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 February 29, 2000
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:
10,360,231 shares of the Registrant's $.01 par value common stock were
outstanding at February 29, 2000
HIA, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or
Plan operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part 1.
Item 1. Financial Statements
Consolidated Balance Sheets as of February 29, 2000
and November 30, 1999
Consolidated Statements of Operations for the three months
ended February 29, 2000 and February 28, 1999
Consolidated Statements of Cash Flows for the three months
ended February 29, 2000 and February 28, 1999
Notes to Consolidated Financial Statements
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Information as of November 30, 1999 is based upon an audited balance
sheet. All other information is unaudited.)
<TABLE>
February 29, November 30,
2000 1999
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 14,667 $ 21,117
Accounts receivable, net of
allowance for doubtful accounts 3,434,099 3,311,736
Inventories 5,346,889 3,359,705
Other current assets 116,327 116,327
--------- ---------
Total current assets 8,911,982 6,808,885
--------- ---------
Property, and Equipment, at cost:
Land and improvements 45,295 45,295
Buildings 300,832 294,138
Equipment 1,095,654 1,089,934
--------- ---------
1,441,781 1,429,367
Less accumulated depreciation
and amortization 891,734 839,372
-------- --------
Net property and equipment 550,047 589,995
Other Assets/Investments 351,900 339,665
Goodwill, net of Amortization
of $163,431 and $108,954 1,370,650 1,425,127
Non-compete agreement, net of Amortization
Of $13,500 and $9,000 136,500 141,000
--------- ----------
TOTAL ASSETS $11,321,079 $9,304,672
=========== ===========
<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)
(Information as of November 30, 1999 is based upon an audited balance sheet. All
other information is unaudited).
<CAPTION>
February 29, November 30,
LIABILITIES
2000 1999
<S> <C> <C>
Current Liabilities:
Note payable to bank $2,227,502 $1,222,502
Current maturities of long term obligations 368,130 379,470
Accounts payable 3,078,390 942,428
Checks written against future deposits 205,852 258,878
Accrued expenses & other current liabilities 145,984 672,501
---------- ---------
Total current liabilities 6,025,858 3,475,779
--------- ----------
Long Term Obligations:
Notes payable, less current portion 1,714,285 1,784,506
Capital lease obligations,
less current portion 297,785 321,879
---------- ----------
2,012,070 2,106,385
--------- ---------
TOTAL LIABILITIES 8,037,928 5,582,164
--------- ----------
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common Stock of $.01 par value;
Authorized 20,000,000 shares: Issued
13,107,896 and outstanding 10,360,231
and 9,760,231 131,079 131,079
Additional paid-in capital 3,109,271 3,109,271
Retained earnings 536,537 1,087,404
--------- ---------
3,776,887 4,327,754
Less treasury stock: 2,747,665 and
3,347,665 shares at cost
493,736 605,246
--------- --------
Total Stockholders' Equity 3,283,151 3,722,508
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,321,079 $9,304,672
========= =========
<CAPTION>
The accompanying notes are an integral part of the consolidated financial statements.
</CAPTION>
</TABLE>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended
Feb. 29, 2000 Feb. 28, 1999
<S> <C> <C>
Net sales $4,628,429 $2,350,156
Cost of sales 3,383,575 1,670,674
---------- ---------
Gross profit 1,244,854 679,482
---------- ---------
Selling, general & administrative expenses 1,755,866 1,123,975
--------- ---------
Operating loss (511,012) (444,493)
Other income (expense):
Interest income 11,697 10,185
Interest expense (78,812) (13,817)
Misc. income (expense) 27,260 5,345
------ -------
Total other income (expense) (39,855) 1,713
------ ------
NET LOSS ($550,867) ($442,780)
========= ========
Basic and diluted loss per share $ (.05) $ (.05)
Basic and diluted weighted average
common shares outstanding 10,160,222 9,695,261
<CAPTION>
The accompanying notes are an integral part of the consolidated financial statements.
</CAPTION>
</TABLE>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the Three Months
Increase (Decrease) In Cash February 29, 2000 February 28, 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (550,867) $ (442,780)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 111,339 33,694
Changes in current assets and
current liabilities:
Accounts receivable 122,363) 154,740
Inventories (1,987,184) (1,335,147)
Other current assets -0- ( 19,877)
Accounts payable 2,135,962 1,761,035
Accrued expenses and other
current liabilities (526,517) (304,629)
---------- ---------
NET CASH USED IN
OPERATING ACTIVITIES (939,630) (152,964)
--------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment (12,414) -0-
Increase in other assets (12,235) ( 7,551)
Purchase of treasury stock -0- ( 5,980)
-------- ---------
NET CASH USED IN
INVESTING ACTIVITIES ( 24,649) ( 13,531)
--------- --------
FINANCING ACTIVITIES:
Net borrowings on notes payable to banks 1,005,000 254,955
Payments on long-term obligations (105,655) (20,019)
Decrease in checks written in excess of deposits (53,026) (171,167)
Sale of treasury stock 111,510 97,350
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 957,829 161,119
------- --------
NET DECREASE IN CASH (6,450) (5,376)
CASH, BEGINNING OF PERIOD 21,117 29,869
------- ------
CASH, END OF PERIOD $ 14,667 $ 24,493
======= =======
<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 29,
2000 are not necessarily indicative of the results that may be
obtained for the year ending November 30, 2000. 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, 1999 filed with the Securities and Exchange Commission on
February 28, 2000.
B. Net 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
(10,160,222 and 9,695,261 for 2000 and 1999). 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 29, 2000 and February 28, 1999, total
stock options in the amount of 600,000 are not considered in the
computation of diluted earnings per share as their inclusion would be
anti-dilutive.
C. Comprehensive Loss
Comprehensive loss is comprised of net loss and all changes to the
consolidated statements of stockholders' equity, except for those due
to investments by stockholders, changes in paid in capital and
distributions to stockholders. The Company had no components of
comprehensive loss except for net losses for the three months ended
February 29, 2000 and February 28, 1999.
D. Goodwill
Goodwill, which relates to the acquisition discussed in Note f, is
being amortized over a 10 year period using the straight-line method.
E. Non-Compete Agreement
Non-compete agreement is being amortized over the 10 year term of the
agreement using the straight-line method.
F. Business Acquisition
On May 25th, 1999, the Company, through its wholly-owned subsidiary,
acquired all of the issued and outstanding common stock of Western
Pipe Supply, Inc. (WPS), a privately-held corporation established
under the laws of Colorado, for a purchase price of $2,746,739
including $84,244 in acquisition costs. 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. The cash paid to seller
was financed in part by additional borrowings on the existing line of
credit of $927,888 (of which $442,504 was the amount required to pay
off the seller's existing line of credit secured by all existing
assets of WPS) and a $1,000,000 five year note payable.
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 final allocation of the purchase price was as
follows:
<TABLE>
<S> <C>
Cash $ 190,864
Accounts receivable, net 806,102
Inventories 1,327,859
Other current assets 15,946
Property and equipment 177,545
Goodwill 1,534,081
Non-compete agreement 150,000
Deferred tax assets 163,099
Less:
Accounts payable 1,051,941
Other current liabilities 101,167
Line of credit 442,504
Long-term obligations 23,145
----------
Total purchase price $2,746,739
=========
</TABLE>
G Recent Accounting Pronouncements
The Financial Accounting Standards Board 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 15, 2000. Management believes the adoption of this
statement will have no impact on the Company's consolidated financial
statements.
H A Supplemental Disclosure of Cash Flow Information
Cash payments for interest were $78,812 and $13,817 for the three
months ended February 29, 2000 and February 28, 1999. Cash payments
for income taxes wee $165,000 and $ 0 for the three months ended
February 29, 2000 and February 28, 1999.
Item 2. Management's Discussion and analysis of Plan of Operation
Liquidity and Capital Resources
During the period ended February 29, 2000, the Company used $939,630
in cash from operations compared to $442,780 in cash used from
operations during the period ended February 28, 1999. Accounts
receivable levels and inventory levels increased over prior period due
to the acquisition of WPS and the increased business during the period
ended February 29, 2000 due to the unseasonably warm temperatures and
dry weather conditions in Colorado. Depreciation and amortization
increased by $77,375 during the period ended February 29, 2000
compared to the period ended February 28, 1999. The increase in
depreciation and amortization is due to $1,534,081 in goodwill,
$150,000 in non-compete agreement and the $177,545 in property and
equipment acquired from the acquisition of WPS on May 25,1999. The
increase in accounts payable for the period ended February 29, 2000 in
comparison to the prior period is due to the fact that the Company's
inventory levels have increased. The decrease in accrued expenses and
other current liabilities for the period ended February 29, 2000
compared to the prior year is attributable to the additional cash
payment for income taxes required during 2000 which exceeded the 1998
tax liability by $190,813.
The following is a two-year summary of working capital and current
ratios:
<TABLE>
February 29, 2000 November 30, 1999
<S> <C> <C>
Working Capital $2,886,124 $3,333,106
Current Ratios 1.48 to 1 1.96 to 1
</TABLE>
The decrease in the current ratio as of February 29, 2000 compared to
November 30, 1999 is attributable to the increase in accounts payable
and bank borrowings needed to finance increases in inventories and
accounts receivable.
The net cash used in investing activities is comparable to the
previous three months of 1999.
For the period ended February 29, 2000, the Company's financing
activities provided $957,829 to the Company compared to $161,119 for
the period ended February 28, 1999. The Company's line of credit
activity increased during the period ended February 29, 2000 primarily
due to the fact that the Company borrowed an additional $1,005,000 to
fund the increase in inventory and accounts receivable levels due to
the unseasonably warm temperatures and dry weather conditions in
Colorado and to fund WPS inventory and accounts receivable levels.
The Company's payments on long term obligations increased to $105,655
for the period ended February 29, 2000 compared to $20,019 for the
period ended February 28, 1999 due to the additional debt acquired
when the Company purchased WPS during May 1999. As of February 29,
2000, the Company and its subsidiary have an available line-of-credit
totaling $4,000,000 of which $1,772,498 was unused.
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 2000 with the exception of
the computer-related lease in the amount of $209,524.
Results of Operations
Net sales for the three months ended February 29, 2000 were up
$2,278,273 or 96% greater than the first quarter of 1999 primarily due
to the sales generated by the acquisition of WPS of $927,229 and
relatively dry, warm winter experienced in the Rocky Mountain area in
2000, allowing the contractors to continue working throughout the
winter.
The gross profit was 26.9% during the three months ended February 29,
2000, compared to a 28.9% gross profit for the first quarter of 1999.
The decrease was primarily due to the sale of large competitively
priced jobs during the winter months of 2000.
The selling, general and administrative expenses were up $631,891,
primarily as a result of the general expenses of WPS of $254,785 and
the amortization of goodwill and non-compete of $58,977 and additional
payroll costs as a result of across the board pay raises granted in
1999 to attract and keep employees in a competitive employment
economy.
Other expense was up $41,568, primarily as a result of higher overall
borrowings on the bank line of credit and the interest paid on the
notes as a result of the acquisition of WPS.
Net loss was $108,087 more during the first quarter of 2000 as
compared to the same period in 1999 primarily as the result of
additional interest expenses and the amortization of the goodwill and
non-compete agreement that did not exist during the period ended
February 28, 1999.
Year 2000 Compliant
The Company, like most other companies, is faced with the Year 2000
Issue, which is the result of computer programs that are written using
two digits rather than four to define the applicable year. Any
computer programs that affect the Company's activities and that have
date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations that depend upon
such date sensitive software or computer hardware. The potential
problems include, among other things, a temporary inability to process
transactions, send invoices, transfer funds, or engage in similar
normal business activities. The problems caused by the Year 2000
Issue may be exacerbated and cause widespread business disruption
because of the interdependence of computer and telecommunications
systems in the United States and throughout the world.
We continue to assess the compliance of our major customers, suppliers
and vendors. Management believes that third-party relationships upon
which we rely represent the greatest risk with respect to the Year
2000 issue, because we cannot guarantee that third parties will be
able to adequately assess and address their Year 2000 compliance
issues in a timely manner. As a consequence, we can give no
assurances that issues related to Year 2000 will not have a material
adverse effect on future results of operations of financial condition.
Since the beginning of 2000, the Company did not have any
interruptions of its business due to the Year 2000 issue. During the
next few months, the Company will continue to monitor its operations
and assess whether the Year 2000 Issue has an impact on the Company.
Part II
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6 Exhibits and reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this report to be signed on its
behalf by the under signed hereunto duly authorized.
HIA, INC.
Date:April 14, 2000 /s/ Alan C. Bergold
Alan C. Bergold
Chief Financial Officer &
President
