<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period Ended March 31, 1998 Commission File No. 0-147
HICKOK INCORPORATED
INCORPORATED IN THE STATE OF OHIO I.R.S. NO. 34-0288470
10514 DUPONT AVENUE CLEVELAND, OHIO 44108
TELEPHONE NUMBER (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 the filing
requirements for the past 90 days.
YES X NO
------ ------
As of May 12, 1998, 741,384 Class A Common Shares and 454,866 Class B Common
Shares of Hickok Incorporated were outstanding.
<PAGE> 2
FORM 10-Q
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS:
HICKOK INCORPORATED
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31 March 31
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales
Product Sales $ 5,640,522 $ 3,812,530 $ 10,213,332 $ 7,393,003
Service Sales 363,983 1,031,101 596,189 2,101,637
Total Net Sales 6,004,505 4,843,631 10,809,521 9,494,640
Costs and Expenses:
Cost of Product Sold 3,156,124 2,320,680 5,701,122 4,656,869
Cost of Service Sold 189,893 891,121 377,946 1,862,158
Product Development 756,138 875,051 1,509,653 1,675,770
Operating Expenses 1,075,675 896,436 1,973,947 1,762,318
Interest Charges 10,882 2,047 19,350 4,375
Other Income (42,227) (27,035) (86,952) (43,540)
------------ ------------ ------------ ------------
5,146,485 4,958,300 9,495,066 9,917,950
------------ ------------ ------------ ------------
Income (Loss) before
Income Taxes 858,020 (114,669) 1,314,455 (423,310)
Income (Recovery of)
Income Taxes 317,400 (42,400) 486,400 (156,600)
------------ ------------ ------------ ------------
Net Income (Loss) $ 540,620 $ (72,269) $ 828,055 $ (266,710)
============ ============ ============ ============
Earnings per Common Share:
- --------------------------
Net Income (Loss) $ .45 $ (.06) $ .69 $ (.22)
============ ============ ============ ============
Earnings per Common Share
Assuming Dilution:
------------------
Net Income (Loss) $ .44 $ (.06) $ .68 $ (.22)
============ ============ ============ ============
Dividends per Share $ .10 $ .20 $ .10 $ .20
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
(2)
<PAGE> 3
HICKOK INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1998 1997 1997
(Unaudited) (Note) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 330,135 $ 2,668,345 $ 827,600
Trade Accounts Receivable - Net 4,241,175 3,312,988 3,400,372
Inventories 5,383,775 4,884,401 4,480,742
Prepaid and Deferred Expenses 303,202 231,121 174,598
Refundable Income Taxes -- -- 436,199
----------- ----------- -----------
Total Current Assets 10,258,287 11,096,855 9,319,511
-------------------- ----------- ----------- -----------
Property, Plant and Equipment
- -----------------------------
Land 199,611 199,611 215,495
Buildings 1,520,940 1,410,141 1,472,050
Machinery and Equipment 4,288,026 3,813,873 3,666,176
----------- ----------- -----------
6,008,577 5,423,625 5,353,721
Less: Allowance for Depreciation 3,480,478 3,129,290 3,002,619
----------- ----------- -----------
Total Property - Net 2,528,099 2,294,335 2,351,102
-------------------- ----------- ----------- -----------
Other Assets
- ------------
Goodwill - Net of Amortization 1,956,462 224,889 234,196
Deferred Charges - Net of Amortization 119,892 115,988 151,244
Deposits 1,850 4,350 13,344
----------- ----------- -----------
Total Other Assets 2,078,204 345,227 398,784
------------------ ----------- ----------- -----------
Total Assets $14,864,590 $13,736,417 $12,069,397
============ =========== =========== ===========
</TABLE>
NOTE: Amounts derived from audited financial statements previously filed with
the Securities and Exchange Commission.
See Notes to Consolidated Financial Statements.
(3)
<PAGE> 4
FORM 10-Q
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1998 1997 1997
(Unaudited) (Note) (Unaudited)
----------- ----------- ------------
<S> <C> <C> <C>
Liabilities
- -----------
Current Liabilities
- -------------------
Short-term Financing $ 300,000 $ -- $ --
Current Portion of Long-Term Debt 161,762 63,550 --
Trade Accounts Payable 538,851 657,285 213,474
Accrued Payroll & Related Expenses 429,759 422,772 685,181
Accrued Expenses 80,740 131,662 256,996
Customer Deposits 83,249 237,587 --
Accrued Income Taxes 187,143 305,400
----------- ----------- ------------
Total Current Liabilities 1,781,504 1,818,256 1,155,651
------------------------- ----------- ----------- ------------
Deferred Income Taxes 174,000 174,000 176,000
- --------------------- ----------- ----------- ------------
Long-term Debt 579,746 127,101 --
- -------------- ----------- ----------- ------------
Stockholders' Equity
- --------------------
Class A, $1.00 par value;
authorized 3,750,000 shares;
741,384 shares outstanding (740,984
shares at September 30, 1997 and
738,984 shares at March 31, 1997)
excluding 9,586 shares in treasury 741,384 740,984 738,984
Class B, $1.00 par value;
authorized 1,000,000 shares;
454,866 shares outstanding
excluding 20,667 shares
in treasury 454,866 454,866 454,866
Contributed Capital 930,053 926,603 921,316
Retained Earnings 10,203,037 9,494,607 8,622,580
----------- ----------- ------------
Total Stockholders' Equity 12,329,340 11,617,060 10,737,746
-------------------------- ----------- ----------- ------------
Total Liabilities and
Stockholders' Equity $14,864,590 $13,736,417 $12,069,397
==================== =========== =========== ===========
</TABLE>
(4)
<PAGE> 5
HICKOK INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 10,385,616 $ 11,451,902
Cash paid to suppliers and employees (9,730,570) (9,164,725)
Interest paid (13,810) (12,785)
Interest received 62,034 26,245
Income taxes paid (604,657) (12,000)
------------ ------------
Net Cash Provided by
Operating Activities 98,613 2,288,637
Cash Flows from Investing Activities:
Capital expenditures (204,852) (261,349)
Deferred charges -- (80,250)
Decrease in deposits 2,600 400
Payments for business purchased (Net) (2,382,957) --
------------ ------------
Net Cash Used in Investing
Activities (2,585,209) (341,199)
Cash Flows from Financing Activities:
Change in short-term borrowing 300,000 (1,375,000)
Decrease in long-term financing (35,035) --
Sale of Class A shares under option 3,046 6,920
Dividends paid (119,625) (238,570)
------------ ------------
Net Cash Provided By (Used in)
Financing Activities 148,386 (1,606,650)
Net increase (decrease) in cash and
cash equivalents (2,338,210) 340,788
Cash and cash equivalents at beginning
of year 2,668,345 486,812
------------ ------------
Cash and cash equivalents at end
of second quarter $ 330,135 $ 827,600
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
(5)
<PAGE> 6
FORM 10-Q
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net Income (Loss) $ 828,055 $ (266,710)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 403,881 377,586
Non-cash compensation charge
related to stock options 804 1,080
Changes in assets and liabilities:
Decrease (Increase) in accounts
receivable (423,905) 1,957,262
Decrease (Increase) in inventories 219,870 432,116
Decrease (Increase) in prepaid
expenses (69,233) (4,973)
Increase in refundable income
taxes -- (168,600)
Increase (Decrease) in trade
accounts payable (487,524) (146,669)
Increase (Decrease) in accrued
payroll and related expenses (29,818) (84,419)
Increase (Decrease) in accrued
expenses (225,260) 191,964
Increase (Decrease) in accrued
income taxes (118,257) --
----------- -----------
Total Adjustments (729,442) 2,555,347
----------- -----------
Net Cash Provided by
Operating Activities $ 98,613 $ 2,288,637
=========== ===========
Non-Cash Financing Activity:
----------------------------
Earn Out Payable $ 585,892 $ --
=========== ===========
</TABLE>
(6)
<PAGE> 7
FORM 10-Q
HICKOK INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1998
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 10 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 six-month periods ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year
ended September 30, 1998. 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,
1997.
2. Inventories
-----------
Inventories are valued at the lower of cost or market and consist of the
following:
<TABLE>
<CAPTION>
March 31, Sept. 30, March 31,
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Components $ 3,222,469 $ 2,482,194 $ 2,283,980
Work-in-Process 1,236,267 1,268,995 848,043
Finished Product 925,039 1,133,212 1,348,719
----------- ----------- -----------
$ 5,383,775 $ 4,884,401 $ 4,480,742
=========== =========== ===========
</TABLE>
3. Capital Stock, Treasury Stock, Contributed Capital and Stock Options
--------------------------------------------------------------------
On December 11, 1997 the Board of Directors adopted and shareholders
subsequently approved at the Company's Annual Meeting held on February
25, 1998, the 1997 Key Employees Stock Option Plan.
Under the Company's Key Employees Stock Option Plan, the 1995 Key
Employees Stock Option Plan and the 1997 Key Employees Stock Option Plan
(collectively the "Employee Plans"), incentive stock options, in general,
are exercisable for up to ten years, at an exercise price of not less
than the market price on the date the option is granted. Non-qualified
stock options may be granted at such exercise price and such other terms
and conditions as the Compensation Committee of the Board of Directors
may determine. No options may be granted at a price less than $2.925.
Options for 99,900 Class A shares were outstanding at March 31, 1998
(78,400 shares at September 30, 1997 and 80,400 shares at March 31, 1997)
at prices ranging from $2.925 to $17.25 per share. Options for 24,000
shares and 27,550 shares were granted during the three month period ended
December 31, 1997 and December 31, 1996 respectively, at a price of
$10.50 and $10.75 per share respectively, all options are exercisable.
(7)
<PAGE> 8
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
During the second quarter period ended March 31, 1998, options for 400
Class A shares were exercised at prices ranging from $6.92 to $8.31 per
share resulting in non-cash compensation to the optionee of $804. During
the second quarter period ended March 31, 1997, options for 1,000 Class A
shares were exercised at a price of $6.92 per share resulting in non-cash
compensation to the optionee of $1,080. Options for 2,100 shares of Class
A shares were cancelled during the three month period ended March 31,
1998. No other options were granted, exercised or cancelled during the
three or six month periods presented under the Employee Plans.
On December 11, 1997 the Board of Directors adopted, and shareholders
subsequently approved at the Company's Annual Meeting held on February
25, 1998, the 1997 Outside Directors Stock Option Plan.
The Company's 1995 Outside Directors Stock Option Plan and the 1997
Outside Directors Stock Option Plan (collectively the "Directors Plans"),
provide for the automatic grant of options to purchase up to 51,000
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 30,000 Class A shares were outstanding at March 31,
1998 (24,000 shares at September 30, 1997 and March 31, 1997) at prices
ranging from $8.50 to $18.00 per share. Options for 6,000 shares were
granted under the Directors Plans during each of the three month periods
ended March 31, 1998 and March 31, 1997, at a price of $12.25 and $18.00
per share respectively. All outstanding options under the 1995 Outside
Directors Stock Option Plan become fully exercisable on February 23,
2000. All outstanding options under the 1997 Outside Directors Stock
Option Plan become fully exercisable on February 25, 2001.
Unissued shares of Class A common stock (584,766 shares) are reserved for
the share-for-share conversion rights of the Class B common stock and
stock options under the Employee Plans and the Directors Plans.
The Company declared a $.10 per share special dividend on its Class A and
Class B common shares on December 11, 1997 payable January 23, 1998 to
shareholders of record January 5, 1998. A special dividend of $.20 per
share on Class A and Class B common shares, payable January 24, 1997 to
shareholders of record January 3, 1997, was declared on December 13,
1996.
4. Earnings per Common Share
Earnings per common share are based on the provisions of FAS Statement No.
128, "Earnings per Share." Accordingly, the adoption of this statement did
not affect the Company's results of operations, financial position or
liquidity. The effects of applying FAS No. 128 on earnings per share and
required reconciliations are as follows:
(8)
<PAGE> 9
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income (Loss) available
to common stockholders $ 540,620 $ (72,269) $ 828,055 $ (266,710)
Shares denominator 1,196,108 1,193,017 1,195,978 1,192,932
Per share amount $ .45 $ (.06) $ .69 $ (.22)
=========== =========== =========== ===========
EFFECT OF DILUTIVE
SECURITIES
Average shares
outstanding 1,196,108 1,193,017 1,195,978 1,192,932
Stock options 29,621 19,407 25,636 19,928
----------- ----------- ----------- -----------
1,225,729 1,212,424 1,221,614 1,212,860
DILUTED EARNINGS PER SHARE
Income (Loss) available
to common stockholders $ 540,620 $ (72,269) $ 828,055 $ (266,710)
Per share amount $ .44 $ (.06) $ .68 $ (.22)
=========== =========== =========== ===========
</TABLE>
Options to purchase 37,350 and 63,600 shares of common stock during the
second quarter of fiscal 1998 and the second quarter of fiscal 1997,
respectively, at prices ranging from $10.75 to $18.00 per share were
outstanding but were not included in the computation of diluted earnings
per share because the option's exercise price was greater than the
average market price of the common share.
During the six month period of fiscal 1998 and the six month period ended
fiscal 1997 options to purchase 68,100 and 63,600 shares of common stock,
respectively, at prices ranging from $10.75 to $18.00 per share were
outstanding but were not included in the computation of diluted earnings
per share because the option's exercise price was greater than the
average market price of the common shares.
5. Purchase
--------
On February 17, 1998, the Company purchased certain assets of Waekon
Industries, Inc. for $2,221,302 which has been accounted for under the
purchase method of accounting. The purchase consisted of accounts
receivable ($504,282), inventory ($719,244), prepaid and other assets
($42,786), machinery and equipment ($380,100), assumption of current
liabilities ($425,895), and goodwill of ($1,000,785). In addition to the
purchased goodwill, the Company has incurred and recorded closing costs
related to the purchase ($161,655) and the present value of a five year
earn out contract ($585,892) as goodwill. Goodwill will be amortized over
20 years.
(9)
<PAGE> 10
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
Pro forma effects of the Waekon Industries, Inc. purchase on prior years
operations and the first quarter of fiscal 1998 were reported in
Unaudited Consolidated Pro Forma Condensed Financial Statements included
with Form 8-K/A filed March 30, 1998. The Company's current quarter and
year to date operations were not significantly impacted from this
business.
(10)
<PAGE> 11
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations, Second Quarter (January 1, 1998 through March 31,1998)
Fiscal 1998 Compared to Second Quarter Fiscal 1997
- --------------------------------------------------------------------------------
Product sales for the quarter ended March 31, 1998 were $5,640,522 versus
$3,812,530 for the quarter ended March 31, 1997. The 47.9% increase in product
sales in the current quarter is volume related and due primarily to a $1,624,000
increase in automotive diagnostic sales of which $565,000 represents sales of
products produced by Waekon Industries which was acquired on February 17, 1998.
The Company anticipates that the current amount of product sales experienced in
the second quarter will remain at that level in the third and fourth quarter.
Service sales for the quarter ended March 31, 1998 were $363,983 versus
$1,031,101 for the quarter ended March 31, 1997. The reduction was entirely
volume related due to the absence of diagnostic service revenue caused by the
termination of a contract in late fiscal 1997 to provide such services to Ford
Motor Company. The contract was not renewed because Ford consolidated suppliers
in this business segment. The current level of service sales is expected to
continue for the balance of the fiscal year.
Cost of product sold in the second quarter of fiscal 1998 was $3,156,124 or
56.0% of product sales as compared to $2,320,680 or 60.9% of product sales in
the second quarter of 1997. This decrease in the cost of product sold percentage
was due primarily to a change in product mix. The current cost of products sold
percentage is anticipated to increase slightly during the balance of the fiscal
year due to a change in product mix.
Cost of service sold for the quarter ended March 31, 1998 was $189,893 or 52.2%
of service sales as compared to $891,121 or 86.4% of service sales in the
quarter ended March 31, 1997. This improvement in the cost of services sold
percentage is entirely due to the elimination of costs associated with the
termination of a contract in late fiscal 1997 to provide diagnostic services to
Ford Motor Company.
Product development expenses were $756,138 in the second quarter of fiscal 1998
or 13.4% of product sales as compared to $875,051 or 23.0% of product sales in
the second quarter of fiscal 1997. The percentage decrease is due to an 14%
decrease in product development expenses combined with a 48% increase in product
sales. The level of expenditures incurred during the second quarter of fiscal
1998 is expected to continue in the last two quarters of fiscal 1998.
Operating expenses in the most recent quarter were $1,075,675 or 17.9% of total
sales versus $896,436 or 18.5% of total sales for the same period a year ago.
Most of the dollar increase represents marketing and administrative expenses for
Waekon Industries which was acquired on February 17, 1998. The current level of
operating expenses is anticipated to increase approximately $150,000 in the
third quarter of the fiscal year due to the inclusion of Waekon for an entire
quarter.
(11)
<PAGE> 12
FORM 10-Q
Interest expense was $10,882 in the second quarter of fiscal 1998, as compared
to $2,047 in the second quarter of fiscal 1997. This increase was due primarily
to an increase in long term debt associated with the Waekon acquisition on
February 17, 1998. The current level of interest expense will increase to
approximately $20,000 per quarter for the remainder of fiscal 1998.
Other income of $42,227 increased $15,192 compared with the same quarter last
year due primarily to an increase in interest income caused by a higher level of
short-term cash investments.
Net income in the second quarter of fiscal 1998 was $540,620 which compared with
a net loss of $72,269 in fiscal 1997. This improvement was due to an increase in
product sales and to an increase in gross product margin.
Unshipped customer orders as of March 31, 1998 were $3,252,000 versus $5,800,000
at March 31, 1997. A substantial portion of the decrease was due to the
termination of a contract in late fiscal 1997 to provide diagnostic services to
Ford Motor Company. The contract was not renewed because Ford consolidated
suppliers in this area. There was also a $400,000 decrease in backlog relating
to lower orders for fastening systems products. This was offset by a similar
increase in backlog for automotive aftermarket products as a result of the
acquisition of Waekon Industries in February, 1998. The shortfall in fastening
orders will not be made up in the second half of the fiscal year.
Results of Operations, Six Months Ended March 31, 1998
Compared to Six Months Ended March 31, 1997
------------------------------------------------------
Product sales for the six months ended March 31, 1998 were $10,213,332 versus
$7,393,003 for the same period in fiscal 1997. The increase is volume related
due primarily to a $2,193,000 increase in sales of automotive diagnostic
products of which $565,000 represents sales of products produced by Waekon
Industries which was acquired on February 17, 1998. The current level of product
sales is anticipated to continue for the last six months of the fiscal year.
Service sales for the six months ended March 31, 1998 were $596,189 compared
with $2,101,637 for the same period in fiscal 1997. The reduction was entirely
volume related due to the absence of diagnostic service revenue caused by the
termination of a contract in late fiscal 1997 to provide such services to Ford
Motor Company. The contract was not renewed because Ford consolidated suppliers
in this area. The current level of service sales is expected to continue for the
balance of the fiscal year.
Cost of product sold was $5,701,122 or 55.8% of product sales as compared to
$4,656,869 or 63.0% of product sales for the six months ended March 31, 1997.
This decrease in the cost of product sold percentage was due to a change in
product mix in both the first quarter and, to a lesser extent, in the second
quarter of the fiscal year.
(12)
<PAGE> 13
FORM 10-Q
Cost of service sold was $377,946 or 63.4% of service sales compared with
$1,862,158 or 88.6% of service sales for the six months ended March 31, 1997.
This improvement in the cost of services sold percentage is entirely due to the
elimination of costs associated with the termination of a contract in late
fiscal 1997 to provide diagnostic services to the Ford Motor Company.
Product development expenses were $1,509,653 or 14.8% of product sales as
compared to $1,675,770 or 22.7% of product sales for the six months ended March
31, 1997. The percentage decrease is due to a 10% decrease in product
development expenses combined with a 38% increase in product sales. The current
level of product development expenditures is expected to continue in the second
half of the fiscal year.
Operating expenses were $1,973,947 for the six months ended March 31, 1998 or
18.3% of total sales versus $1,762,318 or 18.6% of total sales for the six
months ended March 31, 1997. Most of the dollar increase represents marketing
and administration expenses for Waekon Industries which was acquired on February
17, 1998.
Interest expense was $19,350 for the six months ended March 31, 1998, and $4,375
for the same period in 1997. This increase was due to an increase in long term
debt associated with the Waekon acquisition on February 17, 1998. The current
level of interest expense will increase to approximately $20,000 per quarter for
the remainder of fiscal 1998.
Other income of $86,952 increased $43,412 compared with the same period last
year due primarily to an increase in interest income caused by a higher level of
short-term cash investments.
Net income for the six months ended March 31, 1998 was $828,055 or 7.7% of total
sales compared with a net loss of $266,710 for the six months ended March 31,
1997. The improvement was due primarily to an increase in product sales and to
an improvement in the cost of product sold percentage.
Liquidity and Capital Resources
-------------------------------
Total current assets were $10,258,287, $11,096,855 and $9,319,511 at March 31,
1998, September 30, 1997 and March 31, 1997, respectively. The increase from
March to March was due primarily to an increase in accounts receivable and
inventory, most of which were a result of the acquisition of Waekon Industries
in February, 1998 which was structured as an asset purchase. Between September,
1997 and March, 1998 current assets dropped by approximately $800,000 due
primarily to a decrease in cash and cash equivalents. The decrease in cash
occurred due to the acquisition of Waekon Industries.
(13)
<PAGE> 14
FORM 10-Q
Working capital as of March 31, 1998 amounted to $8,476,783. This compares to
$8,163,860 a year earlier. Current assets were 5.8 times current liabilities and
total cash and receivables were 2.6 times current liabilities. These ratios
compare to 8.1 and 3.7, respectively, at March 31, 1997.
Internally generated funds of $98,613 during the six months ended March 31, 1998
were not adequate to fund the Company's primary non-operating cash requirement
consisting of capital expenditures which amounted to $204,852. The shortfall was
made up by a $300,000 increase in short-term financing. Management of the
Company believes that cash and cash equivalents, together with funds generated
by operations and funds available under the Company's credit agreement, will
provide the liquidity necessary to support its current and anticipated capital
expenditures through the end of fiscal 1998.
Shareholders' equity during the six months ended March 31, 1998 increased by
$712,280 ($.60 per share) resulting primarily from $828,055 of net income less
$119,625 payment of dividends.
In February 1998, the Company renewed its credit agreement with its financial
lender. The agreement expires in February, 1999 and provides for a revolving
credit facility of $5,000,000 with interest at the bank's prime commercial rate
with a LIBOR option and is unsecured. The Company remains in compliance with its
loan covenants.
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, including Ford and General Motors, (b) the highly
competitive industry in which the company operates, which includes several
competitors with greater financial resources and larger sales organizations, and
(c) the acceptance in the marketplace of new products and/or services developed
or under development by the Company including automotive diagnostic products,
fastening systems products and indicating instrument products.
(14)
<PAGE> 15
FORM 10-Q
PART II. OTHER INFORMATION
- ---------------------------
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on February 25, 1998, the
following individuals were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Thomas H. Barton 1,825,059 3,370
Robert L. Bauman 1,825,059 3,370
Harry J. Fallon 1,825,059 3,370
T. Harold Hudson 1,825,059 3,370
George S. Lockwood, Jr. 1,824,459 3,970
Michael L. Miller 1,825,059 3,370
Janet H. Slade 1,825,043 3,386
</TABLE>
The following proposals were approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
----------- -------- --------
<S> <C> <C> <C>
1. Approval of the adoption of
the 1997 Outside Directors
Stock Option Plan. 1,623,791 130,061 74,577
2. Approval of the adoption of
the 1997 Key Employees Stock
Option Plan. 1,616,419 155,549 56,461
</TABLE>
For information on how the votes for the above matter have been tabulated, see
the Company's definitive Proxy Statement used in connection with the Annual
Meeting of Shareholders held on February 25, 1998.
(15)
<PAGE> 16
FORM 10-Q
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
The following exhibits are included herein: (10) First Amendment to Loan
Agreement, dated February 18, 1998 by and between the Company and Huntington
National Bank. (11) Statement re: Computation of earnings per share. (27)
Financial Data Schedule.
The Company filed a current report on Form 8-K dated February 17, 1998 relative
to the acquisition of Waekon Industries, Inc. located in Kirkwood, PA.
SIGNATURE
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.
Date May 15, 1998 HICKOK INCORPORATED
------------ -------------------
(Registrant)
/s/ E. T. Nowakowski
-----------------------------------------
E. T. Nowakowski, Chief Financial Officer
(16)
<PAGE> 1
EXHIBIT 10
FIRST AMENDMENT TO LOAN AGREEMENT
---------------------------------
THIS FIRST AMENDMENT TO LOAN AGREEMENT (the "First Amendment") is made this
18th day of February, 1998, at Cleveland, Ohio, by and among THE HUNTINGTON
NATIONAL BANK ("Bank"), whose principal office is located at 917 Euclid Avenue,
Cleveland, Ohio 44115, HICKOK INCORPORATED, whose address is 10514 Dupont
Avenue, Cleveland, Ohio 44108 ("Borrower"), and SUPREME ELECTRONICS CORP., whose
address is 10514 Dupont Avenue, Cleveland, Ohio 44108 ("Guarantor").
RECITALS
--------
A. The Borrower and Bank, entered into a Restated Loan Agreement dated as
of February 28, 1997 (the "Loan Agreement"), pursuant to which Bank
agreed to make available to the Borrower a loan of up to
$5,000,000.00. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Loan Agreement.
B. The Borrower has requested certain amendments to the Loan Agreement.
C. As a material inducement to Bank to make the amendments to the loan
herein contemplated, Guarantor for good and valuable consideration, is
willing to deliver to Bank an acknowledgment of the Continuing
Guaranty Unlimited.
D. Bank is willing to make the amendments and modifications to the loan
herein described, upon the terms, covenants and conditions herein set
forth, and in reliance upon the representations and warranties of
Borrower herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, the terms,
covenants and conditions hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1 Amendments
- ------------
1.1 The third sentence of Section 2.1 is hereby modified and amended to
extend the maturity date of the Loan and the Revolving Note from February 28,
1998 to February 28, 1999.
1.2 Section 5.11 of the Loan Agreement is hereby amended to read in its
entirety as follows:
5.11 MAINTENANCE OF KEY FINANCIAL REQUIREMENTS. Borrower shall,
at all times, maintain the following financial requirements:
1.1.1 WORKING CAPITAL. Borrower will at all times maintain
consolidated Current Assets of Borrower and its Subsidiaries in excess
of their consolidated Current Liabilities (including the Revolving
Credit Note) of at least Seven Million Dollars ($7,000,000.00).
1.1.2 TANGIBLE NET WORTH. Borrower shall at all times maintain its
consolidated Tangible Net Worth in an amount not less than Nine
Million Dollars ($9,000,000.00). For purposes of this section the
Revolving Credit Notes shall be included in total liabilities and
deferred expenses of Borrower and its Subsidiaries shall be treated as
intangibles.
<PAGE> 2
EXHIBIT 10
2 Borrower's Representations, Warranties and Events of Default.
-------------------------------------------------------------
2.1 Representations and Warranties.
2.1.1 Except as amended hereby, the terms, provisions, conditions and
agreements of the Loan Agreement are hereby ratified and confirmed and
shall remain in full force and effect. Borrower expressly acknowledges that
this First Amendment shall not constitute a novation or waiver. Each and
every representation and warranty of the Borrower set forth in the Loan
Agreement is hereby confirmed and ratified in all material respects and
such representations and warranties shall be deemed to have been made and
undertaken as of the date of this First Amendment as well as at the time
they were made and undertaken.
2.1.2 The Borrower further represents and warrants that:
2.1.2.1 No Event of Default now exists or will exist
immediately following the execution hereof or after giving effect
to the transactions contemplated hereby.
2.1.2.2 All necessary corporate or shareholder actions on
the part of the Borrower to authorize the execution, delivery and
performance of this First Amendment, the First Modification and
Amendment to the Revolving Credit Note and all other documents or
instruments required pursuant hereto or thereto have been taken;
this First Amendment the First Modification and Amendment to the
Revolving Credit Note and each such other document or instrument
have been duly and validly executed and delivered and are legally
binding and binding upon the parties thereto and enforceable in
accordance with their respective terms, except to the extent that
the enforceability thereof may be limited by bankruptcy,
insolvency or like laws or by general equitable principals.
2.1.2.3 The execution, delivery and performance of this
First Amendment, the First Modification and Amendment to the
Revolving Credit Note and all other documents or instruments
required pursuant hereto or thereto, and all actions and
transactions contemplated hereby and thereby will not (A)
violate, be in conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under (1)
any provision of the Articles of Incorporation, Code of
Regulations or Bylaws of the Borrower, (2) any arbitration award
or any order of any court or of any other Governmental agency or
authority, (3) any license, permit or authorization granted to
the Borrower or under which the Borrower operates, or (5) any
applicable law, rule, order or regulation, indenture, agreement
or other instrument to which the Borrower is a party or by which
the Borrower or any of its properties is bound and which has not
been waived or consented to, or (B) result in the creation or
imposition of any lien, charge or encumbrance of any nature
whatsoever, except as expressly permitted in the Loan Agreement,
upon any of the properties of the Borrower.
2.1.2.4 No consent, approval or authorization of, or
filing, registration or qualification with, any governmental
authority or any other person or entity is required to be
obtained by the Borrower in connection with the execution,
delivery or performance of this First Amendment, the First
Modification and Amendment to the Revolving Credit Note or
any document or instrument required in connection herewith or
therewith which has not already been obtained or completed.
2
<PAGE> 3
EXHIBIT 10
3 AFFIRMATION AND AGREEMENT OF THE BORROWERS AND THE GUARANTOR. The Borrower and
the Guarantor have executed this First Amendment to consent to the amendments to
the Loan Agreement made pursuant hereto.
4 FEES AND EXPENSES. As required under the Loan Agreement, the Borrower shall
pay a facility fee of $5,000.00 upon execution hereof, and shall reimburse the
Bank upon demand for all out-of-pocket costs, charges and expenses of the Bank
(including reasonable fees and disbursements of legal counsel to Bank in
connection with the preparation, negotiation, execution and delivery of this
First Amendment and the other agreements or documents relating hereto or
required hereby).
5 REFERENCE TO LOAN AGREEMENT. Except as amended hereby, the Loan Agreement
shall remain in full force and effect and is hereby ratified and confirmed in
all respects. On and after the effectiveness of the amendment to the Loan
Agreement accomplished hereby, each reference in the Loan Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import and each
reference to the Loan Agreement in any Note or other Loan Document, or other
agreement, document or instrument executed and delivered pursuant to the Loan
Agreement, shall be deemed a reference to the Loan Agreement as amended hereby.
6 COUNTERPARTS. This First Amendment may be executed in as many counterparts as
may be convenient, each of which when so executed shall be deemed to be an
original for all purposes, and shall become binding when the Borrower, the
Guarantor, and Bank have executed at least one counterpart.
7 FURTHER ACTS. The parties agree to perform any further acts and to execute and
deliver any additional documents which may be reasonably necessary to carry out
the intent and provisions of this First Amendment.
8 BINDING EFFECT. This First Amendment shall be binding upon and shall inure to
the benefit of the Borrower, the Guarantor, Bank, and their respective heirs,
personal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties have signed this First Amendment to Loan
Agreement, intending to be legally bound thereby as of the Effective Date.
BORROWER
HICKOK INCORPORATED
/s/ Eugene Nowakowski BY: Robert L. Bauman
- --------------------------------- -------------------------------
Robert L. Bauman, President
/s/ Karen Gaul
- ---------------------------------
Signed in the presence of: THE HUNTINGTON NATIONAL BANK
(as to all signatures)
/s/ Terry Correno
- --------------------------------- By: /s/ Herbert Werner
--------------------------------
3
<PAGE> 1
FORM 10-Q
EXHIBIT 11
HICKOK INCORPORATED
STATEMENT RE: COMPUTATION OF PER COMMON SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 1,196,108 1,193,017 1,195,978 1,192,932
Net effect of dilutive
stock options - based
on the treasury stock
method using average
market price 25,604 19,407 18,747 19,928
----------- ----------- ----------- -----------
Total Shares 1,221,712 1,212,424 1,214,725 1,212,860
----------- ----------- ----------- -----------
Net Income (Loss) $ 540,620 $ (72,269) $ 828,055 $ (266,710)
Per Share $ 0.44 $ (0.06) $ 0.68 $ (0.22)
=========== =========== =========== ===========
FULLY DILUTED
Average shares outstanding 1,196,108 1,193,017 1,195,978 1,192,932
Net effect of dilutive
stock options - based
on the treasury stock
method using year-end
market price, if
higher than average
market price 29,621 19,407* 25,636 19,928*
----------- ----------- ----------- -----------
Total Shares 1,225,729 1,212,424 1,221,614 1,212,860
----------- ----------- ----------- -----------
Net Income (Loss) $ 540,620 $ (72,269) $ 828,055 $ (266,710)
=========== =========== =========== ===========
Per Share $ 0.44 $ (0.06) $ 0.68 $ (0.22)
=========== =========== =========== ===========
</TABLE>
*Period-end market price is less than average market price, use same as primary
shares.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 330,135
<SECURITIES> 0
<RECEIVABLES> 4,241,175
<ALLOWANCES> 0
<INVENTORY> 5,383,775
<CURRENT-ASSETS> 10,258,287
<PP&E> 6,008,577
<DEPRECIATION> 3,480,478
<TOTAL-ASSETS> 14,864,590
<CURRENT-LIABILITIES> 1,781,504
<BONDS> 579,746
0
0
<COMMON> 1,196,250
<OTHER-SE> 11,133,090
<TOTAL-LIABILITY-AND-EQUITY> 14,864,590
<SALES> 10,809,521
<TOTAL-REVENUES> 0
<CGS> 6,079,068
<TOTAL-COSTS> 3,396,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,350
<INCOME-PRETAX> 1,314,455
<INCOME-TAX> 486,400
<INCOME-CONTINUING> 828,055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 828,055
<EPS-PRIMARY> .69
<EPS-DILUTED> .68
</TABLE>
