FORM 10-QSB PRIVATE
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 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: 9,843,383
shares of the Registrant's $.01 par value common stock were outstanding
at February 28, 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
Part 1.
Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 1999
and November 30, 1998
Consolidated Statements of Operations for the three months
ended February 29, 1999 and February 28, 1998.
Consolidated Statements of Cash Flows for the three months
ended February 28, 1999 and 1998
<TABLE>
<CAPTION>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
</CAPTION>
(Information as of November 30, 1998 is based upon an audited balance
sheet. All other information is unaudited.)
February 28, November 30,
1999 1998
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 24,493 $ 29,869
Accounts receivable,
net of allowance for
doubtful accounts 1,499,694 1,654,434
Inventories 3,498,581 2,163,434
Other current assets 127,752 107,875
- ----------------------------------------------------------------
Total current assets 5,150,520 3,955,612
- ----------------------------------------------------------------
Property, and Equipment, at Cost:
Land and improvements 45,295 45,295
Buildings 286,441 286,441
Equipment 1,014,257 851,978
- ----------------------------------------------------------------
1,345,993 1,183,714
Less accumulated depreciation
and amortization 688,276 654,582
- --------------------------------------------------------------
Net property and equipment 657,717 529,132
Other Assets/Investments 132,081 124,530
- ---------------------------------------------------------------
TOTAL ASSETS $5,940,318 $4,609,274
=============================================================
<CAPTION>
The accompanying notes are an integral part of the consolidated
financial statements.
</CAPTION>
</TABLE>
<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).
February 28, November 30,
1999 1998
<S> <C> <C>
LIABILITIES
Current Liabilities:
Notes payable to banks $ 538,700 $ 219,613
Current maturities of
capital lease obligations 98,734 64,087
Accounts payable 2,060,009 298,974
Checks written against
future deposits 50,238 221,405
Accrued expenses & other
current liabilities 53,319 357,948
- ---------------------------------------------------------------
Total current liabilities 2,801,000 1,162,027
- ----------------------------------------------------------------
Capital lease obligations,
less current portion 330,668 287,187
- ---------------------------------------------------------------
TOTAL LIABILITIES 3,131,668 1,449,214
Commitments
STOCKHOLDERS' EQUITY
Common Stock of $.01 par value;
Authorized 20,000,000 shares:
Issued 13,107,896 and
outstanding 9,843,383 and
9,394,183 131,079 131,079
Additional paid-in capital 3,109,271 3,109,271
Retained earnings 156,678 599,458
- ---------------------------------------------------------------
3,397,028 3,839,808
Less treasury stock:
3,264,513 and 3,713,713
shares at cost 588,378 679,748
- ----------------------------------------------------------------
TOTAL Stockholders' Equity 2,808,650 3,160,060
- ----------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,940,318 $ 4,609,274
================================================================
<CAPTION>
The accompanying notes are an integral part of the consolidated
financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
February 28, February 28,
1999 1998
<S> <C> <C>
Net Sales $ 2,350,156 $2,070,433
Cost of sales 1,670,674 1,510,301
- ---------------------------------------------------------------------
Gross profit 679,482 560,132
Selling, general & administrative
Expenses 1,123,975 967,640
- --------------------------------------------------------------------
Operating loss ( 444,493) ( 407,508)
- --------------------------------------------------------------------
Other income (expense):
Interest income 10,185 10,889
Interest expense (13,817) ( 34,307)
Misc. income 5,345 5,674
- -------------------------------------------------------------------
Total Other Income (expense) ( 1,713) (17,744)
- --------------------------------------------------------------------
NET LOSS $(442,780) $(425,252)
====================================================================
Net loss per share $ (.05) $ (.05)
Basic and diluted
<CAPTION>
The accompanying notes are an integral part of the consolidated
financial statements.
</CAPTION>
</TABLE>
<TABLE>
<CAPTION>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
</CAPTION>
For the Three Months Ended
February 28, February 28
1999 1998
<S> <C> <C>
Increase (Decrease) In Cash
OPERATING ACTIVITIES:
Net Loss $ (442,780) $ (425,252)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 33,694 15,813
Changes in current assets and
current liabilities:
Accounts receivable 154,740 116,158
Inventories (1,335,147) (1,233,581)
Other current assets ( 19,877) ( 1,599)
Accounts payable 1,761,035 1,880,427
Checks written against
future deposits ( 171,167) -0-
Accrued expenses and
other current liabilities ( 304,629) ( 113,073)
- ----------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES ( 324,131) 238,893
- ---------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property
and equipment -0- ( 43,043)
Increase in other assets ( 7,551) (21,121)
Purchase of treasury stock ( 5,980) 0
- ----------------------------------------------------------------------
NET CASH (USED IN)
INVESTING ACTIVITIES ( 13,531) (64,164)
- ----------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings (payments) on
notes payable to banks 254,955 (248,159)
Payments on capital
lease obligations 20,019 -0-
Sale of treasury stock 97,350 83,633
- -----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 332,286 ( 164,526)
- -----------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH ( 5,376) 10,203
CASH, BEGINNING OF PERIOD 29,869 15,295
- -----------------------------------------------------------------------
CASH, END OF PERIOD 24,493 25,498
======================================================================
<CAPTION>
The accompanying notes are an integral part of the consolidated
financial statements.
</CAPTION>
</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 three months ended February 28, 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 ( 9,695,261 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 February 28,
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 antidilutive.
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. Subsequent Event
On March 30, 1999 the company entered into an agreement to purchase the
stock of a local firm which is in the same business as the Company. The
total purchase price is $2.7 million. The Company will also lease three
separate parcels of real property occupied by the firm to be purchased
at aggregate rentals of $148,500 during the first year of the lease. As
of the date of this report, an audit of the books of the firm to be
acquired is being performed as part of the due diligence necessary to
close the transaction. The closing is expected to take place on or
before May 31, 1999. It is anticipated that the purchase price will be
principally financed by a 10 year promissory note for $1,200,000 issued
to the seller and a five year term loan for $1,500,000 from Norwest Bank
Denver.
The Company has no prior financial or other relationship with the seller
or the firm to be acquired.
Item 2. Management's Discussion and Analysis
Or Plan condition and Results of Operations
Liquidity and Capital Resources
The Company's working capital decreased by $444,065 during the three
months ended February 28, 1999 principally as a result of the $409,086
net loss after adjustment for $33,694 in depreciation and amorization.
The net cash provided by operating activities decreased by $563,024
primarily as a result of the decrease of $119,392 in accounts payable, a
$171,167 decrease in checks written against future deposits and the
decrease of $191,556 in other current liabilities as compared to the
previous quarter of 1998. The decrease in accounts payable was
primarily the result of a few significant vendors offering greater
discount incentives in the first quarter of 1999 for early payment of
dated invoices. The decrease in other current liabilities was primarily
a result of the election by management to pay the profit sharing
contribution one month earlier than in 1998.
The net cash used in investing activities is comparable to the previous
quarter of 1998.
The net increase of cash provided by financing activities of $332,286
was primarily a result of the increase of $463,076 in short term bank
borrowings as compared to the same quarter of 1998. The increase in
bank borrowings was primarily attributable to the increase in cash used
to reduce accounts payable and other current liabilities as discussed
above.
Results of Operations
Net sales for the three months ended February 28, 1999 were up $279,723
or 14% greater than the first quarter of 1998. This increase was
primarily due to the mild winter weather experienced in Colorado, which
accelerated purchases of materials for commercial jobs which normally
would have been purchased in early spring.
The gross profit was 28.9% during the three months ended February 28,
1999, as compared to the first quarter of 1998 at 27.1% of net sales.
The increase was primarily due to the increased purchases of high profit
incidental items by customers for jobs/projects commencing in early
February of 1999 which would normally begin in March or April.
The selling, general and administrative expenses were up $156,335 for
the quarter ended February 28, 1999 as compared to the first quarter of
the previous year. The increase of selling, general and administrative
expenses were primarily due to the increase of approximately $65,000 in
payroll expenses and approximately $43,000 in sales expense. The
competitive labor market has forced an increase in wages thus resulting
in an overall increase in payroll expense. 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 increase in sales expense is primarily a
result of prepaid promotional sales events. A portion of these expenses
will be recouped in the next few months.
Other expenses were down $16,031 as compared to the first quarter of
1998 due to the decrease in interest expense of $20,490. This decrease
was due to the decrease in beginning line-of-credit balance of $219,613
on December 1, 1998 as compared to $1,556,622 on December 1, 1997.
The loss from operations for the first quarter of 1999 was $17,528 more
than the first quarter of the previous year primarily attributable to
the increase in gross profit of $119,350 which is more than offset by an
increase in selling, general and administrative expenses of $156,335.
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
propoerlyin 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 an agreement
recently entered into by the Company to purchase the assets of another
firm in the same business.
Item 6. Exhibits
(a) The following exhibits are filed with this report.
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
under signed hereunto duly authorized.
HIA, INC.
Date:__________________________ /s/ Alan C. Bergold
Alan C. Bergold
Chief Financial Officer &
President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Nov-30-1999
<PERIOD-START> Dec-01-1998
<PERIOD-END> Feb-28-1999
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 1500
<ALLOWANCES> 0
<INVENTORY> 3499
<CURRENT-ASSETS> 5151
<PP&E> 1345
<DEPRECIATION> 688
<TOTAL-ASSETS> 5940
<CURRENT-LIABILITIES> 2801
<BONDS> 0
<COMMON> 131
0
0
<OTHER-SE> 2678
<TOTAL-LIABILITY-AND-EQUITY> 5940
<SALES> 2350
<TOTAL-REVENUES> 2350
<CGS> 1671
<TOTAL-COSTS> 1124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> (443)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (443)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
