UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-10-QQ
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedMarch 31June 30, 20120187
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromNot Applicable toNot Applicable
Commission file number:0-147
HICKOK INCORPORATED
(Exact name of registrant as specified in its charter)
Ohio | 34-0288470 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
10514 Dupont Avenue, Cleveland, Ohio | 44108 |
(Address of principal executive offices) | (Zip Code) |
Registrant's 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 such filing requirements for the past 90 days.Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] | Smaller reporting company [X] |
Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
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 April 30, 2017, 2,105,599July 31, 2018, 2,123,806 shares of Class A Common Stock and 773,616596,848 shares of Class B Common Stock were outstanding.
PART I
ITEM 1. FINANCIAL STATEMENTS
HICKOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited) | ||||||||
June 30, 2018 | December 31, 2017 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and Cash Equivalents | $ | 2,663,566 | $ | 2,444,110 | ||||
Accounts receivable less allowance for doubtful accounts | 7,351,867 | 9,011,677 | ||||||
Costs and estimated earnings in excess of billing | 2,217,344 | 1,605,991 | ||||||
Inventories-less allowance for obsolete inventory | 1,980,496 | 3,903,481 | ||||||
Prepaid Expenses and other current assets | 398,477 | 265,456 | ||||||
Total Current Assets | 14,611,750 | 17,230,715 | ||||||
PROPERTY, PLANT AND EQUIPMENT: | ||||||||
Land and Improvements | 228,872 | 235,179 | ||||||
Buildings and Leasehold Improvements | 1,418,444 | 2,239,763 | ||||||
Machinery and Equipment | 2,462,936 | 5,091,360 | ||||||
Total Property, Plant and Equipment | 4,110,252 | 7,566,302 | ||||||
Less accumulated depreciation | 1,239,029 | 4,242,913 | ||||||
Property, Plant and Equipment, Net | 2,871,223 | 3,323,389 | ||||||
OTHER ASSETS: | ||||||||
Goodwill | 2,255,912 | 2,255,912 | ||||||
Intangibles, net of accumulated amortization | 1,519,384 | 1,896,399 | ||||||
Deferred income taxes-less valuation allowance | 2,173,892 | 2,173,892 | ||||||
Other non-current assets | - | 3,250 | ||||||
Total Non-Current Other Assets | 5,949,188 | 6,329,453 | ||||||
Total Assets | $ | 23,432,161 | $ | 26,883,557 |
(Unaudited) March 31,2017 | September 30, 2016 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 3,174,522 | $ | 3,060,734 | ||||
Accounts receivable-less allowance fordoubtful accounts | 1,585,503 | 1,354,199 | ||||||
Inventories-less allowance for obsoleteinventory | 3,218,443 | 3,308,799 | ||||||
Prepaid expenses and other current assets | 414,025 | 43,085 | ||||||
Total Current Assets | 8,392,493 | 7,766,817 | ||||||
PROPERTY, PLANT AND EQUIPMENT: | ||||||||
Land | 233,479 | 233,479 | ||||||
Buildings | 1,477,312 | 1,448,978 | ||||||
Machinery and equipment | 3,580,416 | 3,392,734 | ||||||
5,291,207 | 5,075,191 | |||||||
Less accumulated depreciation | 3,888,340 | 3,771,268 | ||||||
Property, Plant and Equipment, Net | 1,402,867 | 1,303,923 | ||||||
OTHER ASSETS: | ||||||||
Goodwill | 1,777,656 | 1,777,656 | ||||||
Customer list-less accumulatedamortization | 1,192,727 | 1,250,909 | ||||||
Deferred income taxes-less valuationallowance of $500,000 | 3,330,600 | 3,330,600 | ||||||
Other non-current assets | 750 | 4,850 | ||||||
Total Non-Current Other Assets | 6,301,733 | 6,364,015 | ||||||
Total Assets | $ | 16,097,093 | $ | 15,434,755 |
See accompanying notes to consolidated financial statements.statements
HICKOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited) March 31, 2017 | September 30, 2016 | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Convertible notes payable - related party | $ | 200,000 | $ | - | ||||
Short-term financing - related party | - | 250,000 | ||||||
Notes payable – related party | 403,387 | 379,761 | ||||||
Leases payable | 51,825 | 59,369 | ||||||
Accounts payable | 786,541 | 733,388 | ||||||
Accrued payroll and related expenses | 227,695 | 301,054 | ||||||
Accrued expenses | 630,835 | 593,378 | ||||||
Accrued income taxes | - | 31,000 | ||||||
Deferred revenue | 631,992 | - | ||||||
Total Current Liabilities | 2,932,275 | 2,347,950 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Notes payable - related party | 4,185,201 | 4,388,901 | ||||||
Leases payable | 119,825 | 144,997 | ||||||
Convertible notes payable - related party | - | 200,000 | ||||||
Deferred revenue | 510,451 | - | ||||||
Total Long-term Liabilities | 4,815,477 | 4,733,898 | ||||||
STOCKHOLDERS' EQUITY: | ||||||||
Common shares - no par value | ||||||||
Class A 10,000,000 shares authorized, 2,090,394 shares issued | 2,217,151 | 2,108,651 | ||||||
Class B 2,500,000 convertible shares authorized, 779,283 shares issued | 710,272 | 710,272 | ||||||
Preferred 1,000,000 shares authorized, no shares outstanding | - | - | ||||||
Contributed capital | 1,741,901 | 1,741,901 | ||||||
Treasury shares | (264,841 | ) | (253,341 | ) | ||||
Class A - 15,795 shares and | ||||||||
Class B - 5,667 and 667 shares | ||||||||
Retained earnings | 3,944,858 | 4,045,424 | ||||||
Total Stockholders' Equity | 8,349,341 | 8,352,907 | ||||||
Total Liabilities and Stockholders' Equity | $ | 16,097,093 | $ | 15,434,755 |
(Unaudited) | ||||||||
June 30, 2018 | December 31, 2017 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Convertible notes payable - related party | $ | 200,000 | $ | 200,000 | ||||
Notes payable - related party | 432,910 | 352,727 | ||||||
Bank Debt - Current | 500,000 | 500,000 | ||||||
Leases payable | 16,944 | 55,735 | ||||||
Accounts payable | 2,462,941 | 2,112,695 | ||||||
Unearned revenue | 3,182,213 | 2,601,355 | ||||||
Accrued payroll and related expenses | 828,118 | 723,053 | ||||||
Accrued expenses | 1,296,444 | 1,340,465 | ||||||
Accrued income taxes | 227,595 | 108,576 | ||||||
Total Current Liabilities | 9,147,165 | 7,994,606 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Notes payable - related party | 3,428,586 | 3,651,765 | ||||||
Bank Debt | 1,074,235 | 4,732,550 | ||||||
Leases payable | 7,789 | 106,855 | ||||||
Total Long-Term Liabilities | 4,510,610 | 8,491,170 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred shares, no par value - 1,000,000 shares authorized, no shares issued and outstanding | ||||||||
Common shares, no par value | ||||||||
Class A common shares - 10,000,000 shares authorized, 2,123,806 shares issued and outstanding at June 30, 2018 and 2,130,681 shares issued at December 31, 2017 | 2,495,534 | 2,246,367 | ||||||
Class B common shares - 2,500,000 shares authorized, 596,848 shares issued and outstanding at June 30, 2018 and 779,283 shares at December 31, 2017, respectively | 710,272 | 710,272 | ||||||
Contributed capital | 1,741,901 | 1,741,901 | ||||||
Treasury shares | (1,905,780 | ) | (264,841 | ) | ||||
Class A common shares - 37,208 shares held at June 30, 2018 and 15,795 shares held at December 31, 2017, respectively | ||||||||
Class B common shares – 182,435 shares held at June 30, 2018 and 5,667 shares held at December 31, 2017, respectively | ||||||||
Retained earnings | 6,732,459 | 5,964,082 | ||||||
Total Stockholders' Equity | 9,774,386 | 10,397,781 | ||||||
Total Liabilities and Stockholders' Equity | $ | 23,432,161 | $ | 26,883,557 |
See accompanying notes to consolidated financial statements.statements
HICKOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
TOTAL SALES | $ | 3,346,315 | $ | 1,046,624 | $ | 5,703,241 | $ | 2,423,496 | ||||||||
COSTS AND EXPENSES: | ||||||||||||||||
COST OF SALES | 1,968,801 | 694,544 | 3,742,489 | 1,435,065 | ||||||||||||
Product development | 217,316 | 272,710 | 456,326 | 519,483 | ||||||||||||
Marketing and administrative EXPENSES | 894,302 | 542,910 | 1,545,876 | 981,135 | ||||||||||||
Interest charges | 48,192 | 3,162 | 98,961 | 3,336 | ||||||||||||
Legal matter | - | - | (50,000 | ) | - | |||||||||||
Other income | (3,563 | ) | (2,258 | ) | (5,972 | ) | (3,890 | ) | ||||||||
Total Costs and Expenses | 3,125,048 | 1,511,068 | 5,787,680 | 2,935,129 | ||||||||||||
Income (Loss) before Provision for Income Taxes | 221,267 | (464,444 | ) | (84,439 | ) | (511,633 | ) | |||||||||
Provision for Income Taxes | 8,127 | - | 16,127 | - | ||||||||||||
Net Income (Loss) | $ | 213,140 | $ | (464,444 | ) | $ | (100,566 | ) | $ | (511,633 | ) | |||||
Earnings (Loss) Per Common Share - Basic | $ | 0.07 | $ | (0.28 | ) | $ | (0.04 | ) | $ | (0.31 | ) | |||||
Earnings (Loss)per Common Share -Diluted | $ | 0.07 | $ | (0.28 | ) | $ | (0.04 | ) | $ | (0.31 | ) | |||||
Weighted average shares of common stock outstanding – Basic | 2,877,493 | 1,638,215 | 2,865,165 | 1,638,215 | ||||||||||||
Weighted average shares of common stock outstanding – Diluted | 2,964,729 | 1,638,215 | 2,865,165 | 1,638,215 |
See accompanying notes to consolidated financial statements.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Total Sales | $ | 13,593,192 | $ | 7,220,626 | $ | 25,471,892 | $ | 10,566,941 | ||||||||
Cost of Sales | 10,106,614 | 4,191,480 | 18,966,873 | 6,160,281 | ||||||||||||
Gross Profit | 3,486,578 | 3,029,146 | 6,505,019 | 4,406,660 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Product development costs | 97,389 | 179,840 | 220,418 | 397,156 | ||||||||||||
Selling, general and administrative expenses | 1,572,244 | 1,540,381 | 3,824,571 | 2,434,683 | ||||||||||||
Operating Income | 1,816,945 | 1,308,925 | 2,460,030 | 1,574,821 | ||||||||||||
Other (Income) and Expenses: | ||||||||||||||||
Interest charges | 80,755 | 66,695 | 166,688 | 114,887 | ||||||||||||
Loss on sale of business | 1,160,574 | - | 1,160,574 | - | ||||||||||||
Other (income) expense, net | 49,450 | 263,334 |
| 108,266 | 259,771 | |||||||||||
Total Other (Income) and Expenses | 1,290,779 | 330,029 | 1,435,528 | 374,658 | ||||||||||||
Income before Provision for Income Taxes | 526,166 | 978,896 | 1,024,502 | 1,200,163 | ||||||||||||
Provision for Income Taxes | 131,541 | 37,373 | 256,125 | 45,500 | ||||||||||||
Net Income | $ | 394,625 | $ | 941,523 | $ | 768,377 | $ | 1,154,663 | ||||||||
Net Income Per Common Share - Basic | $ | 0.14 | $ | 0.33 | $ | 0.27 | $ | 0.40 | ||||||||
Net Income Per Common Share - Diluted | $ | 0.13 | $ | 0.31 | $ | 0.24 | $ | 0.38 | ||||||||
Weighted Average Shares of Common Stock Outstanding – Basic | 2,721,832 | 2,880,719 | 2,880,070 | 2,879,115 | ||||||||||||
Weighted Average Shares of Common Stock Outstanding - Diluted | 3,076,076 | 3,072,400 | 3,236,590 | 3,043,619 |
HICKOK INCORPORATED AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOW(Unaudited)
Six Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Cash received from customers | $ | 6,821,937 | $ | 3,127,079 | ||||
Cash paid to suppliers and employees | (5,848,626 | ) | (3,059,419 | ) | ||||
Interest paid | (115,722 | ) | (2,991 | ) | ||||
Interest received | 2,672 | 556 | ||||||
Income taxes paid | (51,500 | ) | - | |||||
Net Cash Provided byOperating Activities | 808,761 | 65,225 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (220,683 | ) | (247,822 | ) | ||||
Net Cash (Used in) Investing Activities | (220,683 | ) | (247,822 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Payments on notes payable – related party | (180,074 | ) | - | |||||
Payments on short-term financing – related party | (250,000 | ) | - | |||||
Borrowing from capital lease | - | 233,115 | ||||||
Payments on capital lease | (32,716 | ) | (15,080 | ) | ||||
Purchase of Class B shares | (11,500 | ) | - | |||||
Net CashProvided by (Used in) Financing Activities | (474,290 | ) | 218,035 | |||||
Increase in Cash and Cash Equivalents | 113,788 | 35,438 | ||||||
Cash and Cash Equivalents at Beginning ofPeriod | 3,060,734 | 346,405 | ||||||
Cash and Cash Equivalents at End ofPeriod | $ | 3,174,522 | $ | 381,843 |
See accompanying notes to consolidated financial statements.statements
HICKOK INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
Six Months Ended June 30, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net Income | $ | 768,377 | $ | 1,154,663 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 654,930 | 282,656 | ||||||
Loss (gain) on sale of operations | 1,160,574 | 0 | ||||||
Loss (gain) on disposal of assets | 0 | 2,667 | ||||||
Non-cash share-based compensation expense | 249,167 | 129,832 | ||||||
Changes in assets and liabilities: | ||||||||
Decrease (Increase) in accounts receivable | 1,023,256 | (2,880,898 | ) | |||||
Decrease (Increase) in inventories | (262,496 | ) | (82,569 | ) | ||||
Decrease (Increase) in costs and estimated earnings in excess of billings | (611,353 | ) | 873,956 | |||||
Decrease (Increase) in prepaid expenses & other assets | (217,071 | ) | (485,707 | ) | ||||
Increase (Decrease) in accounts payable | 717,836 | 968,195 | ||||||
Increase (Decrease) in accrued payroll and related expenses | 136,719 | 344,782 | ||||||
Increase (Decrease) in accrued expenses | (135,701 | ) | 340,981 | |||||
Increase (Decrease) in accrued income taxes | 119,019 | 69,744 | ||||||
Increase (Decrease) in unearned revenue | 580,858 | (365,887 | ) | |||||
Total adjustments | 3,415,738 | (802,248 | ) | |||||
Net Cash Provided by (Used in) Operating Activities | $ | 4,184,115 | $ | 352,415 |
See accompanying notes to consolidated financial statements
HICKOK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW(Unaudited)
Six Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: | ||||||||
Net Income (Loss) | $ | (100,566 | ) | $ | (511,633 | ) | ||
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)TO NETCASH PROVIDED BY OPERATING ACTIVITIES: | ||||||||
Depreciation and amortization | 175,254 | 63,000 | ||||||
Loss on disposal of assets | 4,667 | - | ||||||
Non-cash share-based compensation expense | 108,500 | - | ||||||
CHANGES IN ASSETS AND LIABILITIES: | ||||||||
Decrease (Increase) in accounts receivable | (231,304 | ) | 703,583 | |||||
Decrease (Increase) in inventories | 90,356 | (48,859 | ) | |||||
Decrease (Increase) in prepaid expenses and other assets | (366,840 | ) | 38,979 | |||||
Increase (Decrease) in accounts payable | 53,153 | (37,012 | ) | |||||
(Decrease) in accrued payroll and related expenses | (73,359 | ) | (90,144 | ) | ||||
Increase (Decrease) in accrued expenses | 37,457 | (52,689 | ) | |||||
(Decrease) in accrued income taxes | (31,000 | ) | - | |||||
Increase in deferred revenue | 1,142,443 | - | ||||||
Total Adjustments | 909,327 | 576,858 | ||||||
Net Cash Provided by Operating Activities | $ | 808,761 | $ | 65,225 |
|
Six Months Ended June 31, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Investing Activities | ||||||||
Capital expenditures | $ | (133,385 | ) | $ | (159,677 | ) | ||
Cash paid for acquisition | 0 | (10,250,000 | ) | |||||
Net Cash Provided by (Used in) Investing Activities | (133,385 | ) | (10,409,677 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Payments on related party notes | (142,996 | ) | (682,459 | ) | ||||
Payments on bank debt | (4,100,000 | ) | (300,000 | ) | ||||
Borrowings on bank debt | 435,729 | 8,500,000 | ||||||
Payments on capital lease | (24,007 | ) | (37,171 | ) | ||||
Net Cash Provided by (Used in) Financing Activities | (3,831,274 | ) | 7,480,370 | |||||
Net Increase (decrease) in cash and cash equivalents | 219,456 | (2,576,892 | ) | |||||
Cash and cash equivalents at beginning of year | 2,444,110 | 3,607,452 | ||||||
Cash and cash equivalents at end of year | $ | 2,663,566 | $ | 1,030,560 | ||||
Supplemental disclosures of cash flow information | ||||||||
Interest Paid | $ | 232,991 | $ | 109,174 | ||||
Income Taxes Paid | $ | 119,019 | $ | 20,500 | ||||
Non-cash proceeds received for Class A and Class B Common Shares in exchange for the sale of certain assets | $ | 1,640,939 | $ | 0 |
See accompanying notes to consolidated financial statements
HICKOK INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30 (Unaudited), 2018MARCH 31, 2017
1.BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with generalgenerally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-K.S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of Hickok Incorporated and its wholly-owned subsidiaries (the “Company”). Significant intercompany transactions and balances have been eliminated in the 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 months ended March 31, 2017June 30, 2018 are not necessarily indicative of the results that may be expected for the year ended September 30, 2017.December 31, 2018. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s AnnualTransition Report on Form 10-K10-KT for the year ended September 30, 2016.December 31, 2017.
During the six-month period ended March 31, 2017,June 30, 2018, there have been no changes to our significant accounting policies other than the revenue recognition from contracts with customer, as determineddiscussed in our AnnualNote 2 below.
Reclassifications
Certain prior year amounts were reclassified to conform to the current year presentation, including transaction costs related to acquisitions that were reclassified from selling, general and administrative to other (income) expenses as these costs are not considered as operating costs. These reclassifications have no effect on the financial position or results of operations reported as of and for the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s Summary of Significant Accounting Policies is provided with the consolidated financial statements and footnotes thereto included in the Company’s Transition Report on Form 10-K10-KT for the fiscal yearthree-month transition period ended September 30, 2016.December 31, 2017.
2.Recently Adopted Accounting Standards
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 May 2017, the Financial Accounting Standards Board (FASB), issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting." ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The Company adopted this guidance January 1, 2018. The adoption of this guidance did not have a material effect on our consolidated financial statements.
In August 2016, FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments." The amendments in this update provide guidance on eight specific cash flow issues, thereby reducing the diversity in practice in how certain transaction are classified in the consolidated statements of cash flows. This standard is effective for annual periods and interim periods for those annual periods beginning on or after December 15, 2017. Early adoption is permitted. The Company adopted this guidance January 1, 2018. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU 2016-09) 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 the Company 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 Company adopted this standard effective October 1, 2017. The adoption of this new standard did not have a material impact on our consolidated 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 Company adopted this new standard effective January 1, 2018. The adoption of this standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards
In January 2017, FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The standard, which should be applied prospectively, is effective for fiscal years and interim periods within those years beginning on or after December 15, 2019. Early adoption is permitted. We are evaluating the impact the adoption of this standard could have on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The standard requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This standard is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2019 with early adoption permitted. We are evaluating the impact the adoption of this standard could have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842),” 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 requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial application. The new standard is effective for fiscal years and interim periods within those years, beginning on or after January 1, 2019, with early adoption permitted. We are evaluating the impact the adoption of this standard will have to our consolidated financial statements.
3. ACCOUNTS RECEIVABLE
The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The reserve for doubtful accounts was $10,141$6,418 and $10,000$10,175 at MarchJune 30, 2018 and December 31, 2017, and September 30, 2016.respectively.
3.
4. INVENTORY
Inventory is valued at the lower of cost (first-in, first-out) or market and consist of:
March 31, 2017 | September 30, 2016 | June 30, 2018 | December 31, 2017 | |||||||||||||
Raw materials and component parts | $ | 1,574,883 | $ | 1,730,563 | $ | 1,170,772 | $ | 2,637,138 | ||||||||
Work-in-process | 535,981 | 438,447 | - | 523,644 | ||||||||||||
Finished products | 1,107,579 | 1,139,789 | 954,491 | 1,200,204 | ||||||||||||
Inventories, net of reserve | $ | 3,218,443 | $ | 3,308,799 | ||||||||||||
Total Inventory | $ | 2,152,263 | 4,360,986 | |||||||||||||
Less: inventory reserves | 144,767 | 457,505 | ||||||||||||||
Net Inventory | $ | 1,980,496 | $ | 3,903,481 |
The reserve for inventory obsolescence was $478,277 and $235,592 at March 31, 2017 and September 30, 2016, respectively.
4.5. GOODWILL AND OTHER INTANGIBLEINTANGIBLE ASSETS, NET
Intangible assets relate to the purchase of a businessbusinesses on June 1, 2017 and July 1, 2016. Goodwill represents the excess of cost over the fair value of identifiable assets acquired. Goodwill is not amortized but will be reviewed on an annual basis for impairment. Amortization of other intangibles (Customer list) is being amortized on a straight-line basis over 11period ranging from one year to 15 years. Intangible assets are as follows:
June 30, 2018 | December 31, 2017 | |||||||
Customer List: Backlog | $ | 1,970,000 | $ | 1,970,000 | ||||
Non-Compete Agreements | 200,000 | 200,000 | ||||||
Trademarks | 340,000 | 340,000 | ||||||
Other Intangibles | 2,510,000 | 2,510,000 | ||||||
Less: Accumulated Amortization | 990,616 | 613,601 | ||||||
Other Intangibles, Net | $ | 1,519,384 | $ | 1,896,399 |
Amortization of other intangibles assets was: $377,015 and $120,904 for the six months ended June 30, 2018 and 2017, respectively.
Three Months Ended | Six Months Ended | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Intangible Amortization | $ | 29,091 | $ | - | $ | 58,182 | $ | - |
5.6. PROPERTY, PLANT AND EQUPMENT, NET
Property, plant and equipment are recorded at cost and depreciated over their useful lives. Maintenance and repair costs are expenses as incurred. Property, plant and equipment are as follows:
June 30, 2018 | December 31, 2017 | |||||||
Land | $ | 228,872 | $ | 235,179 | ||||
Buildings and Improvements | 1,418,444 | 2,239,763 | ||||||
Machinery & Equipment | 2,462,936 | 5,091,360 | ||||||
Total Property, Plant & Equipment | 4,110,252 | 7,566,302 | ||||||
Less: Accumulated Depreciation | 1,239,029 | 4,242,913 | ||||||
Property Plant & Equipment, Net | $ | 2,871,223 | $ | 3,323,389 |
Depreciation expense was:was $271,960 and $161,752 for the six months ended June 30, 2018 and 2017, respectively.
Three Months Ended | Six Months Ended | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Depreciation Expense | $ | 75,459 | $ | 31,500 | $ | 117,405 | $ | 63,000 |
6. NOTES PAYABLE
7. BANK DEBT
The Company entered into a Credit Agreement on June 1, 2017 with JPMorgan Chase Bank, N.A. as lender (the “Credit Agreement”). The Credit Agreement is comprised of a revolving facility in the amount of $8,000,000, subject to a borrowing base (determined based on 80% of Eligible Accounts, plus 50% of Eligible Progress Billing Accounts, plus 50% of Eligible Inventory, minus Reserves, each as defined in the Credit Agreement) and a term A loan in the amount of $2,000,000, payable in consecutive monthly installments of $41,667 commencing on July 1, 2017.
The revolving facility under the Credit Agreement includes a $3 million sublimit for the issuance of letters of credit thereunder. Interest for borrowings under the revolving facility accrues at a per annum rate equal to Prime Rate or LIBOR plus applicable margins of (i) 0.00% for Prime Rate loans and (ii) 2.00% for LIBOR loans. The maturity date of the revolving facility is June 1, 2020. Interest for borrowings under the term A loan accrues at a per annum rate equal to Prime Rate or LIBOR plus applicable margins of (i) 0.25% for Prime Rate loans and (ii) 2.25% for LIBOR loans. The maturity date of the term A loan is June 1, 2021. The Credit Agreement includes a commitment fee on the unused portion of the revolving facility of 0.25% per annum payable quarterly. The obligations of the Company and other borrowers under the Credit Agreement are secured by a blanket lien on all the assets of the Company and its subsidiaries. The Credit Agreement also includes customary representations and warranties and applicable reporting requirements and covenants, including fixed charge coverage ratio and senior funded indebtedness to EBITDA ratio financial covenants.
In connection with entering into the Credit Agreement in 2017, the Company made a one-time prepayment of a portion of the outstanding principal under promissory notes held by First Francis Company Inc. (“First Francis”), in the amount of $500,000. First Francis is owned by Edward Crawford and Matthew Crawford, who serve on the Board of Directors of the Company.
Bank debt balances consist of the following:
June 30, 2018 | December 31, 2017 | |||||||
Term Debt | $ | 1,500,000 | $ | 1,750,000 | ||||
Revolving Debt | 109,965 | 3,524,235 | ||||||
Total Bank Debt | 1,609,965 | 5,274,235 | ||||||
Less: Current Portion | 500,000 | 500,000 | ||||||
Non-Current Bank Debt | 1,109,965 | 4,774,235 | ||||||
Less: Unamortized Debt Costs | 35,730 | 41,685 | ||||||
Net Non-Current Bank Debt | $ | 1,074,235 | $ | 4,732,550 |
8. NOTES PAYABLE
Convertible Notes Payable
On December 30, 2011, management entered into a Convertible Loan Agreement (“Convertible Loan”) with Roundball, LLC (“Roundball”). The Convertible Loan provides approximately $467,000 of liquidity to meet on- going working capital requirements of the Company and allows $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.25%. Roundball, a major shareholder of the Company, is an affiliate of Steven Rosen and Matthew Crawford, Directors of the Company.
There have been several amendments to the original agreement over the years for the purpose of extending the existing terms of the Convertible Loan. On December 20, 2016,29, 2017, management entered into Amendment No. 56 of the Convertible Loan Agreement with Roundball. The amended Convertible Loan:
● | Continues to provide approximately $467,000 of liquidity to meet on going working capital requirements; |
● | Continues to allow $250,000 of borrowing on the agreement at the Company's discretion at an interest rate of 0.34%; and |
● | Extends the due date of the loan agreement |
The outstanding balance on the Convertible Loan as of MarchJune 30, 2018, and December 31, 2017 and September 30, 2016 iswas $200,000.
As part of the Convertible Loan, Agreement between the Company and Roundball, the parties entered into a Warrant Agreement, dated December 30, 2012 (as amended to date, the “Warrant Agreement”), 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. The warrant agreement,Warrant Agreement, as amended, expires December 30, 2017.2018.
Short-Term Financing
On June 3, 2016, management entered into an unsecureda revolving credit agreement with First Francis Company Inc.Francis. First Francis Company Inc. became a major shareholder of the Company on July 1, 2016 when the Company completed the acquisition of Federal Hose Manufacturing, Company, LLC. The agreement provides for a revolving credit facility of $250,000 with interest at 4.0% per annum and is unsecured.annum. 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 expiresexpired on May 31, 2017.The Company had $250,000 outstanding borrowings on the credit facility at September 30, 2016. At March 31, 2017, the outstanding balance was $0.
Notes Payable – Related Party
Notes payable - related parties is a result of the acquisition of a business on July 1, 2016 and consists of the following:
Current 2017 | Total | Total | ||||||||||
In connection with the acquisition, the Company entered into a promissory note on July 1, 2016 for $2,000,000 loan due to First Francis Company, payable in quarterly installments of $60,911 beginning on October 31, 2016, bearing interest at 4%. The remaining balance of the note shall be payable in full on July 1, 2022. Collateralized by all of the assets of the Company. | $ | 169,182 | $ | 1,924,476 | $ | 2,000,000 | ||||||
In connection with the acquisition, the Company entered into a promissory note on July 1, 2016 for $2,768,662 loan due to First Francis Company, payable in quarterly installments of $84,321 beginning on October 31, 2016, bearing interest at 4%. The remaining balance of the note shall be payable in full on July 1, 2022. Collateralized by all of the assets of the Company. | 234,205 | 2,664,112 | 2,768,662 | |||||||||
$ | 403,387 | 4,588,588 | 4,768,662 | |||||||||
Less current portion | 403,387 | 379,761 | ||||||||||
$ | 4,185,201 | $ | 4,388,901 |
June 30, 2018 | December 31, 2017 | |||||||
In connection with the acquisition, the Company entered into a promissory note on July 1, 2016 for a $2,000,000 loan due to First Francis Company, payable in quarterly installments of $60,911 beginning on October 31, 2016, including interest at 4%. The remaining balance of the note shall be payable in full on July 1, 2022. | $ | 1,577,734 | $ | 1,639,206 | ||||
In connection with the acquisition, the Company entered into a promissory note on July 1, 2016 for a $2,768,662 loan due to First Francis Company, payable in quarterly installments of $84,321 beginning on October 31, 2016, including interest at 4%. The remaining balance of the note shall be payable in full on July 1, 2022. | 2,283,762 | 2,365,286 | ||||||
Total notes payable – related party | 3,861,496 | 4,004,492 | ||||||
Less current portion | 432,910 | 352,727 | ||||||
Notes payable – related party non-current portion | $ | 3,428,586 | $ | 3,651,765 |
7.9. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per share.
Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Earnings (Loss) Per Share - Basic | ||||||||||||||||
Net Income (Loss) | $ | 213,140 | $ | (464,444 | ) | $ | (100,566 | ) | $ | (511,633 | ) | |||||
Weighted average shares of common stock outstanding - Basic | 2,877,493 | 1,638,215 | 2,865,165 | 1,638,215 | ||||||||||||
Earnings (Loss) Per Share - Basic | $ | 0.07 | $ | (0.28 | ) | $ | (0.04 | ) | $ | (0.31 | ) | |||||
Earnings (Loss) Per Share - Diluted | ||||||||||||||||
Weighted average shares of common stock outstanding - Basic | 2,877,493 | 1,638,215 | 2,865,165 | 1,638,215 | ||||||||||||
Warrants and options | 87,236 | - | - | - | ||||||||||||
Weighted average shares of common stock - Diluted | 2,964,729 | 1,638,215 | 2,865,165 | 1,638,215 | ||||||||||||
Net Income (Loss) | $ | 213,140 | $ | (464,444 | ) | $ | (100,566 | ) | $ | (511,633 | ) | |||||
Earnings (Loss) Per Share - Diluted | $ | 0.07 | $ | (0.28 | ) | $ | (0.04 | ) | $ | (0.31 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Earnings Per Share - Basic | ||||||||||||||||
Net Income | $ | 394,625 | $ | 941,523 | $ | 768,377 | $ | 1,154,663 | ||||||||
Weighted average shares of common stock outstanding - Basic | 2,721,832 | 2,880,719 | 2,880,070 | 2,879,115 | ||||||||||||
Earnings Per Share - Basic | $ | 0.14 | $ | 0.33 | $ | 0.27 | $ | 0.40 | ||||||||
Earnings Per Share - Diluted | ||||||||||||||||
Weighted average shares of common stock outstanding - Basic | 2,721,832 | 2,880,719 | 2,880,070 | 2,879,115 | ||||||||||||
Warrants, Options and Convertible Notes | 354,244 | 191,681 | 356,520 | 164,504 | ||||||||||||
Weighted average shares of common stock -Diluted | 3,076,076 | 3,072,400 | 3,236,590 | 3,043,619 | ||||||||||||
Earnings Per Share - Diluted | $ | 0.13 | $ | 0.31 | $ | 0.24 | $ | 0.38 |
10. ACQUISITIONS
The Company purchased certain assets and assumed certain liabilities of Air Enterprises Acquisition, LLC on June 1, 2017 for $10,250,000. The acquired business will continue to operate under the name Air Enterprises (“AE”). AE manufactures custom commercial air handling units under fixed price contracts. Its customers are typically in the health care, university, research, pharmaceutical and industrial manufacturing market segments, and span all across the United States and worldwide. AE has one operating location in Northeastern Ohio. The purchase price was assigned to the book value of the net assets acquired with the excess over the book value assigned to intangible assets and goodwill and has been allocated to the following accounts:
Accounts Receivable | $ | 4,761,368 | ||
Inventory | 594,503 | |||
Costs in excess of billings and estimated costs | 3,980,824 | |||
Fixed Assets | 2,112,120 | |||
Prepaid and Other Assets | 53,110 | |||
Intangibles Assets | 1,230,000 | |||
Goodwill | 631,392 | |||
Total Assets Acquired | $ | 13,363,317 | ||
Accounts Payable | $ | 1,726,618 | ||
Billings in Excess of costs and earnings | 594,545 | |||
Accrued Payroll and related expenses | 325,950 | |||
Accrued Expense | 424,671 | |||
Lease Payable | 41,533 | |||
Total Liabilities Assumed | $ | 3,113,317 | ||
Net Assets Acquired | $ | 10,250,000 |
11. DISPOSITIONS
Effective June 1, 2018, Hickok Incorporated completed the sale (the “Transaction”) of certain assets comprising its Test and Measurement business segment (the “Test and Measurement Segment”) to Hickok Waekon, LLC, an Ohio limited liability company (“Buyer”), pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) by and among Buyer, the Company, Supreme Electronics Corp., a Mississippi corporation and wholly-owned subsidiary of the Company (“Supreme”), Waekon Corporation, an Ohio corporation and wholly-owned subsidiary of the Company (“Waekon Corporation”), and Robert L. Bauman, a director of the Company. Prior to the effectiveness of the Transaction, Supreme and Waekon Corporation owned certain of the assets used in the operation of the Test and Measurement Segment and were primarily responsible for the operation thereof.
Upon the closing of the Transaction, all of the issued and outstanding shares of capital stock of the Company then-owned, directly or indirectly, by Mr. Bauman or his affiliate, equaling approximately 21,413 shares of Class A Common Stock of the Company and 176,768 shares of Class B Common Stock of the Company, were transferred and assigned to the Company. The shares constitute the consideration received by the Company in the Transaction. Based upon the share price at closing, the value of the proceeds received was approximately $1.6 million. The net assets sold were approximately $2.7 million. The Company recorded a loss on sale of approximately $1.2 million.
The Purchase Agreement contains customary indemnification obligations of each party with respect to breaches of their respective representations, warranties and covenants, and certain other specified matters, which are subject to certain exceptions, terms and limitations described further in the Purchase Agreement.
The Purchase Agreement contains customary post-closing covenants pertaining to the transition of the Test and Measurement Segment from the Company to Buyer and establishes certain rights and obligations of the parties relating to intellectual property rights in certain technology developed by the Company, Supreme and Waekon Corporation. Specifically, Buyer has an option under the Purchase Agreement to further develop such technology, which option is exercisable in accordance with the terms and conditions set forth therein.
Pursuant to the terms of the Purchase Agreement, the Company agreed to take commercially reasonable efforts to change its name to one or more names that do not include “Hickok” or “Waekon” or any derivation thereof. Buyer granted the Company a non-exclusive, irrevocable, non-assignable, worldwide, royalty-free license to utilize the “Hickok” trademark and trade name in its business for a period of 180 days following the closing of the Transaction. Buyer granted the Company a similar license to use the “Hickok-Inc.com” domain name during such 180 days post-closing period. The Company is currently evaluating potential new names in anticipation of facilitating a name change upon the expiration of the 180 day post-closing period described above.
8.12. SEGMENT AND RELATED INFORMATION
The Company operates twothree reportable segments: 1) commercial air handling, 2) test and measurement and 2)3) industrial hose. The Company's management evaluates segment performance based primarily on operating earnings before taxes. Non-operating items such as marketing and general administrative expenses, interest income, and interest expense are included in unallocatedadministrative and other expenses. Depreciation expense on assets used in manufacturing are considered part of each segment's operating performance. Depreciation expense on non-manufacturing assets is included in unallocatedselling, general and administrative expenses.
Commercial Air Handling:
This segment manufactures custom air handling units under fixed price contract to customers in the health care, university, research, pharmaceutical and industrial manufacturing market segments, and across the United States and worldwide.
Test and MeasurementMeasurement::
This segment consists of diagnostic tools and equipment sold to the automotive industry and indicators and gauges sold primarily to companies in the aircraft and locomotive industries. These products are sold to original equipment manufacturers and to the aftermarket using a variety of distribution methods.(1)
Industrial Hose: Hose:
This segment consists primarily of flexible metal and silicone hose products designed and manufactured or distributed primarily to the trucking industry and other industrial end-users. These products are sold to original equipment manufacturers and to the aftermarket using a variety of distribution methods.
Information by industry segment is set forth below:
Three Months Ended March 31, | Six Months Ended March 31, | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30 | June 30 | |||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Sales | ||||||||||||||||||||||||||||||||
Commercial Air Handling | $ | 10,884,324 | $ | 3,343,945 | $ | 20,000,261 | $ | 3,343,945 | ||||||||||||||||||||||||
Test and Measurement | $ | 1,770,071 | $ | 1,046,624 | $ | 2,597,137 | $ | 2,423,496 | 924,598 | 2,452,854 | 1,996,445 | 4,222,925 | ||||||||||||||||||||
Industrial Hose | 1,576,244 | - | 3,106,104 | - | 1,784,270 | 1,423,827 | 3,475,186 | 3,000,071 | ||||||||||||||||||||||||
Total Sales | $ | 3,346,315 | $ | 1,046,624 | $ | 5,703,241 | $ | 2,423,496 | $ | 13,593,192 | $ | 7,220,626 | $ | 25,471,892 | $ | 10,566,941 | ||||||||||||||||
Income (Loss) Before Provision for Income Taxes | ||||||||||||||||||||||||||||||||
Income Before Provision for Income Taxes | ||||||||||||||||||||||||||||||||
Commercial Air Handling | 1,765,374 | 607,471 | 2,630,579 | 607,471 | ||||||||||||||||||||||||||||
Test and Measurement | $ | 734,228 | $ | 79,370 | 688,818 | 468,948 | (96,172 | ) | 343,752 | (225,121 | ) | 440,885 | ||||||||||||||||||||
Industrial Hose | 425,970 | - | 815,607 | - | 123,964 | 27,673 | 224,153 | 151,807 | ||||||||||||||||||||||||
Administrative and Other Expenses | (938,931 | ) | (543,814 | ) | (1,588,864 | ) | (980,581 | ) | ||||||||||||||||||||||||
Income (Loss) Before Provision for Income Taxes | $ | 221,267 | $ | (464,444 | ) | $ | (84,439 | ) | $ | (511,633 | ) | |||||||||||||||||||||
Loss on sale of business | (1,160,574 | ) | - | (1,160,574 | ) | - | ||||||||||||||||||||||||||
General Corporate Expenses | (106,426 | ) | - | (444,535 | ) | - | ||||||||||||||||||||||||||
Income Before Provision for Income Taxes | $ | 526,166 | $ | 978,896 | $ | 1,024,502 | $ | 1,200,163 |
(1) | The Company completed the sale of certain assets comprising its Test and Measurement segment on June 1, 2018. Note Note 11, Dispositions, for additional details regarding the disposition of this segment. |
Geographical InformationThe Company sells the majority (over 95%) of its product within the United States of America. All export sales to foreign countries, which include sales to Australia, Canada, England, Mexico, Taiwan, are made in United States of America Dollars.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
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.
13. SUBSEQUENT EVENTS
Effective July 1, 2018, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc., (“CAD”), pursuant to a Share Purchase Agreement (the “Share Purchase Agreement”) entered into as of July 5, 2018 by and among the Company, the sellers named therein and the Sellers’ representative named therein. Upon the closing of the transaction, the Shares were transferred and assigned to the Company in consideration of the payment by the Company of an aggregate purchase price of $21 million, $12 million of which was payable in cash at closing, with the remainder paid in the form of a subordinated promissory note issued by the Company in favor of a Seller (the “Seller Note), which is subject to certain post-closing adjustments based on working capital, indebtedness and selling expenses, as specified in the Share Purchase Agreement. The Seller Note bears interest at a rate of four percent (4%) per annum and is payable in full no later than June 30, 2023 (the “Maturity Date”). The Maturity Date, with respect to any then-outstanding portion of the original principal amount which is subject to an indemnification claim by the Company (asserted in accordance with the terms of the Share Purchase Agreement) pending as of the date thereof, will be automatically extended until such time as any claim relating to such disputed amount is no longer pending, pursuant to the terms of the Seller Note and subject to additional conditions set forth therein and in the Share Purchase Agreement. The Company is not permitted to prepay any amounts due and owing under the Seller Note. Payment of the Seller Note is secured by a second-priority security interest in the assets of the Company. Interest accrued on the original principal amount becomes due and payable in arrears beginning September 30, 2018, and subsequent interest is due on the first day of each calendar quarter thereafter up to and including June 30, 2019. The Company is required to make quarterly principal payments, the amount of which will be calculated based on a four (4) year amortization schedule, beginning on September 30, 2019 and continuing on the last day of each calendar quarter thereafter up to and including the Maturity Date.
In connection with Transaction, on July 5, 2018, the Company entered into an amendment to its Credit Agreement with JPMorgan Chase Bank, N.A. dated June 1, 2017 (as amended, the “Credit Agreement”) and funded a portion of the purchase price of the Transaction with borrowings under the Credit Agreement. The amendment revised the Credit Agreement to, among other things: (i) increase the maximum aggregate borrowing amount available under the revolving credit facility from $8,000,000 to $12,000,000; (ii) increase the maximum aggregate borrowing amount, and the aggregate amount borrowed, under the term A loan to $6,000,000; (iii) extend the maturity of the term A loan from June 2021 to December 2022; (iv) provide a separate credit line for borrowings of up to an aggregate of $1,000,000 for capital expenditures until July 5, 2019, at which time any outstanding capital expenditure borrowings will be converted into a term loan maturing at the earlier of five years after such conversion or the termination of the revolving credit facility; and (v) add CAD as a borrower under the Credit Agreement. The obligations of the Company and other borrowers under the Credit Agreement are secured by a blanket lien on all of the assets of the Company and its subsidiaries. The Credit Agreement, as amended, also includes customary representations and warranties, reporting requirements and covenants. The financial covenants under the amended Credit Agreement include a minimum fixed charge coverage ratio, a revised maximum senior funded debt to EBITDA ratio and a new maximum total funded debt to EBITDA ratio.
In connection with the Transaction and the amendment to the Credit Agreement on July 5, 2018, the Company and First Francis Company Inc. (“First Francis”) entered into an amendment to the Promissory Note dated July 1, 2016 with original principal in the amount of $2,000,000, and an amendment to the Promissory Note dated July 1, 2016 with original principal in the amount of $2,768,662 (as amended, the “Promissory Notes”), each issued by the Company to First Francis. The Promissory Notes each were amended to increase the interest rate from 4.0% per annum to 6.25% per annum. In addition, the Promissory Note with original principal amount of $2,768,662 was amended to provide a conversion option commencing July 5, 2019 which allows First Francis to convert the Promissory Note, in whole in part with respect to a maximum amount of $648,000, into shares of the Company’s Class B common stock at the price of $6.48 per share (subject to adjustment), subject to shareholder approval. First Francis is owned by Edward Crawford and Matthew Crawford, who serve on the Board of Directors of the Company.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOPERATIONS..
The following discussion is intended to assist in the understanding of Hickok’sthe Company's financial position at MarchJune 30, 2018 and December 31, 2017, and September 30, 2016, results of operations for the three and six months ended March 31,June 30, 2018 and 2017 and 2016, and cash flows for the six months ended March 31,June 30, 2018 and 2017, and 2016, and should be read in conjunction with the consolidated financial statements and related notes included elsewhere this Quarterly Report on Form 10-Q and with the Company’s AnnualTransition Report on Form 10-K10-KT for the yearthree-month transition period ended September 30, 2016.December 31, 2017.
Summary
The Company has historically operated two divisions:operates three reportable segments: 1) indicatorscommercial air handling, 2) test and gauges that sell primarily to companiesmeasurement and 3) industrial hose. The commercial air handling segment was added in the aircraft and locomotive industries and 2) automotive diagnostic tools and equipment that sell to OEMs and the aftermarket. These divisions are now being reported as the Test and Measurement segment. In July 2016,June 2017 when the Company expanded its markets further with the acquisition of a manufacturer of flexible metal hosecommercial air handling for usecustomers in heavy truck, drilling,the health care, university, research, pharmaceutical and grain handling, as well as silicone hose soldindustrial manufacturing market segments.
Effective June 1, 2018, Hickok Incorporated completed the sale of certain assets comprising its Test and Measurement business segment to these same industries. TheHickok Waekon, LLC (Buyer), pursuant to an Asset Purchase Agreement by and among Buyer, the Company, Supreme Electronics Corp., a Mississippi corporation and wholly-owned subsidiary of the Company, Waekon Corporation, and Robert L. Bauman, a director of the Company.
Effective July 1, 2018, the Company completed the acquisition of this business resulted inall of the issued and outstanding shares of capital stock of CAD Enterprises, Inc., (“CAD”), pursuant to a new segment forShare Purchase Agreement (the “Share Purchase Agreement”) entered into as of July 5, 2018 by and among the Company, referred to as the Industrial Hose division.sellers named therein and the Sellers’ representative named therein.
Results of OperationsOperations – Three Months Ended March 31,June 30, 2018 and 2017 and 2016
Sales for the fiscal quarter ended March 31, 2017June 30, 2018 increased to $3.3$13.6 million, an increase of approximately $2.3$6.4 million and 220%or 88% from sales of $1.0$7.2 million induring the same fiscal quarter of the prior year. This increase in sales was primarily attributable to the addition of our Industrial Hose division, resulting in an increase in sales of approximately $1.6 million. In addition, sales increased approximately $0.7 million from our Test and Measurement division.Cost of products sold inCommercial Air Handling segment during the fiscal quarter, ended March 31, 2017which was $2.0 million or 59% of sales compared to $0.7 million or 66%acquired on June 1, 2017.
Cost of sales in the quarter ended June 30, 2018 was $10.1 million compared to $4.2 million, an increase of $5.9 million or 141% from the same fiscal quarter of the prior year. The increase in costscost of sales was primarily associated with higher sales for the quarter in bothaddition of the Industrial Hose division andCommercial Air Handling segment. Gross profit was $3.5 million compared to $3.0 million, an increase of $0.5 million from the Test and Measurement division. Gross margin (sales less costs of products sold) was approximately 41% for second fiscalsame quarter of 2017 compared to 34% for the same fiscal quarter of 2016.prior year. The primary reason for the increase in margin isgross profit was primarily attributable to higher sales in the Test and Measurement division for the second quarter.Commercial Air Handling segment.
Product development expenditures were $0.1 million in the quarter ended June 30, 2018, which was a modest decrease from $0.2 million in the fiscal quarter ended March 31, 2017, which was consistent with expenses in same fiscal quarter of the prior year. Product development expenditures relate to the Test and Measurement division as there are no product development costs related to Industrial Hose division. The current level of product development expenses is expected to continue for the balance of the fiscal year. Management believes current resources will be sufficient to maintain current product development commitments and to continue to develop a reasonable flow of new products for both the OEM and aftermarket customers.segment.
MarketingSelling, general and administrative expenses in the fiscal quarter ended March 31, 2017June 30, 2018 were $0.9$1.6 million or 27% of sales compared to $0.5$1.5 million, or 52%a decrease of sales, respectively,$0.1 million from the same quarter of the prior year. The decrease in selling, general and administrative expenses was primarily related to lower costs in the Test and Measurement segment.
Interest charges in the quarter ended June 30, 2018 were approximately $0.1 million compared to $67 thousand in the same fiscal quarter of the prior year. The increase in marketinginterest expense is primarily related to the JP Morgan Chase term loan and revolving credit facility entered into June 1, 2017 related to the acquisition of the Commercial Air Handling segment.
Loss on the sale of business was $1.2 million in the quarter ended June 30, 2018 and is directly related to the sale of certain assets of the Company comprising its Test and Measurement segment on June 1, 2018.
Other expense, net was $50 thousand in the quarter ended June 30, 2018 compared to $0.3 million other expense, net in the same quarter of the prior year. Other expense is primarily related to transactional costs for acquisitions.
Income tax expense in the quarter ended June 30, 2018 was $0.1 million compared to $37 thousand recognized in the same quarter of the prior year. Tax expense in the current period is recorded at the Company’s expected effective tax rate of 25%. The Company anticipates that it will be able to utilize the remaining net operating loss and a significant portion of the research and development credit carryforwards in the current fiscal year recorded on the balance sheet as a deferred tax asset.
Net income in the quarter ended June 30, 2018 was $0.4 million or $0.13 per diluted share as compared to the net income of $0.9 million or $0.31 per diluted share for the same quarter of the prior year.
Results of Operations – Six Months Ended June 30, 2018 and 2017
Sales for the six months ended June 30, 2018 increased to $25.5 million, an increase of approximately $14.9 million and 141% from sales of $10.6 million in the same period of the prior year. This increase in sales was primarily attributable to the Commercial Air Handling segment during the quarter, which was acquired on June 1, 2017, offset by lower sales in the Test and Measurement business.
Cost of sales in the six months ended June 30, 2018 was $19.0 million compared to $6.2 million, an increase of $12.8 million or 208% in the same period of the prior year. The increase in cost of sales was primarily associated with the addition of the Commercial Air Handling segment. Gross profit was $6.5 million compared to $4.4 million, an increase of $2.1 million in the same period of the prior year. The increase in gross profit was primarily attributable to the Commercial Air Handling segment that includes six months of results for the period ended June 30, 2018 compared to one month for the prior period.
Product development expenditures were $0.2 million in the six-month period ended June 30, 2018, which was a modest decrease from $0.4 million in same period of the prior year. Product development expenditures relate to the Test and Measurement segment.
Selling, general and administrative expenses in the six-month period ended June 30, 2018 were $3.8 million compared to $2.4 million, an increase of $1.4 million or 41% in the same period of the prior year. The increase in selling, general and administrative expenses was primarily related to costs related to the addition of the Industrial Hose division of approximately $0.3 million. In addition, the Company incurred higher sales expenses in support of higher sales and higher depreciation expenses related to the investment in the IT infrastructure.Commercial Air Handling segment.
Interest charges in the fiscal quarter ended March 31, 2017June 30, 2018 were approximately $48 thousand$0.2 million compared to $3 thousand$0.1 million in the same fiscal quarterperiod of the prior year. The current year interest expense is primarily duerelated to the recording of interest expense on notes payableJP Morgan Chase term loan and revolving credit facility entered into June 1, 2017 related to the acquisition of athe Commercial Air Handling segment.
Loss on the sale of business on July 1, 2016, as well as interest related the capital leases for the IT infrastructure replacement put in place a year ago. Other income was $4 thousand$1.2 million in the fiscal quarter ended March 31, 2017June 30, 2018 and is directly related to the sale of certain assets of its Test and Measurement segment on June 1, 2018.
Other expense, net was $0.1 million in the six-month period ended June 30, 2018 compared with $2 thousandto other expense, net of $0.3 million in the same fiscal quarterperiod of the prior year. Other income consists primarilyexpense, net is comprised of interest income on cash and cash equivalents and proceeds from the sale of scrap metal shavings.transactional costs for acquisitions.
Income tax expense in the six-month period ended June 30, 2018 was $0.3 million compared to $46 thousand recognized in the same period of the prior year. Tax expense in the current period is recorded at the Company’s expected to be minimal as theeffective tax rate of 25%. The Company believesanticipates it will be able to utilize the majority of theremaining net operating loss and a significant portion of the research and development credit carryforwards before they expire; however, there are certain limitations toin the use of thesecurrent fiscal year recorded on the balance sheet as a deferred tax credits that are expected to result in a small amount of alternative minimum tax.asset.
The netNet income in the fiscal quartersix-month period ended March 31, 2017June 30, 2018 was $0.2$0.8 million or $0.07$0.24 per diluted share as compared to the net lossincome of $0.5$1.2 million or $0.28$0.38 per diluted share in the same fiscal quarterperiod of the prior year.
Results of Operations – Six Months Ended March 31, 2017 and 2016
Sales for the six months ended March 31, 2017 increased to $5.7 million, an increase of approximately $3.3 million and 135% from sales of $2.4 million in the same period a year ago. This increase in sales was attributable to the addition of our Industrial Hose division, resulting in an increase in sales of approximately $3.1 million. Sales from our Test and Measurement division increased $0.2 million, representing a modest increase from the prior period. Sales demand in this division increased substantially during the second quarter of fiscal 2017 and is expected to continue to be strong during the third fiscal quarter.
Cost of products sold in the six months ended March 31, 2017 was $3.7 million or 66% of sales compared to $1.4 million or 59% of sales in the same period a year ago. The increase in costs was a combination of the addition of costs related to the Industrial Hose division and costs from the Test and Measurement division. Gross margin (sales less costs of products sold) was approximately 34% for the six-month period ended March 31, 2017 compared to 41% for the same period a year ago. The primary reason for the decrease in margin is attributable to the lower sales in theTtest and Measurement during the first fiscal quarter of 2017. The Company expects margins to continue in line with the margins during the second quarter of 2017.
Product development expenditures in the six months ended March 31, 2017 were $0.5 million or 8% of sales compared to $0.5 million or 21%, respectively, in the same period a year ago. The current level of product development expenses is expected to continue for the balance of the fiscal year. Management believes current resources will be sufficient to maintain current product development commitments and to continue to develop a reasonable flow of new products for both the OEM and aftermarket customers.
Marketing and administrative expenses in the six months ended March 31, 2017 were $1.5 million or 27% of sales compared to $1.0 million or 40%, respectively, in the same period a year ago. The increase was primarily due to costs associated the Industrial Hose division, representing $0.5 million in costs, which includes intangible amortization.
Interest charges in the six-month period ended March 31, 2017 were $99 thousand compared to $3 thousand in the same period a year ago. The current year interest expense is primarily due to the recording of interest expense for the notes payable related to the acquisition of a business on July 1, 2016.
Other income was $6 thousand in the six-month period ended March 31, 2017 compared with $4 thousand in the same period a year ago. Other income consists primarily of interest income on cash and cash equivalents and proceeds from the sale of scrap metal shavings.
Income tax expense is expected to be minimal as the Company believes it will be able to utilize the majority of the net operating loss and research and development credit carryforwards before they expire; however, there are certain limitations to the use of these tax credits that are expected to result in a small amount of alternative minimum tax.
The net loss in the six-month period ended March 31, 2017 was $0.1 million or $0.04 per share as compared to the net loss of $0.5 million or $0.31 per share in the same period a year ago.
Liquidity and Capital ResourceResourcess
Total current assets at MarchJune 30, 2018 decreased to $14.6 million from $17.2 million at December 31, 2017, increased to approximately $8.4 million from $7.8 million at September 30, 2016, an increasea decrease of $0.6$2.6 million. The increasedecrease in current assets is due to a decrease in accounts receivable of $1.7 million, a decrease in inventories of $1.9 million offset by an increase in cash and cash equivalentscosts in excess of $0.1 million, accounts receivablebillings of $0.2$0.6 million, and prepaid expenses and other assets of approximately $0.4$0.1 million, respectively. The increases were offset by a decrease in inventoriesinventory is directly related to the sale of approximately $0.1 million.certain assets of the Test and Measurement business, and the decrease in accounts receivable is partially due to the sale of certain assets and partially due to strong collections in both the Commercial Air Handing division and the Industrial Hose division. Fluctuations in accounts receivable and costs and estimated earnings in excess of billing related to the Commercial Air Handling division are dependent upon progress billing milestones for contracts.
Total current liabilities at June 30, 2018 increased to $9.1 million from $8.0 million at December 31, 2017, an increase of $1.1 million. The increase in cash and cash equivalents wascurrent liabilities is primarily due primarily to the addition of the Industrial Hose division and a $1.3 million cash deposit from a customer related to expected sales from that customer over the next few years. The increase in accounts receivable was due primarily to the increase in sales.
Working capital was approximately $5.5billings in excess of costs and earnings (included in unearned revenue on the balance sheet) of $0.8 million at March 31, 2017 as compared to working capitaland an increase in accounts payable of $5.4 September 30, 2016. At March 31, 2017, current assets were 2.9 times current liabilities and the total of cash and cash equivalents and receivables was 1.6 times current liabilities. These ratios compare to 3.3 and 1.9 as of September 30, 2016.$0.4 million.
Cash provided by operating activities infor the six months ended March 31, 2017June 30, 2018 was approximately $0.8$4.2 million driven by net income of $0.7 million and adjustments for non-cash items of $2.1 million comprised of depreciation and amortization, loss on the sale of operations, and share-based compensation. The loss on sale of operations was primarily due to net assets sold in excess of proceeds received for the sale as discussed further in note 11. Cash from operating activities was adequate to fund the Company's operations.
Cash flow used in investing activities consisting of $0.1 million was used for capital expenditures in the normal course of approximately $0.2 million, as well as service debt payments.business. Capital expenditures were needed for building improvements as well asand for tooling, machinery and equipment for product manufacturing.
Cash used inby financing activities of approximately $0.5$3.8 million was primarily related to$4.1 million repayment against the $0.3 million payment of the short-term financingrevolving credit facility and payment of approximately $0.2 millionterm loans with JPMorgan Chase Bank, N.A, as well payments for the related party notes and capital leases outstanding, offset by $0.4 million borrowed against the revolving credit loan.
As described further in accordanceNote 13 to our consolidated financial statements, effective July 1, we completed the CAD acquisition for an aggregate purchase price of $21 million, $12 million of which was payable in cash at closing, with the termsremainder paid in the form of the notes.
The Company has several borrowing arrangements as discussed in Note 4 of theCompany’s Annual Report on Form 10-K for the year ended September 30, 2016. The Convertible Notes provide liquidity toa subordinated promissory note issued by the Company forin favor of a Seller, which is subject to certain post-closing adjustments based on working capital.capital, indebtedness and selling expenses, as specified in the Share Purchase Agreement. In December 2016,connection with that transaction, we also amended our credit agreement to, among other things, increase the Company enteredmaximum availability under our revolving credit facility to $12 million, and to increase the amount of our term loan to $8 million. In connection with the acquisition, we also amended our promissory notes payable to First Francis to increase the interest rate payable from 4.0% to 6.2%, and to provide First Francis with the right to convert up to $648,000 principal amount of one note into Amendment No. 5shares of the Convertible Loan Agreement. The Convertible Loan Agreement, as amended, is between the Company andClass B Common Stock at a majorconversion price of $6.48 per share, subject to shareholder who is also affiliated withtwo Directors, as discussed in Note 4 of theCompany’s Annual Report on Form 10-K for the year ended September 30, 2016.The amended Convertible Loan:
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The outstanding balance on the Convertible Loan as of March 31, 2017 and September 30, 2016 is $200,000. approval.
The Company expects positive cash flow from operations to be sufficient to fund working capital needs and service principal and interest payments due related to the bank debt and notes payable. In addition, the Company had cash and cash equivalents of approximately $3.2has $7.9 million as of March 31, 2017, and continues to maintain liquidity to operate the business. The Company currently has the abilityavailable to borrow againston the convertible notes.revolving credit facility at June 30, 2018. See Note 7 of notes to consolidated financial statements.
Management continues to tightly control expenses and will take actions as deemed necessary to maintain the necessary liquidity and generate positive cash flow from operations. Management believes the Company has adequate liquidity for debt service, working capital, capital expenditures and other strategic initiatives.
Off-Balance Sheet Arrangements
HickokThe Company has a secured performance and payment bond in the amount of $1.6 million as surety on completion of the requirements of a commercial air handling contract. The Company has no other off-balance sheet arrangements (as defined in Regulation S-K Item 303 paragraph (a)(4)(ii)) that have or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting PronouncementsPolicies
The Company’s critical accounting policies are as presented in Notes to Consolidated Financial Statements and Management’s Discuss and Analysis of Financial Condition and Results of Operations in our Form 10-K10-KT for the yearthree-month transition period ended September 30, 2016.December 31, 2017.
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 Hoseacquisitions and manage the larger operations of the combined business,businesses, (b) the Company's dependence upon a limited number of customers and the automotive industry, (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 in certain sectors, including state automotive emissions programs and OEMoriginal equipment manufacturer (OEM) tool programs, (g) the Company's ability to obtain cost effective financing and (h) the Company's ability to satisfy obligations under its interest payments.financing arrangements.
ITEM 3. MARKET RISK
The Company is exposed to certain market risks from transactions that are entered intoit enters during the normal course of business. The Company has not entered into derivative financial instruments for trading purposes. The Company's primary market risks are exposure related to interest rate risk and equity market fluctuations. The Company's debt subject to interest rate risk was therelates to funds available from the convertible note agreement and the revolving credit agreement.under Credit Agreement with JPMorgan Chase Bank (“Chase Bank”). The Company had an outstanding balance on the convertible noterevolving credit facility with Chase Bank of $0.1 million and an outstanding balance on the term A loan of $1.5 million. Interest for borrowings under the Credit Agreement accrue at March 31, 2017 of $200,000 which is subjectprime rate or a LIBOR plus an applicable margin. In addition to afloating rate debt under the Credit Agreement, the Company has fixed rate debt. At June 30, 2018, the Company has outstanding amounts of $0.2 million related to convertible notes that bear interest ofat 0.34%. In addition, theThe Company also issuedhas outstanding amounts of $1.6 million and $2.3 million related to First Francis Company Inc.promissory notes with a promissory note in the principal amount of $2,768,662 and a promissory note in the principal amount of $2,000,000,related party, each of which is secured by all of the assets of Hickok and certain of its subsidiaries, bearsbearing 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.annum. The Company believes that the market risk relating to interest rate movements is minimal.
ITEM 4. CONTROLS AND PROCEDURES
As of March 31, 2017,June 30, 2018, 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 as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") were effective as of December 31, 2016June 30, 2018 to ensure that information required to be disclosed by the Company in reports that 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 controlscontrol over financial reporting during the fiscal quarter ended March 31, 20172018 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM1. 1. LEGAL PROCEEDINGS.
None.Hickok AE LLC (dba Air Enterprises), a wholly owned subsidiary of Hickok Incorporated, was named as a defendant in a lawsuit filed in Superior Court in Quebec, Canada by Carmichael Engineering Ltd. of Quebec (“Carmichael”). Carmichael’s lawsuit seeks payment of invoices for materials and services it allegedly provided to Air Enterprises prior to the Company’s acquisition and relating to a third-party cooling system. The Company believes the claims have been improperly brought against Hickok. The Company denies the allegations and will vigorously defend the claims asserted against it. The Company cannot predict the outcome of the above matters or estimate the possible loss or range of loss, if any. Management believes that the allegations are without merit and that the ultimate resolution of these matters will not have a material adverse effect on the consolidated financial condition, results of operations or cash flow of the Company.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCSLOURESDISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
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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 | ||
32.2 | ||
101.INS* | XBRL Instance | |
101.SCH* | XBRL Taxonomy Extension Schema | |
101.CAL* | XBRL Taxonomy Extension Calculation | |
101.DEF* | XBRL Extension Definition | |
101.LAB* | XBRL Taxonomy Extension Labels | |
101.PRE* | XBRL Taxonomy Extension Presentation |
*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned as of the 1514th day of May, 2017,August 2018, thereunto duly authorized.
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SIGNATURE: | TITLE |
/s/ Brian E. Powers | Chairman, President and Chief |
Brian E. Powers | Executive Officer |
(Principal Executive Officer) | |
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/s/ Kelly J. Marek | Vice President and Chief Financial |
Kelly J. Marek | Officer (Principal Accounting and Financial Officer) |
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