FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended February 28, 1998
Commission File Number 0-9599
HIA, INC.
(Exact name of registrant specified in its charter)
New York 16-1028783
State or other jurisdiction of I.R.S. Employer
incorporated or organization Identification Number
4275 Forest Street
Denver, Colorado 80216
(Address of principal executive offices, zip code)
(303)394-6040
(Registrant's telephone number, including area code)
Indicate by check mark 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 12 months (or 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 10,153,383
fully diluted shares of the Registrant's $.01 par value common stock were
outstanding at February 28, 1998.
HIA, Inc.
INDEX
Part I. Financial Information
Item 1. Financial Statements. .. . . . . . . . . . .
Item 2. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . .
Part II Other Information
Item 1. Legal Procedings. .. . . . . . . . . . . .
Item 2. Changes in Securities . . . . . . . . . .
Item 3. Defaults upon Senior Securities . . . . .
Item 4. Submission of Matters to a
vote of Security Holders. .. . . . . . .
Item 5. Other information. .. . . . . . . . . . .
Item 6. Exhibits and Reports on form 8-K. .. . . .
Part I
Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 1998
and November 30, 1997 . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the three months
ended February 28, 1998 and February 29, 1997 . . . . .
Consolidated Statements of Cash Flows for the three months
Ended February 28, 1998 and February 29, 1997 . . . . .
<TABLE>
HIA, Inc and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Information as of November 30, 1997 is based upon an audited balance sheet.
All other information is unaudited.)
ASSETS February 28, November 30,
1998 1997
<S> <C> <C>
Current Assets:
Cash $ 25,498 $ 15,295
Accounts receivable, net of allowance for
doubtful accounts 1,560,064 1.676,222
Inventories 3,732,551 2,498,970
Other current assets 149,628 148,029
--------- ---------
Total current assets 5,467,741 4,338,516
---------- ---------
Property and Equipment, at Cost:
Land and improvements 45,295 45,295
Buildings 288,240 286,441
Equipment 802,867 761,623
-------- --------
1,136,402 1,093,359
Less accumulated depreciation
and amortization 541,810 525,997
--------- ---------
Net property and equipment 594,592 567,362
---------- --------
Other Assets/Investments 148,123 127,002
--------- --------
TOTAL ASSETS $6,210,456 $5,032,280
========= ==========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
HIA, Inc. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
(Information as of November 30, 1997 is based upon an audited balance sheet.
All other information is unaudited.)
LIABILITIES February 28, November 30,
1998 1997
<S> <C> <C>
Current Liabilities:
Notes payable to banks $1,556,522 $1,804,681
Accounts payable 2,187,433 307,006
Accured expenses &
other current liabilities 123,207 236,280
--------- ---------
Total current liabilities 3,867,162 2,347,967
---------- ---------
</TABLE>
Commitments
<TABLE>
STOCKHOLDERS' EQUITY
<S> <C> <C>
Common Stock of $.01 par value;
Authorized 20,000,000 shares: Issued
13,107,896 and outstanding 9,553,383
and 9,103,383 131.079 131,079
Additional paid-in capital 3,109,271 3,109,271
Retained earnings (deficit) (243,733) 181,519
--------- ---------
2,996,617 3,421,869
LESS: Treasury stock 3,554,513 and
4,004,513 shares at cost ( 653,323) ( 736,956)
--------- ---------
Total Stockholders' Equity 2,343,294 2,684,913
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,210,456 $5,032,880
========= =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
HIA, Inc. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
February 28, February 29,
1998 1997
<S> <C> <C>
Net Sales $2,070,433 $1,782,388
Cost of Sales 1,510,301 1,201,231
---------- ----------
Gross Profit 560,132 581,157
Selling, general & administrative
Expenses 967,640 982,684
--------- ---------
Operating Loss (407,508) (401,527)
--------- ----------
Other Income (Expense)
Interest Income 10,889 4,528
Interest Expense (34,307) (11,714)
Misc. Income 5,674 21,341
--------- ---------
Total Other Income (Expense) (17,744) 14,155
--------- --------
NET LOSS $(425,252) $(387,372)
========= =========
Basis and Diluted Per Share Data:
Basis $(.05) $(.04)
Diluted $(.05) $(.04)
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
HIA, Inc. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three Months Ended
February 28, February 29,
1998 1997
Increase (Decrease) In Cash
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (425,252) $ (387,372)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 15,813 7,616
Changes in current assets and
current liabilities:
Accounts receivable 116,158 382,669
Inventories (1,233,581) (1,945,741)
Other current assets (1,599) 9,295
Accounts payable 1,880,427 1,980,416
Accrued expenses and
Other current liabilities (113,073) (314,868)
--------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 238,893 (267,985)
---------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment (43,043) (40,922)
Increase in other assets (21,121) (20,027)
NET CASH USED IN INVESTING ACTIVITIES (64,164) (60,949)
-------- --------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes
payable to banks (248,159) 190,000
Sale of treasury stock 83,633 -0-
--------- --------
Net Cash provided by (used in)
Financing activities (164,526) 190,000
--------- ---------
NET INCREASE(DECREASE) IN CASH 10,203 (138,934)
CASH, BEGINNING OF PERIOD 15,295 141,584
--------- ---------
CASH, END OF PERIOD 25,498 2,650
======= ======
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements. (*see note from page 6)
HIA, Inc. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis for Presentation
The accompanying consolidated financial statements have been prepared
in accordance with the instructions of Form 10-QSB and do not include
all the information and footnotes required by generally accepted
accounting principles for complete financial statement. In the opinion
of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been
included. Operating results for the three months ended February 28,
1998 are not necessarily indicative of the results that may be obtained
for year ending November 30, 1998. These statements should be read in
conjunction with the financial statements and notes thereto included in
the Registration's form 10KSB for the year ended November 30, 1997
filed with the Securities and Exchange Commission on February 27, 1998.
B. Per Share Amounts
Statement of financial Accounting Standards No. 128 provides for the
calculation of Basic and Diluted earnings per share. Basic
earnings per share included no dilution and is computed by dividing
income available to common stockholders by the weighted-average number
of shares outstanding during the period (9,398,383 and 8,904,124 for
1998 and 1997.) Diluted earnings per share reflect the potential of
securities that could share in the earnings of the Company, similar to
fully diluted earnings per share. As of February 28, 1998 and February
29, 1997, options in the amount of 600,000 and 1,200,000 are not
considered in the computation of diluted earnings per share as their
inclusion would be antidilutive. The implementation of this standard
did not have a material effect on the consolidated financial
statements.
C. Recent Accounting Pronouncements
In June 1997, The financial Accounting standards Board (FASB) issued
Statement of Financial Accounting Standard No. 130 Reporting
Comprehensive Income (SFAS 130) and statement of Financial Accounting
Standard No. 131 Disclosurs About Segments of an Enterprise and
Related Information (SFAS 131). SFAS 130 establishes standards for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners an
distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported
in a financial statement that displays with the same prominence as
other financial statements. SFAS 131 supercedes Statement of Financial
Accounting Standard No. 14 Financial Reporting for Segments of a
Business Enterprise. SFAS 131 establishes standards of the way that
public companies report information about operating segments in annual
financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the
public. It also establishes standard for disclosures regarding
products and services, geographic areas and major customers. SFAS 131
defines operating segments as components of a company about which
separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Because o f the recent
issuance of these standards, management has been unable to fully
evaluate the impact, if any, the standards may have on future financial
statement disclosures. Results of operations and financial position,
however, will be unaffected by the implementation of these standards.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits which standardizes
the disclosure requirements for pensions and other postretirement
benefits and requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis. SFAS No. 132 is effective for years beginning
after December 15, 1997 and requires comparative information for
earlier years to be restated, unless such information is not readily
available. Management believes the adoption of this statement will
have no material impact on the Company's financial statements.
Item 2. Management's Discussion and Analysis or Plan of Operation
The Registrant's working capital decreased by $389,970 during the three
months ended February 28, 1998 principally as a result of the following
factors:
(1) purchase of equipment of $43,043,
(2) increase in others assets of $21,121,
(3) net payment on line of credit of $248,159,
(4) offset by $83,633 in proceeds received from the sale of treasury
stock, and
(5) increase in accounts payable to fund the increase in inventories
that were not funded out of the $238,893 in cash provided by
operations for the three months ended February 28, 1998.
The net cash provided by operating activities increased by $506,878 primarily
as a result of the decrease in inventories as compared to the previous
quarter of 1997 ($712,160) offset partially by the increase in accounts
receivable as compared to the previous quarter of 1997 ($266,511). The
decrease in inventories was primarily a result of the effort by management to
reduce the amount of "early order" purchases normally required by the
manufacturers of the products the company distributes. The larger
manufacturers (Rainbird, Hunter, Lasco, Hardie, etc) normally require their
distributors to purchase up to 100% or more of last years purchases in order
to keep their factories profitable during the winter months. It became
burdensome to the company to continue this practice to the extent demanded of
the manufacturers (i.e. increase in the average inventories carried and
decreased merchandise turnover ratios resulting in higher operating and
financing costs relative to income generated from sales of the products).
The increase in accounts receivable were primarily a result of slower overall
payments by the company's customers. The heavy spring rains in 1997 slowed
the installation work of the contractors in the Rocky Mountain region,
thereby reducing the amount of irrigation work that could be performed and
effecting the cash flow of the company's customer base (small to medium size
contractors). The company's customers usually are small, undercapitalized
businesses depending largely upon the distributor to provide it with the
credit to cash flow the business' financial needs.
The net increase of cash used in financing activities was primarily a result
of the increase in short term bank borrowings as compared to the same quarter
of 1997 ($438,159) offset partially by the sale of common stock options to
the company's management ($83,633) during the first quarter of 1998. The
increase in bank borrowings was primarily attributable to the increase in
cash used by accounts receivable. The increase in the cash provided by the
decrease in inventories was primarily offset by the fact that the majority of
the increase in inventories during the first two quarters of each year is
financed by the vendors or their financing institutions on a protracted
dating basis (e.g. 90 to 180 day term financing). Therefore, the company
does not normally need to finance the increase in inventories during this
period with its own short term bank borrowings.
At February 28, 1998 the Company's subsidiary had a line-of-credit totaling
$4,000,000 of which $2,798,987 was available for future borrowing. The line-
of-credit is guaranteed by the Company.
Results of Operation
Net sales for the three months ended February 28, 1998 were up $288,045
or 16% greater than the first of 1997. This increase was primarily
attributable to the addition of a new branch located in Broomfield, Colorado
opened in February 1997 and a branch located in the northern portion of
Colorado Springs, Colorado opened in June of 1997 (a total of $150,000 for
the two branch operations). The remainder of the increase was due to the
successful efforts by management to market a customer early order dating
program during the first quarter of 1998.
The gross profit was 27.1% during the three months ended February 28,
1998, compared to the first quarter of 1997 at 32.6% of net sales primarily
due to the decrease of approximately $80,000 during first quarter ended 1998
in rebates earned from manufacturers. This event was due to the timing of
rebate credits received from manufacturers in the last month of the 1997
fiscal year which normally would have been received and recorded as income in
the 1998 fiscal year.
The selling, general and administrative expenses were down $15,044 for
the quarter ended February 28, 1998 as compared to the first quarter of the
previous year. Other expenses were up $31,899 as compared to the first
quarter of 1997 due to the increase in interest expense of $22,593. This
increase was due to the increase in the beginning line-of-credit loan balance
of $1,556,522 on December 1, 1997 as compared to $878,613 on December 1,
1996. In addition, there was an increase in the average line-of-credit loan
balance of $1,216,946 during the first quarter of 1998 as compared to
$860,280 for the same period in 1997. The average line-of-credit loan
balance increase for the first quarter of 1998 was primarily due to the
increase in accounts receivable average balance of $1,397,372 in 1998 as
compared to $1,214,750 for the same period in 1997 and an average inventory
balance of $2,801,371 in the first quarter of 1998 as compared to $2,629,021
for the same period in 1997.
The loss from operations for the first quarter of 1998 was $37,880 more
than the first quarter of the pervious year primarily attributable to the
decrease in gross profit of $21,025 and the increase in interest expenses of
$22,593.
Recent Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 130 Reporting Comprehensive
Income (SFAS 130) and Statement of Financial Accounting Standard No. 131
Disclosures about Segments of an Enterprise and Related Information (SFAS
131). SFAS 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that displays with the same prominence as
other financial statements. SFAS 131 supersedes Statement of financial
Accounting Standard No. 14 Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards of the way that public companies
report information about operating segments in annual financial statements
and requires reporting of selected information about operating segments in
interim financial statements issued to the public. It also establishes
standards for disclosures regarding products and services, geographic areas
and major customers. SFAS 131 defines operating segments as components of a
company about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Because o f the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
the standards may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by the
implementation of these standards.
In February 1998, the FASB issued SFAS No. 132, "Employers" Disclosures
about Pensions and Other Postretirement Benefits which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis. SFAS No.
132 is effective for years beginning after December 15, 1997 and requires
comparative information for earlier years to be restated, unless such
information is not readily available. Management believes the adoption of
this statement will have no material impact on the Company's financial
statements.
Year 2000 Compliant
Subsequent to November 30 1997, the Company began converting its
computer system to be year 2000 compliant (e.g. to recognize the difference
between '99 and '00 as one year instead of negative 99 years.) The Company
expects all of its computer systems to be in compliance by January 1999. The
total cost of the project is estimated to be $450,000 and is being funded
through a long-term capital lease obligation.
Part II
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5 Other Information
NONE
Item 6. Exhibits
(a) The following exhibits are filed with this report.
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the
under signed hereunto duly authorized.
HIA Inc.
Date:_________________________________ ___________________________________
Alan C. Bergold
Chief financial Officer &
Executive vice-Presiden
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-START> Dec-01-1997
<PERIOD-END> Feb-28-1998
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 1560
<ALLOWANCES> 0
<INVENTORY> 3732
<CURRENT-ASSETS> 5468
<PP&E> 1136
<DEPRECIATION> 542
<TOTAL-ASSETS> 6210
<CURRENT-LIABILITIES> 3867
<BONDS> 0
<COMMON> 131
0
0
<OTHER-SE> 2212
<TOTAL-LIABILITY-AND-EQUITY> 6210
<SALES> 2070
<TOTAL-REVENUES> 2070
<CGS> 1510
<TOTAL-COSTS> 968
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> (425)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (425)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
