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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 December 31, 2013

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 mark 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 smaller reporting company. See the definitions of "large accelerated filer,""accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]
Accelerated filer [ ]     
Non-accelerated filer   [ ]
Smaller 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 February 7, 2014:  1,163,349 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
December 31,



2013

2012

Net Sales




   Product Sales

$980,395

$1,647,435

   Service Sales

69,847

91,468




      Total Net Sales

1,050,242

1,738,903




Costs and Expenses



   Cost of Product Sold

655,300

892,133

   Cost of Service Sold

34,104

34,269

   Product Development

231,056

231,147

   Marketing and Administrative
     Expenses

453,997

417,243

   Interest Charges

-

22,855

   Other Income

(3,928)

(2,548)




      Total Costs and Expenses
1,370,529

1,595,099




Income (Loss) before Provision for Income Taxes

(320,287)

143,804




Provision for (Recovery of) Income Taxes

-

-




Net Income (Loss)
$(320,287)

$143,804




Earnings per Common Share:




Net Income (Loss)

$(.20)

$.09




Earnings per Common Share Assuming Dilution:




Net Income (Loss)

$(.20)

$.09




Dividends per Common Share

$-0-

$-0-




See Notes to Consolidated Financial Statements



HICKOK INCORPORATED
CONSOLIDATED BALANCE SHEET


December 31,
2013
(Unaudited)

September 30,
2013
(Note)

December 31,
2012
(Unaudited)

Assets




Current Assets




Cash and Cash Equivalents

$571,424 $938,852 $156,212

Trade Accounts Receivable-Net

510,450 638,316
1,129,405
Notes Receivable-Current
-
-
3,600

Inventories

1,647,927 1,589,816
1,870,119

Prepaid Expenses

122,907 32,342 73,816




Total Current Assets

2,852,708 3,199,326 3,233,152








Property, Plant and Equipment




Land

233,479 233,479 233,479

Buildings

1,429,718 1,429,718 1,429,718

Machinery and Equipment

2,428,890
2,388,762
2,374,319





4,092,087 4,051,959 4,037,516




Less: Allowance for Depreciation 3,768,832 3,752,452
3,714,001




Total Property - Net

323,255 299,507 323,515








Other Assets




Notes Receivable-Long-term 4,100
4,100
30,100

Deposits

1,750 1,750 1,750




Total Other Assets

5,850
5,850 31,850




Total Assets

$3,181,813 $3,504,683 $3,588,517








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

See Notes to Consolidated Financial Statement
s 


December 31,
2013
(Unaudited)

September 30,
2013
(Note)

December 31,
2012
(Unaudited)

Liabilities and Stockholders' Equity




Current Liabilities




Short-Term Financing
$-
$-
$100,000
Convertible Notes Payable
-
-
-

Trade Accounts Payable

246,605
174,236 292,341

Accrued Payroll & Related Expenses

123,643
142,519 132,443

Accrued Expenses

323,199
395,426 323,365

Accrued Taxes Other Than Income

59,634
44,691 59,432

Accrued Income Taxes

-
- -




Total Current Liabilities

753,081
756,872 907,581








Long-Term Financing
-
-
-








Stockholders' Equity




Class A, no par value;
   authorized 10,000,000 shares;
   1,163,349 shares outstanding

   (1,163,349 shares outstanding
   at September 30, 2013 and
   1,163,349 December 31, 2012)
   excluding
15,795 shares
   in treasury
 

1,261,188 1,261,188 1,261,188




Class B, no par value;
   authorized 2,500,000 shares;
   474,866 shares outstanding
   (474,866 at September 30, 2013
   and December 31, 2012)excluding
   667 shares in treasury

474,866 474,866 474,866




Preferred, no par value;
   authorized 1,000,000 shares;
   no shares outstanding
-
-
-




Contributed Capital

1,486,388 1,485,180 1,413,306




Retained Earnings (Deficit)

(793,710)
(473,423)
(468,424)




Total Stockholders' Equity

2,428,732
2,747,811 2,680,936




Total Liabilities and
Stockholders' Equity

$3,181,813 $3,504,683 $3,588,517





HICKOK INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31,
(Unaudited)



2013 2012



Cash Flows from Operating Activities:



   Cash received from customers

$1,178,108 $1,312,344

   Cash paid to suppliers and employees

(1,505,791) (1,493,998)

   Interest paid

- -

   Interest received

383
93



      Net Cash Provided By (Used In) Operating
         Activities

(327,300)
(181,561)



Cash Flows from Investing Activities:



   Capital expenditures

(40,128) -
   Payments received on notes receivable
-
900



      Net Cash Provided By (Used In) Investing 
         Activities

(40,128) 900



Cash Flows from Financing Activities:



   Cost for additional Authorized shares
-
(21,925)
   Increase in Short-term borrowings
-
100,000
   Increase in Convertible Notes Payable
-
-



      Net Cash Provided By (Used In) Financing
         Activities

- 78,075



Net increase (decrease) in cash and cash equivalents

(367,428) (102,586)



Cash and cash equivalents at beginning of year

938,852
258,798



Cash and cash equivalents at end of first quarter

$571,424 $156,212




See Notes to Consolidated Financial Statements








2013 2012



Reconciliation of Net Income (Loss) to Net Cash  Provided By (Used In) Operating Activities:






   Net Income (Loss)

$(320,287) $143,804

   Adjustments to reconcile net income (loss) to
      net cash provided by operating activities:



         Depreciation 

16,380
25,735
         Share-based compensation expense
1,208
2,841
         Non-cash professional service expense
-
7,000
         Warrants issued for debt offering
-
22,750
         Deferred income taxes
-
-

         Changes in assets and liabilities:



            Decrease (Increase) in accounts
               receivable

127,866 (426,559)

            Decrease (Increase) in inventories

(58,111) (135,349)

            Decrease (Increase) in prepaid expenses

(90,565) 50,141

            Increase (Decrease) in accounts payable

72,369 113,506

            Increase (Decrease) in accrued payroll
               and related expenses

(18,876) (17,193)

            Increase (Decrease) in accrued expenses
               and accrued taxes other than income

(57,284)
31,763



               Total Adjustments

(7,013)
(325,365)



               Net Cash Provided By (Used In)
                  Operating Activities

$(327,300) $(181,561)






Supplemental Schedule of Non-Cash Financing Activities:


   Conversion of convertible notes payable
      to Class A shares
$-
$208,591







HICKOK INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
DECEMBER 31, 2013


1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended December 31, 2013 are not necessarily indicative of the results that may be expected for the year ended September 30, 2014. 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, 2013.

2. Inventories

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


December 31,
2013

September 30,
2013

December 31,
2012





Components

$864,844

$852,229

$1,036,824

Work-in-Process

612,598
590,687
596,926

Finished Product

170,485

146,900

236,369





$1,647,927

$1,589,816

$1,870,119






The above amounts are net of reserve for obsolete inventory in the amount of $810,376, $793,000 and $883,903 for the periods ended December 31, 2013, September 30, 2013 and December 31, 2012 respectively.

3. Notes Receivable

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

4. Convertible Notes Payable

On December 30, 2011, Hickok Incorporated entered into a Convertible Loan Agreement with Roundball, LLC and the Aplin Family Trust. Under the Convertible Loan Agreement, the Company issued a convertible note to Roundball in the amount of $466,879 and a convertible note to the Aplin Family Trust in the amount of $208,591. In addition, Roundball, LLC had the right to cause the Company to borrow up to an additional $466,880 from Roundball, LLC. The notes were unsecured, bore interest at a rate of 0.20% per annum and were set to mature on December 30, 2012.

The notes were convertible by the Investors at any time into Class A Common Shares of the Company, at a conversion price of $1.85 per share, although up to no more than 504,735 Conversion Shares for Roundball and no more than 112,752 Conversion Shares for the Aplin Family Trust. The Company had the option to convert the notes at the expiration date, if the investors had not during the course of the agreement. On December 30, 2011, Roundball converted $233,438 into Class A Common Shares of the Company. In addition, on August 20, 2012 Roundball converted the remaining $233,441 under the Convertible Loan Agreement into Class A Common Shares of the Company.

On December 28, 2012, the Aplin Family Trust converted the $208,591 under the Convertible Loan Agreement into Class A Common Shares of the Company.

On December 30, 2012 management entered into an amended Convertible Loan Agreement with Roundball which provided approximately $467,000 of liquidity to meet on going working capital requirements. The amended Convertible Loan Agreement is by and between the Company and a major shareholder who is also a Director modifying the terms and extending the due date of the loan agreement from December 30, 2012 to December 31, 2013 and modifying the terms to allow $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.24%.

In partial consideration for Amendment No. 1, the Company and Roundball entered into a Warrant Agreement, dated  December 30, 2012, whereby the Company issued a warrant to the Roundball to purchase, at its option, up to 100,000 shares of Class A Common Stock of the Company at an exercise price of $2.50 per share, subject to certain anti-dilution and other adjustments. If not exercised, this warrant will expire on December 30, 2015. Roundball is an affiliate of Steven Rosen, a Director of the Company.

The Company used the Black-Scholes option pricing model to determine the fair value estimate for recognizing the cost of services received in exchange for an award of equity instruments. The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect the fair value estimates. The warrants are immediately exercisable and expire in December 2015. The fair value of the warrants issued was amortized over the one year amended convertible loan agreement period. During the quarter ended December 31, 2012, $11,375 was expensed as non-cash interest expense. The following weighted-average assumptions were used in the option pricing model for the three month period ended December 31, 2012: a risk free interest rate of 0.42%; an expected life of 3 years; an expected dividend yield of 0.0%; and a volatility factor of .84.

On December 30, 2013 management entered into Amendment No. 2 of the Convertible Loan Agreement with Roundball which may provide approximately $467,000 of liquidity to meet on going working capital requirements. The amended Convertible Loan Agreement is by and between the Company and a major shareholder who is also a Director modifying the terms and extending the due date of the loan agreement from December 30, 2013 to December 30, 2014 and continues to allow $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.25%.

5. Short-term Financing

The Company had a credit agreement of $250,000 with Robert L. Bauman, one of its major shareholders who is also an employee of the Company. The agreement was to expire in April 2013 but was modified on December 31, 2012 to extend the maturity date to December 2013. Effective October 30, 2012 for the remainder of the agreement, the lender may terminate the agreement with 45 days written notice, but it is at the discretion of the Company to deny the termination notice until December 2013 if it would have had a negative effect on the solvency of the Company.

The agreement provided for a revolving credit facility of $250,000 with interest at 0.24% per annum and was unsecured and included a three year warrant for 100,000 shares of Class A common stock at a price of $2.50 per share. In addition, the agreement generally allowed for borrowing based on an amount equal to eighty percent of eligible accounts receivables or $250,000. The Company had no outstanding borrowings under this loan facility at December 31, 2013.
The revolving line of credit was not extended.

In partial consideration for the original extension of the revolving credit facility the Company and Bauman entered into a Warrant Agreement, dated December 30, 2012 whereby the Company issued a warrant to Bauman to purchase, at his option, up to 100,000 shares of Class A Common Stock of the Company at an exercise price of $2.50 per share, subject to certain anti-dilution and other adjustments. If not exercised, this warrant will expire on December 30, 2015.

The Company used the Black-Scholes option pricing model to determine the fair value estimate for recognizing the cost of services received in exchange for an award of equity instruments. The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect the fair value estimates. The warrants are immediately exercisable and expire in December 2015. The fair value of the warrants issued is amortized over the one year credit agreement period. During the quarter ended December 31, 2012, $11,375 was expensed as non-cash interest expense. The following weighted-average assumptions were used in the option pricing model for the three month period ended December 31, 2012: a risk free interest rate of 0.42%; an expected life of 3 years; an expected dividend yield of 0.0%; and a volatility factor of .84.

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

On October 11, 2012, the Company's Amended Articles of Incorporation and the Amended Code of Regulations were adopted by an affirmative vote of more than two-thirds of the Company's Class A and Class B Shareholders.

The Amended Articles amend and restate the Current Articles in a number of significant ways and are primarily as follows: increased the number of Class A Shares and Class B Shares from 3,750,000 and 1,000,000 to 10,000,000 and 2,500,000 respectively, and added a class of 1,000,000 Serial Preferred Shares; eliminated par value for for Class A Shares and Class B Shares; updated certain provisions relating to the payment of dividends; removed restrictions on the issuance of additional Class A Shares; clarified the method by which the Company may repurchase its shares; reduced the percentage of shareholder vote required to authorize corporate actions from two-thirds of the voting power to a majority of the voting power; and made other technical or conforming changes.

The Amended Regulations amend and restate the Current Regulations in a number of significant ways and are primarily as follows: updated certain provisions relating to the Company's meetings of shareholders in order to provide more consistency in the regulations regarding the Company's practices in this area; further clarifying the roles of the Company's officers and directors in conducting the Company's business; updated the Company's policy regarding the indemnification of its directors, officers, employees, and others; revised provisions allowing for the Board of Directors to adopt amendments to the Amended Regulations to the extent permitted by Ohio law; and made other technical or conforming changes.

Unissued shares of Class A common stock (958,233 shares) are reserved for the share-for-share conversion rights of the Class B common stock, stock options under the Directors Plans, conversion rights of the Convertible Promissory Note and available warrants.

On February 27, 2013, the Company's 2013 Omnibus Equity Plan was approved and adopted by an affirmative vote of a majority of the Company's Class A and Class B Shareholders.

The 2013 Omnibus Plan will provide the Company with the flexibility to grant a variety of share-based awards for covered employees, consultants and Directors. The 2013 Omnibus Plan provides for the grant of the following types of incentive awards: stock options, stock appreciation rights, restricted shares, restricted share units, performance shares and Class A Common Shares. Those who will be eligible for awards under the 2013 Omnibus Plan include employees who provide services to the Company and its affiliates, executive officers, non-employee Directors and consultants designated by the Compensation Committee. The Plan has 150,000 Class A Common Shares reserved for issuance. The Class A Common Shares may be either authorized, but unissued, common shares or treasury shares. No share-based awards have been granted under the 2013 Omnibus Equity Plan as of December 31, 2013.

Under the Company's expired Key Employees Stock Option Plans (collectively the "Employee Plans"), incentive stock options, in general, were exercisable for up to ten years, at an exercise price of not less than the market price on the date the option is granted. Non-qualified stock options may be granted at such exercise price and such other terms and conditions as the Compensation Committee of the Board of Directors may determine. No options may be granted at a price less than $2.925. Under the expired Employee Plans there are no options currently available for grant and there are no options outstanding at December 31, 2013.

The Company's expired Outside Directors Stock Option Plans (collectively the "Directors Plans"), provided for the automatic grant of options to purchase up to 31,000 shares of Class A Common Stock to members of the Board of Directors who are not employees of the Company, at the fair market value on the date of grant. Options for 31,000 Class A shares were outstanding at December 31, 2013 (31,000 shares at September 30, 2013 and 42,000 shares at December 31, 2012) at prices ranging from $2.925 to $11.00 per share. All outstanding options under the Directors Plans become fully exercisable on March 8, 2015.

The following is a summary of the range of exercise prices for stock options outstanding and exercisable under the Directors Plans at December 31, 2013:

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

$2.925 - $5.25
17,000
$3.34
6.4
11,000
$3.56
$6.00 - $7.25
8,000
$6.43
3.5
8,000
$6.43
$10.50 - $11.00
6,000
$10.75
3.8
6,000
$10.75
 

   


 
31,000
$5.57

25,000
$6.20









The Company accounts for Share-Based Payments under the modified prospective method for its stock options for both employees and non-employee Directors. Compensation cost for fixed based awards are measured at the grant date, and the Company uses the Black-Scholes option pricing model to determine the fair value estimates for recognizing the cost of employee and director services received in exchange for an award of equity instruments. The Black-Scholes option pricing model requires the use of subjective assumptions which can materially affect the fair value estimates. Employee stock options were immediately exercisable while Director's stock options are exercisable over a three year period. The fair value of stock option grants to Directors is amortized over the three year vesting period. During the quarter ended December 31, 2013 $1,208 was expensed as share-based compensation. During the quarter ended December 31, 2012 $2,841 was expensed as share-based compensation. The following weighted-average assumptions were used in the option pricing model for the three month periods ended December 31, 2013 and 2012 respectively: a risk free interest rate of 5.0% and 5.0%; 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 .87.

7. Recently Issued Accounting Pronouncements

The Company did not incur any material impact to its financial condition or results of operations due to the adoption of any new accounting standards during the periods reported.

8. Earnings per Common Share

Earnings per common share information is computed on the weighted average number of shares outstanding during each period based on the provisions of FASB Codification ASC Topic 260, "Earnings per Share."  The required reconciliations are as follows:


Three Months ended
December 31,

2013

2012

Basic Income (Loss) per Share



Income (Loss) available
to common stockholders

$(320,287)

$143,804




Shares denominator

1,638,215

1,528,541




Per share amount

$(.20)

$.09




Effect of Dilutive Securities



Average shares outstanding

1,638,215

1,528,541

Stock options

-*

12,942





1,638,215

1,541,483




Diluted Income (Loss) per Share



Income (Loss) available to common stockholders

$(320,287)

$143,804




Per share amount

$(.20)

$.09




* Net effect of stock options and warrants were antidilutive for the period.

Options and warrants to purchase 31,000 and 200,000 shares of common stock respectively during the first quarter of fiscal 2014 at prices ranging from $2.50 to $11.00 per share were outstanding but were not included in the computation of diluted earnings per share because the option's and warrant's effect was antidilutive or the exercise price was greater than the average market price of the common share.

In addition, conversion rights to purchase 252,367 shares of common stock at a price of $1.85 per share were not included in the computation of diluted earnings per share during the first quarter of fiscal 2014 because the conversion rights of the Convertible Promissory Notes effect was antidilutive or the exercise price was greater than the average market price of the common share.

Options and warrants to purchase 42,000 and 200,000 shares of common stock respectively during the first quarter of fiscal 2013 at prices ranging from $2.250 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.

9. Segment and Related Information

The Company's four business units have a common management team and infrastructure that offer different products and services. The business units have been aggregated into two reportable segments: 1.)indicators and gauges and 2.)automotive related diagnostic tools and equipment.

Indicators and Gauges
This segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture or service business and pleasure aircraft. Within the locomotive market, indicators and gauges are sold to both original equipment manufacturers and to operators of railroad equipment.

Automotive Diagnostic Tools and Equipment
This segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions.

Information by industry segment is set forth below:

Three Months Ended
December 31,



2013

2012

Net Sales



Indicators and Gauges

$404,405

$410,226

Automotive Diagnostic Tools and Equipment

645,837

1,328,677




$1,050,242

$1,738,903




Income (Loss) before Provision for Income Taxes



Indicators and Gauges

$65,634

$111,624

Automotive Diagnostic Tools and Equipment

(87,070)

307,465

General Corporate Expenses

(298,851)

(275,285)





$(320,287)

$143,804




Asset Information



Indicators and Gauges

$922,325

$831,059

Automotive Diagnostic Tools and Equipment

1,235,229
2,167,252

Corporate

1,024,259
590,206




$3,181,813

$3,588,517




Geographical Information



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



Revenue:



United States

$1,004,148

$1,700,435

Australia
24,138 -

Canada

11,492
28,054
Mexico
10,464
7,048

Other foreign countries

-
3,366




$1,050,242

$1,738,903





All export sales to Australia, Canada, Mexico 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.

11. Subsequent Events

The Company has analyzed its operations subsequent to December 31, 2013 through the date the finacial statements were submitted to the Securities and Exchange Commission and has determined that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements, except as follows:

In January of 2014, the Company received an order for approximately $1,800,000. The order is expected to cause a short-term cash drain and subsequently provide additional cash reserves as the Company is paid. Current cash on hand and funds available from the Convertible Note Payable should provide the necessary working capital during the production of this order.

12. Business Condition and Management Plan

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has suffered recurring losses from operations during the past several years due primarily to decreasing sales of existing product lines and a general economic downturn in all markets the Company serves.

The ability of the Company to continue as a going concern is dependent on improving the Company's profitability and cash flow and securing additional financing if needed. Management continues to review and revise its strategic plan and believes in the viability of its strategy to increase revenues and profitability through increased sales of existing products and the introduction of new products to the market place. Management believes that the actions presently being taken by the Company will provide the stimulus for it to continue as a going concern, however, because of the inherent uncertainties there can be no assurances to that effect. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On December 30, 2012 management entered into an amended unsecured convertible loan agreement and an additional revolving line of credit which may provide approximately $717,000 of liquidity to meet on going working capital requirements. One agreement was an unsecured revolving line of credit with a major shareholder who is also an employee and the other was an unsecured convertible loan agreement with a major shareholder who is also a Director as discussed in Notes 4 and 5. These facilities were available through December 2013. The revolving line of credit was not extended.

In addition, on December 30, 2013 management entered into Amendment No. 2 of the unsecured convertible loan agreement which may provide approximately $467,000 of liquidity to meet on going working capital requirements. The agreement is with a major shareholder who is also a Director as discussed in Note 4. This facility is available through December 2014.

The above available financing resource together with management’s revised strategic plan to increase revenues and profitability through increased sales of existing products and the introduction of new products to the market place should provide the Company with the needed working capital for the next twelve months. In addition, in January of 2014 the Company received an order for approximately $1,800,000. The order is expected to cause a short-term cash drain and subsequently provide additional cash reserves as the Company is paid.  



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations, First Quarter (October 1, 2013 through December 31, 2013)
Fiscal 2014 Compared to First Quarter Fiscal 2013
-----------------------------------------------------------------------------------------

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 $404,405 and $410,226 for the first quarter of fiscal 2014 and fiscal 2013, respectively. The automotive diagnostic tools and equipment segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions. Revenue in this segment was $645,837 and $1,328,677 for the first quarter of fiscal 2014 and fiscal 2013, respectively.

Results of Operations

Product sales for the quarter ended December 31, 2013 were $980,395 versus $1,647,435 for the quarter ended December 31, 2012. The decrease in product sales during the current quarter of approximately $667,000 was volume related due primarily to decreased sales of automotive diagnostic testing products to OEM's of approximately $752,000 offset by an increase in sales of indicators, non-emission aftermarket products and emissions testing products of approximately $6,000, $62,000 and $17,000 respectively. Product sales for the quarter ended December 31, 2012 benefited from the large order from a Tier 1 Supplier with no similar order in the quarter ended December 31, 2013. Although the current economic uncertainties make forecasting difficult, product sales are expected to increase significantly during the remainder of fiscal 2014.

Service sales for the quarter ended December 31, 2013 were $69,847 versus $91,468 for the quarter ended December 31, 2012. The decrease was volume related and due primarily to a lower sales volume for chargeable repairs. The current level of service sales related to product repair sales is expected to increase slightly for the balance of the fiscal year.

Cost of product sold in the first quarter of fiscal 2014 was $655,300 (66.8% of product sales) as compared to $892,133 (54.2% of product sales) in the first quarter of fiscal 2013. The increase in the cost of product sold percentage was due primarily to reduced plant utilization and a change in product mix. The dollar decrease is due to the volume decrease of product sales during the current quarter. The current cost of product sold percentage is expected to decrease significantly for the remainder of the year due to both increased plant utilization and improved product mix.

Cost of service sold in the first quarter of fiscal 2014 was $34,104 (48.8% of service sales) as compared to $34,269 (37.5% of service sales) in the first quarter of fiscal 2013. The percentage increase was due primarily to a lower sales volume and product specifics of chargeable repairs. The current cost of services sold percentage is expected to decrease slightly for the balance of the fiscal year.

Product development expenses were $231,056 in the first quarter of fiscal 2014 (23.6% of product sales) as compared to $231,147 (14.0% of product sales) in the first quarter of fiscal 2013. The percentage increase was due primarily to lower product sales during the current quarter. The current level of product development expenses is expected to continue for the balance of the fiscal year. The Company believes the existing resources will be sufficient to continue to develop identified new products for both OEM and Aftermarket customers.

Marketing and administrative expenses were $453,997 (43.2% of total net sales) in the first quarter of fiscal 2014 versus $417,243 (24.0% of total net sales) for the same period a year ago. The percentage increase was due primarily to the lower level of total sales for the current quarter. Marketing expenses were approximately $151,000 in the first quarter of fiscal 2014 versus $162,000 for the same period a year ago. Within marketing expenses, royalty expense and promotion expense decreased by approximately $17,000 and $2,000 respectively. Wages, credit and collection expense, commissions and advertising increased by approximately $4,000, $2,000, $1,000 and $1,000 respectively. Administrative expenses were approximately $303,000 in the first quarter of fiscal 2014 versus $255,000 for the same period a year ago. Within administrative expenses professional fees and wages increased approximately $56,000 and $5,000 respectively. The increases were offset in part by decreases in rent machinery and equipment, data processing expenses and travel expenses of approximately $5,000, $5,000 and $3,000 respectively. The current level of marketing and administrative expenses are expected to continue for the balance of the fiscal year.

Interest expense was $0 in the first quarter of fiscal 2014 which compares with $22,855 in the first quarter of fiscal 2013. The decrease in interest charges in the current quarter compared to a year ago was due primarily to recording as non-cash interest expense the present value of one fourth of the warrants issued in December 2012 during the prior year first quarter. The current level of interest expense is anticipated to continue for the remainder of the fiscal year.

Other income was $3,928 in the first quarter of fiscal 2014 which compares with $2,548 in the first quarter of fiscal 2013. 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 was due primarily to an increase in the sale of scrap mental shavings.

Income taxes in the first quarter of fiscal 2014 was $0 which compares with income taxes of $0 in the first quarter of fiscal 2013. In the first quarter of fiscal 2014 recovery of income taxes was calculated at an effective tax rate of 37% offset by a increase in the valuation allowance netting to $0. In the first quarter of fiscal 2013 income taxes were recorded at an effective tax rate of 37% offset by deferred taxes, specifically the carryforward of net operating loss carryforwards.

The net loss in the first quarter of fiscal 2014 was $320,287 which compares with net income of $143,804 in the first quarter of fiscal 2013. The net loss in fiscal 2014 was due primarily to a lower sales volume. The prior year first quarter benefited from a large order from a Tier 1 supplier to an OEM with no similar order during the current fiscal year.
 
Management continues to monitor its expense reductions initiatives implemented and revised from 2008 to 2011. The Company currently has no plans to add resources in fiscal 2014 unless revenue opportunities warrant such an increase.

Unshipped customer orders as of December 31, 2013 were $713,000 versus $1,372,000 at December 31, 2012. The $659,000 decrease was due primarily to decreased orders for automotive diagnostic products to OEM's and aftermarket products which include emissions products of approximately $624,000 and $41,000 respectively. In addition, orders for indicator products also decreased by approximately $48,000. Orders for parts and service increased by approximately $54,000. The Company anticipates that most of the current backlog will be shipped in fiscal 2014. Order backlog at January 31, 2014 increased substantially due to an order for an automotive diagnostic product of approximately $1,800,000 that will be shipped in fiscal 2014.   

Liquidity and Capital Resources

Total current assets were $2,852,708, $3,199,326 and $3,233,152 at December 31, 2013, September 30, 2013 and December 31, 2012, respectively. The decrease of approximately $380,000 from December to December is due primarily to the decrease in accounts receivable and inventories of approximately $619,000 and $222,000 respectively, offset by increases in cash and cash equivalents and prepaid expenses of approximately $415,000 and $49,000 respectively. The increase in cash and cash equivalents combined with the decreases in accounts receivable and inventory was due to the large order obtained in October of 2012 for an OEM supplier. The decrease from September 30, 2013 to December 31, 2013 is due primarily to the decrease in cash and cash equivalents and accounts receivable of approximately $367,000 and $128,000 respectively, offset in part by the increase in inventory and prepaid expenses of approximately $58,000 and $91,000 respectively. The decrease in cash and accounts receivable was due primarily to the lower sales volume during the current quarter.

Working capital as of December 31, 2013 amounted to $2,099,627 as compared with $2,325,571 a year earlier. Current assets were 3.8 times current liabilities and total cash and cash equivalents and receivables were 1.4 times current liabilities. These ratios compare to 3.6 and 1.4, respectively, at December 31, 2012.

Internally generated funds during the three months ended December 31, 2013 were a negative $327,300 and were not adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $40,128. The primary reason for the negative cash flow from operations was the net loss during the current quarter of $320,287. The Company does anticipate additional capital expenditures during fiscal 2014 of approximately $100,000. The Company believes that cash and cash equivalents together with funds anticipated to be generated by operations in addition to available short-term financing will provide adequate funding of the Company's working capital needs.

Shareholders' equity during the three months ended December 31, 2013 decreased by $319,079 which was the net loss during the period of $320,287 and share-based compensation expense of $1,208.

On October 11, 2012, the Company's Amended Articles of Incorporation and the Amended Code of Regulations were adopted by an affirmative vote of more than two-thirds of the Company's Class A and Class B Shareholders.

The Amended Articles amend and restate the Current Articles in a number of significant ways and are primarily as follows: increased the number of Class A Shares and Class B Shares from 3,750,000 and 1,000,000 to 10,000,000 and 2,500,000 respectively, and added a class of 1,000,000 Serial Preferred Shares; eliminated par value for for Class A Shares and Class B Shares; updated certain provisions relating to the payment of dividends; removed restrictions on the issuance of additional Class A Shares; clarified the method by which the Company may repurchase its shares; reduced the percentage of shareholder vote required to authorize corporate actions from two-thirds of the voting power to a majority of the voting power; and made other technical or conforming changes.

The Amended Regulations amend and restate the Current Regulations in a number of significant ways and are primarily as follows: updated certain provisions relating to the Company's meetings of shareholders in order to provide more consistency in the regulations regarding the Company's practices in this area; further clarifying the roles of the Company's officers and directors in conducting the Company's business; updated the Company's policy regarding the indemnification of its directors, officers, employees, and others; revised provisions allowing for the Board of Directors to adopt amendments to the Amended Regulations to the extent permitted by Ohio law; and made other technical or conforming changes.  

Detailed information related to the two changes approved by shareholders may be found in the 2012 Proxy Statement for the Special Meeting held October 11, 2012 which was filed with the Securities and Exchange Commission on September 14, 2012.

During fiscal 2014 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 2014 there will be a negative but temporary impact on liquidity. The Company has reduced wages, headcount, product development, and marketing, administrative and sales related expenses in order to appropriately manage its working capital. The Company believes that internally generated funds and available short-term financing will provide sufficient liquidity to meet ongoing working capital requirements.

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 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, 2013.

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 and the automotive industry, (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 risks are exposure related to interest rate risk and equity market fluctuations. The Company's revolving line of credit facility and the funds available from the convertible note were the only debt subject to interest rate risk during the current quarter. The Company currently has available under the convertible note agreement a credit facility subject to a nominal fixed rate of interest. As a result, the Company believes that the market risk related to interest rate movements is minimal. The Company had no outstanding borrowings under these credit facilities at December 31, 2013.

Item 4. Controls and Procedures.

As of December 31, 2013, 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 December 31, 2013 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 first fiscal quarter ended December 31, 2013 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 2013. 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.

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 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: February 14, 2014

/s/ R. L. Bauman


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





Date: February 14, 2014

/s/ G. M. Zoloty


G. M. Zoloty, Chief Financial Officer