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, 1998 #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 $18,830,330 for the fiscal year ended
November 30, 1998.
The aggregate market value of voting stock held by non-affiliates of the
Issuer as of February 1, 1999 was approximately $759,326 based on
insider transactions which took place in 1998.
The number of shares of the only class of Common Stock of the Issuer
outstanding as of January 1, 1999 was 9,879,470.
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 one hundred-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 16% and
84%, respectively, of net sales for 1998 and approximately 19% and 81%,
respectively, of net sales in 1997.
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 24% 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 and 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 84% 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 34% 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; in the central section of Denver in March 1995; and in
Broomfield, Colorado in February 1997; all located in the Denver
metropolitan area. CPS opened a branch in Cheyenne, Wyoming in June 1996
and Colorado Springs, Colorado in July 1997. 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, 1998, the Company employed 66 persons, of
which 25 were warehouse employees and 41 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
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 main 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;
9,120 square feet of office and warehouse space in Cheyenne, Wyoming;
6,400 square feet of office and warehouse space in Broomfield, Colorado
and 2,550 square feet of office and warehouse space in Colorado Springs,
Colorado (North store).
During November 1994, the Company entered into an 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
As part of its ordinary course of business, the Company is involved in
certain litigious activities from time to time. No litigation exists at
November 30, 1998 or to the date of this report that management or its
legal counsel believe will have a material impact on the financial
position or operations of the Company.
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, 1998.
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 at least 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, 1998 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.
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-KSB that are historical or current facts
are forward-looking statements made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 (The ACT) and
Section 21E of the Securities Exchange Act of 1934. These statements
often can be identified by the use of terms such as may, will, expect,
believes, anticipate, estimate, approximate, or continue, or the
negative thereof. The Company intends that such forward-looking
statements be subject to the safe harbors for such statements. The
Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made.
Any forward-looking statements represent management's best judgements as
to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the
control of the Company that could cause actual results and events to
differ materially from historical results of operations to revise any
forward-looking statements to reflect events or circumstances after the
date of such statement or to reflect the occurrence of anticipated or
unanticipated events.
Item 6. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources
At November 30, 1998, the Company had total cash balances of $29,869.
Cash flows provided by operating activities increased to $1,183,001
during the year ended November 30, 1998 primarily as a result of net
income of $417,939, as adjusted for noncash items, decreases in accounts
receivable and inventory levels of $7,850 and $335,536, respectively,
and increases in accounts payable and other current liabilities of
$117,465 and $121,668, respectively. The decreased level of inventories
resulted primarily from the decision by management to reduce the amount
of early order dating shipments from its principal suppliers during the
winter months. These early order dating programs from the manufacturers
are designed to keep their factories busy during the winter months and
level out the manufacturing process overall. This reduced level of early
order inventory purchases by the Company resulted in more just in time
ordering by purchasing agents during fiscal 1998 and lowered the overall
level of inventory at November 30, 1998. The increase in accounts
payable was primarily attributable to two early order dating purchases
made in November of 1998 instead of December of 1998 as is normally done
in previous years. The increase in other current liabilities was
primarily due to the increase in accrued bonuses of $84,958.
The following is a two-year summary of working capital and current
ratios:
1998 1997
Working Capital $2,793,585 $1,990,549
Current Ratios 3.40 to 1 1.85 to 1
At November 30, 1998, the Company and its subsidiaries have an available
line-of-credit totaling $4,000,000, of which $3,780,387 was unused.
On September 9, 1997, the Company entered into an agreement with
Colorado National Bank (US BankCorp) to finance up to $500,000 of
computer and related equipment. The Company contracted with a local
software company to provide software, equipment and technical services
to upgrade and enhance its enterprise data and information systems.
During 1998, the implementation project was abandoned due to the
problems with the JD Edwards One World software programming which had
numerous bugs and was not capable of being installed within a reasonable
time period. As a result, after further analysis, management decided to
swap the One World software for a similar enterprise software also
developed by JD Edwards called World. The new software was swapped out
by JD Edwards at no additional cost to the company. The World enterprise
software has been installed by over 5,000 companies worldwide and is
virtually free of defects as compared to the client-server One World
recently developed software. It is the Company's intention to install
One World within the next two years when the product is more developed
and de-bugged. Since the two software systems are compatible, the
additional hardware and software purchased to install One World will be
usable both as part of the World software implementation and in the
future. All enhancements and modifications to both software products
are included in the original software license agreement with JD Edwards.
The only significant piece of additional hardware that will be purchased
in fiscal 1999 as a result of this change in strategy is the purchase of
an IBM AS400 computer at a cost of approximately $114,000 including
operating software and maintenance. In addition, a replacement
consulting company was engaged by the company to install the World
software at a projected cost of $120,000. It is anticipated that the
installation of the World software will be completed by October 1999.
During fiscal 1998 and 1997, the Company purchased $90,354 and $306,068
of computer and related equipment from this project. The Company
financed the purchase of this computer and related equipment through a
capital lease obligation (See Note 1 to the Consolidated Financial
Statements).
The Company anticipates that the total project upon its completion will
cost approximately $630,000. The Company will finance the additional
costs in 1999 of approximately $234,000 through two five-year capital
leases executed sometime during fiscal 1999.
Management believes that the present working capital is adequate to
conduct its present operations. The Company does not have any
additional purchase commitments nor does it anticipate any additional
material capital expenditures for fiscal 1999.
During fiscal 1997, the Company purchased from non-insider stockholders
529,288 shares of its common stock at approximately $.20 per share.
During fiscal 1997, the Company issued 529,288 shares from treasury to
its officers for cash proceeds of $45,000 and $58,958 in consideration
of accrued bonuses owed its officers.
During fiscal 1998, the Company purchased from non-insider stockholders
159,200 shares of its common stock at an average of $.166 per share.
During fiscal 1998, the Company issued 450,000 shares from treasury at
$.18585 per share to its officers for cash proceeds of $83,632 as
provided by the Company's stock option plan as described in Note 4 to
the Consolidated Financial Statements.
During December 1998, the Company issued 185,287 shares from treasury to
its officers for cash proceeds of $30,572.
On December 31, 1998, the officers of the Company exercised a total of
300,000 shares of the November 30, 1996 option at $.22282 per share.
Concurrently, the remaining 300,000 shares of the November 30, 1996
options expired (See Note 4 to the Consolidated Financial Statements).
On January 1, 1999, the Board of Directors granted an option to the
officers of the Company to purchase 600,000 shares of treasury stock at
$.18585 per share. The exercise price of the options were valued at the
market price of the common stock on the date of grant. The options
expire on December 31, 1999.
Results of Operations
Comparison Fiscal 1998 vs. Fiscal 1997
Net sales were up $1,770,545 primarily as a result of establishing a
separate commercial division at the Denver administrative offices in
fiscal 1998 which increased commercial irrigation sales by approximately
$750,000. The remaining increase primarily related to an across-the-
board price increase of approximately 5%. Cost of sales increased by
$1,404,537 proportional to the increase in sales for the year. Gross
profit percent was 30% and 31% for fiscal years 1998 and 1997
respectively. Selling, general and administrative expenses were up
$336,066 primarily as a result of the additional expenses of the two new
branches opened during fiscal 1997 of $83,262, payroll compensation
(including taxes) of $213,444 and depreciation expense of $87,693. The
increase in depreciation expense was primarily due to the addition of
computer equipment in fiscal 1997 and 1998. Due to a very competitive
labor market in the Rocky Mountain region, pay rates increased greater
than the rate of inflation and other types of compensation or
accommodations were required to attract and keep valuable employees. It
is anticipated that these tight labor market conditions will continue
for the next two to three years or until such time as the economic
growth begins to flatten out in the Rocky Mountain region.
The weighted-average interest rates on bank borrowings was 9.25% and
9.1% for 1998 and 1997, respectively. The weighted-average balance
outstanding of $1,118,030 for 1998 decrease by $579,333 compared to 1997
primarily as a result of the reduced inventory levels carried by the
Company in 1998.
Net income for fiscal 1998 has remained consistent with fiscal 1997.
Income Taxes
At November 30, 1998, the Company has recorded a current net deferred tax
asset totaling $73,113 and has recorded a noncurrent net deferred tax asset
totaling $5,242. Based upon the Company's recent history of taxable income
and its projections for future earnings, management believes that is more
likely than not that sufficient taxable income will be generated in the near
term to utilize the net deferred tax assets. See Note 3 to the Company's
Consolidated Financial Statements.
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 $654,000 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 entities 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 2000
compliant or will be Year 2000 compliant during 1998 or 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.
Recent Accounting Pronouncements
PRIVATE
In June 1997, the Financial Accountings Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting
Standards 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 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 supersedes Statement of Financial
Accounting Standards 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. Results of operations and financial
position, however, will be unaffected by the implementation of these
standards.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (SFAS No. 132) 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 impact
on the Company's consolidated 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 at fair value. This Statement is
effective for fiscal years beginning after June 30, 1999. Management
believes the adoption of this statement will have no impact on the
Company's consolidated financial statements.
The FASB recently issued Statement of Financial Accounting Standards No.
134 "Accounting for Mortgage-Backed Securitization of Mortgage Loans
Held for Sales by a Mortgage Banking Enterprise" (SFAS No. 134). SFAS
No. 134 establishes accounting and reporting standards for certain
activities of mortgage banking enterprises and other enterprises that
conduct operations that are substantially similar to the primary
operations of a mortgage banking enterprise. This statement is
effective for the first fiscal quarter beginnings after December 15,
1998. The Company has not yet determined the effect of SFAS No. 134 on
its financial statements. Management believes the adoption of this
statement will have no impact on the Company's consolidated financial
statements.
Item 7. Financial Statements
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Consolidated Financial Statements:
Balance Sheets
Statements of Income
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 sheets of HIA,
Inc. and subsidiaries (the "Company") as of November 30, 1998 and 1997
and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended. 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 audit
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 that 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, 1998 and 1997 and the
results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/S/ BDO Seidman, LLP
Denver, Colorado
January 12, 1999
HIA, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
November 30, 1998 1997
<S> <C> <C>
Assets (Note 1)
Current assets:
Cash $ 29,869 $ 15,295
Accounts receivable, less
allowance of $100,000 and $86,000
for possible losses 1,654,434 1,676,222
Inventories 2,163,434 2,498,970
Other current assets (Note 3) 107,875 148,029
- ------------------------------------------------------------------------
Total current assets 3,955,612 4,338,516
- ------------------------------------------------------------------------
Property and equipment:
Land and improvements 45,295 45,295
Buildings and improvements 286,441 286,441
Equipment 851,978 761,623
- ------------------------------------------------------------------------
1,183,714 1,093,359
Less accumulated depreciation and
amortization 654,582 525,997
- ------------------------------------------------------------------------
Net property and equipment 529,132 567,362
- ------------------------------------------------------------------------
Investments and other assets (Note 3) 124,530 127,002
- ------------------------------------------------------------------------
$ 4,609,274 $ 5,032,880
<CAPTION>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
HIA, Inc. and Subsidiaries
Consolidated Balance Sheets
November 30, 1998 1997
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks (Note 1) $ 219,613 $ 1,804,681
Current portion of capital lease
obligation (Note 1) 64,087 -
Accounts payable 298,974 181,508
Checks written against future deposits 221,405 125,498
Accrued bonuses 209,000 124,042
Accrued profit sharing plan
contribution (Note 5) 72,000 63,500
Income taxes payable (Note 3) 26,604 10,077
Other current liabilities 50,344 38,661
- ----------------------------------------------------------------------
Total current liabilities 1,162,027 2,347,967
- ----------------------------------------------------------------------
Capital lease obligation, less current
portion (Note 1) 287,187 -
- ----------------------------------------------------------------------
Total liabilities 1,449,214 2,347,967
- ---------------------------------------------------------------------
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 and 9,394,183
and 9,103,383 outstanding 131,079 131,079
Additional paid-in capital 3,109,271 3,109,271
Retained earnings 599,458 181,519
- ---------------------------------------------------------------------
3,839,808 3,421,869
Less treasury stock at cost;
3,713,713 and 4,004,513 shares 679,748 736,956
- ---------------------------------------------------------------------
Total stockholders' equity 3,160,060 2,684,913
- --------------------------------------------------------------------
$ 4,609,274 $ 5,032,880
=====================================================================
<CAPTION>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
HIA, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended November 30, 1998 1997
<S> <C> <C>
Revenues:
Net sales $ 18,786,235 $ 17,015,690
Interest income 18,327 18,006
Other income 25,768 15,997
- -------------------------------------------------------------------------
Total revenues 18,830,330 17,049,693
- --------------------------------------------------------------------------
Costs and expenses:
Cost of sales (Note 6) 13,137,035 11,732,498
Selling, general and administrative 4,893,448 4,557,382
Interest expense 135,668 154,876
- --------------------------------------------------------------------------
Total costs and expenses 18,166,151 16,444,756
- --------------------------------------------------------------------------
Income before taxes on income 664,179 604,937
Taxes on income (Note 3) 246,240 187,375
- -------------------------------------------------------------------------
Net income $ 417,939 $ 417,562
=========================================================================
Net income per common share -
Basic and diluted $ .04 $ .05
=========================================================================
Basic and diluted weighted-average
common shares outstanding 9,442,729 8,678,192
=======================================================================
<CAPTION>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</CAPTION>
</TABLE>
HIA, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
Additional Retained
Common Stock Paid-In Earnings
Years Ended November
30, 1998 and 1997 Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C>
Balance, December
1, 1996 13,107,896 $ 131,079 $ 3,109,271 $ (236,043)
Acquisition of
treasury stock - - - -
Issuance of shares
held in treasury - - - -
Net income - - - 417,562
- ---------------------------------------------------------------------
Balance, November
30, 1997 13,107,896 131,079 3,109,271 181,519
Acquisition of
treasury stock - - - -
Issuance of shares
held in treasury - - - -
Net income - - - 417,939
- -------------------------------------------------------------------
Balance, November
30, 1998 13,107,896 $131,079 $3,109,271 $ 599,458
===================================================================
</TABLE>
<TABLE>
Treasury Stock Total
Shares Amount Stockholders'
Years Ended November
30, 1998 and 1997 Equity
<S> <C> <C> <C>
Balance, December
1, 1996 4,004,513 $(736,956) $2,267,351
Acquisition of
treasury stock 529,288 (103,958) (103,958)
Issuance of shares
held in treasury (529,288) 103,958 103,958
Net income - - 417,562
- ---------------------------------------------------------------------
Balance, November
30, 1997 4,004,513 (736,956) 2,684,913
Acquisition of
treasury stock 159,200 (26,424) (26,424)
Issuance of shares
held in treasury (450,000) 83,632 83,632
Net income - - 417,939
- -------------------------------------------------------------------
Balance, November
30, 1998 3,713,713 $(679,748) $3,160,060
<CAPTION>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</CAPTION>
</TABLE>
<TABLE>
HIA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash
Years Ended November 30, 1998 1997
<S> <C> <C>
Operating activities:
Net income $ 417,939 $ 417,562
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 128,585 40,892
Allowance for doubtful accounts 13,938 13,215
Deferred income taxes 3,042 (32,114)
Changes in operating assets and liabilities:
Accounts receivable 7,850 (161,306)
Inventories 335,536 (420,168)
Other current assets 36,978 (15,908)
Accounts payable 117,465 (296,128)
Other current liabilities 121,668 (48,296)
- --------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 1,183,001 (502,251)
- --------------------------------------------------------------------------
Investing activities:
Purchase of property and equipment - (138,045)
Change in investments and other assets 2,606 (46,350)
- --------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 2,606 (184,395)
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
HIA, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash
Years Ended November 30, 1998 1997
<S> <C> <C>
Financing activities:
Proceeds from note payable to bank 4,988,373 5,790,000
Repayments on note payable to bank (6,267,373) (5,170,000)
Repayments on capital lease obligation (45,148) -
Acquisitions of treasury stock (26,424) (103,958)
Proceeds from sale of treasury stock 83,632 45,000
Checks written against future deposits 95,907 (685)
- ----------------------------------------------------------------------
Net cash provided by (used in)
financing activities (1,171,033) 560,357
- --------------------------------------------------------------------
Increase (decrease) in cash 14,574 (126,289)
Cash, beginning of year 15,295 141,584
- ----------------------------------------------------------------------
Cash, end of year $ 29,869 $ 15,295
=====================================================================
<CAPTION>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
</CAPTION>
</TABLE>
HIA, Inc. and Subsidiaries
Summary of Accounting Policies
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.
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 demand
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 receivable are
limited due to the large number of customers and generally short
payment terms. The Company reviews a customer's credit history before
extending credit and establishes an allowance for doubtful accounts
based upon the credit risk of specific customers, historical trends and
other information. Generally, the Company does not require collateral
from its customers.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles 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 following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Accounts Receivable, Accounts Payable and Other Current Liabilities
Fair values of accounts receivables, accounts payable and other current
liabilities are assumed to approximate carrying values for these
financial instruments since they are short term in nature and their
carrying amounts approximate fair value or they are receivable or
payable on demand.
Notes Payable to Banks and Capital Lease Obligation
The notes payable to banks and capital lease obligation bear interest
at floating rates of interest based upon lending institutions' prime
lending rate. Accordingly, their fair value approximates their
reported carrying amounts at November 30, 1998 and 1997.
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.
Depreciation, 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 three 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 income. At November 30,
1998, property and equipment includes approximately $60,000 of data and
information systems equipment under installation and not yet in
service. Depreciation expense was $128,585 and $40,892 for the years
ended November 30, 1998 and 1997.
Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the expected undiscounted future cash flow from the
use of the assets and its eventual disposition is less than the
carrying amount of the assets, an impairment loss is recognized and
measured using the asset's fair value.
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") in 1998. 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
The Company implemented Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128") in 1998. SFAS No. 128
provides for the calculation of "Basic" and "Diluted" earnings per
share. Basic earnings per share includes no dilution and is computed
by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that
could share in the earnings of an entity, similar to fully diluted
earnings per share. All prior period earnings per share data has been
restated to reflect the requirements of SFAS No. 128. The adoption of
SFAS No. 128 did not affect the income per share calculation at
November 30, 1997.
For the years ended November 30, 1998 and 1997, total stock options of
600,000 and 1,200,000 were not included in the computation of diluted
income per share because the exercise price of the options exceeded the
average market price of the common stock during the period.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Stock Option Plans
The Company applies Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees", and the related
Interpretation in accounting for all stock option plans. Under APB
Opinion 25, no compensation cost has been recognized for stock options
issued to employees as the exercise price of the Company's stock
options granted equals or exceeds the market price of the underlying
common stock on the date of grant.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), requires the Company to
provide pro forma information regarding net income as if compensation
cost for the Company's stock options plans had been determined in
accordance with the fair value based method prescribed in SFAS No. 123.
To provide the required pro forma information, the Company estimates
the fair value of each stock option at the grant date by using the
Black-Scholes option-pricing model.
Reclassifications
Certain items included in the 1997 financial statements have been
reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
In June 1997, Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards 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 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
supersedes Statement of Financial Accounting Standards 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. 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 value 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 consolidated 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.
Management believes the adoption of this statement will have no impact
on the Company's consolidated financial statements.
The FASB recently issued Statement of Financial Accounting Standards
No. 134 "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" ("SFAS No. 134"). SFAS No. 134 established accounting and
reporting standards for certain activities of mortgage banking
enterprises and other enterprises that conduct operations that are
substantially similar to the primary operations of a mortgage banking
enterprise.
This statement is effective for the first fiscal quarter beginning
after December 15, 1998. Management believes the adoption of this
statement will have no impact on the Company's consolidated financial
statements.
HIA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Notes Payable to Banks and Capital Lease Obligation
Line-of-Credit Agreement
CPS and its subsidiary have a line-of-credit agreement with a bank
which expires April 30, 2000. 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 prime rate (7.75% and 8.5%
at November 30, 1998 and 1997). 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, 1998, the Company was in compliance
with these covenants under the line of credit agreement.
As of November 30, 1998 and 1997, $219,613 and $1,498,613 were
outstanding under this line-of-credit agreement.
Note Payable and Capital Lease Obligation
During September 1997, the Company entered into a $500,000 short term
financing commitment with Colorado National Bank for the purchase of
computer and related equipment. The note payable included interest at
8.5% with interest only payable monthly and was collateralized by the
computer and related equipment. As of November 30, 1997, the note
payable balance was $306,068. The note payable was due September 30,
1998 at which time the principal balance was refinanced and converted
into a long-term capital lease obligation.
The initial lease term under this capital lease obligation is five
years. As of November 30, 1998, the capital lease consisted of
$396,422 of computer-related equipment net of accumulated amortization
of $65,338.
The following is a schedule, by year, of future noncancellable minimum
payments required under the capital lease, together with the present
value of the related payments as of November 30, 1998.
<TABLE>
Years Ended November 30,
<S> <C>
1999 $ 89,203
2000 89,203
2001 89,203
2002 89,203
2003 63,091
- -----------------------------------
419,903
Less amount representing
Interest 68,629
- ------------------------------------
Present value of minimum
lease payments 351,274
Less current portion 64,087
- ----------------------------------
Capital lease obligation,
less current portion $ 287,187
===================================
</TABLE>
2. Commitments and Contingencies
Operating Leases
CPS leases its main warehouse under a noncancellable operating lease
requiring monthly payments 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
noncancellable operating leases. Total lease expense was approximately
$538,000 and $487,000 for fiscal 1998 and 1997.
As of November 30, 1998 future annual minimum lease payments under non-
cancelable operating leases are as follows:
Years Ended November 30,
1999 $ 484,000
2000 388,000
2001 271,000
2002 142,000
2003 123,000
Thereafter 151,000
- ------------------------------
$ 1,559,000
Employment Agreements
The Company has entered into employment agreements that extend to
November 30, 2004 with its officers. The employment agreements set
forth annual compensation to its officers of between $155,000 and
$157,000 each. Compensation is adjusted annually based on the cost of
living index plus five percent per annum base increase.
Litigation
As part of its ordinary course of business, the Company is involved in
certain litigious activities from time to time. No litigation exists
at November 30, 1998 or to the date of this report that management or
its legal counsel believe will have a material impact on the financial
position or operations of the Company.
Purchase Commitment
The Company has entered into an agreement to spend approximately
$234,000 in fiscal 1999 related to its final computer and software
upgrade. The Company will finance this amount through a capital lease
obligation.
3. Taxes on Income
The provision (benefit) for taxes on income for the years ended
November 30, 1998 and 1997 consisted of the following:
<TABLE>
1998 1997
<S> <C> <C>
Current:
Federal $ 233,145 $ 209,412
State 10,053 10,077
Deferred:
Federal 2,795 (29,511)
State 247 (2,603)
- ------------------------------------------------------
$ 246,240 $ 187,375
</TABLE>
A reconciliation of taxes on income at the federally statutory rate to
the effective tax rate is shown below:
<TABLE>
Years Ended November 30, 1998 1997
<S> <C> <C>
Income taxes computed at
the federal statutory rate $ 225,821 $ 192,672
State income taxes, net of
federal benefit 19,925 6,651
Other 494 (11,948)
- -------------------------------------------------------
Taxes on income $ 246,240 $ 187,375
=======================================================
Temporary differences between the consolidated financial statements
carrying amounts and the tax basis of assets and liabilities that give
rise to significant portions of the net deferred tax assets at November
30, 1998 and 1997 relate to the following:
</TABLE>
<TABLE>
1998 1997
Current Long-term Current Long-term
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inventories $ 36,113 $ $ 44,446 $
Accounts
Receivable 37,000 31,843
Property and
Equipment 3,122 2,800
Other 2,120 2,308
- -------------------------------------------------------------------
Net deferred
tax asset $ 73,113 $ 5,242 $ 76,289 $5,108
</TABLE>
At November 30, 1998 and 1997, $73,113 and $76,289 of the net deferred
tax asset is classified as current and included in other current assets
in the accompanying consolidated balance sheets. At November 30, 1998
and 1997, $5,242 and $5,108 of the net deferred tax asset is classified
as long-term and included in other assets in the accompanying
consolidated balance sheets. The Company has recorded no valuation
allowance to offset the net deferred tax assets because management
believes that it is more likely than not that sufficient taxable income
will be generated in the foreseeable future to realize the net deferred
tax assets.
4.Stockholders' Equity
Treasury Stock and Common Stock Options
The Company acquired from non-insider stockholders 159,200 shares of
its common stock at $.13 to $.20 per share during fiscal 1998 and
529,288 shares of its common stock at approximately $.20 per share
during fiscal 1997. During fiscal 1998, the Company issued 450,000
shares from treasury at $.18585 per share to its officers for cash
proceeds of $83,632 as provided by the stock option plan described
below. During fiscal 1997, the Company issued 529,288 shares from
treasury to its officers for cash proceeds of $45,000 and $58,958 in
consideration of accrued bonuses owed its officers.
On November 30, 1996, the Board of Directors of the Company granted to
officers of CPS options 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. During fiscal year 1998, the officers of
the Company purchased 450,000 shares under the terms of the option
agreement dated November 30, 1995. Under this agreement, the remaining
150,000 shares expired on December 31, 1997. No options were exercised
during fiscal 1997 under the 1996 option plan. As of November 30, 1998
and 1997, the Company has 600,000 and 1,200,000 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 grant.
At November 30, 1998 and 1997, there were 684,250 shares reserved for
future grants. Under these plans, there were no options granted or
outstanding as of November 30, 1998 and 1997.
The following table summarizes information on stock option activity:
<TABLE>
Weighted
Average
Exercise
Number of Exercise Price Price Expiration
Shares Per share Per share Dates
<S> <C> <C> <C> <C>
Outstanding at
December 1,
1996 1,200,000 $.18585-$.2282 $0.204 1997-1998
Granted - - - -
Exercised - - - -
Expired - - - -
- ---------------------------------------------------------------------
Outstanding at
November 30,
1997 1,200,000 $.18585-$.2282 $0.204 1997-1998
Granted
Exercised (450,000) $.18585 $ .18585 1997
Expired (150,000) $.18585 $ .18585 1997
- --------------------------------------------------------------------
Outstanding at
November 30,
1998 600,000 $ .2282 $ .2282 December 1998
====================================================================
</TABLE>
FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), requires the Company to provide pro forma information
regarding net income and net income per share as if compensation costs
for the Company's stock option plans and other stock awards had been
determined in accordance with the fair value based method prescribed in
SFAS No. 123. The Company estimates the fair value of each stock award
at the grant date by using the Black-Scholes option-pricing model. The
Company did not grant any stock options during fiscal 1998 and 1997.
The following information summarizes stock options outstanding at
November 30, 1998:
<TABLE>
Outstanding Exercisable
- ----------------------------------------------------------------------
Weighted Average
Remaining Weighted
Exercise Number Contractual Exercise Number Average
Price Outstanding Life in years Price Exercisable Exercise
Price
- ----------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$.22282 600,000 Less than 1 $.22282 600,000 $.22282
</TABLE>
5. Employee Benefit Plans
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's 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 $72,000 and $63,500 for the years ended November 30,
1998 and 1997.
401(k) Plan
The Company has adopted a Section 401(k) profit sharing plan which is
available for employees who are at least 18 years of age and who have
completed one year of service with the Company. Participants in the
plan may contribute up to 15% of their compensation, subject to certain
limitations. Under the plan, the Company may make discretionary
contributions to be determined on a year-to-year basis. Company
matching contributions vest ratably over 6 years. The Company did not
make any contributions to the plan for the years ended November 30,
1998 and 1997.
6. Economic Dependency
During 1998 and 1997, the Company purchased approximately 24% and 25%
of its products from one manufacturer. However, the products purchased
can be obtained from other competing manufacturers but not as a
consolidated product group.
7. Supplemental Disclosures of Cash Flow Information
<TABLE>
1998 1997
<S> <C> <C>
Cash paid during the year for:
Interest $ 135,668 $ 154,876
Income taxes 226,671 255,206
</TABLE>
Excluded from the statement of cash flows for the years ended November
30, 1998 and 1997 were the effects of certain noncash investing and
financing activities as follows:
<TABLE>
1998 1997
<S> <C> <C>
Purchase of equipment with
third party financing $ 90,354 $ 306,068
Payment of note payable
through refinancing and
conversion to capital
lease obligation 306,068 -
Payment of officers' bonuses
through issuance of
treasury stock - 58,958
</TABLE>
8. Subsequent Events
On December 31, 1998, the officers of the Company exercised a total of
300,000 shares of the November 30, 1996 options at an exercise price of
$.22282 per share. Concurrently, the remaining 300,000 of the November
30, 1996 options expired (see Note 4). The officers of the Company
also purchased 185,287 shares of treasury at the Company's cost of
$.16463 per share.
On January 1, 1999, the Board of Directors granted to the officers of
the Company options to purchase 600,000 shares of treasury stock at
$.18585 per share. The exercise price of the options were valued at
the market price of the common stock on the date of grant. The options
expire on December 31, 1999.
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.
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.
Name Age Positions Director Since
Carl J. Bentley 65 Chairman of the Board 1994
and Director
Alan C. Bergold 50 President, Treasurer 1981
and Director
Donald Champlin 47 Executive Vice President, 1994
Secretary and Director
(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.
Name Age Positions Year First Elected (1)
Carl J. Bentley 65 Chairman of the Board 1996
and Director 1994
Alan C. Bergold 50 President, Treasurer 1996
and Director 1981
Donald L. Champlin 47 Executive Vice President, 1996
Secretary
and Director 1994
(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 65, 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, age 50, 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
has been a director of the Company since 1981.
Donald Champlin, age 47, 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.
(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, 1998,
1997 and 1996 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 Long-term Compensation
Name and Year Other Restricted
Principal Ended Annual Stock
Position Nov. 30 Salary Bonus Compensation Award
<S> <C> <C> <C> <C> <C>
Carl J. Bentley 1998 $143,620 $70,890 - -
Chairman of the 1997 132,750 61,000 - -
Board 1996 122,541 91,316 - -
Alan C. 1998 $141,120 $70,890 - -
Bergold 1997 130,250 61,000 - -
President 1996 120,042 91,316 - -
Donald Champlin 1998 $141,120 $70,890 - -
Executive 1997 127,750 61,000 - -
Vice-President 1996 117,546 91,316 - -
</TABLE>
<TABLE>
Name and Options LTIP All Other
Principal SARs Payouts Compensation
Position
<S> <C> <C> <C>
Carl J. Bentley - - -
Chairman of the - - -
Board - - -
Alan C. - - -
Bergold - - -
President - - -
Donald Champlin - - -
Executive - - -
Vice-President - - -
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 (1): $157,500 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 profit-sharing
contribution; term of five years beginning December 1, 1998.
Alan C. Bergold (1): $155,000 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 profit-sharing
contribution; term of five years beginning December 1, 1998.
Donald Champlin (1): $155,000 annual salary per year, adjusted for cost
of living plus five percent per annum base increase; plus seven and one-
half percent bonus of net pretax income exclusive of profit-sharing
contribution; term of five years beginning December 1, 1998.
(1) There is a provision for payment of one year's compensation as a result
of the sale of all or substantially all of the Company's assets.
</TABLE>
<TABLE>
(b) Option/SAR Grants in Last Fiscal Year
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options Employees Exercise
SARs in Fiscal or Base Expiration
Name Granted Year Price/($ Share) Date
<S> <C> <C> <C> <C>
Alan C. Bergold - - - -
Carl J. Bentley - - - -
Donald Champlin - - - -
</TABLE>
<TABLE>
(c)Aggregated Option/SAR Exercise and Fiscal Year-End Option/SAR Value
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 150,000 $ 27,878 200,000 $ -
Carl J.
Bentley 150,000 27,878 200,000 -
Donald
Champlin 150,000 27,878 200,000 -
</TABLE>
Refer to Note 4 to the Consolidated Financial Statements for description
of Stock Option Plan.
Item 11.Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table shows 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.
Common Stock
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Carl J. Bentley 1,716,153(1) 16.4%
4275 Forest Street
Denver, CO 80216
Alan C. Bergold 2,202,646(1) 21.1%
4275 Forest Street
Denver, CO 80216
Don Champlin 1,789,797(1) 17.1%
4275 Forest Street
Denver, CO 80216
(1) Includes 200,000 shares which may be acquired pursuant to the
exercise of stock options exercisable on or before December 31, 1999.
(b) Security Ownership of Management
The following table shows the equity securities beneficially owned by
all directors of the Company and all directors and officers of the
Company as a group.
(1) Directors
Common Stock
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Carl J. Bentley 1,716,153(1) 16.4%
4275 Forest Street
Denver, CO 80216
Alan C. Bergold 2,202,646 (1) 21.1%
4275 Forest Street
Denver, CO 80216
Don Champlin 1,789,797(1) 17.1%
4275 Forest Street
Denver, CO 80216
(1) Includes 200,000 shares which may be acquired pursuant to the
exercise of stock options exercisable on or before December 31, 1999.
(2) Directors and Officers as a Group
Amount and Nature of Percent
Title of Class Beneficial Ownership of Class
Common Stock 54.6%
(par value $.01)
(c) Changes in Control
None.
Item 12. Certain Relationships and Related Transactions
(a) Transactions With Management and Others
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
of treasury stock 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
of treasury stock 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.
During fiscal 1997, the Company issued 529,288 shares from treasury to
its officers for cash proceeds of $45,000 and $58,958 in consideration
of accrued bonuses owed its officers.
On December 31, 1997, the officers and directors of the Company
exercised a total of 450,000 shares of the November 30, 1995 option at
$$.18585 per share. Concurrently, the remaining 150,000 shares of the
November 30, 1995 options expired.
On December 31, 1998, the officers and directors of the Company
exercised a total of 300,000 shares of the November 30, 1996 option at
$.22282 per share. Concurrently, the remaining 300,000 shares of the
November 30, 1996 options expired.
On January 1, 1999, the Board of Directors granted an option to the
officers of the Company to purchase 600,000 shares of treasury stock at
$.18585 per share. The exercise price of the options were valued at the
market price of the common stock on the date of grant. The options
expire on December 31, 1999.
(b)
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).
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:/s/ 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
/s/ Carl J. Bentley Chairman of the Board 3/1/99
Carl J. Bentley and Director
/s/Alan C. Bergold President, 3/1/99
Alan C. Bergold Treasurer and Director
/s/ Donald Champlin Executive Vice 3/1/99
Donald Champlin President, Secretary
and Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-START> Dec-01-1997
<PERIOD-END> Nov-30-1998
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 1654
<ALLOWANCES> (100)
<INVENTORY> 2163
<CURRENT-ASSETS> 3956
<PP&E> 1184
<DEPRECIATION> 655
<TOTAL-ASSETS> 4609
<CURRENT-LIABILITIES> 1162
<BONDS> 0
<COMMON> 131
0
0
<OTHER-SE> 3709
<TOTAL-LIABILITY-AND-EQUITY> 4609
<SALES> 18786
<TOTAL-REVENUES> 18830
<CGS> 13137
<TOTAL-COSTS> 18166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> 664
<INCOME-TAX> 246
<INCOME-CONTINUING> 418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 418
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
