FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 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.
incorporation or organization Employer
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 August 31, 2000.
HIA, INC.
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements. 3
Item 2. Management's Discussion and Analysis or Plan of
Operation. 11
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
Part 1.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of August 31, 2000
and November 30, 1999 4
Consolidated Statements of Operations for the nine months
and three months ended August 31, 2000 and 1999. 6
Consolidated Statements of Cash Flows for the nine months
ended August 31, 2000 and 1999. 7
Notes to Consolidated Financial Statements 8
<TABLE>
<CAPTION>
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.)
</CAPTION>
August 31, November 30,
2000 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash $ - $ 21,117
Accounts receivable, net of allowance for
doubtful accounts 4,698,144 3,311,736
Inventories 6,240,953 3,359,705
Other current assets 116,327 116,327
-------------------------------------------------------------------------------------
Total current assets 11,055,424 6,808,885
-------------------------------------------------------------------------------------
Property and equipment, at cost:
Land and improvements 45,295 45,295
Buildings 383,322 294,138
Equipment 1,310,051 1,089,934
-------------------------------------------------------------------------------------
1,738,668 1,429,367
Less accumulated depreciation
and amortization 1,034,517 839,372
-------------------------------------------------------------------------------------
Net property and equipment 704,151 589,995
Other assets/investments 351,898 339,665
Goodwill, net of amortization 1,261,696 1,425,127
of $272,385 and $108,954
Non-compete agreement, net of amortization
of $22,500 and $9,000 127,500 141,000
-------------------------------------------------------------------------------------
TOTAL ASSETS $13,500,669 $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).
August 31, November 30,
LIABILITIES 2000 1999
<S> <C> <C>
Current Liabilities:
Note payable to bank $3,667,000 $1,222,502
Current maturities of long-term obligations 458,797 379,470
Accounts payable 2,058,346 942,428
Checks written in excess of deposits 470,609 258,878
Accrued expenses and other current liabilities 618,304 672,501
---------------------------------------------------------------------------------
Total current liabilities 7,273,056 3,475,779
---------------------------------------------------------------------------------
Long-term Obligations:
Notes payable, less current maturities 1,537,460 1,784,506
Capital lease obligations, less current
maturities 352,684 321,879
---------------------------------------------------------------------------------
Total long-term obligations 1,890,144 2,106,385
---------------------------------------------------------------------------------
TOTAL LIABILITIES 9,163,200 5,582,164
---------------------------------------------------------------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock of $.01 par value;
authorized 20,000,000 shares: issued
13,107,896; outstanding 10,360,231
and 9,760,231 131,079 131,079
Additional paid-in capital 3,109,271 3,109,271
Retained earnings 1,590,855 1,087,404
--------------------------------------------------------------------------------
4,831,205 4,327,754
Less treasury stock: 2,747,665 and
3,347,665 shares at cost (493,736) (605,246)
--------------------------------------------------------------------------------
Total stockholders' equity 4,337,469 3,722,508
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,500,669 $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 STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
Aug 31, 2000 Aug 31, 1999 Aug 31, 2000 Aug 31, 1999
<S> <C> <C> <C> <C>
Net sales $25,242,939 $18,960,478 $10,692,512 $10,213,518
Cost of sales 17,916,035 13,244,678 7,560,228 7,157,410
-------------------------------------------------------------------------------------------
Gross profit 7,326,904 5,715,800 3,132,284 3,056,108
Selling, general
and administrative
expenses 6,305,800 4,609,169 2,416,742 2,114,801
-------------------------------------------------------------------------------------------
Operating income 1,021,104 1,106,631 715,542 941,307
Other income (expense):
Interest income 72,560 42,799 7,884 28,575
Interest expense (337,649) (123,345) (137,893) (87,560)
Misc. income 27,436 34,669 - 0 - 24,748
-------------------------------------------------------------------------------------------
Total other expense (237,653) (45,877) (130,009) (34,237)
-------------------------------------------------------------------------------------------
Income before taxes on income 783,451 1,060,754 585,533 907,070
Taxes on income 280,000 321,000 194,000 245,000
-------------------------------------------------------------------------------------------
NET INCOME $503,451 $739,754 $391,533 $662,070
===========================================================================================
Basic and diluted income
per share $ .05 $ .08 $ .04 $ .07
===========================================================================================
Weighted average common
shares outstanding
Basic 10,292,594 9,753,261 10,360,231 9,753,261
Dilutive 10,307,104 9,753,261 10,360,231 9,753,261
<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
For the Nine Months Ended
Increase (Decrease) In Cash August 31, 2000 August 31,1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 503,451 $ 739,754
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 372,076 187,350
Changes in current assets and
current liabilities, net of business
acquisition:
Accounts receivable (1,386,408) (1,610,372)
Inventories (2,881,248) (806,254)
Other current assets - 0 - 35,042
Accounts payable 1,115,918 803,610
Accrued expenses and other current
liabilities (54,197) 164,615
---------------------------------------------------------------------------------
NET CASH USED IN
OPERATING ACTIVITIES (2,330,408) (486,255)
---------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (101,777) (17,043)
Purchase of WPS, net of cash acquired - 0 - (1,378,765)
Increase in other assets (12,233) (8,909)
Purchase of treasury stock - 0 - (12,689)
----------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (114,010) (1,417,406)
----------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings on note payable to bank 2,444,498 730,953
Proceeds from long-term debt - 0 - 1,000,000
Repayments of long-term debt (211,894) - 0 -
Payments on capital lease obligations (132,544) (51,095)
Increase in checks written in excess of
deposits 211,731 143,929
Sale of treasury stock 111,510 97,350
---------------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,423,301 1,921,137
---------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (21,117) 17,476
CASH, BEGINNING OF PERIOD 21,117 29,869
---------------------------------------------------------------------------------
CASH, END OF PERIOD $ - 0 - $ 47,345
=================================================================================
<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 nine months ended August 31, 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 Income 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 includes no dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of shares outstanding during the period.
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.
During the nine months ended August 31, 2000, 19,756 shares of
outstanding stock options were included for purposes of calculating
diluted weighted average shares outstanding. Options outstanding
during the three months ended August 31, 2000 were not considered for
purposes of calculating diluted weighted average shares outstanding as
the strike price of the options exceeded the average market price of
the Company's common stock during the three month period.
C. Comprehensive Income
Comprehensive income is comprised of net income 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 income except for net income for the three and nine
months ended August 31, 2000 and 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,
CPS, 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:
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
==========
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if the acquisition of WPS
occurred at the beginning of fiscal year 1998. The unaudited pro forma
financial data does not purport to be indicative of the results which
actually would have been obtained had the purchase been effected on the
dates indicated or of the results which may be obtained in the future.
For the Nine Months
Ended August 31, 1999
Net sales $22,148,574
Net income 585,802
Net income per common share:
Basic $ .06
Diluted $ .06
G. Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has recently issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS
No. 133, amended by SFAS No. 137, 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.
In March 2000, the FASB issued Emerging Issues Task Force Issue No. 00-
2, "Accounting for Web Site Development Costs" ("EITF 00-2"), which is
effective for all such costs incurred for fiscal quarters beginning
after June 30, 2000. This Issue establishes accounting and reporting
standards for costs incurred to develop a web site based on the nature
of each cost. Currently, as the Company has no web site development
costs, the adoption of EITF 00-2 would have no impact on the Company's
financial condition or results of operations. To the extent the
Company, begins to enter into such transactions in the future, the
Company will adopt the Issue's disclosure requirements in the quarterly
and annual financial statements for the year ending November 30, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" ("FIN 44"),
which was effective July 1, 2000, except that certain conclusions in
this Interpretation which cover specific events that occur after either
December 15, 1998 or January 12, 2000 are recognized on a prospective
basis from July 1, 2000. This Interpretation clarifies the application
of APB Opinion 25 for certain issues related to stock issued to
employees. The Company believes its existing stock based compensation
policies and procedures are in compliance with FIN 44 and therefore,
the adoption of FIN 44 had no material impact on the Company's
financial condition, results of operations or cash flows.
H. Supplemental Disclosure of Cash Flow Information
Excluded from the statement of cash flows for the nine months ended
August 31, 2000 and 1999 were the effects of certain noncash investing
and financing activities including the purchase of equipment in 2000
and 1999 of $207,524 and $162,280 with third party financing.
The following table summarizes the net cash used in conjunction with
the 1999 WPS acquisition:
Working capital, other than cash acquired $ 996,799
Property and equipment 177,545
Deferred tax assets 163,099
Goodwill 1,534,081
Non-compete agreement 150,000
Acquired debt and long-term obligations (1,642,759)
-----------------------------------------------------------------------
Net cash used to acquire WPS $ 1,378,765
=======================================================================
Cash payments for interest were $337,649 and $123,345 for the nine
months ended August 31, 2000 and August 31, 1999. Cash payments for
income taxes were $322,923 and $180,562 for the nine months ended
August 31, 2000 and August 31, 1999.
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources
The net cash used in operating activities increased to $2,330,408 for
the nine months ended August 31, 2000 from $486,255 for the same period
last year primarily due to the change in inventory $2,074,994. The
increase was primarily attributable to a 33% increase in sales during
the nine months ended August 31, 2000 as compared to the similar period
in the prior year and a change in policy regarding inventory
management. In the second quarter of the current year, the Company
increased its stocking levels at the branch locations to increase
overall customer service. The increase in sales is primarily
attributable to additional sales by WPS (a company purchased by CPS on
May 25, 1999, which generated $5,614,171 in sales for the nine months
ended August 31, 2000) compared to $3,157,349 in sales generated by WPS
from May 25, 1999, acquisition date, to August 31, 1999, and the
general good economy and construction activity in the Rocky Mountain
region. Depreciation and amortization increased by $184,726 during the
nine months ended August 31, 2000 compared to the same period in the
prior year due primarily to the acquisition of WPS in May 1999 (the
company acquired $177,545 in property and equipment, and $1,684,081 in
intangible assets). The increase in accounts payable of $312,308 for
the nine months ended August 31, 2000 compared to the corresponding
period in the prior year is a result of the increased inventory levels.
The decrease in accrued expenses and other current liabilities of
$218,812 for the period ended August 31, 2000 compared to the prior
year is attributable to the additional cash payment for income taxes
required during 2000 which exceeded the 1999 tax liability by
approximately $190,000.
The net cash used in investing activities decreased by $1,303,396
compared to the same period in the prior year primarily due to cash
used for the business acquisition (WPS) of $1,378,765 in May 1999.
The net increase in cash provided by financing activities of $2,423,301
was due primarily to the increase in net borrowings on notes payable to
a bank of $1,713,545 which were required to finance the additional
inventories. This increase in net borrowings on the note payable to
bank during the nine months ended August 31, 1999 was offset by the
$1,000,000 of proceeds received from a bank in connection with the
purchase of WPS on May 25, 1999. As of August 31, 2000, the Company
and its subsidiary have an available line-of-credit totaling
$4,500,000, of which $833,000 was unused. The line matures on April 1,
2001.
The following is a summary of working capital and current ratio for the
periods presented:
August 31, 2000 November 30, 1999
Working Capital $3,782,368 $3,333,106
Current Ratio 1.52 to 1 1.96 to 1
The Company's working capital increased by $449,262 during the nine
months ended August 31, 2000 compared to the nine months ended August
31, 1999 primarily as a result of the $503,451 net income. 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.
The decrease in the current ratio as of August 31, 2000 compared to
November 30, 1999 is attributable to the increase in accounts payable
and bank borrowings needed to finance increases in inventories.
Results of Operations
Three Months Ended August 31, 2000 Compared to Three Months Ended
August 31, 1999.
Net sales for the three months ended August 31, 2000 were up $478,994
or 4.6% greater than the third quarter of 1999 due to the continued
robust economy in the Rocky Mountain region.
Gross profit was 29.3% during the three months ended August 31, 2000 as
compared to 29.9% for the third quarter of 1999. Inventory levels as
of August 31, 2000 increased approximately 45% over August 31, 1999.
Beginning in June of 2000, the company implemented a revised inventory
system whereby the bulk of the inventory will be held and shipped
directly to the individual branch operations from the suppliers
(decentralized) rather than the central warehouse distribution system
employed by the company in the past. This new system will tend to
increase inventories overall as compared to past levels. Management
expects a 15% to 20% average increase in inventories in addition to the
levels required for the increase in business.
Selling, general and administrative expenses were up $301,941 for the
three months ended August 31, 2000 compared to the corresponding period
in the prior year primarily as a result of payroll increases of
approximately $279,000 due to the tight labor market in the Rocky
Mountain region. It is anticipated by management that the tight labor
market will continue in Colorado at least for the next two years. As a
result, compensation is expected to increase at a much greater rate
than inflation during that period.
Other expense was up $95,772 for the three months ended August 31, 2000
compared to the same period in the prior year primarily as a result of
the additional $50,333 of interest expense incurred on the short-term
borrowings to the bank in order to finance the increase in inventories.
Taxes on income for the three months ended August 31, 2000 decreased by
$51,000 as compared to the same period in the prior year primarily due
to the effect of the tax loss carry-forward of WPS purchased by the
company in May 1999.
Net income in the third quarter of 2000 was $270,537 less than the
third quarter of 1999 due primarily to the increase in the selling,
general and administrative expenses of $301,941 during the third
quarter of 2000.
Nine Months Ended August 31, 2000 Compared to Nine Months Ended August
31, 1999.
Net sales for the nine months ended August 31, 2000 were up $6,282,461
or 33% compared to the same period in the prior year primarily due to
$5,614,171 in sales generated by WPS during the nine months ended
August 31, 2000 compared to $3,157,349 in sales generated by WPS from
May 25, 1999, acquisition date, to August 31, 1999 and volume increases
related to the overall good economy and construction activity in the
Colorado front range region.
Gross profit was 29% during the nine months ended August 31, 2000
compared to a 30% gross profit for the same period in 1999. The
decrease in gross profit was due to the sale of large competitively
priced jobs during the first quarter of 2000 and the reserve for
inventory obsolescence and shrinkage of $307,000. The increase in the
inventory reserve was due to the additional risk of shrinkage as a
result of the increase in overall inventory levels. Inventory levels as
of August 31, 2000 increased approximately 45% over August 31, 1999.
Beginning in June of 2000, the Company has implemented a revised
inventory system whereby the bulk of the inventory will be held and
shipped directly to the individual branch operations from the suppliers
(decentralized) rather than the central warehouse distribution system
employed by the company in the past. This new system will tend to
increase inventories overall as compared to past levels. Management
expects a 15% to 20% increase in inventories in addition to the levels
required for the increased in business.
Selling, general and administrative expenses were up $1,696,631 for the
nine months ended August 31, 2000 compared to the same period in the
preceding year primarily due as a result of the additional expenses of
WPS of $912,540 during the nine months ended August 31, 2000 compared
to $524,790 of WPS's selling, general and administration expenses for
the period from May 25, 1999, acquisition date to August 31, 1999 and
the additional amortization costs as a result of the purchase of WPS on
May 25, 1999 of $176,931. In addition, the tight labor market
increased overall compensation by approximately $500,000 during the
first nine months of fiscal 2000 as compared to the same period during
fiscal 1999. It is anticipated by management that the tight labor
market will continue in Colorado at least for the next two years. As a
result, compensation is expected to increase at a much greater rate
than inflation during that period.
Other expenses were up $191,776 for the nine months ended August 31,
2000 compared to the same period in the prior year primarily as a
result of the additional interest payments on the long-term notes
payable used to finance the purchase of WPS and the additional short
term borrowings required to finance the increases to accounts
receivable and inventories.
Taxes on income for the nine months ended August 31, 2000 decreased by
$41,000 as compared to the same period in the prior year primarily due
to the effect of the tax loss carry-forward of WPS purchased by the
company in May 1999
Net income decreased $236,303 for the nine months ended August 31, 2000
as compared to the same period in the prior year primarily as a result
of the additional interest incurred during the period of $214,304.
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: October 16,2000 /s/ Alan C. Bergold
Alan C. Bergold
Chief Financial Officer &
President
