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 August 31, 1999
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
incorporation 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:
9,811,026 shares of the Registrant's $.01 par value common stock were
outstanding at August 31, 1999
HIA, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
item 2. Management's Discussion and Analysis or Plan of
Operations
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
Signatures
Part 1.
Item 1. Financial Statements
Consolidated Balance Sheets as of August 31, 1999
and November 30, 1998
Consolidated Statements of Operations for the nine months and
three
months ended August 31, 1999 and August 31, 1998
Consolidated Statements of Cash Flows for the nine months
Ended August 31, 1999 and 1998
Notes to Consolidated Financial Statements
<TABLE>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Information as of November 30, 1998 is based upon an audited balance
sheet. All other information is unaudited.)
August 31, November
30,
1999 1998
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 47,345 $ 29,869
Accounts receivable, net of
allowance for doubtful accounts 4,070,908 1,654,434
Inventories 4,297,547 2,163,434
Other current assets 88,779 107,875
---------- ---------
Total current assets 8,504,579 3,955,612
---------- ---------
Property, and Equipment, at cost:
Land and improvements 45,295 45,295
Buildings 294,437 286,441
Equipment 1,200,850 851,978
---------- ---------
1,540,582 1,183,714
Less accumulated depreciation
and amortization 782,955 654,582
---------- ---------
Net property and equipment 757,627 529,132
Other Assets/Investments 133,439 124,530
Goodwill, Net of Amortization 1,642,703 -0-
Non compete agreement,
Net of Amortization 145,500 -0-
---------- --------
TOTAL ASSETS $11,183,848 $4,609,274
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
<CAPTION>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
</CAPTION>
(Information as of November 30, 1998 is based upon an audited balance
sheet. All other information is unaudited).
August 31,
November 30,
LIABILITIES 1999
1998
<S> <C> <C>
Current Liabilities:
Notes payable to banks $ 1,462,502 $219,613
Current maturities of
long term obligations 363,627 64,087
Accounts payable 2,154,525 298,974
Checks written against future deposits 365,334 221,405
Accrued expenses & other current liiabilities 623,730 357,948
-------- -------
Total current liabilities 4,969,718 1,162,027
--------- -------
Long Term Obligations:
Notes payable, less current portion 1,857,587 -0-
Capital lease obligations,
less current portion 372,068 287,187
--------- ------
2,229,655 287,187
--------- ------
TOTAL LIABILITIES 7,199,373 1,449,214
--------- ------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common Stock of $.01 par value;
Authorized 20,000,000 shares: Issued
13,107,896 and outstanding 9,811,026
and 9,394,183 131,079 131,079
Additional paid-in capital 3,109,271 3,109,271
Retained earnings 1,339,212 599,458
--------- ------
4,579,562 3,839,808
Less treasury stock: 3,296,870 and
3,713,713 shares at cost 595,087 679,748
--------- ------
Total Stockholders' Equity 3,984,475 3,160,060
--------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,183,848 $4,609,274
=========== =========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
</CAPTION>
Nine Months Ended Three Months Ended
Aug 31,1999 Aug 31,1998 Aug.31,1999 Aug.31,1998
<S> <C> <C> <C> <C>
Net sales $18,960,478 $14,883,299 $10,213,518 $7,305,375
Cost of sales 13,244.678 10,370,371 7,157,410 5,146,083
----------- ---------- ---------- ----------
Gross profit 5,715,800 4,512,928 3,056,108 2,159,292
Selling, general
& administrative
expenses 4,609,169 3,705,255 2,114,801 1,610,116
--------- --------- --------- ---------
Operating Income 1,106,631 807,673 941,307 549,176 Other income (expense):
Interest income 42,799 19,962 28,575 7,171
Interest expense (123,345) (114,005) (87,560) (35,457)
Misc. income 34,669 22,489 24,748 6,988
--------- -------- ---------- --------
Total other income (expense)( 45,877) (71,554) (34,237) (21,298)
Income before income
tax expense 1,060,754 736,119 907,070 527,878
Income tax expense 321, 000 288,000 245,000 222,000
---------- --------- -------- -------
NET INCOME $ 739,754 $448,119 $662,070 $305,878
======= ======= ======== ========
Net income per share
Basic $.08 $ .05 $ .07 $ .03
Diluted $ 08 $ .05 $ .07 $ .03
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
</CAPTION>
For the Nine Months Ended
Increase (Decrease) In Cash August 31, 1999 August 31,1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 739,754 $448,119
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 187,350 82,725
Changes in current assets and
current liabilities: net of
business acquisition
Accounts receivable (1,610,372) (1,396,328)
Inventories ( 806,254) ( 452,515)
Other current assets 35,042 ( 124,261)
Accounts payable 803,610 1,277,338
Accrued expenses and other
current liabilities 164,615 513,974
---------- ---------
NET CASH (USED IN) PROVIDED BY (USED IN)
OPERATING ACTIVITIES (486,255) 349,052
---------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment (179,323) ( 88,926)
Payment for business acquisition costs ( 84,244) -0-
Increase in other assets ( 8,909) ( 5,381)
Purchase of treasury stock ( 12,689) ( 15,400)
Cash received from business acquisition 190,864 -0-
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES ( 94,301) (109,707)
-------- ---------
FINANCING ACTIVITIES:
Net borrowings (payments)
on notes payable to banks 245,568 (317,539)
Net borrowings from capital
lease obligations 111,185 -0-
Increase in checks written in
excess of deposits 143,929 -0-
Sale of treasury stock 97,350 83,633
--------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 598,032 (233,906)
-------- --------
NET INCREASE IN CASH 17,476 5,439
CASH, BEGINNING OF PERIOD 29,869 15,295
--------- --------
CASH, END OF PERIOD $ 47,345 $ 20,734
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
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, 1999 are not necessarily indicative of the results that
may be obtained for the year ending November 30, 1999. 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, 1998 filed with the Securities
and Exchange Commission on March 1, 1999.
B. Net Income (Loss) Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", 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 ( 9,753,261 and 9,398,383 for 1999 and 1998). 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, 1999 and 1998,
total stock options in the amount of 600,000 are not considered in
the computation of diluted earnings per share as their inclusion
would be anti-dilutive.
C. Comprehensive Income
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 130. "Reporting Comprehensive Income" ("SFAS No.
130"). Comprehensive income is comprised of net income and all
changes to their consolidated statements of stockholders' equity,
except for those due to investments by stockholders, changes in paid
in capital and distributions to stockholders. The adoption of SFAS
No. 130 does not impact the Company's consolidated financial
statements for 1999 and 1998.
D. Goodwill
Goodwill, which relates to the acquisition discussed in Note f, is
being amortized over a 10 year period using the straight-line method.
E. Non-compete Agreement
Non-compete agreement is being amortized over the 10 year term of the
agreement using the straight-line method.
F. Other Events
On May 25th, 1999, the Company acquired all of the common stock
issued and outstanding of Western Pipe Supply, Inc. (WPS), a
privately-held corporation established under the laws of Colorado,
for a purchase price of $2,662,495. Of the total purchase price,
$1,485,385 was paid in cash directly to the seller and $1,177,110 was
in the form of a subordinated promissory note taken by the seller
with a ten year amortization schedule, no balloon payment, bearing
interest at 8% fixed rate. The cash paid to seller was financed in
part by additional borrowings on the existing line of credit from
Norwest Bank Denver of $927,888 (of which $442,504 was the amount
required to pay off the seller's existing line of credit with
Colorado Business Bank secured by all existing assets of WPS) and a
$1,000,000 five year note payable to the Norwest Bank of Denver
amortized monthly bearing interest at 8.25% fixed rate.
A portion of the common stock of WPS was pledged as collateral for
the promissory note given to the seller as part of the purchase
price.
The Company incurred direct costs, including legal and audit fees,
totaling $84,244. The acquisition has been accounted for under the
purchase method of accounting.
The acquisition was recorded using the purchase method of accounting
by which the assets are valued at fair market value at the date of
acquisition. The operating results of WPS have been included in the
accompanying consolidated financial statements from the date of
acquisition. The preliminary allocation of the purchase price was as
follows:
Cash $ 190,864
Accounts receivable, net 806,102
Inventories 1,327,859
Other current assets 15,946
Property and equipment 177,545
Goodwill 1,695,245
Non-compete agreement 150,000
Less:
Accounts payable 1,051,941
Other current liabilities 101,167
Line of credit 442,504
Long-term obligations 23,145
----------
Total Purchase price $ 2,744,804
=========
G. A Supplemental Disclosure of Cash Flow Information
Excluding from the statement of cash flows for the period ended
August 31, 1999 the effects of certain non-cash investing and
financing activities as a result of the acquisition of a business on
May 25th 1999 are as follows:
10yr, 8.25% per annum, 120 installments $1,000,000
Note payable to Norwest Bank Denver
10yr, 8% per annum, 120 installments $1,177,110
Note payable to Seller of business
Line of Credit, Prime Interest Rate, $ 485,385
Additional borrowings
Assumption of note payable and long-term obligation $ 465,649
Cash payments for interest were $123,345 and $114,005 for the nine
months ended August 31, 1999 and 1998. Cash payments for income
taxes were $175,830 and $126,717for the nine months ended August 31,
1999 and 1998.
Item 2. Management's Discussion and Analysis or Plan of Operations
The Company's working capital increased by $741,276 during the nine
months ended August 31, 1999 from working capital of $2,793,585 as of
November 30, 1998. The increase in working capital is due to the
$1,143,644 in working capital generated by the acquisition of WPS
offset by the cash used in operations of $486,255.
The net cash provided by operating activities decreased by $835,307
primarily as a result of a decrease of $473,728 in accounts payable,
a $353,739 increase in inventories, a $214,044 increase in accounts
receivable and a $349,359 decrease in other current liabilities as
compared to the previous nine months of 1998.
The decrease in accounts payable was primarily attributable to the
decrease in accounts payable of WPS (acquired on May 25, 1999) of
$650,658 offset partially by an increase in accounts payable of CPS
of $176,930.
The increase in inventories was primarily attributable to the
increase in inventories of CPS of $627,725 offset partially by the
decrease in inventories of WPS of $273,986. The increase in
inventories of CPS was primarily due to the 21% increase in sales.
The increase in account receivables was primarily attributable to the
21% increase in sales.
The decrease in other current liabilities was primarily attributable
to the recording events on August 31, 1998 where income taxes of
$253,000 and employer contribution to the profit sharing plan of
$75,000 were recorded for the first time as compared to the same
period in 1997. This event inflated the increase in current
liabilities for 1998.
The net cash used in investing activities is comparable to the
previous nine months of 1998. However, as part of the activities, an
additional $166,404 of computer equipment was purchased during the
first nine months of 1999 (primarily financed by a five year capital
lease), $84,244 was used to pay costs associated with the acquisition
of a business and $190,864 was received from the transfer of
ownership of the cash accounts maintained by the business acquired.
The net increase of cash provided by financing activities of $598,032
was primarily attributable to the increase in bank borrowings on the
line of credit to finance increases in inventories/receivables and
the $111,185 additional borrowings on capital leases for the purchase
of computer equipment.
Results of Operations
Net sales for the three months ended August 31, 1999 were up
$2,908,143 or 28.5% greater than the third quarter of 1998 primarily
due to the sales generated by the acquisition of WPS of $2,560,389.
The gross profit was 29.9% during the three months ended August 31,
1999, compared to a 29.6% gross profit for the third quarter of 1998.
The selling, general and administrative expenses were up $504,684
primarily as a result of the general expenses of WPS of $424,454.
Other expense was up $12,939 primarily as a result of higher overall
borrowings on the bank line of credit and the interest paid on the
notes as a result of the acquisition of WPS.
Net income was $356,192 more during the third quarter of 1999 as
compared to the same period in 1998 primarily as the result of the
net income of WPS of $379,985.
Net sales for the nine months ended August 31, 199 were up $4,077,179
or 21% greater than 1998 primarily due to generally good weather in
1999 as compared to 1998 and the sales generated by WPS of
$2,560,389.
The gross profit was 30.1% during the nine months ended August 31,
1999, compared to a 30.3% gross profit for 1998.
The selling, general and administrative expenses were up $903,914
primarily as a result of the additional payroll costs associated with
rising salaries and wages in a very tight labor market with less than
3% unemployment and the expenses of WPS of $424,454. It is
anticipated that greater than inflationary increases in labor costs
will continue in the near future.
Other expense was down $25,677 primarily as a result of additional
interest income of $13,870 as a result of higher account receivable
delinquent balances and interest income of WPS of $8,967.
Net income was $291,635 greater during the first nine months of 1999
as compared to 1998, primarily as a result of the net income of WPS
of $379,985.
Year 2000 Compliant
The Company is aware of the issues associated with the programming
code in existing computer systems as the Year 2000 approaches. The
"Year 2000" problem is concerned with whether computer systems will
properly recognize date sensitive information when the year changes
to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Year
2000 problem is pervasive and complex as the computer operation of
virtually every company will be affected in some way.
The Company, like most owners of computer software, will be required
to modify significant portions of its software so that it will
function properly in the year 2000. Estimates of the total costs to
be incurred by the Company to resolve this problem is approximately
$624,000 and a majority of which is funded through long-term capital
lease obligations.
Since the Company mainly uses third party off-the-shelf software, it
does not anticipate a problem in resolving the Year 2000 problem in a
timely manner. The Company is currently taking steps to ensure that
its computer systems and services will continue to operate on and
after January 1, 2000. However, there can be no assurance that Year
2000 problems will not occur with respect to the Company's computer
systems. Furthermore, the Year 2000 problem may impact other
entities with which the Company transacts business, and the Company
cannot predict the effect of the Year 2000 problem on such entitles
or the resulting effect on the Company. For such externally
maintained systems, the Company has begun to work with vendors to
ensure that each system is currently Year 200 compliant or will be
Year 2000 compliant during 1999. The Company has not developed
contingency plans that would assure it will not be adversely impacted
by the effect of the Year 2000 Issue and does not intend to prepare
such plans.
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
See Note D to financial statements for information as to
the purchase of 100% of the stock of another firm in the
same business.
See Note E to financial statements regarding
supplemental disclosure of cash flow information.
Item 6. Exhibits
(a) The following exhibits are filed with this report.
Form 8-K/A filed with the SEC on August 9, 1999 for event reported
as of
May 25, 1999 regarding the acquisition of
Western Pipe & Supply, Inc.
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: October 13,1999 /s/Alan C. Bergold
Chief Financial Officer
&President
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Nov-30-1999
<PERIOD-START> Dec-01-1999
<PERIOD-END> Aug-31-1999
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 4071
<ALLOWANCES> 0
<INVENTORY> 4298
<CURRENT-ASSETS> 8055
<PP&E> 1541
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0
0
<OTHER-SE> 3853
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</TABLE>
