UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
Annual Report Pursuant to
Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the fiscal year ended Commission File
November 30, 1996 #09-9599
HIA, INC.
(Exact name of small business issuer as specified in its charter)
New York 16-1028783
(State or other jurisdiction of (Federal employer
Incorporation or Organization) identification number)
4275 Forest Street
Denver, Colorado 80216
(Address of principal executive office)
(303) 394-6040
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01
(Title of Class)
The check mark below indicates whether the Issuer (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 twelve months (or reports),
and (2) has been subject to such filing requirements for the past ninety
days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be
contained to the best of registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. (X).
The Issuer had revenues of $16,550,803 for the fiscal year ended
November 30, 1996.
The aggregate market value of voting stock held by non-affiliates of the
Issuer as of February 1, 1997 was approximately $1,092,072 based on
insider transactions which took place in 1996.
The number of shares of the only class of Common Stock of the Issuer
outstanding as of January 1, 1997 was 10,303,383 fully diluted,
9,103,383 non-diluted.
Transitional Small Business Disclosure Format (check one):
YES NO X
PART I
Item 1. Business
(a) General Development of Business
HIA, Inc. (the Company) was incorporated in 1974. The Company is a
holding company with all of its business conducted through its wholly-
owned subsidiary, CPS Distributors, Inc. (CPS). Through CPS, the
Company distributes turf irrigation equipment and commercial, industrial
and residential well pumps and equipment on a wholesale basis. The
principal executive offices of the Company are located at 4275 Forest
Street, Denver, Colorado 80216, telephone (303) 394-6040.
(b) Narrative Description of Business
General The Company acquired CPS, a ninety-year-old company based in
Denver, Colorado, in February 1984. CPS serves customers in the Rocky
Mountain region in five states consisting of Colorado, Wyoming, New
Mexico, Kansas and Nebraska. CPS carries a variety of brand name
products, including pumps and water systems, water conditioning
equipment, pump and well accessories, pipe valves and fittings and
sprinkler system equipment. The industrial, commercial and residential
pumps and turf irrigation equipment represented approximately 21% and
79%, respectively, of net sales for 1996 and approximately 20% and 80%,
respectively, of net sales in 1995.
CPS' line of products has changed in response to the supply and demand
forces of the marketplace. The management of CPS believes that its two
divisions (i.e., turf and irrigation equipment and industrial,
commercial and residential pumps and equipment) reduce the cyclicality
of sales and earnings that would otherwise be affected by product line
shifts caused by economic and demographic changes; however, the Company
is subject to the ups and downs of the overall construction activity in
the Rocky Mountain region. The Company purchases approximately 27% of
its products from one manufacturer. However, the products purchased can
be obtained from other competing manufacturers but not as a consolidated
product group.
CPS' sales and service engineers provide technical support to assist
customers in developing a system specifically tailored to the customers'
needs. The Company uses computer resources for its order entry,
inventory, payroll and accounting functions.
Customer Base; Seasonality CPS' customers include contractors, dealers
and municipalities with the majority of sales derived from contractors.
The Company believes that neither its aggregate sales nor those of any
of its business units are concentrated in or materially dependent upon
any single customer or small group of customers.
Quotation activity is especially intense in the winter and spring months
(December to April) when contracts are reviewed and eventually awarded
for spring or summer construction. Since over 79% of CPS' business
relates to turf and irrigation products, its sales are concentrated from
March to October and are therefore seasonal in nature.
Competition The Company operates in a highly competitive market.
During at least the past seven years, manufacturers have abandoned the
exclusive relationships with their distributors. As a result, the
Company is competing with other wholesalers of the same products.
In the past several years, most manufacturers have also abandoned prices
based on volume buying and have gone to a pricing system based on a
percentage of purchases over the previous years' business. This change
allows smaller wholesalers to buy at the same price levels as the larger
wholesalers. Therefore, a medium-sized wholesaler, such as CPS, no
longer has a price advantage to cover the higher operating costs of a
larger operation.
CPS offers standard discounts on merchandise to its customers.
Additional discounts are given based on quantity of order or annual
volume of purchases, depending on product and competitive conditions.
The Company has monthly specials on certain of its inventory and
provides discounts for orders placed at trade shows. The majority of
the programs offered are based on discounts received from the Company's
suppliers. Therefore, there is no material effect on operating results
from providing these discounts.
Each salesperson receives a draw against commission. Commission is
determined as a percentage of the gross profit generated from sales to
the accounts in the sales representative's territory. Sales quotas are
established for each area. Sales personnel are eligible to receive a
bonus for meeting or exceeding their assigned quota.
CPS emphasizes customer service, convenient availability of products and
knowledge of the industry. However, pricing, currently an important
factor, is expected to become even more important in the late 1990s
because the competition can provide the same products and warranties.
CPS has seven major competitors in its market area for turf and
irrigation equipment and six major competitors in its market area for
industrial, commercial and residential pumps and equipment. It is
estimated by management that CPS has over 20% of the total market in
Colorado for residential pumps and 25% of the total market in Colorado
for turf and irrigation equipment. Some of CPS' competitors have
financial resources greater than CPS.
CPS estimated that in the past two years its market share in the turf
and irrigation equipment market in Colorado increased because of the
cumulative effect of opening satellite operations in Thornton, Colorado,
in March 1992; Littleton, Colorado, in March 1993; Aurora, Colorado, in
March 1994; and in the central section of Denver in March 1995; all
located in the Denver metropolitan area. CPS opened a branch in
Cheyenne, Wyoming in June 1996. Management believes that CPS can
continue to consolidate its market share in the turf and irrigation
market by opening additional local warehousing and sales operations.
Management believes CPS has an established reputation as a distributor
of quality product lines such as Rainbird, Hunter, Lasco and Jacuzzi.
CPS competes primarily on service and, to a lesser extent, on price,
quality and reliability of products, technical services and availability
of products.
Employees At November 30, 1996, the Company employed approximately 58
persons, of which 23 were warehouse employees and 35 were sales and
administrative employees. The Company considers its employee relations
to be good. None of the Company's employees are covered by union
contracts or collective bargaining agreements.
Item 2. Properties
On June 14, 1985, CPS sold its real estate located at 560 South Lipan
and 1225 West Center, Denver, Colorado for $930,000 cash to an
investment group called Lipan-Center, Ltd. There were no brokerage fees
paid by CPS as a result of the sale. CPS signed a ten-year lease with
Lipan-Center, Ltd. beginning June 14, 1985 and ending June 13, 1995,
with monthly lease payments of $9,585. The base rent was adjusted
annually by a percentage equal to the consumer price index. As a result
of the sale, CPS reported a gain of $288,088 which was reflected in the
accompanying financial statements as Deferred Gain on the Sale of Real
Estate and was amortized ratable to income over ten years, the life of
the lease. The lease was terminated effective April 1995.
The Company's leased facilities in Denver, Colorado are comprised of an
aggregate of 32,265 square feet of offices and warehouse on 166,000
square feet of land. This building serves as the central warehouse of
CPS and the executive offices of the Company. In addition, the Company
owns property in Casper, Wyoming, which consists of 6,159 square feet of
office/warehouse space on 33,600 square feet of land. The Company also
leases a warehouse and small office in Colorado Springs, Colorado
comprised of 6,370 square feet of office/warehouse space on 21,781
square feet of land; 4,000 square feet of office and warehouse space on
14,000 square feet of land in Fort Collins, Colorado; 10,000 square feet
of office and warehouse space in Thornton, Colorado; 5,000 square feet
of office and warehouse space in Littleton, Colorado; 4,000 square feet
of office and warehouse space in
Aurora, Colorado; 8,400 square feet of office and warehouse space in the
central section of Denver, Colorado; and 9,120 square feet of office and
warehouse space in Cheyenne, Wyoming.
On March 28, 1993, the Company entered into a sublease agreement on a
portion of the property located in Denver, Colorado. The lease called
for rent payments of $3,272.50 per month until the expiration of the
master lease on June 13, 1995. Upon termination of the master lease in
April 1995, the sublessee began remitting monthly lease payments to the
original lessor. The subleased premises consisted of approximately
11,900 square feet of office and warehouse space.
During November 1994, the Company entered into a new agreement to lease
warehouse space for its main warehouse. The lease has a ten year term,
beginning March 1995, with monthly rent at $9,500 for the first five
years, after which the monthly rent may be adjusted by the percentage
increase in the Consumer Price Index. The Company has an option to
purchase the related property at the end of the initial ten year term at
a price approximating the market value at that time, subject to certain
conditions. The Company also has two five-year options to extend the
lease term, one at the beginning of the eleventh year and one at the
beginning of the 16th year. The Company is to pay for all taxes,
insurance and maintenance on the property.
The Company believes its leased facilities are adequate to meet its
needs for the next several years and anticipates that it would encounter
little difficulty in locating alternative facilities should its
requirements change.
Item 3. Legal Proceedings
The Company knows of no material pending legal proceedings to which the
Company is a party or of which any of its properties is the subject and
no such proceedings are known to the Company to be contemplated by
governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a shareholder vote during the fiscal
year ended November 30, 1996.
PART II
Item 5. Market for the Company's Common Stock and Related Security
Holders Matters
The principal market on which HIA Shares are traded is the Denver over-
the-counter market. Prior to June 6, 1986, the Company's stock was
traded on the NASDAQ National Market System. On June 6, 1986, HIA
Shares were de-listed from NASDAQ because the Company no longer
satisfied the minimum total capital and surplus requirement for
continued listing. Although one market maker continues to quote prices
for HIA Shares, the Company is not aware of any established public
trading market for HIA Shares since June 6, 1986.
The approximate number of holders of record of HIA Shares as of November
30, 1996 was 2,000.
The Company has never declared any dividends with respect to HIA Shares.
The Company has not in the past and is currently restricted from paying
cash dividends under its existing line-of-credit agreement.
Item 6. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources
At November 30, 1996, the Company had total cash balances of $141,584.
Cash flows from operating activities increased by $440,191 during the
year ended November 30, 1996 primarily as a result of increases in net
income of $537,669 and accounts payable of $247,340 partially offset by
increases in accounts receivable and inventory levels of $209,007 and
$112,518. The increase in accounts receivable resulted directly from
increased sales levels. The increased level of inventories resulted
primarily from the opening of a new satellite operation during fiscal
1996.
The following is a two-year summary of working capital and current
ratios:
<TABLE>
1996 1995
<S> <C> <C>
Working Capital $ 2,027,665 $ 1,837,448
Current Ratios 2.10 to 1 2.16 to 1
</TABLE>
At November 30, 1996, the Company and its subsidiaries have an available
line-of-credit totalling $4,000,000, of which $3,121,387 was unused.
Management believes that the present working capital is adequate to
conduct its present operations. The Company does not have any
commitments nor anticipates material capital expenditures for fiscal
1997.
During March 1994, the Company entered into an agreement to purchase one
third of the common shares held by R. Thomas Dalbey, President,
Director, and principal owner, 1,386,011 shares at $.14 per share for a
total cost of $194,041.54. This amount was paid in cash. The agreement
also gave the Company the option to purchase 1,386,011 of Mr. Dalbey's
remaining shares at $.15 per share by April 1, 1996, and 1,386,011
shares (or all remaining shares) at $.16 per share by April 1, 1998.
The per share cost to acquire the remaining 2,772,022 shares held by Mr.
Dalbey was to be adjusted for the net profit or loss generated by the
Company during the option period.
On November 30, 1995, the Company exercised its option and purchased
1,386,011 common shares held by R. Thomas Dalbey at $.18585 per share,
for a total cost of $257,590 under this agreement. On October 31, 1996,
the Company exercised its option and purchased 1,386,011 common shares
held by R. Thomas Dalbey at $.22282 per share, for a total cost of
$308,833 under this agreements.
On November 30, 1995, the Board of Directors granted an option to each
of the three executive officers of CPS to purchase up to 200,000 shares
at $.18585 per share by December 31, 1997. The options' exercise price
was equal to the common stock's market price at the date of grant.
On November 30, 1996, the Board of Directors granted an option to each
of the three executive officers of CPS to purchase up to 200,000 shares
at $.22282 per share by December 31, 1998. The options' exercise price
was equal to the common stock's market price at the date of grant.
In addition, the Board of Directors granted an option to each of the
three executive officers of CPS to purchase up to 200,000 shares at $.14
per share by December 31, 1994. In June 1994 each of the three officers
exercised options to purchase 107,143 shares, or 321,428 total shares,
at $.14 per share for a total of $45,000. The remaining options were
exercised in December 1994.
Results of Operations
Comparison 1996 vs. 1995
Net sales were up $2,081,686 primarily from the robust housing and
construction-related trade in the Rocky Mountain region and volume
increases related to the opening of a Cheyenne, Wyoming satellite
operation in June 1996 which contributed new sales totalling $275,125
and additional gross profit of $79,276. Other income decreased by
$29,211 as a result of the termination of a sublease agreement in June
1995. Cost of sales increased in fiscal 1996 directly in proportion to
the increase in sales. Cost of sales as a percentage of net sales was
69.3% in fiscal 1996 compared to 68.9% in fiscal 1995. Selling, general
and administrative expense increased by $379,370 primarily as a result
of payroll cost increases of approximately $169,000 and expenses
associated with the new Cheyenne, Wyoming satellite operation of
approximately $164,000. See Item 1 regarding seasonality of sales.
Management believes staffing levels have been reduced as low as
practicable and interest rates are not expected to be reduced
significantly in the near future, so that profitability most likely will
not be improved by further cost reductions in these areas.
The Company had net income of $537,669, which was a increase of $184,125
from the prior year's net income of $353,544. The increase was
primarily a result of the increase in gross profit of $569,430, offset
by the increases in selling, general and administrative expenses of
$379,370.
The weighted-average interest rates on bank borrowings was 9.5 percent
and 8.9 percent for 1996 and 1995. The weighted-average balance
outstanding, $1,236,127 for the year ended November 30, 1996, decreased
approximately $237,742 from 1995 to 1996, primarily as a result of cash
flow derived from net income from operations.
Income Taxes At November 30, 1996, the Company has recorded a deferred
tax asset totalling $49,250 classified and included in other current
assets in the accompanying balance sheet to the Company's consolidated
financial statements. Based upon the Company's recent history of
taxable income and its projections for future earnings, management
believes that it is more likely than not that sufficient taxable income
will be generated next year to utilize the deferred tax asset. See Note
3 to the Company's consolidated financial statements.
Recent Accounting Pronouncements The Financial Accounting Standards
Board has recently issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets"
and SFAS No. 123, "Accounting for Stock Based Compensation." SFAS No.
121 requires that long-lived assets and certain identifiable intangibles
be reported at the lower of the carrying amount or their estimated
recoverable amount and the adoption of this statement by the Company is
not expected to have an impact on the financial statements. SFAS No.
123 encourages the accounting for stock-based employee compensation
programs to be reported within the financial statements on a fair value
based method. If the fair value based method is not adopted, then the
statement requires pro-forma disclosure of net income and earnings per
share as if the fair value based method had been adopted. The Company
has not yet determined how SFAS No. 123 will be adopted nor its impact
on the financial statements. Both statements are effective for fiscal
years beginning after December 15, 1995.
Item 7. Financial Statements
The response to this item is submitted as a separate section of this
report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements between the Company and its independent
accountants on any matter of accounting principles or practices or
financial statement disclosure since the Company's inception.
On February 12, 1996, BDO Seidman, LLP replaced Mitchell Finley and
Company, P.C. as HIA, Inc.'s principal accountants.
The registrant has not consulted with BDO Seidman, LLP on any accounting
or auditing matters during the past two years. On January 1, 1996,
Mitchell Finley and Company, P.C. combined their practice into BDO
Seidman, LLP.
Mitchell Finley and Company's report on the financial statements for
the two years ended November 30, 1994 contained an unqualified opinion.
Also, there were no disagreements on any matter of accounting principal
or practice, financial statement disclosure, or auditing scope or
procedure with Mitchell Finley and Company, P.C.
The Company received a letter from Mitchell Finley and Company, P.C.
addressed to the SEC stating it agreed with the above statements. A
copy of this letter dated February 12, 1996, was filed as Exhibit A to
the related Form 8-K dated February 12, 1996.
PART III
Item 9. Directors and Executive Officers of the Company
(a) Identification of Directors
The list presented below sets forth the names and ages of all directors
of the Company indicating all positions and offices with the Company
held by each such person and his term of office as director and the
period during which he has served as such.
<TABLE>
Name Age Positions Director Since
<S> <C> <C> <C> <C>
Carl J. Bentley 63 Chairman of the Board 1994
and Director
Alan C. Bergold 48 President, Treasurer 1981
and Director
Donald Champlin 45 Executive Vice President, 1994
Secretary and Director
R. Thomas Dalbey 59 Director 1974
</TABLE>
(b) Identification of Executive Officers
The list presented below sets forth the names and ages of all executive
officers of the Company indicating all positions and offices held by
such person and the period during which he has served as such.
<TABLE>
Name Age Position Year First Elected
(1)
<S> <C> <C> <C> <C>
Carl J. Bentley 63 Chairman of the Board 1996
and Director 1994
Alan C. Bergold 48 President, Treasurer 1996
and Director 1981
Donald L. Champlin 45 Executive Vice President, 1996
Secretary
and Director 1994
</TABLE>
(1) All officers serve at the discretion of the Board of Directors.
(c) Business Experience
The material presented below sets forth a brief account of the business
experience during at least the past five years of each director,
executive officer and significant employee.
Carl J. Bentley, age 63, was appointed Chairman of the Board in October
1996. He joined the Company as General Manager of CPS in July 1985. In
November 1986, he became President and a member of the Board of
Directors of CPS. He was appointed to the Company's Board of Directors
in 1994.
Alan C. Bergold was appointed President in October 1996 and Executive
Vice President of the Company in July 1983. He served as Vice President
and Secretary of the Company from 1981 to 1983. Mr. Bergold, who is 48
years old, has been a director of the Company since 1981. In addition,
Mr. Bergold is a Colorado Real Estate Broker and a Certified Public
Accountant.
Donald Champlin, age 45, was appointed Executive Vice President in
October 1996. He joined the Company as Pump Product Manager in October
1983. In February 1989, he became Vice President of Marketing and a
member of the Board of Directors of CPS. He was appointed to the
Company's Board of Directors in 1994.
R. Thomas Dalbey has been a Director from its inception in 1974. He
served as President and Chairman of the Board from 1974 to October 1996.
For a period of approximately one year in 1978 and 1979, Mr. Dalbey was
Executive Vice President of Jacobs Equipment Company in Denver,
Colorado. Mr. Dalbey is 59 years old.
(d) Involvement in Certain Legal Proceedings
None.
(e) Promoters and Control Persons
Not applicable.
Item 10. Executive Compensation
Summary Compensation Table
The following table reflects cash and non-cash compensation paid or
accrued by the Company during the fiscal years ended November 30, 1996,
1995 and 1994 to or for the account of the chief executive officer and
each executive officer whose cash compensation exceeded $100,000, and
all executives of the Company as a group:
<TABLE>
Annual Compensation
Name and Year Ended Salary Bonus Other Annual
Principal Nov. 30 Compensation
Position
<S> <C> <C> <C> <C>
Carl J. 1996 $ 122,541 $ 91,316 -
Bentley 1995 113,550 76,521 -
Chairman 1994 98,849 67,778(1)
of the
Board
Alan C. 1996 $ 120,042 $ 91,316 -
Bergold 1995 111,050 76,521 -
President 1994 91,768 67,778(1) -
Donald 1996 $ 117,546 $ 91,316 -
Champlin 1995 108,550 76,521 -
Executive 1994 87,331 67,778(1) -
Vice-
President
R. Thomas 1996 $ 14,191 $ 19,908 -
Dalbey 1995 35,472 32,503 -
Director 1994 40,323 23,196 -
</TABLE>
<TABLE>
Long Term Compensation
Name and Year Restricted Options LTIP All Other
Principal Ended Stock Award SARs Payouts Compensation
Postion
<S> <C> <C> <C> <C> <C>
Carl J. 1996 - 200,000(2) - -
Bentley 1995 - 200,000(3) - -
Chairman 1994 - - - -
of the
Board
Alan C. 1996 - 200,000(2) - -
Bergold 1995 - 200,000(3) - -
Persident 1994 - - - -
Donald 1996 - 200,000(2) - -
Champlin 1995 - 200,000(3) - -
Executive 1994 - - - -
Vice
Prsident
R. Thomas 1996 - 200,000(2) - -
Dalbey 1995 - 200,000(3) - -
Director 1994 - - - -
</TABLE>
(1) Of the total bonus compensation accrued in fiscal 1994, $13,000 was
paid to each officer noted through the fiscal 1995 issuance of 92,857
shares of the Company's common stock.
(2) Options to purchase shares of common stock at $.222822 each
expiring December 31, 1998.
(3) Options to purchase shares of common stock at $.18585 each expiring
December 31, 1997.
The preceding table does not include any amounts for non-cash
compensation, including personal benefits, paid to the above-listed
officers. The Company believes that the value of such non-cash benefits
and compensation paid during the periods presented did not exceed the
lessor of $50,000 or 10% of the cash compensation reported.
The Company has employment agreements as follows:
Carl J. Bentley (2): $124,000 annual salary per year, adjusted for cost
of living plus five percent per annum base increase; plus seven and one-
half percent bonus of net pretax income exclusive of parent company
expenses and profit-sharing contribution; term of six years beginning
February 1, 1994.
Alan C. Bergold (2): $121,500 annual salary per year, adjusted for cost
of living plus five percent per annum base increase; plus seven and one-
half percent bonus of net pretax income exclusive of parent company
expenses and profit-sharing contribution; term of six years beginning
February 1, 1994.
Donald Champlin (2): $119,000 annual salary per year, adjusted for cost
of living plus five percent per annum base increase; plus seven and one-
half percent bonus of net pretax income exclusive of parent company
expenses and profit-sharing contribution; term of six years beginning
February 1, 1994.
R. Thomas Dalbey (1): $17,148 annual salary per year, adjusted by the
proportional increase in other executive officer's salary; plus 1.67 (1
2/3%) bonus of net pretax profit exclusive of profit-sharing plan
contribution.
(1) There is no provision for additional compensation as a result
of the sale of all or substantially all of the Company's assets.
(2) There is a provision for payment of one year's compensation as
a result of the sale of all or substantially all of the Company's
assets.
(b) Option/SAR Grants in Last Fiscal Year
<TABLE>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options Employees Exercise
SARs in Fiscal or Base Expiration
Name Granted Year Price/($ Share) Date
<S> <C> <C> <C> <C>
Alan C.
Bergold 200,000 33.3% $ 22282 Dec. 31, 1998
Carl J.
Bentley 200,000 33.3% .22282 Dec. 31, 1998
Donald
Champlin 200,00 33.3% .22282 Dec. 31, 1998
</TABLE>
(c) Aggregated Option/SAR Exercise and Fiscal Year-End Option/SAR
Value Table
<TABLE>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/
Shares Options/SARs SARs at
Acquired Value at FY-end FY-end
Name on Exercise Realized (all exercisable) (all exercisable)
<S> <C> <C> <C> <C>
Alan C.
Bergold 0 $ 0 400,000 $ 81,734
Carl J.
Bentley 0 0 400,000 81,734
Donald
Champlin 0 0 400,000 81,734
Refer to Note 5 to the Consolidated Financial Statements for description
of Stock Option Plan.
</TABLE>
Item 11.Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table shows, as of November 30, 1996, the beneficial
ownership of Common Stock by each person known by the Company to own
beneficially more than 5 percent of the outstanding shares of its Common
Stock. The Company has no other class of voting securities.
<TABLE>
Common Stock
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
<S> <C> <C>
Carl J. Bentley 1,476,963 (1) 14.3%
4275 Forest Street
Denver, CO 80216
Alan C. Bergold 1,864,454 (1) 18.1%
4275 Forest Street
Denver, CO 80216
Don Champlin 1,501,606 (1) 14.6%
4275 Forest Street
Denver, CO 80216
(1) Includes 400,000 shares which may be acquired pursuant to the
exercise of stock options exercisable within 2 years.
</TABLE>
(b) Security Ownership of Management
The following table shows, as of November 30, 1996, the equity
securities beneficially owned by all directors of the Company and all
directors and officers of the Company as a group.
(1) Directors
<TABLE>
Common Stock
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
<S> <C> <C>
Carl J. Bentley 1,476,963 (1) 14.3%
4275 Forest Street
Denver, CO 80216
Alan C. Bergold 1,864,454 (1) 18.1%
4275 Forest Street
Denver, CO 80216
Don Champlin 1,501,606 (1) 14.6%
4275 Forest Street
Denver, CO 80216
R. Thomas Dalbey 0 0%
4275 Forest Street
Denver, CO 80216
(1) Includes 400,000 shares which may be acquired pursuant to the
exercise of stock options exercisable within 2 years.
(2) Directors and Officers as a Group
</TABLE>
<TABLE>
Amount and Nature of Percent
Title of Class Beneficial Ownership of Class
<S> <C> <C>
Common Stock 4,843,023 47.0%
(par value $.01)
(c) Changes in Control
</TABLE>
None.
Item 12. Certain Relationships and Related Transactions
(a) Transactions With Management and Others
On November 30, 1996, the Board of Directors granted an option to each
of the three executive officers of CPS to purchase up to 200,000 shares
at $.222822 per share by December 31, 1998.
On November 30, 1995, the Board of Directors granted an option to each
of the three executive officers of CPS to purchase up to 200,000 shares
at $.18585 per share by December 31, 1997.
During March 1994, the Company entered into an agreement to purchase one
third of the common shares held by R. Thomas Dalbey, President,
Director, and principal owner, 1,386,011 shares at $.14 per share for a
total cost of $194,041.54. This amount was paid in cash. On November
30, 1995, the Company purchased an additional 1,386,011 shares at
$.18585, adjusted for fiscal 1994 net income, per share for a total of
$257,590. This amount was paid in cash. On October 31, 1996, the
Company purchased the remaining 1,386,011 shares at $.222822 per share
for a total cost of $308,333 from R. Thomas Dalbey. This amount was
paid in cash.
On May 31, 1994, the Board of Directors granted an option to each of the
three executive officers of CPS to purchase up to 200,000 shares at $.14
per share by December 31, 1994. In June 1994, each of the three
officers exercised options to purchase 107,143 shares, or 321,428 total
shares, at $.14 per share for a total of $45,000. The remaining options
were exercised in December 1994.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions with Promoters
Not applicable.
PART IV
Item 13. Exhibits and Reports on Form 8-K
Exhibits
(a) The documents listed below have been filed as exhibits to this
report. As used in this exhibit list, "Form 10" means the Company's
Registration Statement on Form 10 filed with the Securities and Exchange
Commission in March 1981.
3.1 Articles of Incorporation (incorporated by reference to Exhibits
3.1 and 3.2 to Form 10).
3.2 By-laws (incorporated by reference to Exhibit 3.3 to the Form 10).
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiaries of the Company.
24 Power of Attorney
(b) No reports on Form 8-K were filed by the Company during the last
quarter
of the period covered by this report.
HIA, INC. AND SUBSIDIARIES
Exhibit 21
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
CPS Distributors, Inc. Colorado
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HIA, INC.
By: //Alan C. Bergold
---------------------------
Alan C. Bergold, President,
Treasurer and Director
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date
//Carl J. Bentley
- ------------------- Chairman of the Board
Carl J. Bentley and Director 2/28/97
//Alan Bergold
- -------------------- President,
Alan C. Bergold Treasurer and Director 2/28/97
//Donald Chaplin
- -------------------- Executive Vice
Donald Champlin President, Secretary 2/28/97
and Director
//R. Thomas Dalbey
- -------------------
Director 2/28/97
R. Thomas Dalbey
Report of Independent Certified Public Accountants
Consolidated Financial Statements:
Balance Sheet
Statements of Operation
Statements of Stockholders' Equity
Statements of Cash Flows
Summary of Accounting Policies
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
To the Stockholders and Board of Directors
HIA, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of HIA, Inc.
and subsidiaries (the "Company") as of November 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash
flows for the years ended November 30, 1996 and 1995. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HIA,
Inc. and its subsidiaries as of November 30, 1996 and the results of
their operations and their cash flows for the years ended November 30,
1996 and 1995 in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Denver, Colorado
January 8, 1997
<TABLE>
<CAPTION>
HIA, Inc. and Subsidiaries Consolidated Balance Sheet
November 30, 1996
Assets (Note 1)
<S> <C>
Current:
Cash $ 141,584
Accounts receivable, less allowance of
$72,847 for possible losses 1,528,131
Inventories 2,078,802
Other current assets 116,418
- ----------------------------------------------------------------------
Total current assets 3,864,935
- ----------------------------------------------------------------------
Property and equipment:
Land and improvements 45,295
Buildings and improvements 237,361
Equipment 366,591
- ---------------------------------------------------------------------
649,247
Less accumulated depreciation and
amortization 485,105
- ---------------------------------------------------------------------
Net property and equipment 164,142
- ---------------------------------------------------------------------
Investment and other assets 75,544
- ---------------------------------------------------------------------
$ 4,104,621
========================================================================
</TABLE>
<TABLE>
<CAPTION>
HIA, Inc and Subsidiaries Consolidated Balance Sheet
November 30, 1996
<S> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Note payable to bank (Note 1) $ 878,613
Accounts payable 477,637
Checks written against future deposits 126,183
Accrued bonuses 143,855
Accrued profit sharing plan contribution (Note 5) 95,000
Income taxes payable (Note 3) 46,166
Other current liabilities 69,816
- --------------------------------------------------------------------
Total current liabilities 1,837,270
- --------------------------------------------------------------------
Commitments and contingencies (Notes 2 and 5) -
Stockholders' equity (Note 4):
Common stock, $.01 par value; 20,000,000 shares
authorized; 13,107,896 issued 131,079
Additional paid-in capital 3,109,271
Accumulated deficit (236,043)
- --------------------------------------------------------------------
3,004,307
Less treasury stock at cost; 4,004,513 shares 736,956
- -------------------------------------------------------------------
Total stockholders' equity 2,267,351
- --------------------------------------------------------------------
$ 4,104,621
====================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</TABLE>
[CAPTION]
HIA, Inc. and Subsidiaries Consolidated Statements of Operations
<TABLE>
Years Ended November 30, 1996 1995
<S> <C> <C>
Revenues:
Net sales $ 16,483,773 $ 14,402,087
Interest income 10,780 18,004
Other income 23,327 52,538
- ----------------------------------------------------------------------
Total revenues 16,517,880 14,472,629
- ----------------------------------------------------------------------
Costs and expenses:
Cost of sales 11,432,836 9,920,580
Selling, general and administrative 4,161,733 3,782,363
Interest expense 117,526 131,040
- ----------------------------------------------------------------------
Total costs and expenses 15,712,095 13,833,983
- ----------------------------------------------------------------------
Income before taxes on income 805,785 638,646
Taxes on income (Note 3) 268,116 285,102
- ----------------------------------------------------------------------
Net income $ 537,669 $ 353,544
======================================================================
Net income per share $ .05 $ .0
======================================================================
Weighted-average common
shares outstanding 11,575,475 12,405,055
======================================================================
</TABLE>
[CAPTION]
HIA, Inc. and subsidiaries Consolidated Statements of Shareholders
Equity
<TABLE>
Years Ended November 30, 1996
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance,
December 1,
1994 13,107,896 $ 131,079 $ 3,109,271 $ (1,127,256)
Acquisition
of treasury
stock
Issuance of
shares held
in treasury
Net income 353,544
- ----------------------------------------------------------------------
Balance,
November
30, 1995 13,107,896 131,079 3,109,271 (773,712)
Acquisition
of treasury
stock
Issuance of
shares held
in treasury
Net income 537,669
- ----------------------------------------------------------------------
Balance,
November
30, 1996 13,107,896 $ 131,079 $ 3,109,271 $ (236,043)
======================================================================
</TABLE>
<TABLE>
Treasury Stock Total Stockholders' Equity
<S> <C> <C>
Balance,
December 1
,1994 $ (198,670) $ 1,914,424
Acquisition
of treasury
stock (268,453) (268,453)
Issuance of
shares held
in treasury 39,000 39,000
Net Income 353,544
- ----------------------------------------------------------------------
Balance,
Novemebr 30,
1995 (428,123) 2,038,515
Acquisition of
treasury stock (375,493) (375,493)
Issuance of
shares held
in treasury 66,660 66,660
Net income 537,669
- ----------------------------------------------------------------------
Balance,
November 30,
1996 $ (736,956) $ 2,267,351
======================================================================
</TABLE>
[CAPTION]
HIA, Inc. and Subsidiaries Consolidated Statements of Cash Flows
<TABLE>
Increase (Decrease) in Cash
Years Ended November 30, 1996 1995
<S> <C> <C>
Operating activities:
Net income $ 537,669 $ 353,544
Adjustments to reconcile net income to
net cash provided by
(used in) operating
activities:
Depreciation and amortization 33,566 48,426
Allowance for doubtful accounts (20,153) (5,594)
Deferred income taxes (27,563) 42,653
Amortization of deferred gain (17,660)
Issuance of treasury stock in lieu of
bonuses 39,000
Changes in operating assets
and liabilities:
Accounts receivable (209,007) (270,245)
Inventories (112,518) (333,584)
Other current assets (42,413) 4,707
Accounts payable 247,340 (19,461)
Other current liabilities (148,957) (24,013)
- ----------------------------------------------------------------------
Net cash provided by (used in)
operating activities 257,964 (182,227)
- ----------------------------------------------------------------------
Investing activities:
Disposal of property and equipment 4,478
Purchase of property and equipment (73,485) (73,984)
Change in deposits (3,178) 18,000
- ----------------------------------------------------------------------
Net cash used in investing activities (72,185) (55,984)
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
Increase (Decrease) in Cash
Years Ended November 30, 1996 1995
<S> <C> <C>
Financing activities:
Proceeds from note payable to bank 5,144,333 5,841,000
Repayment on note payable to bank (5,030,000) (5,167,268)
Proceeds from installment obligations 4,667
Payments on installment obligations (6,504) (19,460)
Acquisitions of treasury stock (375,493) (268,453)
Proceeds from sale of treasury stock 66,660
Checks written against future deposits 41,697 (54,882)
Net cash provided by (used in)
financing activities (159,307) 335,604
Increase in cash 26,472 97,393
Cash, beginning of year 115,112 17,719
Cash, end of year $ 141,584 $ 115,112
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</TABLE>
Principles of Consolidation
The consolidated financial statements include the accounts of HIA, Inc.
(the "Company" or "HIA"), its wholly-owned subsidiary CPS Distributors,
Inc. ("CPS"), and CPS's wholly-owned subsidiary, Water Systems, Inc.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Lines of Business
The principal business of HIA, conducted through its subsidiary CPS, is
the wholesale distribution of turf irrigation equipment and pumps.
Reclassifications
Certain reclassifications have been made to the 1995 financial
statements in order for them to conform to the 1996 presentation. Such
reclassifications have no impact on the Company's financial position or
results of operations.
Concentration of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and trade
accounts receivable. The Company invests temporary cash in demand
deposits with federally insured financial institutions. Such deposit
accounts at times may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
Concentrations of credit risk with respect to accounts receivables are
limited due to the large number of customers, generally short payment
terms, and their dispersion across geographic areas.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles necessarily requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
Financial Instruments
The note payable to bank bears interest of a floating rate of interest
based upon the lending institutions prime lending rate. Accordingly, the
fair value approximates its reported carrying amount at November 30,
1996.
Inventories
Inventories consist of wholesale goods held for resale which are
primarily valued at the lower of cost (as determined using first-in,
first-out method) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using straight-line and accelerated methods over the estimated useful
lives of the assets, ranging from five to ten years. Upon sale or
retirement, the cost and related accumulated depreciation of disposed
assets are eliminated from the respective accounts and the resulting
gain or loss is included in the statement of operation.
Revenue Recognition
The Company recognizes revenue at the time sales are shipped to
customers in the normal course of business.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"). Temporary differences
are differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements that will result in
taxable or deductible amounts in future years.
Net Income Per Common Share
Net income per common share is computed using the weighted-average
number of shares outstanding during each period presented. Options to
purchase stock (1,200,000 and 600,000 options outstanding at November
30, 1996 and 1995) are included as common stock equivalents, when
dilutive.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets" and SFAS No. 123, "Accounting for Stock
Based Compensation". SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles be reported at the lower of the
carrying amount or their estimated recoverable amount and the adoption
of this statement by the Company is not expected to have an impact on
the financial statements. SFAS No. 123 encourages the accounting for
stock-based employee compensation programs to be reported within the
financial statements on a fair value based method. If the fair value
based method is not adopted, then the statement requires pro-forma
disclosure of net income and earnings per share as if the fair value
based method had been adopted. The Company has not yet determined how
SFAS No. 123 will be adopted nor its impact on the financial statements.
Both statements are effective for fiscal years beginning after December
15, 1995.
HIA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Note Payable to Bank
CPS and its subsidiary have a line-of-credit agreement with a bank which
expires April 30, 1998. The available loan amount is the lesser of
$4,000,000 or the computed borrowing base, as defined. The line-of-
credit provides for interest at the bank's base rate (8.25% at November
30, 1996) plus 1%. The agreement is collateralized by primarily all of
the Company's business assets including trade accounts receivable,
inventories and property and equipment, excluding owned real estate.
Additionally, the bank has the right of set-off under this agreement.
The agreement is also guaranteed by HIA.
The agreement contains several covenants which, among other things,
require that the Company maintain certain financial ratios, minimum net
worth and minimum working capital as defined in the line of credit
agreement. In addition, the agreement limits the payment of dividends,
the purchase of property and equipment, and officer and stockholder
compensation. As of November 30, 1996, the Company was in compliance
with the line of credit agreement.
As of November 30, 1996, $878,613 was outstanding under this line-of-
credit agreement.
2. Lease Obligation
CPS leases its main warehouse under a non-cancelable operating lease
requiring monthly payments of $9,500 through February 2005. CPS has an
option to purchase the related property at the end of the initial ten-
year term at a price approximating the market value at that time,
subject to certain conditions. CPS also has two five-year options to
extend the lease term.
CPS also leases vehicles, equipment and warehouse space under non-
cancelable operating leases. Total lease expense was $429,055 and
$322,897 for fiscal 1996 and 1995.
As of November 30, 1996 future minimum lease payments under non-
cancelable operating leases are as follows:
<TABLE>
November 30, Total
<S> <C>
1997 $ 436,776
1998 349,849
1999 280,003
2000 240,063
2001 230,833
Thereafter 422,039
$ 1,959,563
</TABLE>
The Company subleased certain warehouse space, receiving rent of $3,300
per month through June 1995. Total rental income recognized under this
agreement for the year ended November 30, 1995 was $9,818.
3. Taxes on Income
The provision for taxes on income for the years ended November 30, 1996
and 1995 consisted of the following:
<TABLE>
1996 1995
<S> <C> <C>
Current:
Federal $ 256,044 $ 206,594
State 39,635 35,855
Deferred:
Federal (26,185) 36,345
State (1,378) 6,308
$ 268,116 $ 285,102
</TABLE>
The Company's effective tax rate in 1995 was higher than the federal
statutory tax rate of 34% as a result of the tax effect of state income
taxes, net of the federal tax benefit and other nondeductible items.
Temporary differences between the financial statement carrying amounts
and the tax basis of assets and liabilities that give rise to
significant portions of the net deferred tax asset at November 30, 1996
relate to the following:
<TABLE>
<S> <C>
Inventories $ 33,600
Accounts receivable 26,953
Property and equipment (13,523)
Other 2,220
$ 49,250
</TABLE>
At November 30, 1996 the net deferred tax asset is classified and
included in other current assets in the accompanying balance sheet. The
Company recorded no valuation allowance to offset the net deferred tax
asset because management believes that it is more likely than not that
sufficient taxable income will be generated in the foreseeable future to
realize the deferred tax asset.
4. Stockholders' Equity
Treasury Stock and Common Stock Options
During March 1994, the Company entered into a stock purchase agreement
with an officer under which the Company had an option to purchase
2,772,022 shares of its common stock from the officer. The agreement
provided for the purchase of 1,386,011 shares between March 1, 1994 and
April 1, 1996 at $.15 per share, and the remaining purchase of 1,386,011
shares between March 31, 1994 and April 1, 1998 at $.16 per share.
Under the agreement, the option price was to be adjusted annually to
reflect cumulative net income or loss for each year. During fiscal
1995, the Company exercised its option to purchase 1,386,011
shares at $.18585 per share, adjusted to reflect fiscal 1994 net income.
During fiscal 1996, the Company exercised its option to purchase the
remaining 1,386,011 shares at $.22282 per share, adjusted to reflect
fiscal 1995 net income.
The Company acquired from other stockholders 338,357 shares of its
common stock at $.183 to $.20 per share for fiscal 1996 and 71,000
shares of its common stock at $.14 to $.182 per share for fiscal 1995.
During fiscal 1996, the Company issued 338,357 shares from treasury to
its officers at cost for $66,660 cash. During fiscal 1995, the Company
issued 278,571 shares from treasury to its officers in lieu of bonuses
valued at $39,000.
On November 30, 1996, the board of directors of the Company granted
options to officers of CPS to purchase up to 600,000 treasury shares at
$.22282 per share through December 31, 1998. On November 30, 1995, the
board of directors of the Company granted options to officers of CPS to
purchase up to 600,000 treasury shares at $.18585 per share through
December 31, 1997. The options granted during fiscal 1996 and 1995 were
granted at an exercise price equal to the common stock's market price at
the date of grant. No options were exercised during fiscal 1996 and
1995 under the 1996 and 1995 option plans. As of November 30, 1996 and
1995, the Company has 1,200,000 and 600,000 options outstanding.
In addition, HIA has incentive and non-incentive stock option plans for
officers, directors and employees of HIA and its subsidiaries under
which options to purchase HIA's common stock are granted at no less than
100 percent of the market price of the stock at the date of the grant.
At November 30, 1996 and 1995, there were 684,250 shares reserved for
future grants. Under these plans, there were no options granted or
outstanding as of November 30, 1996 and 1995.
5. Profit Sharing Plan
HIA, Inc. maintains a noncontributory profit sharing plan (the "Plan")
for the benefit of all full-time employees of CPS and CPS' wholly-owned
subsidiary, Water Systems, Inc., who are at least 18 years of age.
Interests vest ratably after two years and are fully vested after seven
years. The Plan is funded by the Company's contribution determined
annually by the Board of Directors.
Contributions to the Plan amounted to $95,000 and $80,000 for the years
ended November 30, 1996 and 1995.
6. Supplemental Disclosures of Cash Flow Information
<TABLE>
1996 1995
<S> <C> <C>
Cash paid during
the year for:
Interest $ 117,526 $ 131,040
Income taxes $ 237,988 $ 161,375
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-START> Dec-01-1995
<PERIOD-END> Nov-30-1996
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 1601
<ALLOWANCES> (73)
<INVENTORY> 2079
<CURRENT-ASSETS> 3865
<PP&E> 649
<DEPRECIATION> 485
<TOTAL-ASSETS> 4105
<CURRENT-LIABILITIES> 1837
<BONDS> 0
<COMMON> 131
0
0
<OTHER-SE> 2136
<TOTAL-LIABILITY-AND-EQUITY> 4105
<SALES> 16484
<TOTAL-REVENUES> 16518
<CGS> 11433
<TOTAL-COSTS> 15712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> 806
<INCOME-TAX> 268
<INCOME-CONTINUING> 538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 538
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
