<PAGE> 1
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 MARCH 31, 1999 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 (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
10514 DUPONT AVENUE; CLEVELAND, OHIO 44108
- ------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (216) 541-8060
- ------------------------------------------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO THE
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---- ----
AS OF MAY 17, 1999, 744,884 HICKOK INCORPORATED CLASS A COMMON SHARES AND
454,866 CLASS B COMMON SHARES 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
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales
Product Sales $ 4,229,911 $ 5,640,522 $ 7,752,478 $10,213,332
Service Sales 350,762 363,983 642,621 596,189
----------- ----------- ----------- -----------
Total Net Sales 4,580,673 6,004,505 8,395,099 10,809,521
Costs and Expenses:
Cost of Product Sold 2,662,524 3,156,124 4,776,185 5,701,122
Cost of Service Sold 254,135 189,893 435,453 377,946
Product Development 682,594 756,138 1,358,531 1,509,653
Operating Expenses 1,338,261 1,075,675 2,577,836 1,973,947
Interest Charges 15,397 10,882 33,310 19,350
Other Income (13,730) (42,227) (35,634) (86,952)
----------- ----------- ----------- -----------
4,939,181 5,146,485 9,145,681 9,495,066
----------- ----------- ----------- -----------
Income (Loss) before
Income Taxes (358,508) 858,020 (750,582) 1,314,455
Income (Recovery of)
Income Taxes (132,700) 317,400 (277,700) 486,400
----------- ----------- ----------- -----------
Net Income (Loss) $ (225,808) $ 540,620 $ (472,882) $ 828,055
=========== =========== =========== ===========
Earnings per Common Share:
- --------------------------
Net Income (Loss) $ (.18) $ .45 $ (.39) $ .69
=========== =========== =========== ===========
Earnings per Common Share
Assuming Dilution:
------------------
Net Income (Loss) $ (.18) $ .44 $ (.39) $ .68
=========== =========== =========== ===========
Dividends per Share $ .15 $ .10 $ .15 $ .10
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
(2)
<PAGE> 3
HICKOK INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1999 1998 1998
----------- ------------- ----------
(Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 562,607 $ 1,593,314 $ 330,125
Trade Accounts Receivable - Net 2,679,770 2,698,012 4,241,175
Inventories 5,790,256 5,892,089 5,383,775
Prepaid and Deferred Expenses 268,752 234,802 303,202
Refundable Income Taxes 171,663 181,812 --
----------- ----------- -----------
Total Current Assets 9,473,048 10,600,029 10,258,287
-------------------- ----------- ----------- -----------
Property, Plant and Equipment
- -----------------------------
Land 226,738 226,738 199,611
Buildings 1,541,245 1,541,245 1,520,940
Machinery and Equipment 4,170,802 3,953,541 4,288,026
----------- ----------- -----------
5,938,785 5,721,524 6,008,577
Less: Allowance for Depreciation 3,638,611 3,301,279 3,480,478
----------- ----------- -----------
Total Property - Net 2,300,174 2,420,245 2,528,099
-------------------- ----------- ----------- -----------
Other Assets
- ------------
Goodwill - Net of Amortization 1,887,430 1,941,585 1,956,462
Deferred Charges - Net of Amortization 43,194 81,095 119,892
Deposits 3,226 4,350 1,850
----------- ----------- -----------
Total Other Assets 1,933,850 2,027,030 2,078,204
------------------ ----------- ----------- -----------
Total Assets $13,707,072 $15,047,304 $14,864,590
============ =========== =========== ===========
</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,
1999 1998 1998
----------- ------------ -----------
(Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
Liabilities
- -----------
Current Liabilities
- -------------------
Short-term Financing $ -- $ -- $ 300,000
Current Portion of Long-Term Debt 134,729 161,762 161,762
Trade Accounts Payable 463,519 656,302 568,851
Accrued Payroll & Related Expenses 457,606 604,639 429,759
Accrued Expenses 132,783 196,903 80,740
Customer Deposits -- -- 83,249
Accrued Income Taxes -- 162,288 187,143
----------- ----------- -----------
Total Current Liabilities 1,188,637 1,781,894 1,781,504
------------------------- ----------- ----------- -----------
Deferred Income Taxes 165,000 165,000 174,000
- --------------------- ----------- ----------- -----------
Long-term Debt 448,345 549,475 579,746
- -------------- ----------- ----------- -----------
Stockholders' Equity
- --------------------
Class A, $1.00 par value;
authorized 3,750,000 shares;
744,884 shares outstanding(742,884
shares at September 30, 1998 and
741,384 shares at March 31, 1998)
excluding 9,586 shares in treasury 744,884 742,884 741,384
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 948,803 943,803 930,053
Retained Earnings 9,756,537 10,409,382 10,203,037
----------- ----------- -----------
Total Stockholders' Equity 11,905,090 12,550,935 12,329,340
-------------------------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $13,707,072 $15,047,304 $14,864,590
==================== =========== =========== ===========
</TABLE>
(4)
<PAGE> 5
HICKOK INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 8,413,341 $ 10,385,616
Cash paid to suppliers and employees (9,013,364) (9,730,570)
Interest paid (58,781) (13,810)
Interest received 21,548 62,034
Income taxes (paid) refunded 124,962 (604,657)
------------ ------------
Net Cash Provided by (Used In)
Operating Activities (512,294) 98,613
Cash Flows from Investing Activities:
Capital expenditures (217,261) (204,852)
Decrease in deposits 1,124 2,600
Payments for business purchased (Net) -- (2,382,957)
------------ ------------
Net Cash Used in Investing
Activities (216,137) (2,585,209)
Cash Flows from Financing Activities:
Change in short-term borrowing (27,033) 300,000
Decrease in long-term financing (101,130) (35,035)
Sale of Class A shares under option 5,850 3,046
Dividends paid (179,963) (119,625)
------------ ------------
Net Cash Provided By (Used in)
Financing Activities (302,276) 148,386
------------ ------------
Net increase (decrease) in cash and
cash equivalents (1,030,707) (2,338,210)
Cash and cash equivalents at beginning
of year 1,593,314 2,668,345
------------ ------------
Cash and cash equivalents at end
of second quarter $ 562,607 $ 330,135
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
(5)
<PAGE> 6
FORM 10-Q
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net Income (Loss) $(472,882) $ 828,055
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 429,388 403,881
Non-cash compensation charge
related to stock options 1,150 804
Changes in assets and liabilities:
Decrease (Increase) in accounts
receivable 18,242 (423,905)
Decrease (Increase) in inventories 101,833 219,870
Decrease (Increase) in prepaid
expenses (33,950) (69,233)
Decrease in refundable income
taxes 10,149 --
Increase (Decrease) in trade
accounts payable (192,783) (487,524)
Increase (Decrease) in accrued
payroll and related expenses (147,033) (29,818)
Increase (Decrease) in accrued
expenses (64,120) (225,260)
Increase (Decrease) in accrued
income taxes (162,288) (118,257)
--------- ---------
Total Adjustments (39,412) (729,442)
--------- ---------
Net Cash Provided by (Used In)
Operating Activities $(512,294) $ 98,613
========= =========
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, 1999
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, 1999 are not
necessarily indicative of the results that may be expected for the year
ended September 30, 1999. 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,
1998.
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,
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Components $ 3,287,010 $ 3,249,619 $ 3,222,469
Work-in-Process 1,325,117 1,440,624 1,236,267
Finished Product 1,178,129 1,201,846 925,039
----------- ----------- -----------
$ 5,790,256 $ 5,892,089 $ 5,383,775
=========== =========== ===========
</TABLE>
3. Capital Stock, Treasury Stock, Contributed Capital and Stock Options
--------------------------------------------------------------------
Under the Company's Key Employees Stock Option Plans (collectively the
"Employee Plans"), incentive stock options, in general, are exercisable
for up to ten years, at an exercise price of not less than the market
price on the date the option is granted. Non-qualified stock options may
be granted at such exercise price and such other terms and conditions as
the Compensation Committee of the Board of Directors may determine. No
options may be granted at a price less than $2.925. Options for 113,600
Class A shares were outstanding at March 31, 1999 (97,600 shares at
September 30, 1998 and 99,900 shares at March 31, 1998) at prices ranging
from $2.925 to $17.25 per share. Options for 23,000 shares and 24,000
shares were granted during the three month period ended December 31, 1998
and December 31, 1997 respectively, at a price of $ 7.125 and $10.50 per
share respectively, and 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, 1999, no options were
exercised. During the second quarter period ended March 31, 1998, options
for 400 Class A shares were exercised at a price of 6.92 to $8.31 per
share resulting in non-cash compensation to the optionee of $804. During
the first quarter period ended December 31, 1998, options for 2,000 Class
A shares were exercised at $2.925 per share resulting in non-cash
compensation to the optionee of $1,150. During the first quarter period
ended December 31, 1997 no options were exercised. Options for 1,000
shares and 4,000 shares were cancelled during the three month periods
ended March 31, 1999 and December 31, 1998 respectively. 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.
The Company's Outside Directors Stock Option Plans (collectively the
"Directors Plans"), provide for the automatic grant of options to
purchase up to 45,000 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 36,000 Class A shares were
outstanding at March 31, 1999 (30,000 shares at September 30, 1998 and
March 31, 1998) at prices ranging from $7.125 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, 1999 and March 31, 1998,
at a price of $7.125 and $12.25 per share respectively. Options for 6,000
Class A shares expired during the three month period ended March 31,
1999. All outstanding options under the Directors Plans become fully
exercisable on February 25, 2002.
Unissued shares of Class A common stock (604,466 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 $.15 per share special dividend on its Class A and
Class B common shares on December 9, 1998 payable January 22, 1999 to
shareholders of record January 4, 1999. A special dividend of $.10 per
share on Class A and Class B common shares, payable January 23, 1998 to
shareholders of record January 5, 1998, was declared on December 11,
1997.
(8)
<PAGE> 9
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income (Loss) available
to common stockholders $ (225,808) $ 540,620 $ (472,882) $ 828,055
Shares denominator 1,199,750 1,196,108 1,199,080 1,195,978
Per share amount $ (.18) $ .45 $ (.39) $ .69
=========== =========== =========== ===========
EFFECT OF DILUTIVE
SECURITIES
Average shares
outstanding 1,199,750 1,196,108 1,199,080 1,195,978
Stock options -- 29,621 -- 25,636
----------- ----------- ----------- -----------
1,199,750 1,225,729 1,199,080 1,221,614
DILUTED EARNINGS PER SHARE
Income (Loss) available
to common stockholders $ (225,808) $ 540,620 $ (472,882) $ 828,055
Per share amount $ (.18) $ .44 $ (.39) $ .68
=========== =========== =========== ===========
</TABLE>
Options to purchase 149,600 and 37,350 shares of common stock during the
second quarter of fiscal 1999 and the second quarter of fiscal 1998,
respectively, at prices ranging from $8.31 to $18.00 per share were
outstanding but were not included in the computation of diluted earnings
per share because the option's effect was antidilutive or the exercise
price was greater than the average market price of the common share.
During the six month period of fiscal 1999 and the six month period of
fiscal 1998 options to purchase 149,600 and 68,100 shares of common
stock, respectively, at prices ranging from $8.31 to $18.00 per share
were outstanding but were not included in the computation of diluted
earnings per share because the option's effect was antidilutive or the
exercise price was greater than the average market price of the common
shares.
(9)
<PAGE> 10
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
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 ($1,000,785). The Company has also
incurred and recorded as goodwill closing costs related to the purchase
($205,216) as well as the present value of a five year earn out contract
($585,892). Goodwill is being amortized over 20 years.
Pro forma effects of the Waekon Industries, Inc. purchase on fiscal 1998
operations were reported in the Company's Annual Report on Form 10K for
the fiscal year ended September 30, 1998. Pro forma effects of the Waekon
Industries, Inc. purchase on operations for the three months ended
December 31, 1997 were reported in Unaudited Consolidated Pro Forma
Condensed Financial Statements included in the Company's Form 8K dated
February 17, 1998. The following pro forma data summarizes the results of
operations of the Company for the twelve months ended September 30, 1998
and for the six months ended March 31, 1998, assuming Waekon was acquired
at the beginning of each period presented. In preparing the pro forma
data, adjustments have been made to conform Waekon's accounting policies
to those of the Company and to reflect purchase accounting adjustments
and interest expense.
<TABLE>
<CAPTION>
Twelve Months Six Months
Ended Ended
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
Net Sales $22,809,660 $12,850,819
=========== ===========
Net Income $ 1,118,606 $ 912,261
=========== ===========
Net Income per Common Share $ .93 $ .76
=========== ===========
</TABLE>
The pro forma information does not purport to be indicative of the
results of operations which would have actually been obtained if the
acquisition had occurred on the dates indicated or the results of
operations which will be reported in the future.
(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, 1999 through March 31,1999
Fiscal 1999 Compared to Second Quarter Fiscal 1998
- --------------------------------------------------------------------------------
Product sales for the quarter ended March 31, 1999 were $4,229,911 versus
$5,640,522 for the quarter ended March 31, 1998. The 25.0% decrease in product
sales in the current quarter is volume related and due primarily to a $842,000
decrease in automotive diagnostic sales to the OEM market and a $427,000
decrease in fastening system sales. The reduction in fastening system sales is
cyclical and due to a lack of orders for large networked systems. The reduction
in automotive diagnostic sales to the OEM market was anticipated and was
expected to be made up by sales to Tier 1 suppliers to the larger OEM's. The
company anticipates that the level of product sales experienced in the second
quarter is expected to increase in the third and fourth quarters of the fiscal
year based on current quote and order levels within the company's major product
classes.
Service sales for the quarter ended March 31, 1999 were $350,762 versus $363,983
for the quarter ended March 31, 1998. 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 1999 was $2,662,524 or
62.9% of product sales as compared to $3,156,124 or 56.0% of product sales in
the second quarter of 1998. This increase in the cost of product sold percentage
was due primarily to a change in product mix as sales of lower margin automotive
diagnostic products to the aftermarket represented a larger proportion of total
product sales. The current cost of products sold percentage is anticipated to
decrease slightly during the balance of the fiscal year due to a change in
product mix and improved plant utilization.
Cost of service sold for the quarter ended March 31, 1999 was $254,135 or 72.4%
of service sales as compared to $189,893 or 52.2% of service sales in the
quarter ended March 31, 1998. The increase was due to higher material costs due
to a change in product mix.
Product development expenses were $682,594 in the second quarter of fiscal 1999
or 16.1% of product sales as compared to $756,138 or 13.4% of product sales in
the second quarter of fiscal 1998. The percentage increase is due to a 25%
decrease in product sales. The level of expenditures incurred during the second
quarter of fiscal 1999 is expected to continue in the last two quarters of
fiscal 1999.
Operating expenses in the most recent quarter were $1,338,261 or 29.2% of total
sales versus $1,075,675 or 17.9% 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 decrease slightly in the third and fourth
quarters of the fiscal year due to cost containment.
(11)
<PAGE> 12
FORM 10-Q
Interest expense was $15,397 in the second quarter of fiscal 1999, as compared
to $10,882 in the second quarter of fiscal 1998. 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 continue for the
remainder of fiscal 1999.
Other income of $13,730 decreased $28,497 compared with the same quarter last
year due primarily to a decrease in interest income caused by a lower level of
short-term cash investments.
The net loss in the second quarter of fiscal 1999 was $225,808 as compared with
net income of $540,620 in fiscal 1998. This change was due to a decrease in
automotive diagnostic sales to the OEM market and a decrease in fastening
systems sales of large networked systems. In addition, there was a reduction in
gross product margin due to a change in product mix as sales of lower margin
automotive diagnostic products to the aftermarket represented a larger
proportion of total product sales.
Unshipped customer orders as of March 31, 1999 were $3,861,000 versus $3,252,000
at March 31, 1998. The primary reason for the increase reflects higher orders
for fastening systems products. Most of the increase, however, will not be
shipped until early fiscal 2000 per customer request.
Results of Operations, Six Months Ended March 31, 1999
Compared to Six Months Ended March 31, 1998
------------------------------------------------------
Product sales for the six months ended March 31, 1999 were $7,752,478 versus
$10,213,332 for the same period in fiscal 1998. The decrease is volume related
due primarily to a $806,000 decrease in sales of automotive diagnostic products
and a $1,161,000 decrease in fastening systems sales. Fastening systems sales
are down due to a lack of orders for large networked systems. The reduction in
automotive diagnostic sales, specifically sales to the OEM market, occurred in
the second quarter and was anticipated to be made up by sales to Tier 1
suppliers to the larger automotive OEM's. The current level of product sales is
anticipated to increase modestly over the last six months of the fiscal year
based on current quote and order levels within the Company's major product
classes.
Service sales for the six months ended March 31, 1999 were $642,621 compared
with $596,189 for the same period in fiscal 1998. The current level of service
sales is expected to continue for the balance of the fiscal year.
Cost of product sold was $4,776,185 or 61.6% of product sales as compared to
$5,701,122 or 55.8% of product sales for the six months ended March 31, 1998.
This increase in the cost of product sold percentage was due to a change in
product mix that occurred primarily in the second quarter of the fiscal year as
sales of lower margin automotive diagnostic products to the aftermarket
represented a larger proportion of total product sales. The cost of products
sold percentage should decrease slightly in the second half of the fiscal year
due to a change in product mix and improved plant utilization.
(12)
<PAGE> 13
FORM 10-Q
Cost of service sold was $435,453 or 67.8% of service sales compared with
$377,946 or 63.4% of service sales for the six months ended March 31, 1998.
Product development expenses were $1,358,531 or 17.5% of product sales as
compared to $1,509,653 or 14.8% of product sales for the six months ended March
31, 1998. The percentage increase is due to a 24% decrease 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 $2,577,836 for the six months ended March 31, 1999 or
30.7% of total sales versus $1,973,947 or 18.3% of total sales for the six
months ended March 31, 1998. Most of the dollar increase represents marketing
and administration expenses for Waekon Industries which was acquired on February
17, 1998.
Interest expense was $33,310 for the six months ended March 31, 1999, and
$19,350 for the same period in 1998. 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 continue for the remainder of fiscal
1999.
Other income of $35,634 decreased $51,318 compared with the same period last
year due primarily to a decrease in interest income caused by a reduced level of
short-term cash investments.
The net loss for the six months ended March 31, 1999 was $472,882 compared with
net income of $828,055 for the six months ended March 31, 1998. The change was
due primarily to a decrease in automotive diagnostic sales to the OEM market and
a decrease in fastening systems sales of large networked systems. In addition,
there was a reduction in gross product margin due to a change in product mix as
sales of lower margin automotive diagnostic products to the aftermarket
represented a larger proportion of total product sales.
Liquidity and Capital Resources
-------------------------------
Total current assets were $9,473,048, $10,600,029 and $10,258,287 at March 31,
1999, September 30, 1998 and March 31, 1998, respectively. The decrease from
March to March was due primarily to a reduction in accounts receivable and due
to lower sales in the current quarter versus the comparable period a year ago.
Between September, 1998 and March, 1999 current assets dropped by approximately
$1,100,000 due primarily to a decrease in cash and cash equivalents.
Cash was used to fund operations, capital expenditures and dividend payments.
Working capital as of March 31, 1999 amounted to $8,284,411. This compares to
$8,476,783 a year earlier. Current assets were 8.0 times current liabilities and
total cash and receivables were 2.7 times current liabilities. These ratios
compare to 5.8 and 2.6, respectively, at March 31, 1998.
(13)
<PAGE> 14
FORM 10-Q
Internally generated funds were a negative $512,294 during the six months ended
March 31, 1999 and were not adequate to fund the Company's primary non-operating
cash requirements consisting of capital expenditures of $217,261 and long-term
debt payments of $101,130. The shortfall was made up by a comparable decrease in
cash and cash equivalents. Management of the Company believes that cash and cash
equivalents, together with funds anticipated to be 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 1999.
Shareholders' equity during the six months ended March 31, 1999 decreased by
$645,845 ($.54 per share) resulting primarily from a net loss of $472,882 plus a
$179,963 payment of dividends.
In February 1999, the Company renewed its credit agreement with its financial
lender. The agreement expires in February, 2000 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.
Year 2000 Readiness Disclosure
-----------------------------
In late fiscal 1997 the Company began its review of Year 2000 issues with
emphasis placed on information technology systems software and hardware. During
fiscal 1998 the Company expanded its review to include non-information
technology systems and the readiness of key third parties, primarily suppliers
and customers. The Company used internal resources to make its assessment.
The Company determined that its primary information systems software and
hardware were not Year 2000 compliant and decided to replace non-compliant
equipment and software. Training and testing occurred throughout all of fiscal
1998. Installation began in early fiscal 1999 and has been substantially
completed. The system is functioning properly.
Substantial progress has also been made on the Company's review of non-
information technology systems and on the readiness of key third parties. The
review is essentially complete and will be finalized by July 1, 1999. Based on
assessment efforts to date, the Company does not believe that the Year 2000
issue applicable to these two areas will have a material adverse effect on the
Company's business and operating results. This assessment is based on certain
assumptions and expectations, primarily the ability of third parties to
remediate their own Year 2000 issues. Unexpected and significant compliance
problems in this area could result in a material adverse effect on the Company's
business and operating results. The Company's most likely worst case scenario
would be a short-term slowdown or cessation of manufacturing operations at one
or more of its facilities and a short-term inability on the part of the Company
to process orders and to deliver product to customers in a timely manner. Though
the Company does not expect a material adverse impact on operations, contingency
plans are essentially completed and will be finalized by July 1, 1999. Such
plans primarily involve the use of alternative suppliers and transportation
vendors.
Costs associated with the Company's assessment and remediation of Year 2000
issues are not expected to be material in fiscal 1999. The Company has used cash
and cash equivalents to fund such costs.
(14)
<PAGE> 15
FORM 10-Q
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 Company's
reliance on large orders to generate product sales, (c) the Company's ability to
make the transition from serving primarily OEM customers to serving smaller and
more diffuse customers in the automotive aftermarket, (d) the highly competitive
industry in which the company operates, which includes several competitors with
greater financial resources and larger sales organizations, (e) 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, and (f) the ability of
significant third parties with whom the Company does business to provide
products and services in the Year 2000 and beyond.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments which would require
disclosure under this item.
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 24, 1999, the
following individuals were elected to the Board of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Thomas H. Barton 1,836,262 5,758
Robert L. Bauman 1,837,662 4,358
Harry J. Fallon 1,836,262 5,758
T. Harold Hudson 1,837,662 4,358
George S. Lockwood, Jr. 1,835,262 6,758
Michael L. Miller 1,837,662 4,358
Janet H. Slade 1,831,662 10,358
</TABLE>
For information on how the votes have been tabulated for the above matter, see
the Company's definitive Proxy Statement used in connection with the Annual
Meeting of Shareholders held on February 24, 1999.
(15)
<PAGE> 16
FORM 10-Q
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
a) The following exhibits are included herein: (10) Second Amendment to Loan
Agreement, dated February 26, 1999 by and between the Company and Huntington
National Bank. (11) Statement re: Computation of earnings per share. (27)
Financial Data Schedule
b) The Company did not file any reports on Form 8-K during the three months
ended March 31, 1999.
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 17, 1999 HICKOK INCORPORATED
------------ (Registrant)
/s/ E. T. Nowakowski
--------------------
E. T. Nowakowski, Chief Financial Officer
(16)
<PAGE> 1
EXHIBIT 10
SECOND AMENDMENT TO LOAN AGREEMENT
----------------------------------
THIS SECOND AMENDMENT TO LOAN AGREEMENT (the "Second Amendment") is
made this 26th day of February, 1999, 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") and a First Amendment
to Loan Agreement dated as of February 18, 1998 (the "First
Amendment"), 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. The third sentence of Section 2.1 is hereby further modified and
amended to extend the maturity date of the Loan and the Revolving Note to
February 29, 2000.
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 and the First Amendment to Loan
Agreement are hereby ratified and confirmed and shall remain in full
force and effect. Borrower expressly acknowledges that this Second
Amendment shall not constitute a novation or waiver. Each and every
representation and warranty of the Borrower set forth in the Loan
Agreement and the First Amendment to 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 Second Amendment as well as at the time they were made and
undertaken.
1
<PAGE> 2
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 Second Amendment, the Second Modification and Amendment to the
Revolving Credit Note and all other documents or instruments required
pursuant hereto or thereto have been taken; this Second Amendment, the
Second 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 Second
Amendment, the Second 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 (4) 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 Second
Amendment, the Second 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.
3 AFFIRMATION AND AGREEMENT OF THE BORROWERS AND THE GUARANTOR. The Borrower and
the Guarantor have executed this Second 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
Second Amendment and the other agreements or documents relating hereto or
required hereby).
2
<PAGE> 3
5 REFERENCE TO LOAN AGREEMENT. Except as amended by the First Amendment to Loan
Agreement and 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 Second 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 previously amended and amended hereby.
6 COUN TERPARTS. This Second 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 Second Amendment.
8 BINDING EFFECT. This Second 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 Second 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/ Carmelita Gerome
- --------------------------
Signed in the presence of: THE HUNTINGTON NATIONAL BANK
(as to all signatures)
By: /s/ Herbert J. Werner
-----------------------
/s/ Carmelita Gerome Herbert A. Werner
- -------------------------- Vice President
/s/ Darlene Gray
- --------------------------
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
--------------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Average shares outstanding 1,199,750 1,196,108 1,199,080 1,195,978
Net effect of dilutive
stock options - based
on the treasury stock
method using average
market price - * 25,604 - * 18,747
--------- --------- --------- ---------
Total Shares 1,199,750 1,221,712 1,199,080 1,214,725
--------- --------- --------- ---------
Net Income (Loss) $(225,808) $ 540,620 $(472,882) $ 828,055
--------- --------- --------- ---------
Per Share $ (.18) $ 0.44 $ (.39) $ 0.68
========= ========= ========= =========
FULLY DILUTED
- -------------
Average shares outstanding 1,199,750 1,196,108 1,199,080 1,195,978
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 - * 25,636
--------- --------- --------- ---------
Total Shares 1,199,750 1,225,725 1,199,080 1,221,614
--------- --------- --------- ---------
Net Income (Loss) $(225,808) $ 540,620 $(472,882) $ 828,055
========= ========= ========= =========
Per Share $ (.18) $ 0.44 $ (.39) $ 0.68
========= ========= ========= =========
</TABLE>
*Net effect of stock options was antidilutive for the period.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 562,607
<RECEIVABLES> 2,679,770
<ALLOWANCES> 0
<INVENTORY> 5,790,256
<CURRENT-ASSETS> 9,473,048
<PP&E> 5,938,785
<DEPRECIATION> 3,638,611
<TOTAL-ASSETS> 13,707,072
<CURRENT-LIABILITIES> 1,188,637
<BONDS> 448,345
0
0
<COMMON> 1,199,750
<OTHER-SE> 10,705,340
<TOTAL-LIABILITY-AND-EQUITY> 13,707,072
<SALES> 8,395,099
<TOTAL-REVENUES> 0
<CGS> 5,211,638
<TOTAL-COSTS> 3,936,367
<OTHER-EXPENSES> (35,634)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,310
<INCOME-PRETAX> (750,582)
<INCOME-TAX> (277,700)
<INCOME-CONTINUING> (472,882)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (472,882)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
