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 May 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 May 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 Securiti
Item 4. Submission of Matters to
a Vote of Security
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 May 31, 1999
and November 30, 1998
Consolidated Statements of Operations for the six months and three
months ended May 31, 1999 and May 31, 1998
Consolidated Statements of Cash Flows for the six months
ended May 31, 1999 and 1998. .
Note to 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.)
May 31, November 30,
1999 1998
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 226,915 $ 29,869
Accounts receivable,
net of allowance for
doubtful accounts 3,870,351 1,654,434
Inventories 5,224,405 2,163,434
Other current assets 148,665 107,875
- -----------------------------------------------------------------
Total current assets 9,470,336 3,955,612
- -----------------------------------------------------------------
Property and Equipment, at cost
Land and improvements 45,295 45,295
Buildings 294,436 286,441
Equipment 1,187,462 851,978
- -----------------------------------------------------------------
1,527,193 1,183,714
Less accumulated depreciation
and 721,732 654,582
- ------------------------------------------------------------------
Net property and equipment 805,461 529,132
Other Assets/Investments 129,290 124,530
Goodwill, net of amortization 1,692,463 -0-
Non compete agreement
net of amortization 149,750 -0-
- ------------------------------------------------------------------
TOTAL ASSETS $12,247,300 $4,609,274
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
(Information as of November 30, 1998 is based upon an audited balance sheet.
All other information is unaudited).
May 31, November 30,
LIABILITIES 1999 1998
<S> <C> <C>
Current Liabilities:
Notes payable to banks $ 1,477,502 $ 219,613
Current maturities of long term obligations 374,410 64,087
Accounts payable 4,295,118 298,974
Checks written against future deposits 183,919 221,405
Accrued expenses & other current liabilities 271,721 357,948
- ---------------------------------------------------------------------------
Total current liabilities 6,602,670 1,162,027
- -----------------------------------------------------------------------------
Long Term Obligations:
Notes payable, less current portion 1,927,019 -0-
Capital lease obligations,
less current portion 395,206 287,187
- -----------------------------------------------------------------------------
TOTAL LIABILITIES 8,924,895 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 677,142 599,458
- ------------------------------------------------------------------------------
3,917,492 3,839,808
Less treasury stock: 3,296,870 and
3,713,713 shares at cost (595,087) 679,
- ------------------------------------------------------------------------------
- ---
Total stockholders' equity 3,322,405 3,160,060
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $12,247,300 $4,609,274
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended Three Months Ended
May 31,1999 May, 31,1998 May 31,1999 May 31,1998
<S> <C> <C> <C> <C>
Net sales $8,746,960 $7,577,924 $6,396,804 $5,507,491
Cost of sales 6,087,268 5,224,288 4,416,594 3,713,987
- -----------------------------------------------------------------------------
Gross profit 2,659,692 2,353,636 1,980,210 1,793,504
Selling, general
& administrative
expenses 2,494,368 2,095,139 1,370,393 1,127,499
- -----------------------------------------------------------------------------
Operating Income 165,324 258,497 609,817 666,005
Other income (expense):
Interest income 14,224 12,791 4,039 1,902
Interest expense (35,785) (78,548) (21,968) (44,241)
Misc. income 9,921 15,501 4,576 9,827
- ----------------------------------------------------------------------------
Total other income (expense) (11,640) (50,256) (13,353) (32,512)
Income before income tax
expense 153,684 208,241 596,464 633,493
Income tax expense 76,000 66,000 76,000 66,000
- --------------------------------------------------------------------------
NET INCOME $ 77,684 $142,241 $520,464 $567,493
======= ========= ======== ========
Net loss per share
Basic and diluted $ .01 $ .02 $ .05 $ .06
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the Six Months Ended
Increase (Decrease) In Cash May 31, 1999 May 31,1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 77,684 $ 142,241
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 70,182 49,267
Changes in current assets and
current liabilities, net of business
acquistion
Accounts receivable ( 1,409,815) (1,687,824)
Inventories ( 1,733,112) (1,068,764)
Other current assets ( 24,844) ( 66,816)
Accounts payable 2,944,203 2,473,938
Accrued expenses and other current liabilities ( 161,809) ( 42,103)
--------------------------------------------------------------------------
NET CASH USED IN
OPERATING ACTIVITIES ( 237,511) (200,061)
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (165,934) ( 43,044)
Payment for business acquisition costs ( 82,309) -0-
Increase in other assets ( 4,760) ( 5,832)
Purchase of treasury stock ( 12,689) ( 15,400)
Cash received from business acquisition 190,864 -0
- ------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES ( 74,828) (64,276)
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings on notes payable to banks 330,000 195,059
Net borrowings from capital lease obligations 119,521 -0-
Decrease in checks written in excess of deposits ( 37,486) -0-
Sale of treasury stock 97,350 83,633
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 509,385 278,692
- ------------------------------------------------------------------------------
NET INCREASE IN CASH 197,046 14,355
CASH, BEGINNING OF PERIOD 29,869 15,295
- ------------------------------------------------------------------------------
CASH, END OF PERIOD 226,915 29,650
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
HIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis for Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the instructions of Form 10-QSB and do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statement . In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation have been included. Operating results for the six
months ended May 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 are 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 May 31, 1999 and 1998, total stock options
in the amount of 600,000 are not considered in the computation of diluted
earnings per share because the exercise price of the options exceed the
average market price of the common stock during the period.
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 D, 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 ten 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
$82,309.
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 1,845,245
Other assets -0-
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. Supplemental Disclosure of Cash Flow Information
Excluded from the statement of cash flows for the period ended May 31, 1999
are the effects of certain non-cash investing and financing activities as a
result of the acquisition of a business on May 25th 1999. They 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
Cash payments for interest were $35,785 and $78,548 for the six months ended
May 31, 1999 and 1998. Cash payments for income taxes were $117,220 and
$68,279 for the six months ended May 31, 1999 and 1998.
Item 2. Management's Discussion and Analysis or Plan of Operations
The Company's working capital increased by $74,081 during the six months ended
May 31, 1999 principally as a result of the $77,684 net income.
The net cash used in operating activities increased by $37,450 primarily as a
result of an increase of $470,265 in accounts payable, a $664,348 increase in
inventories, a $278,009 decrease in accounts receivable and a $119,706
decrease in other current liabilities as compared to the previous six months
of 1998. The increase in accounts payable was primarily due to the increase
in inventories. The increase in inventories was primarily due to the $335,536
reduction in net inventories at the end of fiscal year 1998 as compared to the
end of 1997 (in order to re-supply for the exceptional reduction) and the
increase in inventories needed to supply the additional anticipated sales
growth in 1999. The decrease in accounts receivable was primarily
attributable to the generally good weather conditions during the first two
quarters of fiscal 1999 which allowed the Company's contractors to collect and
pay on a more timely basis than during the same period in 1998.
The net cash used in investing activities is comparable to the previous six
months of 1998. However, as part of the activities, an additional $122,890 of
computer equipment was purchased during the first six months of 1999
(primarily financed by a five year capital lease), $82,309 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 $509,385 was
primarily attributable to the increase in bank borrowings on the line of
credit to finance increases in inventories and the $119,521 additional
borrowings on capital leases for the purchase of computer equipment.
Results of Operations
Net sales for the three months ended May 31, 1999 were up $889,313 or 16%
greater than the second quarter of 1998 primarily due to the generally good
weather in 1999 as compared to the same period in 1998.
The gross profit was 31% during the three months ended May 31, 1999, compared
to a 32.6% gross profit for the second quarter of 1998. The decrease in gross
profit percent was primarily due to more competitive pricing for business in
the Company's market territory.
The selling, general and administrative expenses were up $242,894 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. It is
anticipated that greater than inflationary increases in labor costs will
continue in the near future.
Other expense was down $19,159 primarily as a result of lower overall
borrowings on the bank line of credit.
Net income was $47,029 less during the second quarter of 1999 as compared to
the same period in 1998 primarily as the result of the decrease in operating
income of $56,188.
Net sales for the six months ended May 31, 1999 were up $1,169,036 or 15.5%
greater than the second quarter of 1998 primarily due to generally good
weather in 1999 as compared to the same period in 1998.
The gross profit was 30.5% during the six months ended May 31, 1999, compared
to a 31% gross profit for the second quarter of 1998. The decrease in gross
profit percent was primarily due to more competitive pricing for business in
the Company's market territory.
The selling, general and administrative expenses were up $399,229 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. It is
anticipated that greater than inflationary increases in labor costs will
continue in the near future.
Other expense was down $38,616 primarily as a result of lower overall
borrowings on the bank line of credit.
Net income was $64,557 less during the first six months of 1999 as compared to
the same period in 1998 primarily as a result of the decrease in operating
income of $93,173.
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 has
already been 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 2000 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 and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits
a) The following exhibits are filed with this report.
NONE
(b) Reports on Form 8K.
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the under
signed hereunto duly authorized.
HIA, INC.
Date:_______________________________- ___________________________________
Alan C. Bergold
Chief Financial Officer &
President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Nov-30-1999
<PERIOD-START> Dec-01-1999
<PERIOD-END> May-31-1999
<CASH> 227
<SECURITIES> 0
<RECEIVABLES> 3870
<ALLOWANCES> 0
<INVENTORY> 5224
<CURRENT-ASSETS> 9470
<PP&E> 1527
<DEPRECIATION> 722
<TOTAL-ASSETS> 12247
<CURRENT-LIABILITIES> 6602
<BONDS> 0
<COMMON> 131
0
0
<OTHER-SE> 3191
<TOTAL-LIABILITY-AND-EQUITY>12247
<SALES> 8746
<TOTAL-REVENUES> 8746
<CGS> 6087
<TOTAL-COSTS> 8581
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (36)
<INCOME-PRETAX> 1537
<INCOME-TAX> 76
<INCOME-CONTINUING> 78
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
