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EX-32 - EXHIBIT 32.2 - HICKOK INCexhibit322.htm
EX-32 - EXHIBIT 32.1 - HICKOK INCexhibit321.htm
EX-31 - EXHIBIT 31.2 - HICKOK INCexhibit312.htm
EX-31 - EXHIBIT 31.1 - HICKOK INCexhibit311.htm
EX-11 - EXHIBIT 11 - HICKOK INCexhibit11.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, 2016

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 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. 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   [ ]
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 8, 2016:  2,074,599 Hickok Incorporated Class A Common Shares and 778,616 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, 
 
2016
2015
2016
2015
Net Sales
 

  Product Sales
$1,479,543
$1,746,940
$3,770,950
$3,886,037
  Service Sales
50,701
57,674
182,790
171,977
 



    Total Net Sales
1,530,244
1,804,614
3,953,740
4,058,014
   
 
Costs and Expenses        
  Cost of Product Sold
746,161
961,912
2,081,508
2,395,268
  Cost of Service Sold
23,269
34,908
122,987
110,856
  Product Development
258,406
245,794
777,889
742,239
  Marketing and
   Administrative
Expenses
507,326
453,903
1,488,461
1,253,872
  Interest Charges
4,843
171
8,179
470
  Other (Income) Expense
(1,666)
(1,705)
(5,556)
(7,003)
 



    Total Costs and Expenses
1,538,339
1,694,983
4,473,468
4,495,702
 



Income (Loss) before Provision for Income Taxes
(8,095)
109,631
(519,728)
(437,688)
Income (Recovery of) Taxes
-
-
-
  -
 



   Net Income (Loss)
$(8,095)
$109,631
$(519,728)
$(437,688)





Earnings per Common Share:  
 
  Net Income (Loss)
$(.01)
$.07
$(.32)
$(.27)
 



Earnings per Common Share  
 
  Assuming Dilution:  
 
  Net Income (Loss)
$(.01)
$.07
$(.32)
$(.27)
 



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





See Notes to Consolidated Financial Statements
 


 

HICKOK INCORPORATED
CONSOLIDATED BALANCE SHEET

   
 


June 30,
  2016 
(Unaudited)
September 30,
   2015 
 (Note) 
 June 30, 
  2015 
 (Unaudited) 
Assets      
Current Assets      
  Cash and Cash Equivalents
$256,051
$346,405
$364,649
  Trade Accounts Receivable - Net
793,935
1,101,554
752,677
  Notes Receivable - Current
-
-
-
  Inventories
1,948,674
1,926,513
1,681,100
  Prepaid Expenses
53,163
112,019
70,549
 


Total Current Assets
3,051,823
  3,486,491
  2,868,975
 


       
Property, Plant and Equipment      
  Land
233,479
233,479
233,479
  Buildings
1,440,138
1,440,138
1,429,718
  Machinery and Equipment
2,608,104
  2,348,554
  2,567,635




 
4,281,721
4,022,171
4,230,832
       
  Less: Allowance for Depreciation
3,741,437
  3,646,937
  3,849,691
 


Total Property - Net
540,284
  375,234
  381,141
 


       
Other Assets      
  Notes Receivable - Long-term
      4,100
      4,100
      4,100
  Deposits
750
750
1,750




Total Other Assets
4,850
  4,850
  5,850
 


Total Assets
$3,596,957
$3,866,575
$3,255,966
 


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

See Notes to Consolidated Financial Statements


 
 
 
 
 
 


June 30,
  2016 
(Unaudited)
September 30,
____2015___
(Note) 
June 30, 
  2015   
(Unaudited)
Liabilities and Stockholders' Equity
     
Current Liabilities      
  Short-term Financing-related party
$250,000
$-
$-
  Convertible Notes Payable-related party
200,000
-
200,000
  Lease Payable
54,627
-
-
  Trade Accounts Payable
190,718
297,761
173,103
  Accrued Payroll & Related Expenses
132,707
167,770
149,335
  Accrued Expenses
472,268
183,390
374,204
  Accrued Taxes Other Than Income
27,211
40,764
     37,445
  Accrued Income Taxes 
-
  -
-




Total Current Liabilities
1,327,531
  689,685
 934,087
 






Long-Term Liabilities



  Convertible Notes Payable-related party  - 200,000
-
  Lease Payable
151,964
-
-
  Accrued expenses
-
339,700
-




         Total Long-Term Liabilities
151,964
539,700
-




Stockholders' Equity      
Class A, no par value; authorized 
1,261,188
1,261,188
1,261,188

10,000,000 shares; 1,163,349 shares outstanding (1,163,349 shares outstanding at September 30, 2015 and June 30, 2015) excluding 15,795 shares in treasury
       
Class B, no par value; authorized 
474,866
474,866
474,866

2,500,000 shares; 474,866 shares outstanding (474,866 shares outstanding at September 30, 2015 and June 30, 2015) excluding 667 shares in treasury






Preferred, no par value; authorized




1,000,000 shares; no shares outstanding
-
-
-
Contributed Capital
1,488,560
1,488,560
1,488,560
Retained Earnings (Deficit)
(1,107,152)
  (587,424)
(902,735)
 


Total Stockholders' Equity
2,117,462
2,637,190
2,321,879
 


 Total Liabilities and
 Stockholders' Equity
$3,596,957
$3,866,575
$3,255,966
 




   

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


 


 2016   2015 

   
Cash Flows from Operating Activities:    
  Cash received from customers
$4,261,359
$4,477,605
  Cash paid to suppliers and employees
(4,542,057)
(4,452,731)
  Interest paid
(7,329)
-
  Interest received
632
703
  Income taxes (paid) refunded
-
-
 

   Net Cash Provided By (Used In) Operating Activities
(287,395)
25,577
     
Cash Flows from Investing Activities:    
  Capital expenditures
(26,435)
(51,255)
 

   Net Cash Provided By (Used In) Investing Activities
(26,435)
(51,255)
     
Cash Flows from Financing Activities:    
  Short-term borrowing-related party
250,000
-
  Payments on lease payable borrowing
(26,524)
-



  Net Cash Provided By (Used In) Financing Activities
223,476
   -
 

Net increase (decrease) in cash and cash equivalents
(90,354)
(25,678)
     
Cash and cash equivalents at beginning of year
346,405
    390,327
 

Cash and cash equivalents at end of third quarter
$256,051
$364,649
 

See Notes to Consolidated Financial Statements  

 


 

2016
2015

 
Reconciliation of Net Income (Loss) to Net
Cash Provided By (Used In) Operating Activities:
 
   
  Net Income (Loss)
$(519,728)
$(437,688)
     
Adjustments to reconcile Net Income (Loss)
 to net cash provided by operating activities:
   
 Depreciation
94,500
49,140
 Non-cash share-based compensation expense
-
543
    Changes in assets and liabilities:    
      Decrease (Increase) in trade accounts receivable
307,619
419,591
      Decrease (Increase) in inventories
(22,161)
33,097
      Decrease (Increase) in prepaid expenses
58,856
(32,560)
      Increase (Decrease) in accounts payable
(107,043)
 27,546
      Increase (Decrease) in accrued payroll and 
        related expenses 
(35,063)
 16,616
      Increase (Decrease) in accrued expenses and
        accrued taxes other than income  
(64,375)
(50,708)
 

        Total Adjustments
232,333
463,265
 

   Net Cash Provided By (Used In) Operating Activities
$(287,395)
$25,577



Supplemental Schedule of Non-Cash Activity:

   Assets acquired by capital lease $233,115 $-





    

HICKOK INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016


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, 2016 are not necessarily indicative of the results that may be expected for the year ended September 30, 2016. 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, 2015.

2. Inventories

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


June 30,
   2016 
Sept. 30,
   2015 
June 30,
   2015 
       
Components
$1,269,567
$1,254,294
$1,059,014
Work-in-Process
525,835
499,752
475,436
Finished Product
153,272
172,467
146,650
 



$1,948,674
$1,926,513
$1,681,100







The above amounts are net of reserve for obsolete inventory in the amount of $199,987, $251,500 and $371,564 for the periods ended June 30, 2016, September 30, 2015 and June 30, 2015 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, management entered into a Convertible Loan Agreement with Roundball LLC. Over the past several years there have been several amendments to the original agreement.

On December 30, 2015, management entered into Amendment No. 4 of the Convertible Loan Agreement with Roundball which continues to 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 an affiliate of two Directors extending the due date of the loan agreement from December 30, 2015 to December 30, 2016 and continues to allow $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.34% of which $200,000 is outstanding at June 30, 2016.


During fiscal year ended September 30, 2014, the Company borrowed $200,000 against this agreement. As of June 30, 2016, the outstanding balance on the Roundball convertible note was $200,000.

As part of the Convertible Loan Agreement between the Company and Roundball LLC. the parties entered into a Warrant Agreement, dated  December 30, 2012, whereby the Company issued a warrant to Roundball to purchase, at its option, up to 100,000 shares of Class A Common Stock of the Company at an exercise price of $2.50 per share, subject to certain anti-dilution and other adjustments. If not exercised or amended, this warrant would have expired on December 30, 2015.

On December 30, 2015, management entered into Amendment No. 1 of the Warrant Agreement with Roundball. The amended Warrant Agreement is by and between the Company and a major shareholder who is also an affiliate of two Directors extending the due date of the agreement from December 30, 2015 to December 30, 2016.

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 2016. The fair value of the warrants issued was amortized over the one-year amended convertible loan agreement period. The following weighted-average assumptions were used in the option pricing model: a risk free interest rate of 0.42%; an expected life of 1 year; an expected dividend yield of 0.0%; and a volatility factor of .84.

The Company recorded interest expense on the Roundball note of $173 and $518 for the three months and nine month periods ended June 30, 2016 respectively.

5. Short-term Financing

On June 3, 2016, management entered into an unsecured revolving credit agreement with First Francis Company Inc. First Francis Company Inc, became a major shareholder of the Company on July 1, 2016 when the Company entered into an Agreement and Plan of Merger with First Francis Company Inc. owner of Federal Hose, Federal Hose, and Mr. Edward Crawford and Mr. Matthew Crawford, each of whom are the shareholders of First Francis Company Inc. Edward Crawford and Matthew Crawford serve on the Board of directors of Hickok Incorporated. Matthew Crawford is the son of Edward Crawford.

The agreement provides for a revolving credit facility of $250,000 with interest at 4.0% per annum and is unsecured. Each loan made under the credit arrangement will be due and payable in full on the expiration date of the revolver note. In addition, the agreement generally allows for borrowing based on an amount equal to eighty percent of eligible accounts receivables or $250,000. The revolving line of credit expires on May 31, 2017.

The Company has borrowed $250,000 against this credit facility during the quarter ended June 30, 2016 and has recorded interest expense of $333 during the current period and as of June 30, 2016 no interest was paid. As of June 30, 2016 the outstanding balance on this credit facility was $250,000.

6. Capital Leases



Current
Portion

2016
Total
  June 30,
2016

Total
  June 30,
2015
Capital lease obligation on MIS computer equipment and
software, payable in monthly installments of $2,059 including interest at approximately 1.04% per annum through December, 2017.
$24,710
$35,006
$-




Capital lease obligation on IT computer equipment and software, payable in monthly installments of $3,888 including interest at approximately 9.83% per annum, through February, 2021.
29,917
171,585
-





$54,627
206,591
-




Less current portion

54,627
-






$151,964
$-





The cost of fixed assets related to the capital leases is $233,115 which approximates book value at June 30, 2016.

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

Unissued shares of Class A common stock (832,233 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. 

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 and 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 June 30, 2016.

The Company's expired Outside Directors Stock Option Plans (collectively the "Directors Plans"), have provided for the automatic grant of options to purchase up to 5,000 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 5,000 Class A shares were outstanding at June 30, 2016 (6,000 shares at September 30, 2015 and 20,000 shares at June 30, 2015) at prices ranging from $2.925 to $6.00 per share. Options for 1,000 shares expired during the three month period ended March 31, 2016 at $2.925 per share. In addition, options for 2,000 shares expired during the three month period ended March 31, 2015 at $6.45 per share. All outstanding options under the expired Directors Plans became fully exercisable on March 8, 2015. The following is a summary of the range of exercise prices for stock options outstanding and exercisable under the expired Directors Plans at June 30, 2016:

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
4,000
$2.925
5.5
4,000
$2.925
$6.00
1,000
$6.00
3.8
1,000
$6.00
 
   

 
5,000
$3.54

5,000
$3.54






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, 2016 and 2015 respectively $0 and $0; $0 and $543 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, 2016 and 2015 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.

8. 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.

In March 2016, the Financial Accounting Standards Board (FASB) issued a new standard that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when the awards vest or are settled.  In addition, cash flows related to excess tax benefits will no longer be separately classified as a financing activity apart from the other income tax cash flows. The standard also allows us to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our cash flow statements, and provides an accounting policy election to account for forfeitures as they occur. The new standard is effective for us beginning October 1, 2017, with early adoption permitted. This new standard is not expected to have a significant impact on the Company’s financial statements.

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments  is the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP.  Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new standard will be effective for us beginning October 1, 2019, with early adoption permitted. We are evaluating the impact this standard will have to our financial statements.

In May 2014, the FASB issued its final standard on the recognition of revenue from contracts with customers. The standard, issued as Accounting Standards Update (ASU) 2014-09, outlines a single comprehensive model for entities to use in the accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. The core principle of this model is that “an entity recognizes revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.” The update is effective for financial statement periods beginning after December 15, 2017, with early adoption prohibited. The Company has not determined the impact of this pronouncement on its financial statements and related disclosure.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15") requires that an entity's management evaluate whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. ASU 2014-15 is effective for annual periods beginning after December 15, 2016 and for interim periods thereafter. The Company is evaluating the potential impacts of this new standard on its quarterly reporting process.

9. 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, 

  2016 
  2015 
  2016 
  2015 
Basic Income (Loss) per Share        
Income (Loss) available
  to common stockholders
$(8,095)
$109,631
$(519,728)
$(437,688)
 
 
 
Shares denominator
1,638,215
1,638,215
1,638,215
1,638,215
 
 
 
Per share amount
$(.01)
$.07
$(.32)
$(.27)
 



Effect of Dilutive Securities 
 
 
Average shares outstanding
1,638,215
1,638,215
1,638,215
1,638,215
Stock options
-*
-*
-*
-*





 
1,638,215
1,638,215
1,638,215
1,638,215
 
 
 
Diluted Income (Loss) per Share
 
 
Income (Loss) available
  to common stockholders
$(8,095)
$109,631
$(519,728)
$(437,688)
 
 
 
Per share amount
$(.01)
$.07
$(.32)
$(.27)





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

Options and warrants to purchase 5,000 and 100,000 shares of common stock respectively during the third quarter and the first nine months of fiscal 2016 at prices ranging from $2.50 to $6.00 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 during the third quarter and first nine months of fiscal 2016 at a price of $1.85 per share were not included in the computation of diluted earnings per share because the conversion rights of the Convertible Promissory Notes effect was antidilutive or the exercise price was greater than the average market price of the common share.

Options and warrants to purchase 20,000 and 200,000 shares of common stock respectively during the third quarter and the first nine months of fiscal 2015 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 during the third quarter and first nine months of fiscal 2015 at a price of $1.85 per share were not included in the computation of diluted earnings per share because the conversion rights of the Convertible Promissory Notes effect was antidilutive or the exercise price was greater than the average market price of the common share.

10. 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, 

  2016 
  2015 
  2016 
  2015 
Net Revenue        
Indicators and Gauges
$368,065
$332,771
$882,125
$933,707
Automotive Diagnostic
 Tools and Equipment
1,162,179
1,471,843
3,071,615
3,124,307





 
$1,530,244
$1,804,614
$3,953,740
$4,058,014





Income (Loss) before provision for Income Taxes
 
 
Indicators and Gauges
$102,085
$54,783
$165,321
$119,379
Automotive Diagnostic
 Tools and Equipment
224,083
294,830
261,211
172,283
General Corporate Expenses
(334,263)
(239,982)
(946,260)
(729,350)
 



 
$(8,095)
$109,631
$(519,728)
$(437,688)





Asset Information
 
 
Indicators and Gauges
 
$822,392
$721,504
Automotive Diagnostic
Tools and Equipment

 
1,917,982
1,705,065
Corporate


856,583
829,397
 
 

 
 
$3,596,957
$3,255,966
 
 

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

 
Revenue:
 
 
   United States
$1,506,778
$1,739,642
$3,851,487
$3,935,224
   Australia 21,471
1,602
60,412
13,402
   Canada
1,995
21,487
16,693
57,041
   Mexico
-
7,283
4,360
17,747
   China
-
29,657
-
29,657
   England
-
4,943
20,260
4,943
   Other foreign countries -
-
528
-
 



 
$1,530,244
$1,804,614
$3,953,740
$4,058,014





All export sales to Australia, Canada, Mexico, China, England and other foreign countries are made in United States of America Dollars.

11. 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.

12. Subsequent Events

The Company has analyzed its operations subsequent to June 30, 2016 through the date the financial 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:

On July 1, 2016, Hickok Incorporated completed its acquisition of Federal Hose Manufacturing LLC (Federal Hose). Pursuant to the terms of the Merger Agreement, the consummation of the transaction depended upon the satisfaction or waiver of a number of certain customary closing conditions and the approval of the Company's shareholders. All of these conditions were satisfied and the merger was completed on July 1, 2016.

In accordance with the Merger Agreement, the Company issued 911,250 validly issued, fully paid and non-assessable Class A Common Shares, without par value, and 303,750 validly issued, fully paid and non-assessable Class B Common Shares, without par value, to First Francis Company Inc. as consideration at the closing of the merger. The Company also issued to First Francis Company Inc. a promissory note in the principal amount of $2,768,662 and a promissory note in the principal amount of $2,000,000, each of which is secured by all of the assets of Hickok and certain of its subsidiaries, bears interest at a rate of 4.0% per annum, is amortized over a ten year period, and will be fully due six years after the issue date. These promissory notes contain customary provisions regarding acceleration of the Company's obligations as a result of an event of default.

13.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 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 believes the acquisition of Federal Hose on July 1, 2016 will add to the Company's profitability and cash flow. In addition, 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.

In addition, on December 30, 2015, management entered into an amended unsecured convertible loan agreement which may provide approximately $467,000 of liquidity to meet on going working capital requirements. The unsecured convertible loan agreement is with a major shareholder who is also an affiliate of two Directors extending the due date of the loan agreement and continues to allow $250,000 of borrowing on the agreement at the Company's discretion. This facility is available through December 2016. The Company had previously borrowed $200,000 and it is outstanding at June 30, 2016.

On December 30, 2015, management entered into Amendment No. 1 of the Warrant Agreement with Roundball. The amended Warrant Agreement is by and between the Company and a major shareholder who is also an affiliate of two Directors extending the due date of the agreement from December 30, 2015 to December 30, 2016.

On June 3, 2016, management entered into an unsecured revolving credit agreement with First Francis Company Inc. First Francis Company Inc, became a major shareholder of the Company on July 1, 2016 when the Company entered into an Agreement and Plan of Merger with First Francis Company Inc. owner of Federal Hose, Federal Hose, and Mr. Edward Crawford and Mr. Matthew Crawford, each of whom are the shareholders of First Francis Company Inc. Edward Crawford and Matthew Crawford serve on the Board of directors of Hickok Incorporated. Matthew Crawford is the son of Edward Crawford.

The agreement provides for a revolving credit facility of $250,000. This facility is available through May 31, 2017. The Company has borrowed $250,000 against this credit facility during the quarter ended June 30, 2016. As of June 30, 2016 the outstanding balance on this credit facility was $250,000.

On July 1, 2016 the Company completed the acquisition of Federal Hose and issued to First Francis Company Inc. a promissory note in the principal amount of $2,768,662 and a promissory note in the principal amount of $2,000,000, each of which is secured by all of the assets of Hickok and certain of its subsidiaries, bears interest at a rate of 4.0% per annum, is amortized over a ten year period, and will be fully due six years after the issue date. These promissory notes contain customary provisions regarding acceleration of the Company's obligations as a result of an event of default.

Management’s strategic plan to increase revenues and profitability through increased sales of existing products, the introduction of new products to the market place, the completion of the acquisition of Federal Hose Manufacturing LLC (see Footnote No. 12 Subsequent Events) and other additional short-term or long-term financing is expected to provide the Company with the needed working capital for the next twelve months.



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

Results of Operations, Third Quarter (April 1, 2016 through June 30, 2016)
Fiscal 2016 Compared to Third Quarter Fiscal 2015

-------------------------------------------------------------------------------------

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. In the fourth quarter of fiscal 2016 the Company will have a third reportable segment, flexible hose due to the acquisition of Federal Hose on July 1, 2016. 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 $368,065 and $332,771 for the third quarter of fiscal 2016 and fiscal 2015, respectively, and $882,125 and $933,707 for the first nine months of fiscal 2016 and fiscal 2015, respectively.

The automotive diagnostic tools and equipment segment consists primarily of products designed and manufactured to support the testing or servicing of automotive systems using electronic means to measure vehicle parameters. These products are sold to OEM's and to the aftermarket using several brand names and a variety of distribution methods. Included in this segment are products used for state required testing of vehicle emissions. Revenue in this segment was $1,162,179 and $1,471,843 for the third quarter of fiscal 2016 and fiscal 2015, respectively, and $3,071,615 and $3,124,307 for the first nine months of fiscal 2016 and fiscal 2015, respectively.Decreased sales volume in the third quarter was due to timing and for the fiscal year 2016 was primarily due to the absence of multiple large orders from Tier 1 OEM suppliers.

Results of Operations

Product sales for the quarter ended June 30, 2016 were $1,479,543 versus $1,746,940 for the quarter ended June 30, 2015. The 15% decrease in product sales during the current quarter of approximately $267,000 was volume related due primarily to decreased sales of automotive diagnostic testing products to OEM's of approximately $274,000. In addition, sales of aftermarket products decreased during the current quarter by approximately $102,000. Sales of emission products and indicator products increased during the current quarter by approximately $80,000 and $29,000 respectively. Product sales for the quarter ended June 30, 2016 benefited from a single moderate size order from a Tier 1 Supplier while product sales for the prior year third quarter benefited from two moderate size orders from a Tier 1 Supplier. Product sales are expected to increase substantially during the fourth quarter due to the July 1, 2016 acquisition of Federal Hose.  

Service sales for the quarter ended June 30, 2016 were $50,701 versus $57,674 for the quarter ended June 30, 2015. 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 2016 was $746,161 (50.4% of product sales) as compared to $961,912 (55.1% of product sales) in the third quarter of 2015. The percentage decrease in the cost of product sold was due primarily to a change in product mix. The current cost of product sold percentage is expected to increase substantially during the fourth quarter of the fiscal year due to the acquisition of Federal Hose. The increase will be due primarily to a lower gross margin on flexible hose product.

Cost of service sold for the quarter ended June 30, 2016 was $23,269 (45.9% of service sales) as compared to $34,908 (60.5% of service sales) in the quarter ended June 30, 2015. The percentage decrease was due primarily to the product specifics of chargeable repairs 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 $258,406 in the third quarter of fiscal 2016 (17.5% of product sales) as compared to $245,794 (14.1% of product sales) in the third quarter of fiscal 2015. The percentage increase was due primarily to lower product sales during the current quarter. The dollar increase was due primarily to an increase in labor costs, professional fees, depreciation and telephone expense of approximately $7,000, $4,000, $2,000 and $1,000 offset in part by a decrease in research and experimental material of approximately $1,000. The current level of product development expenses is expected to continue in the fourth quarter of the fiscal year. Management 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 $507,326 (33.2% of total sales) in the third quarter of fiscal 2016 versus $453,903 (25.2% of total sales) for the same period a year ago. Marketing expenses were approximately $176,000 in the third quarter of fiscal 2016 versus $212,000 for the same period a year ago. Within marketing expenses, royalty expense, commission expense, advertising expense and promotion expense decreased by approximately $24,000, $9,000, $7,000 and $3,000 respectively. These decreases were offset in part by an increase in labor costs, travel expense and telephone expense of approximately $5,000, $1,000 and $1,000 respectively. Administrative expenses were approximately $331,000 in the third quarter of fiscal 2016 versus $242,000 for the same period a year ago. Within administrative expenses, professional fees, depreciation expense, data processing expense and labor costs increased by approximately $75,000, $7,000, $6,000 and $3,000 respectively. These increases were offset in part by a decrease in repairs and maintenance computer equipment and travel expense of approximately $1,000, and $1,000 respectively. The professional fees in the third quarter were largely related to the Federal Hose acquisition and are expected to decrease in the fourth quarter. The current level of marketing and other administrative expenses is expected to increase substantially during the fourth quarter due to the Federal Hose acquisition.

Interest expense was $4,843 in the third quarter of fiscal 2016 which compares with $171 in the third quarter of fiscal 2015. Interest expense for the current quarter was due primarily to the borrowing on a capital lease for IT equipment, the unsecured revolving credit agreement and the convertible note payable of approximately $4,300, $300 and 200 respectively. Interest expense for the prior year third quarter was due to the borrowing available on the convertible note payable. The current level of interest expense is expected to increase during the fourth quarter of the fiscal year due to interest on the loans associated with the Federal Hose acquisition.

Other income was $1,666 in the third quarter of fiscal 2016 which compares with $1,705 in the third quarter of fiscal 2015. 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 was due primarily to a lower level of interest income on cash and cash equivalents invested during the current quarter. The current level of other income is expected to continue during the fourth quarter

Income taxes in the third quarter of fiscal 2015 and 2014 was $0. In the third quarter of fiscal 2016 recovery of income taxes and in 2015 income taxes were calculated at an effective tax rate of 37%. In the third quarter of fiscal 2016 recovery of income taxes was offset by a increase in the valuation allowance netting to $0. In the third quarter of fiscal 2015 income taxes were offset by deferred taxes, specifically net operating loss carryforwards. 

The net loss in the third quarter of fiscal 2016 was $8,095 which compares with net income of $109,631 in fiscal 2015. The decrease in net income for the current quarter was the result of a lower sales volume.

Unshipped customer orders as of June 30, 2016 was $1,002,000 versus $1,391,000 a year earlier. Included in the June 30, 2016 backlog is $345,000 of flexible hose orders. The core business backlog decreased by approximately $734,000 due primarily to decreased orders for diagnostic products to automotive OEM's of approximately $844,000 and aftermarket products of approximately $18,000, offset in part by an increase in orders for indicator products of approximately $128,000. The Company anticipates that approximately 78% of the current backlog will be shipped in the last quarter of fiscal 2016.

Results of Operations, Nine Months Ended June 30, 2016
Compared to Nine Months Ended June 30, 2015

Product sales for the nine months ended June 30, 2016 were $3,770,950 versus $3,886,037 for the same period in fiscal 2015. The decrease in product sales during the first nine months of the current fiscal year of approximately $115,000 was volume related due to lower sales of automotive diagnostic testing products, primarily, automotive diagnostic testing products to the aftermarket of approximately $165,000 and indicator products of approximately $83,000. These decreases were offset by an increase in automotive diagnostic products to OEM's and emission product sales of approximately $40,000 and $93,000 respectively. Fiscal 2016 benefited from a single larger order for a Tier 1 OEM supplier. Fiscal 2015 product sales to OEM's increased due to two moderate size orders for a Tier 1 OEM supplier shipping during the first nine months of fiscal 2015. The decrease in indicator sales during the first nine months of the current year was primarily the result of decreased customer orders of government funded programs for the military and locomotive products. Product sales are expected to increase substantially during the fourth quarter due to the July 1, 2016 acquisition of Federal Hose.  

Service sales for the nine months ended June 30, 2016 were $182,790 compared with $171,977 for the same period in fiscal 2015. The increase was volume related and due primarily to a higher 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 $2,081,508 (55.2% of product sales) compared with $2,395,268 (61.6% of product sales) for the nine months ended June 30, 2015. The dollar decrease was due to a lower sales volume and the margin improvement in the cost of product sold was due to product mix in the current fiscal year.  The current cost of product sold percentage is expected to increase substantially during the fourth quarter of the fiscal year due to the acquisition of Federal Hose. The increase will be due primarily to a lower gross margin on flexible hose product.

Cost of service sold was $122,987 (67.3% of service sales) compared with $110,856 (64.5% of service sales) for the nine months ended June 30, 2015. The dollar and percentage increase was due primarily to the product specifics of chargeable repairs and a higher sales volume in chargeable repairs in the current quarter. The cost of services sold percentage is expected to continue in the fourth quarter of the fiscal year.

Product development expenses were $777,889 (20.6% of product sales) compared to $742,239 (19.1% of product sales) for the nine months ended June 30, 2015. The percentage increase was due primarily to lower product sales during the current nine months of fiscal 2016. The dollar increase was due primarily to an increase in labor costs, telephone expense, depreciation expense and professional fees of approximately $22,000, $8,000, $7,000 and $4,000 respectively. These increases were offset in part by a decrease in travel expense and technical books and dues of approximately $3,000 and $2,000 respectively. The current level of product development expenditures is expected to continue for the fourth quarter of the fiscal year. Management believes the existing and planned resources will be sufficient to continue to develop identified new products for both OEM and Aftermarket customers.

Marketing and administrative expenses were $1,488,461 for the nine months ended June 30, 2016 (37.6% of total sales) versus $1,253,872 (30.9% of total sales) for the nine months ended June 30, 2015. Marketing expenses were approximately $545,000 during the first nine months of the current fiscal year versus $518,000 for the same period a year ago. Within marketing expenses, increases were primarily in labor costs, advertising expense, credit and collection expense, telephone expense and travel expense of approximately $13,000, $11,000, $7,000, $4,000 and $3,000 respectively. These increases were offset in part by decreases in commission expense, royalty expense and promotion expense of approximately $6,000, $4,000 and $1,000 respectively. Administrative expenses were approximately $943,000 during the first nine months of the current fiscal year versus $736,000 for the same period a year ago. The dollar increase during the first nine months of the current fiscal year was due primarily to increases in professional fees, depreciation expense, data processing expenses, labor costs and telephone expense of approximately $175,000, $20,000, $7,000, $4,000 and $3,000 respectively. These increases were offset in part by decreases in repairs and maintenance machinery and equipment, and travel expense of approximately $1,000 and $1,000 respectively. The professional fees increase in fiscal 2016 were largely related to the Federal Hose acquisition and are expected to decrease in the fourth quarter. The current level of marketing and other administrative expenses is expected to increase substantially during the fourth quarter due to the Federal Hose acquisition.

Interest expense was $8,179 for the nine months ended June 30, 2016, and $470 for the same period in 2015. Interest expense for the current year was due primarily to the borrowing on a capital lease for IT equipment, the unsecured revolving credit agreement and the convertible note payable of approximately $7,300, $300 and 500 respectively. Interest expense for the prior year third quarter was due to the borrowing available on the convertible note payable. The current level of interest expense is expected to increase during the fourth quarter of the fiscal year due to interest on the loans associated with the Federal Hose acquisition.

Other income of $5,556 compares with other income of $7,003 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 decrease was due primarily to a decrease in the sale of scrap metal shavings of approximately $1,300 during the current year nine month period. The current level of other income is expected to continue for the fourth quarter of fiscal 2016.

Income taxes during the first nine months of fiscal 2016 was $0 which compares with income taxes of $0 in the first nine months of fiscal 2015. In the first nine months of fiscal 2016 and 2015 recovery of income taxes was calculated at an effective tax rate of 37% offset by a increase in the valuation allowance netting to $0. 

The net loss for the nine months ended June 30, 2016 was $519,728 which compares with a net loss of $437,688 for the nine months ended June 30, 2015. The increased net loss for the first nine months of fiscal 2016 was primarily the result of a lower sales volume and higher operating costs, specifically professional fees related to the acquisition of Federal Hose.

Liquidity and Capital Resources

Total current assets were $3,051,823, $3,486,491 and $2,868,975 at June 30, 2016, September 30, 2015 and June 30, 2015, respectively. The increase of approximately $183,000 from June to June is due primarily to the increase in inventory and accounts receivable of approximately $268,000 and $41,000 respectively, offset in part by a decrease in cash and cash equivalents and prepaid expenses of approximately $109,000 and $17,000 respectively. The increase in accounts receivable combined with the increase in inventory was due primarily to the purchase of inventory and invoicing for the large OEM orders during the period. The increase in cash and cash equivalents was due to the collection of the accounts receivable from the large OEM orders. The decrease in current assets from September to June of approximately $435,000 was due primarily to the decrease in accounts receivable, cash and cash equivalents, and prepaid expenses of approximately $308,000, $90,000 and $59,000 respectively, offset by an increase in inventory of approximately $22,000. The increase in inventory was due primarily to the purchase of inventory for the moderate size OEM orders during the period. The decrease in accounts receivable was due to the decrease in the sales volume and the collection of the accounts receivable from the moderate size OEM orders during the period. Prepaid expenses decreased during the period due to timing.

Working capital as of June 30, 2016 amounted to $1,724,292 as compared with $1,934,888 a year earlier. Current assets were 2.3 times current liabilities compared to 3.1 a year ago. The quick ratio was .79 compared to 1.2 a year ago. 

Internally generated funds during the nine months ended June 30, 2016 were a negative $287,395 and were not adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $26,435. The primary reason for the negative cash flow from operations was the net loss during the period of $519,728 a decrease in accounts payable and inventory due to the completion of the moderate size orders received during the period, offset by a decrease in accounts receivable and prepaid expenses of $307,619 and $58,856 respectively. The Company does anticipate additional capital expenditures during fiscal 2016 of approximately $40,000 primarily to continue the upgrade and replacement of the Company's IT infrastructure. The Company believes that cash and cash equivalents, together with funds anticipated to be generated by operations in addition to the recent acquisition of Federal Hose and available short-term or long-term financing will provide adequate funding of the Company's working capital needs.

Shareholders' equity during the nine months ended June 30, 2016 decreased by $519,728 which was the net loss during the period.

Whenever there may be a requirement to increase inventory in fiscal 2016, there will be a negative but temporary impact on liquidity. Management continues to tightly control expenses and will take actions as deemed necessary to manage its working capital.

In December 2015, management entered into Amendment No. 4 of the Convertible Loan Agreement which may provide up to approximately $467,000 of liquidity to meet on going working capital requirements. The Convertible Loan Agreement, as amended, is between the Company and a major shareholder who is also affiliated with two Directors, as discussed in Note 4 to the Company's financial statements. This amended agreement modified the terms of the previously amended agreement by extending the due date of the loan agreement from December 30, 2015 to December 30, 2016 and continues to allow $250,000 of borrowing on the agreement at the Company's discretion. During fiscal 2014, the Company borrowed $200,000 against this facility and at June 30, 2016 this balance is outstanding.

On June 3, 2016, management entered into an unsecured revolving credit agreement with First Francis Company Inc. First Francis Company Inc, became a major shareholder of the Company on July 1, 2016 when the Company entered into an Agreement and Plan of Merger with First Francis Company Inc. owner of Federal Hose. The agreement provides for a revolving credit facility of $250,000. This facility is available through May 31, 2017. The Company has borrowed $250,000 against this credit facility during the quarter ended June 30, 2016. As of June 30, 2016 the outstanding balance on this credit facility was $250,000.

Management’s strategic plan to increase revenues and profitability through increased sales of existing products, the introduction of new products to the market place, the Company's continued efforts on several large potential orders with OEMs, and other additional short-term or long-term financing is expected to provide the Company with the needed working capital for the next twelve months. In addition, the Company completed the acquisition of Federal Hose on July 1, 2016 which is anticipated to provide increased sales and earnings.

Discussions Regarding Acquisition

On July 1, 2016, Hickok Incorporated completed its acquisition of Federal Hose Manufacturing LLC (Federal Hose). Pursuant to the terms of the Merger Agreement, the consummation of the transaction depended upon the satisfaction or waiver of a number of certain customary closing conditions and the approval of the Company's shareholders. All of these conditions were satisfied and the merger was completed on July 1, 2016.

In accordance with the Merger Agreement, the Company issued 911,250 validly issued, fully paid and non-assessable Class A Common Shares, without par value, and 303,750 validly issued, fully paid and non-assessable Class B Common Shares, without par value, to First Francis Company Inc. as consideration at the closing of the merger. The Company also issued to First Francis Company Inc. a promissory note in the principal amount of $2,768,662 and a promissory note in the principal amount of $2,000,000, each of which is secured by all of the assets of Hickok and certain of its subsidiaries, bears interest at a rate of 4.0% per annum, is amortized over a ten year period, and will be fully due six years after the issue date. These promissory notes contain customary provisions regarding acceleration of the Company's obligations as a result of an event of default.

The Company believes that the Federal Hose transaction provides it with a unique opportunity to build shareholder value through the addition of an established, profitable business that is immediately accretive to Hickok’s earnings.

Critical Accounting Policies

Our critical accounting policies are as presented in Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended September 30, 2015.

Forward-Looking Statements

The foregoing discussion includes forward-looking statements relating to the business of the Company. These forward-looking statements, or other statements made by the Company, are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors (including, but not limited to, those specified below) which are difficult to predict and, in many instances, are beyond the control of the Company. As a result, actual results of the Company could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) the Company's ability to effectively integrate Federal Hose and manage the larger operations of the combined business, (b) the Company's dependence upon a limited number of customers, (c) the highly competitive industry in which the company operates, which includes several competitors with greater financial resources and larger sales organizations, (d) the acceptance in the marketplace of new products and/or services developed or under development by the Company including automotive diagnostic products and indicating instrument products, (e) the ability of the Company to further establish distribution and a customer base in the automotive aftermarket, (f) the Company's ability to capitalize on market opportunities including state automotive emissions programs and OEM tool programs, (g) the Company's ability to obtain cost effective financing and (h) the Company's ability to satisfy its interest payments.

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 debt subject to interest rate risk during the current quarter was the funds available from the convertible note agreement and the revolving credit agreement. The Company had an outstanding balance on the convertible note at June 30, 2016, of $200,000 which is subject to a fixed rate of interest of 0.34%. In addition, the Company had an outstanding balance on the revolving credit agreement at June 30, 2016, of $250,000 which is subject to a fixed rate of interest of 4.0%. 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, 2016, 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, 2016 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, 2016 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 have been several legal developments in this legal proceeding since the filing of Form 10-K for fiscal 2015 however it is still difficult to access the status of the proceedings or probable outcomes. 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 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 12, 2016
/s/ R. L. Bauman

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




Date: August 12, 2016
/s/ G. M. Zoloty

G. M. Zoloty, Chief Financial Officer