U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-QSB
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended August 31, 1998
Commission File Number 0-9599
HIA, INC.
(Exact name of small business issuer 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 August 31, 1998.
HIA, Inc.
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of
Operations . . . . . . . . .10
Part II Other Information
Item 1. Legal Proceedings
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. Consolidated Financial Statements
Consolidated Balance Sheets as of August 31, 1998
and November 30, 1997
Consolidated Statements of Operations for the nine months
and three months ended August 31, 1998 and August 31,1997
Consolidated Statements of Cash Flows for the nine months
ended August 31, 1998 and August 31, 1997
Notes to Consolidated financial Statements
HIA, Inc and SUBSIDIARY
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Information as of November 30, 1997 is based upon an audited balance sheet.
All other information is unaudited.)
<CAPTION>
ASSETS August 31, November 30,
1998 1997
<C> <C>
Current Assets:
Cash $ 20,734 $ 15,295
Accounts receivable, net
of allowance for doubtful
accounts 3,072,550 1,676,222
Inventories 2,951,485 2,498,970
Other current assets 272,290 148,029
---------- -----------
Total current assets 6,317,059 4,338,516
========== ==========
Property and Equipment, at Cost:
Land and improvements 45,295 45,295
Buildings 288,240 286,441
Equipment 848,750 761,623
---------- --------
1,182,285 1,093,359
Less accumulated depreciation
and amortization ( 608,722) ( 525,997)
Net property and equipment 573,563 567,362
--------- ---------
Other Assets/Investments 132,383 127,002
--------- ---------
TOTAL ASSETS $7,023,005 $5,032,880
=========== ==========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
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 August 31, November 30,
1997
<S> <C> <C>
Current Liabilities:
Notes payable to banks $1,120,609 $1,804,681
Accounts payable 1,584,344 307,006
Accrued expenses &
other current liabilities 750,254 236,280
Current portion of long-term debt 64,373 0
-------- ---------
Total current liabilities 3,519,580 2,347,967
--------- ---------
Long term liabilities:
Note payable to bank 302,160 0
--------- ---------
TOTAL LIABILITIES 3,821,740 2,347,967
========= =========
COMMITMENTS
STOCKHOLDERS' EQUITY
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 629,638 181,519
-------- ----------
3,869,988 3,421,869
LESS: Treasury stock 3,554,513
And 4,004,513 shares at cost ( 668,723) ( 736,956)
Total Stockholders' Equity 3,201,265 2,684,913
---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $7,023,005 $5,032,880
========== ===========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
HIA, Inc. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
Aug 31, 1998 Aug 31, 1997 Aug 31, 1998 Aug 31, 1997
<S> <C> <C> <C> <C>
Net Sales $14,883,299 $13,455,124 $ 7,305,375 $ 6,255,727
Cost of Sales 10,370,371 9,119,186 5,146,083 4,291,160
------------ ------------ ------------ -----------
Gross Profit 4,512,928 4,335,938 2,159,292 1,964,567
Selling, general &
Administrative
expenses 3,705,255 3,613,113 1,610,116 1,436,352
---------- --------- ---------- ---------
Operating Income 807,673 722,825 549,176 528,215
Other Income (Expense)
Interest Income 19,962 12,723 7,171 4,514
Interest Expense (114,005) (109,023) (35,457) (49,018)
Misc. Income 22,489 14,597 6,988 5,745
-------- --------- -------- -------
Total Other Income
(Expense) (71,554) ( 81,703) (21,298) (38,759)
Income before income
tax expense 736,119 641,122 527,878 489,456
Income tax expense 288,000 252,991 222,000 203,991
-------- --------- --------- --------
Net Income $ 448,119 $ 388,131 $ 305,878 $ 285,465
========= ======== ========= =========
Basic and Diluted Per Share Data:
Basic $0.05 $0.04 $0.04 $0.03
Diluted $0.04 $0.04 $0.03 $0.03
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
HIA, Inc. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
August 31, August 31,
1998 1997
<S> <C> <C>
Increase (Decrease) In Cash
OPERATING ACTIVITIES:
Net Income $ 448,119 $ 388,131
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 82,725 22,976
Changes in current assets and
current liabilities:
Accounts receivable (1,396,328) (1,018,745)
Inventories 452,515) (1,689,796)
Other current assets (124,261) (185,090)
Accounts payable 1,277,338 802,362
Accrued expenses and
Other current liabilities 513,974 285,542
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 349,052 (1,394,620)
---------- ----------
INVESTING ACTIVITIES:
Purchase of property, plant
and equipment (88,926) ( 70,928)
(Increase) decrease in other assets ( 5,381) ( 8,386)
Purchase of treasury stock (15,400) 0
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (109,707) ( 79,314)
--------- --------
FINANCING ACTIVITIES:
Net borrowings (payments) on notes
payable to banks (290,298) 1,335,000
Payment on long-term debt ( 27,241) 0
Sale of treasury stock 83,633 0
--------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ( 233,906) 1,335,000
--------- ----------
NET INCREASE(DECREASE) IN CASH 5,439 (138,934)
CASH, BEGINNING OF PERIOD 15,295 141,584
--------- ----------
CASH, END OF PERIOD $ 20,734 $ 2,650
======== =======
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
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 nine months ended August 31, 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 10-KSB 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 (9,502,471 and 9,201,122 for
the nine month periods in 1998 and 1997) and (9,553,383 and 8,599,297
for the three month periods in 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.
For the periods ended August 31, 1998 and August 31, 1997, options in
the amount of 600,000 and 1,200,000 are included in the computation of
diluted earnings per share. 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. 131 Disclosures about
Segments of an Enterprise and Related Information (SFAS 131) and
issued Statement of Financial Accounting Standard No. 130 Reporting
Comprehensive Income (SFAS 130) the financial Accounting Standards
Board (FASB.) 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 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 of 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 Post-retirement Benefits which standardizes
the disclosure requirements for pensions and other post-retirement
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.
The FASB has recently issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). SFAS No. 133 established
standards for recognizing all derivative instruments including those
for hedging activities as either assets or liabilities in the statement
of financial position and measuring those instruments at fair value.
This Statement is effective for fiscal years beginning after June 30,
1999. The Company has not yet determined the effect of SFAS No. 133 on
its financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Registrant's working capital increased by $806,930 during the nine
months ended August 31, 1998 principally as a result of the following
factors:
(1) purchase of equipment of $88,926,
(2) increase in others assets of $5,381,
(3) net borrowing from bank of $317,539,
(4) proceeds received from the sale of treasury stock of $83,633
partially offset by the purchase of treasury stock of $15,400.
(5) cash provided by operations for the nine months ended August 31,
1998 of $530,844.
The net cash provided by operating activities increased by $1,743,672
primarily as a result of a net income increase of $59,988, an increase of
$59,749 in depreciation and amortization and a $1,237,281 decrease in
inventories as compared to the previous nine months of 1997 offset partially
by a $377,583 increase in accounts receivable as compared to the previous
nine months of 1997. In addition, accounts payable and other accrued
expenses increased by $703,408 over the same period in 1997. 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 and the increase in sales of $1,428,175 over the same
nine month period in 1997. 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 decrease of cash used in financing activities was primarily a result
of a $1,652,539 decrease in bank borrowings as compared to the same nine
months of 1997 and a $83,633 sale of treasury stock to the company's
management during the first quarter of 1998. The decrease in bank borrowings
was primarily attributable to the decrease in cash used by inventories. 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 three 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 August 31, 1998 the Company's subsidiary had a line-of-credit totaling
$4,000,000 of which $2,879,391 was available for future borrowing. The line-
of-credit is guaranteed by the Company.
Results of Operations
Net Sales for the three months ended August 31, 1998 were up $1,049,648
or 16.8% greater than the third quarter of 1997, primarily as a result of an
overall hotter and drier summer in 1998 as compared to 1997 (giving
contractors more time to complete their work) and the opening of two new
branch operations in spring and summer of 1997 which contributed $157,000 of
the increase in sales in the third quarter of 1998.
The gross profit was 29.6% during the three months ended August 31,
1998, compared to the third quarter of 1997 at 31.4% of net sales. The
decrease was primarily due to the $65,000 decrease in discounts earned from
manufacturers. A significant vendor of the company reduced, substantially
its cash discount on purchases.
The selling, general and administrative, expenses were up $173,764 for
the quarter ended August 31, 1998 as compared to the third quarter of the
previous year. The increase was primarily due to the $67,000 increase in
payroll and commissions paid and $25,000 increase in depreciation expense as
a result of the purchase of computer equipment. Other income was up $17,461
as compared to the third quarter of 1997 due primarily to the decrease in
interest expense of $13,561.
The income from operations for the third quarter of 1998 was $38,422
more than the third quarter of the previous year primarily attributable to
the increase in gross profit of $194,725 offset substantially by the increase
in general expenses of $173,764.
Net sales for the nine months ended August 31, 1998 were up $1,428,175
or 10.6% greater than the same period in 1997, primarily as a result of an
overall hotter and drier summer in 1998 as compared to 1997 (giving
contractors more time to complete their work) and the opening of two new
branch operations in spring and summer of 1997 which contributed $727,778 of
the increase in sales in the nine months of 1998.
The gross profit was 30.3% during the nine months ended August 31,
1998, compared to the same period in 1997 at 32.2% of net sales. The
decrease was primarily due to an approximate $179,000 decrease in discounts
earned from manufacturers. A significant vendor of the company reduced,
substantially, its cash discount on purchases.
The selling, general and administrative expenses were up $92,142 for
the nine months ended August 31, 1998 as compared to the same period in the
previous year. The increase was primarily due to the $104,102 increase in
payroll and commissions paid. Other income was up $10,149 as compared to the
same period in 1997 due primarily to the increase in interest income of
$7,239.
The income from operations for the nine months of 1998 was $94,997 more
than the same period in the previous year primarily attributable to the
increase in gross profit of $176,990 offset substantially by the increase in
general expenses of $92,142.
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 Post-retirement Benefits which standardizes the
disclosure requirements for pensions and other post-retirement 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.
The FASB has recently issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS No. 133). SFAS No. 133 established standards for recognizing all
derivative instruments including those for hedging activities as either
assets or liabilities in the statement of financial position and measuring
those instruments at fair value. This Statement is effective for fiscal
years beginning after June 30, 1999. The Company has not yet determined the
effect of SFAS No. 133 on its 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.
The impact on business operations of failure by the Company to achieve
compliance or failure by external entities which the Company cannot control,
such as vendors, to achieve compliance, could be material to the Company's
consolidated financial statements.
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
(b) Current reports on Form 8-K
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 &
President
