions for all personnel and expenditure restrictions in most aspects of the Company's operations in 2008 and 2009. Management implemented additional expense reductions that were effective March 1, 2011 in the form of a substantial reduction in personnel and a wage reduction for the CEO. In addition, the Board of Directors reduced and then eliminated all Board of Directors fees until Company financial conditions improve. A senior OEM sales executive resigned in mid-March 2011 and management decided to eliminate that position from the Marketing department. Management continues to believe in its strategy to improve revenue and profitability developed in 2010.

The savings from the above cost cutting measures have been realized, as expected, in equal amounts per month with similar impact on both future earnings and cash flows. The savings have been slightly offset recently by
the addition of a marketing resource, additional promotion and the small wage increase in February and March of the current fiscal year for existing employees.

Liquidity and Capital Resources

Total current assets were $2,853,421, $3,016,871 and $2,958,909 at June 30, 2012, September 30, 2011 and June 30, 2011, respectively. The decrease of approximately $105,000 from June to June is due primarily to a decrease in accounts receivable, inventory and prepaid expenses of approximately $196,000, $369,000 and $23,000 respectively, offset in part by an increase in cash and cash equivalents of approximately $480,000. The increase in cash and cash equivalents was due primarily to the issuance of convertible promissory notes in December 2011. Accounts receivable decreased due primarily to a lower sales volume during the current quarter. The decrease in inventory was due primarily to a higher obsolescence reserve level during the period. The decrease from September 2011 to June 2012 of approximately $163,000 is due primarily to the decrease in accounts receivable, inventory and prepaid expenses of $257,000, $209,000 and $14,000 respectively, offset in part by an increase in cash and cash equivalents of approximately $317,000. Accounts receivable decreased due primarily to a lower sales volume during the current quarter. The increase in cash and cash equivalents was due primarily to the issuance of convertible promissory notes in December 2011.

Working capital as of June 30, 2012 amounted to $1,923,219. This compares to $2,179,908 a year earlier. Current assets were 3.1 times current liabilities compared to 3.8 a year ago. The quick ratio was 1.1 compared to 1.0 a year ago. 

Internally generated funds during the nine months ended June 30, 2012 were a negative $92,247. The primary reason for the negative cash flow from operations was the net loss during the period. The Company anticipates capital expenditures of approximately $50,000 during fiscal 2012 primarily for equipment and tools required to fulfill an anticipated large order for an OEM. The Company believes that cash and cash equivalents together with available short-term financing will provide adequate funding of the Company's working capital needs through the end of fiscal 2012.

Shareholders' equity during the nine months ended June 30, 2012 decreased by $334,146 which was the net loss during the period of $578,896, the issue cost of Convertible Promissory Notes of $34,235, the sale of Class A Conversion shares of $233,438, the sale of Class B Common Shares of $37,000 and $8,547 of share-based compensation expense. 

During fiscal 2012 the Company's business may require a short-term increase in inventory and accounts receivables. Whenever there may be a requirement to increase inventory in fiscal 2012 there will be a negative but temporary impact on liquidity. The Company has reduced 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 Operation in our Form 10-K for the year ended September 30, 2011.

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 and indicating instrument products, (d) the ability of the Company to further establish distribution and a customer base in the automotive aftermarket, (e) the Company's ability to capitalize on market opportunities including state automotive emissions programs and OEM tool programs and (f) the Company's ability to obtain cost effective financing.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

The Company is exposed to certain market risks from transactions that are entered into during the normal course of business. The Company has not entered into derivative financial instruments for trading purposes. The Company's primary market 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 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 June 30, 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 June 30, 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 third fiscal quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 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.

The Company is a named defendant along with numerous other companies in a suit in the State of New York regarding asbestos harm to the plaintiff. The Company has been informed by the plaintiff's attorney that we will be dismissed from the suit.

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. We have engaged a Michigan attorney to provide representation for us. The Company believes the suit is without merit and expects it will be able to obtain a dismissal for similar reasons a dismissal is imminent in the New York action.

Item 6. Exhibits.

Exhibit No.

Description



11

Statement Regarding Computation of Earnings Per share and Common Share Equivalents



31.1

Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer



31.2

Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer



32.1

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



32.2

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



101.INS**

XBRL Instance



101.SCH**

XBRL Taxonomy Extension Schema



101.CAL**

XBRL Taxonomy Extension Calculation



101.DEF**

XBRL Taxonomy Extension Definition



101.LAB**

XBRL Taxonomy Extension Labels



101.PRE**

XBRL Taxonomy Extension Presentation



** 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.

SIGNATURES

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.






HICKOK INCORPORATED
(Registrant)



Date: August 13, 2012
/s/ R. L. Bauman

R. L. Bauman, Chief Executive Officer,
President, and Treasurer




Date: August 13, 2012
/s/ G. M. Zoloty

G. M. Zoloty, Chief Financial Officer