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, 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 May 31, 2000.
HIA, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation. .
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 May 31, 2000
and November 30, 1999
Consolidated Statements of Operations for the six months and three
months ended May 31, 2000 and May 31, 1999.
Consolidated Statements of Cash Flows for the six months
ended May 31, 2000 and 1999
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
</CAPTION>
(Information as of November 30, 1999 is based upon an audited balance sheet. All
other information is unaudited.)
May 31, November 30,
2000 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash $ - $ 21,117
Accounts receivable, net of allowance for
doubtful accounts 5,663,549 3,311,736
Inventories 6,267,749 3,359,705
Other current assets 158,550 116,327
-----------------------------------------------------------------------------
Total current assets 12,089,848 6,808,885
-----------------------------------------------------------------------------
Property and equipment, at cost:
Land and improvements 45,295 45,295
Buildings 333,267 294,138
Equipment 1,310,051 1,089,934
-----------------------------------------------------------------------------
1,688,613 1,429,367
-----------------------------------------------------------------------------
Less accumulated depreciation
and amortization 954,521 839,372
-----------------------------------------------------------------------------
Net property and equipment 734,092 589,995
Other assets/investments 351,898 339,665
Goodwill, net of amortization 1,316,173 1,425,127
of $217,908 and $108,954
Non-compete, net of amortization 132,000 141,000
of $18,000 and $9,000
-----------------------------------------------------------------------------
TOTAL ASSETS $14,624,011 $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>
May 31, November 30,
LIABILITIES 2000 1999
<S> <C> <C>
Current Liabilities:
Note payable to bank $ 3,312,502 $1,222,502
Current maturities of long-term obligations 455,290 379,470
Accounts payable 4,175,045 942,428
Checks written in excess of deposits 428,651 258,878
Accrued expenses and other current liabilities 299,715 672,501
-----------------------------------------------------------------------------------
Total current liabilities 8,671,203 3,475,779
-----------------------------------------------------------------------------------
Long-term Obligations:
Notes payable, less current maturities 1,610,251 1,784,506
Capital lease obligations, less current maturities 396,621 321,879
-----------------------------------------------------------------------------------
Total Long-term Obligations 2,006,872 2,106,385
-----------------------------------------------------------------------------------
TOTAL LIABILITIES 10,678,075 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 1,199,322 1,087,404
-----------------------------------------------------------------------------------
4,439,672 4,327,754
-----------------------------------------------------------------------------------
Less treasury stock: 2,747,665 and
3,347,665 shares at cost ( 493,736) ( 605,246)
-----------------------------------------------------------------------------------
Total Stockholders' Equity 3,945,936 3,722,508
-----------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $14,624,011 $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
Six Months Ended Three Months Ended
May 31, 2000 May 31, 1999 May 31, 2000 May 31, 1999
<S> <C> <C> <C> <C>
Net sales $14,550,428 $8,746,960 $9,921,999 $6,396,804
Cost of sales 10,355,808 6,087,268 6,972,233 4,416,594
------------------------------------------------------------------------------------
Gross profit 4,194,620 2,659,692 2,949,766 1,980,210
Selling, general
and administrative
expenses 3,889,058 2,494,368 2,133,192 1,370,393
------------------------------------------------------------------------------------
Operating income 305,562 165,324 816,574 609,817
Other income (expense):
Interest income 64,676 14,224 52,979 4,039
Interest expense (199,756) (35,785) (120,944) (21,968)
Misc. income 27,436 9,921 176 4,576
------------------------------------------------------------------------------------
Total other expense (107,644) (11,640) (67,789) (13,353)
------------------------------------------------------------------------------------
Income before taxes on
income 197,918 153,684 748,785 596,464
Taxes of income 86,000 76,000 86,000 76,000
-----------------------------------------------------------------------------------
NET INCOME $111,918 $77,684 $662,785 $520,464
=====================================================================================
Basic and diluted income
per share $ .01 $ .01 $ .06 $ .05
===================================================================================
Weighted average common
shares outstanding
Basic 10,258,592 9,811,026 10,360,231 9,811,026
Dilutive 10,278,348 9,811,026 10,360,231 9,811,026
<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 Six Months Ended
Increase (Decrease) In Cash May 31, 2000 May 31,1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 111,918 $ 77,684
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 233,103 70,182
Changes in current assets and
current liabilities, net of business acquisition:
Accounts receivable (2,351,813) (1,409,815)
Inventories (2,908,044) (1,733,112)
Other current assets (42,223) (24,844)
Accounts payable 3,232,617 2,944,203
Accrued expenses and other current liabilities (372,786) (161,809)
------------------------------------------------------------------------------------
NET CASH USED IN
OPERATING ACTIVITIES (2,097,228) (237,511)
------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (51,722) (3,654)
Purchase of WPS, net of cash acquired - (1,378,765)
Increase in other assets (12,233) (4,760)
Purchase of treasury stock - (12,689)
------------------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (63,955) (1,399,868)
------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings on note payable to bank 2,090,000 817,320
Proceeds from long term debt - 1,000,000
Repayments of long term debt (140,851) -
Payments on capital lease obligations (90,366) (42,759)
Increase (decrease) in checks written in excess of
deposits 169,773 (37,486)
Sale of treasury stock 111,510 97,350
-----------------------------------------------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,140,066 1,834,425
-----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (21,117) 197,046
CASH, BEGINNING OF PERIOD 21,117 29,869
-----------------------------------------------------------------------------------
CASH, END OF PERIOD $ - $ 226,915
===================================================================================
<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 six months ended May 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 six months ended May 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 May 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
their 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 six
months ended May 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
=====================================================
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 is 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 will have 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 six months ended May
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 $199,756 and $35,785 for the six
months ended May 31, 2000 and May 31, 1999. Cash payments for income
taxes were $291,000 and $121,952 for the six months ended May 31, 2000
and May 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 $2,097,228 for
the six months ended May 31, 2000 from $237,511 the same period last
year primarily due to the increase in accounts receivable ($941,998)
and inventories ($1,174,932). The increases were primarily
attributable to a 66% increase in sales during the six months ended
May 31, 2000 as compared to the similar period in the prior year. The
increase in sales reflects the sales generated by WPS. WPS, a
company purchased by CPS on May 25, 1999, generated $3,158,835 in
sales for the six months ended May 31, 2000. Depreciation and
amortization increased by $162,921 during the six months ended May 31,
2000 compared to the same period in the prior year due primarily to
the acquisition of WPS. The Company acquired $177,545 in property
and equipment, and $1,684,081 in intangible assets. The increase in
accounts payable for the six months ended May 31, 2000 compared to the
corresponding period in the prior year 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 May 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 approximately
$1,335,900 compared to the same period in the prior year. During the
six months ended May 31, 1999, the Company used $1,378,756 in cash to
purchase WPS (See Note F).
The net increase in cash provided by financing activities of $305,641
was primarily attributable to the increase in net borrowings on notes
payable to a bank of $1,272,680 which were required to finance the
additional accounts receivables and inventories. This increase in net
borrowings on the note payable to bank during the six months ended May
31, 2000 was offset by the $1,000,000 of proceeds received in the
prior period from a bank in connection with the purchase of WPS on May
25, 1999. As of May 31, 2000, the Company and its subsidiary have an
available line-of-credit totaling $4,000,000, of which $687,498 was
unused. The line matures on April 1, 2001.
The following is a summary of working capital and current ratio for
the periods presented:
May 31, 2000 November 30, 1999
Working Capital $3,418,645 $3,333,106
Current Ratio 1.39 to 1 1.96 to 1
The Company's working capital increased by $85,539 during the six
months ended May 31, 2000 compared to the six months ended May 31,
1999 principally as a result of the $111,918 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 May 31, 2000 compared to
November 20, 1999 is attributable to the increase in accounts payable
and bank borrowings needed to finance increases in accounts receivable
and inventories.
Results of Operations
Three Months Ended May 31, 2000 Compared to Three Months Ended May 31,
1999.
Net sales for the three months ended May 31, 2000 were up $3,525,195
or 55% greater than the second quarter of 1999 primarily due to
$2,231,606 in sales generated by WPS (WPS was purchased by CPS on May
25, 1999) and volume increases related to the generally good economy
and construction activity in the Colorado front range region.
Gross profit was 29.7% during the three months ended May 31, 2000 as
compared to 31% for the second quarter of 1999. The decrease in gross
profit was primarily due to an increase in inventory reserve for
obsolescence and shrinkage of $307,000 compared to the corresponding
period in the prior year. 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 May 31, 2000
increased approximately 25% over May 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
5% to 10% increase in inventories in addition to the levels required
for the increase in business.
Selling, general and administrative expenses were up $762,799 for the
three months ended May 31, 2000 compared to the corresponding period
in the preceding year primarily as a result of the additional expenses
of WPS during the second quarter of 2000 of $565,475. In addition,
due to the purchase of WPS on May 25, 1999, there was amortization of
goodwill and non-compete clause during the three months ended May 31,
2000 of $58,977. In addition, the tight labor market increased
overall compensation by approximately $150,000 during the three months
ended May 31, 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 expense was up $54,436 for the three months ended May 31, 2000
compared to the same period in the prior year primarily as a result of
the additional $98,976 of interest expense incurred on long-term notes
payable for the purchase of WPS and short-term borrowings to the bank
in order to finance the increases in accounts receivable and
inventories.
Taxes on income for the three months ended May 31,2000 is comparable
to the same period in the prior year.
Net income in the second quarter of 2000 was $142,321 more than the
second quarter of 1999 due primarily to the increase in the gross
profit on the additional sales during the period which exceed the
increase in selling, general and administrative expenses during the
same period.
Six Months Ended May 31, 2000 Compared to Six Months Ended May 31,
1999.
Net sales for the six months ended May 31, 2000 were up $5,803,468
compared to the same period in the prior year primarily due to
$3,158,835 in sales generated by WPS during the period and volume
increases related to the overall good economy and construction
activity in the Colorado front range region.
Gross profit was 28.8% during the six months ended May 31, 2000
compared to a 30.4% 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 due to 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 May 31, 2000 increased approximately 25% over May 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 5% to 10% increase in inventories in
addition to the levels required for the increase in business.
Selling, general and administrative expenses were up $1,394,690 for
the six months ended May 31, 2000 compared to the same period in the
preceding year primarily due as a result of the additional expenses
of WPS of $827,305 during the six months ended May 31, 2000 and the
additional amortization costs as a result of the purchase of WPS on
May 25, 1999 of $117,954. In addition, the tight labor market
increased overall compensation by $413,863 during the first six 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 $96,004 for the six months ended May 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 six months ended May 31,2000 is comparable to
the same period in the prior year.
Net income increased $34,234 for the six months ended May 31, 2000 as
compared to the same period in the prior year primarily as a result of
the gross profit on the additional sales during the period which
exceeded the increase in selling, general and administrative expenses
during the same period. This increase was offset by the additional
interest incurred during the period.
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: July 17, 2000 By:/s/Alan C. Bergold
Alan C. Bergold
Chief Financial Officer &
President
