SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended
December 31, 1998
Commission file number 0-22924
HILITE INDUSTRIES, INC.
(Exact name of registrant specified in its charter)
Delaware 75-2147742
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1671 S. Broadway
Carrollton, Texas 75006
(Address of principal (Zip code)
executive offices)
(972) 466-0475
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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
for 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
As of February 11, 1999, the Company had 4,900,000 shares of Common
Stock outstanding.
<PAGE>
HILITE INDUSTRIES, INC.
FORM 10-Q FOR THE QUARTER AND SIX MONTHS
ENDED DECEMBER 31, 1998
INDEX
Page
Part I FINANCIAL STATEMENTS
Item 1. Consolidated Financial
Statements
Consolidated Balance Sheets as
of December 31, 1998 and
June 30, 1998................. 3
Consolidated Statements of
Operations for the Three and
Six Months Ended
December 31, 1998 and 1997 .... 4
Consolidated Statements of
Cash Flows for the Six Months
Ended December 31, 1998 and
1997 5
Notes to Interim Consolidated
Financial Statements .......... 6
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................... 9
Part II. OTHER INFORMATION .................. 15
<PAGE>
<TABLE>
HILITE INDUSTRIES, INC.
Consolidated Balance Sheets
<S> December 31, June 30,
ASSETS 1998 1998
<C> <C>
Current assets:
Cash and cash equivalents ......... $ - -
Accounts receivable, less allowance
for doubtful accounts of $190,000 and
$198,420 at December 31 and June 30,
respectively..................... 12,957,178 11,289,779
Tooling and other receivables...... 579,626 716,700
Inventories........................ 11,031,017 9,927,849
Income tax receivable ............. - 542,188
Deferred income taxes ............. 1,817,012 1,817,012
Assets held for resale ............ - 532,533
Prepaid expenses and other ........ 364,164 1,015,764
Total current assets .............. 26,748,997 25,841,825
Property, plant and equipment,
at cost ........................... 45,567,463 43,538,367
Less: accumulated depreciation and
amortization ...................... (17,964,850)(15,921,909)
Property, plant and equipment, net. 27,602,613 27,616,458
Goodwill, net of amortization ..... 3,784,115 3,898,209
TOTAL ASSETS....................... $ 58,135,725 $57,356,492
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses .......................... $ 10,235,204 $12,849,981
Long-term debt - current portion .. 2,542,945 2,422,945
Income taxes payable .............. 642,847 -
Total current liabilities ......... 13,420,996 15,272,926
Long-term debt .................... 13,475,307 12,956,896
Deferred income taxes ............. 2,978,761 2,978,761
Total non-current liabilities ..... 16,454,068 15,935,657
Shareholders' equity:
Preferred Stock, $.01 par value;
5,000,000 shares authorized, none
issued and outstanding .......... - -
Common stock, $.01 par value;
15,000,000 shares authorized,
4,900,000 issued and outstanding. 49,000 49,000
Additional paid-in capital ........ 9,105,674 9,105,674
Retained earnings.................. 19,105,987 16,993,235
Total shareholders' equity ........ 28,260,661 26,147,909
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ............................ $ 58,135,725 $57,356,492
The accompanying notes are an integral part of these interim
consolidated financial statements.
</TABLE>
<PAGE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Income
Three Months Ended Six Months Ended
December 31 December 31
1998 1997 1998 1997
[S] [C] [C] [C] [C]
Net sales ........... $21,267,194 $20,626,491 $42,583,193 $41,656,789
Cost of sales ....... 16,887,804 16,404,695 33,659,222 33,370,096
Gross profit ........ 4,379,390 4,221,796 8,923,971 8,286,693
Selling, general and
administrative
expenses .......... 2,152,664 2,307,094 4,449,286 4,711,049
Operating income .... 2,226,726 1,914,702 4,474,685 3,575,644
Interest expense, net 341,816 409,507 689,811 800,018
Income before income
taxes ............. 1,884,910 1,505,195 3,784,874 2,775,626
Income tax provision. 723,990 566,617 1,428,723 1,044,922
Net income .......... $ 1,160,920 $ 938,578 $ 2,356,151 $ 1,730,704
Per share data:
Basic and diluted
earnings per share. $ .24 $ .19 $ .48 $ .35
Shares used in computing
earnings per share:
Basic ............... 4,900,000 4,900,000 4,900,000 4,900,000
Diluted ............. 4,920,018 4,910,623 4,919,693 4,907,091
[/TABLE]
<PAGE>
<TABLE>
HILITE INDUSTRIES, INC.
Consolidated Statements of Cash Flows
Six Months Ended
December 31
<S> 1998 1997
Cash flows from operations: <C> <C>
Net income ......................... $ 2,356,151 1,730,704
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation........................ 1,764,919 1,678,262
Amortization........................ 114,094 162,806
Cash provided from operations before
changes in operating assets and
liabilities ...................... 4,235,164 3,571,772
Changes in operating assets and
liabilities:
Increase in accounts receivable .... (1,667,399) (511,274)
(Increase) decrease in tooling and
other receivable ................. 137,074 (29,422)
Increase in inventories ............ (1,103,168) (276,110)
(Increase) decrease in prepaid
expenses and other current assets. 651,600 (501,594)
Increase in accounts payable
and accrued expenses ............. (2,476,856) (279,556)
Increase (decrease) in income taxes
payable .......................... 1,182,035 (420,809)
Total changes in operating assets
liabilities ...................... (3,276,714) (2,018,765)
Net cash provided by operations .... 958,450 1,553,007
Cash flows used in investing activities:
Additions to property, plant and
equipment ........................ (1,676,860) (1,188,409)
Proceeds from sale of assets ....... 325,000 -
Net cash used in investing
activities ....................... (1,351,860) (1,188,409)
Cash flows from financing activities:
Payment of cash dividend ........... (245,000) (122,500)
Proceeds from long-term debt ....... 600,000 -
Repayment of long-term debt ........ (1,221,473) (1,211,473)
Net increase in note payable ....... 1,259,883 969,375
Net cash provided by (used in)
financing activities ............. 393,410 (364,598)
Net decrease in cash and cash
equivalents ...................... - -
Cash and cash equivalents at
beginning of period .............. - -
Cash and cash equivalents at end of
period ........................... - -
The accompanying notes are an integral part of these interim
consolidated financial statements.
</TABLE>
<PAGE>
HILITE INDUSTRIES, INC.
Notes to Consolidate Interim Financial Statements (Unaudited)
1.BUSINESS AND BASIS OF PRESENTATION
The interim consolidated financial statements of Hilite
Industries, Inc. ("Hilite") at December 31, 1998 and for the
three and six month period ended December 31, 1998, are
unaudited, but include all adjustments (consisting of normal
recurring adjustments) which the Company considers necessary for
a fair presentation. The June 30, 1998 consolidated balance
sheet was derived from the balance sheet included in the
Company's audited Consolidated Financial Statements as included
in the Company's Annual Report on Form 10-K. As used herein,
unless the context otherwise requires, the term the "Company"
refers collectively to Hilite and Hilite's directly and
indirectly wholly-owned subsidiaries Hilite Industries - Texas,
Inc., North American Spring and Stamping Corp. ("NASS"), Hilite
Industries - Delaware, Inc. and Hilite Industries Automotive, LP,
the Company's principal operating entity in Texas.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes, and should be read in conjunction with the Company's
audited Consolidated Financial Statements. Operating results for
the three and six month period ended December 31, 1998 are not
necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 1999.
2.INVENTORIES
Inventories at December 31, 1998 and June 30, 1998 consisted of
the following:
December 31 June 30
Raw materials ....... $ 4,377,849 $ 4,401,069
Work in process ..... 2,377,936 2,244,363
Finished goods ...... 4,275,232 3,282,417
$11,031,017 $ 9,927,849
<PAGE>
3. RESTRUCTURING CHARGE
As a result of operating problems and inefficiencies at the NASS
division, the Company's Board of Directors approved a plan, in
June 1997, to substantially restructure the NASS operations. In
connection with this plan, the Company recorded a charge to pre-
tax earnings in fiscal 1997 totaling approximately $2,700,000.
The charge is comprised of a reduction (approximately $900,000)
in the net book value of certain assets, primarily machinery,
equipment and tooling, to their estimated fair value, net of
estimated selling costs; accrual of certain costs which the
Company expects to incur in terminating contractual obligations,
but for which no future economic benefit will be received
(approximately $1,600,000) and other costs (approximately
$200,000). For the six months ended December 31, 1998
approximately $281,000 had been charged against the accrual for
terminating contractual obligations and approximately $45,000 had
been charged against the accrual for other costs. As of
December 31, 1998, approximately $504,000 of the restructuring
accrual for terminated contracts remained and is expected to be
paid during the remainder of fiscal 1999.
4. DEBT
Effective October 1, 1998, the Company executed an amendment to
its existing loan agreement ("the Agreement") with a bank to
extend the expiration date to July 21, 2000 on the Company's
credit facilities. Under the new terms, the credit facilities
consist of the following:
1) A revolving line of credit of up to $12,000,000 subject to
availability requirements. As of December 31, 1998,
$6,654,000 had been used on the line of credit and $5,346,000
is available. The interest rate on the line of credit is
either LIBOR plus 1 1/2% or prime rate less 1/2% which
resulted in an interest rate ranging from 7.00% to 7.75% at
December 31, 1998. The revolving line of credit expires on
July 21, 2000. An annual commitment fee of 1/4% is payable
quarterly on the average unused portion of the revolving line
of credit,
2) Term loans with an original principal balance of $13,700,000
and a balance at December 31, 1998 of $7,078,000. Principal
payments on the term loan of approximately $163,000 together
with interest are payable monthly. The maturity date of the
term loans is August 1, 2002. The interest rate on the term
loans, LIBOR plus 1 1/2% was 7.31% at December 31, 1998,
3) An equipment acquisition facility of $3,000,000 for the
financing of equipment purchases. Any term loans issued
under this facility will bear interest, at the Company's
option, at either prime rate or LIBOR plus 1 1/2%. As of
December 31, 1998, no amounts were outstanding under this
facility;
<PAGE>
In addition to the above credit facility, the Company also has a
fifteen year real estate note and three five year equipment term
notes with the same bank. The real estate note, which has an
original principal amount of $960,000 and a $571,000 outstanding
balance at December 31, 1998, is payable in monthly installments
of $5,333 plus interest at the prime rate (7.75% at December 31,
1998) and expires on November 1, 2007. The equipment term notes
which have original principal amounts of $1,497,000, $645,000 and
$600,000, respectively, and outstanding balances of $674,000,
$452,000 and $590,000, respectively, at December 31, 1998, are
payable in monthly installments of $24,961, $10,757 and $10,000,
respectively at LIBOR plus 1 1/2% (6.69%, 7.72% and 6.44%,
respectively, at December 30, 1998) and expire on May 31, 2001,
May 31, 2002 and November 30, 2003, respectively. Both the real
estate and equipment notes' due date can be accelerated, at the
bank's option, to July 21, 2000.
All of the notes and line of credit are collateralized by
accounts receivable, inventory, equipment and real estate of the
Company.
5. CONTINGENCY SETTLEMENT
On January 28, 1998, the Company announced that it had been
notified by Visteon, a subsidiary of Ford Motor Company, that a
part manufactured by the Company's specialty components and
assemblies division may be involved in a recall regarding a fuel
gauge accuracy problem with certain 1997 model year vehicles. In
December 1998 a favorable resolution was reached on this matter
with Visteon. The Company was released of any legal
responsibility and the matter was mutually resolved in a manner
not materially adverse to the Company.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Quarter Ended December 31, 1998 Compared to Quarter Ended December
31, 1997
Net sales for the quarter ended December 31, 1998 were $21,267,000
compared to $20,626,000 for the quarter ended December 31, 1997,
representing a increase of $641,000 (3.1%). Brake valve sales
increased 34.4% to $8,853,000 in the second fiscal quarter of 1999
from $6,586,000 in the same quarter of the prior year. The increase
resulted primarily from sales of brake valves used on GM and
Chrysler vehicles and new programs started for Chrysler and GM since
the second quarter of the prior fiscal year. Power transmission
component sales increased 23.1% to $5,956,000 for the quarter ended
December 31, 1998 from $4,838,000 in the same period for fiscal
1998. The increase is primarily due to an increase in sales of
transfer case components resulting from a new product application
started in the third quarter of fiscal 1998 and to increased volume
of heavy truck air conditioning clutches. Second quarter 1999 sales
were $6,458,000 for the specialty components and assemblies
division, a decrease of 29.8% from last year's second quarter sales
of $9,202,000. The decrease in sales is primarily due to the
elimination of numerous unprofitable parts in conjunction with the
restructuring of the division in the prior year and to a one-time
sales opportunity of certain assemblies to Motorola, Inc. which
occurred in fiscal 1998. Also, the specialty components and
assemblies division benefited from approximately $700,000 of price
increases in fiscal 1998 on the products eliminated as part of the
restructuring. The impact of price changes in the current quarter,
other than those mentioned for the specialty components and
assemblies division, was not significant.
The Company's gross profit was $4,379,000 (20.6% of net sales) for
the second quarter of the 1999 fiscal year compared to gross profit
of $4,222,000 (20.5% of net sales) for the second quarter of the
1998 fiscal year. Increased sales volume in the brake valve and
power transmission components division were the primary contributors
to the increased gross profit as these divisions have higher average
gross margins than the specialty components and assemblies division.
In addition, the margin increase is due to fixed costs, such as
building expenses, equipment depreciation and supervisory salaries,
not increasing at the same rate as sales. The margin increases were
partially offset by start-up costs in the specialty components and
assemblies division on a new automotive assembly for Visteon. These
start-up costs are expected to continue into the third fiscal
quarter of 1999 before operating efficiencies for this assembly are
achieved.
<PAGE>
Selling, general and administrative expenses were $2,153,000 (10.1%
of net sales) in the second quarter of the 1999 fiscal year compared
to $2,307,000 (11.2% of net sales) in the second quarter of the 1998
fiscal year. The decrease of $154,000 in selling, general and
administrative expenses is primarily due to a decrease in legal
costs. Also contributing to the decrease was lower commission
expense related to the decrease in sales at the specialty components
and assemblies division.
Interest expense was $342,000 for the three months ended December
31, 1998 compared to $410,000 for the three months ended December
31, 1997. The settlement of the lawsuit against the former owners of
NASS, which occurred in the third quarter of the prior year,
relieved the Company of its obligation to pay subordinated debt and
is the primary contributor to the decreased interest expense as
approximately $40,000 of interest on subordinated debt was recorded
in the second quarter of fiscal 1998. The remaining decrease is due
to lower average debt balances over the prior year. The impact of
changes in interest rates was not significant.
Net income was $1,162,000 (5.5% of net sales) for the second quarter
of the 1999 fiscal year compared to net income of $938,000 (4.5% of
net sales) for the same period of the prior fiscal year,
representing an increase of $224,000.
Six Months Ended December 31, 1998 Compared to Six Months Ended
December 31, 1997
Net sales for the six months ended December 31, 1998 were
$42,583,000 compared to $41,656,000 for the six months ended
December 31, 1997, representing a increase of $927,000 (2.2%). Brake
valve sales increased 30.9% to $16,441,000 for the first six months
of fiscal 1999 from $12,560,000 for the same period of the prior
year. The increase resulted primarily from sales of brake valves
used on GM and Chrysler vehicles and new programs started for
Chrysler and GM since the second quarter of the prior fiscal year.
Power transmission component sales increased 25.4% to $13,285,000
for the six months ended December 31, 1998 from $10,598,000 for the
same period of fiscal 1998. The increase is primarily due to an
increase in sales of transfer case components resulting from a new
product application started in the third quarter of fiscal 1998 and
to increased volume of heavy truck air conditioning clutches. Sales
for the first six months of fiscal 1999 were $12,857,000 for the
specialty components and assemblies division, a decrease of 30.5%
from sales of $18,498,000 in the first six months of fiscal 1998.
The decrease in sales is primarily due to a one-time sales
opportunity of certain assemblies to Motorola, Inc. which occurred
in the prior year and due to the elimination of numerous
unprofitable parts in conjunction with the restructuring of the
division. Also, the specialty components and assemblies division
benefited from approximately $1,300,000 of price increases in the
prior year on the products eliminated as part of the restructuring.
The impact of price changes during the period, other than those
mentioned for the specialty components and assemblies division, was
not significant.
<PAGE>
The Company's gross profit was $8,924,000 (21.0% of net sales) for
the first six months of fiscal 1999 compared to gross profit of
$8,286,000 (19.9% of net sales) for the first six months of fiscal
1998. Increased sales volume in the brake valve and power
transmission components division were the primary contributors to
the increased gross profit as these divisions have higher average
gross margins than the specialty components and assemblies division.
In addition, the margin increase is due to fixed costs, such as
building expenses, equipment depreciation and supervisory salaries,
not increasing at the same rate as sales. The margin increases were
partially offset by significant start-up costs in the specialty
components and assemblies division on a new automotive assembly for
Visteon. These start-up costs are expected to continue into the
third fiscal quarter of 1999 before operating efficiencies for this
assembly are achieved.
Selling, general and administrative expenses were $4,449,000 (10.4%
of net sales) in the first six months of fiscal 1999 compared to
$4,711,000 (11.3% of net sales) in the first six months of fiscal
1998. The decrease of $262,000 in selling, general and
administrative expenses is primarily due to a decrease in legal
costs. Also contributing to the decrease was lower commission
expense related to the decrease in sales at the specialty components
and assemblies division.
Interest expense was $690,000 for the six months ended December 31,
1998 compared to $800,000 for the six months ended December 31,
1997. The settlement of the lawsuit against the former owners of
NASS, which occurred in the third quarter of the prior year,
relieved the Company of its obligation to pay subordinated debt is
the primary contributor to the decreased interest expense as
approximately $80,000 of interest on subordinated debt was recorded
in the second quarter of fiscal 1998. The remaining decrease is due
to lower average debt balances over the prior year. The impact of
changes in interest rates was not significant.
Net income was $2,357,000 (5.5% of net sales) for the first six
months of fiscal 1999 compared to net income of $1,730,000 (4.2% of
net sales) for the same period of the prior fiscal year,
representing an increase of $627,000.
Liquidity and Capital Resources
During the six month period ended December 31, 1998, the Company's
net cash provided from operations before changes in operating assets
and liabilities was $4,235,000 compared to $3,572,000 in the same
period of the prior year, primarily due to the increase in net
income over the prior year. At December 31, 1998 the Company's
working capital was $13,328,000 compared to working capital of
$10,569,000 at June 30, 1998. The current ratio was 2.0 to 1 at
December 31, 1998 and 1.7 to 1.0 at June 30, 1998. The book value
per share increased to $5.77 at December 31, 1998 from $5.34 per
share at June 30, 1998.
<PAGE>
Cash from operations was used for changes in operating assets and
liabilities of $3,277,000 through the first six months of the
current year compared to $2,019,000 during the same period of the
prior year. The increase is primarily due to a $2,169,000 increase
in accounts receivables due to an increase in the average number of
days sales outstanding for receivables to 58 days at December 31,
1998 from 44 days at June 30, 1998. The increase in the average
number of days sales outstanding is primarily due to the expiration
on June 30, 1998 of a one year temporary acceleration in payment by
a significant customer. The 58 days outstanding at
December 31, 1998 is slightly longer than periods prior to the
special terms period due to the increased sales in the brake valve
division which has slightly longer collection periods. As of
December 31, 1998, no significant amounts were considered
uncollectible.
Also, contributing to the increase in operating assets and
liabilities was a $1,103,000 increase in inventories primarily due
to the start-up of a new product in the specialty components and
assemblies division and a $2,477,000 decrease in accounts payable
and accrued expenses. The decrease is primarily due to timing on
payment of accounts payable balances as well as payments of year end
accrued bonuses and employer 401(k) contributions as well as
payments to satisfy the asset distribution of a terminated defined
benefit plan at NASS and terminated contractual obligations
associated with the NASS restructuring reserve.
The Company's capital expenditures were $1,677,000 for the six
months ended December 31, 1998. The Company presently estimates
capital expenditures for the year ending June 30, 1999 will
approximate $3,500,000, unless new business opportunities require
additional capital commitments. As of December 31, 1998,
commitments, net of progress payments, were $1,450,000 for capital
expenditures and $1,500,000 for tooling which is expected to be
reimbursed by customers.
The Company has a general credit facility of up to $12,000,000 and
an equipment acquisition facility of $3,000,000 (collectively the
"Credit Facilities") for working capital and capital equipment
needs. The Credit Facilities mature on July 21, 2000. As of
December 31, 1998, $6,654,000 was outstanding and $5,346,000 was
available under the general credit facility and $3,000,000 was
available under the equipment acquisition facility. An annual fee
of one quarter of one percent is payable monthly on the unused
portion of the Credit Facilities. The bank has the right to
accelerate each of the maturity dates of the consolidated term note
and real estate note to coincide with the maturity date of the
Credit Facilities.
The Company distributed $245,000 in cash dividends during the first
six months of fiscal 1999 as part of a previously announced
quarterly cash dividend program. On January 27, 1999, the Company
announced a second quarter, 2 1/2 cent dividend to be distributed in
February 1999. With 4,900,000 shares currently outstanding,
$122,500 will be paid to shareholders in the third quarter.
Subsequent dividends will depend on future operating results.
<PAGE>
On January 28, 1998, the Company announced that it had been notified
by Visteon, a subsidiary of Ford Motor Company, that a part
manufactured by the Company's specialty components and assemblies
division may be involved in an Owner Notification Program regarding
a fuel gauge accuracy problem with certain 1997 model year vehicles.
In December 1998 a favorable resolution was reached on this matter
with Visteon. The Company was released of any legal responsibility
and the matter was mutually resolved in a manner not materially
adverse to the Company.
Year 2000
Until recently, computer programs were written to store only two
digits of date-related information in order to more efficiently
handle and store data. As a result, these programs were unable to
properly distinguish between the year 1900 and the year 2000. This
is frequently referred to as the "Year 2000 Problem." The Company
recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. The Company began
addressing Year 2000 compliance during fiscal 1998 and has
determined that all significant software and machinery are expected
to be Year 2000 ready. However, certain personal computers will
need to be replaced and ancillary software will be upgraded for an
estimated cost of $100,000. The majority of this will be expended
during fiscal 1999.
During fiscal 1998 the Company began the process of surveying all
suppliers of raw materials and supplies to determine their readiness
for the Year 2000 problem and attempt to measure what impact, if
any, it will have on the Company. The survey will be completed
during fiscal 1999 so it is uncertain at this time as to what impact
supplier problems will have on the Company's operations. The
Company expects to use manual processing in the event of any system
failure. It is not expected that manual processing will cause
significant disruption to the Company's operations.
The Company does not expect the Year 2000 compliance to have a
significant effect on operations, nor does it expect the cost to be
material to the Company's consolidated results of operations or
financial position. The costs of Year 2000 modifications and the
date of completion will be closely monitored and are based on
management's best estimates. Actual results, however, could differ
from those anticipated.
<PAGE>
Forward-looking Statements
As the third fiscal quarter of 1999 begins, U.S. automotive build
rates continue to be strong. At these levels, the Company projects
sales growth of 25% in the brake valve division and 15% in the power
transmission division for fiscal 1999. Sales expectations for the
specialty components and assemblies division for fiscal 1999 have
been lowered to $24 million from an earlier projection of $26
million. Given that the sales growth is expected to be in more
profitable product lines, improvement in earnings should be achieved
in fiscal 1999. Looking farther ahead, the opportunities for all
three divisions are encouraging and an 8% to 12% annual internal
sales growth goal for the year 2000 and beyond is reasonable. Of
course, this assumes a healthy economy and automotive industry.
Seasonality
Net sales and operating results do not follow a predictable seasonal
pattern from quarter to quarter because the development, initial
production and sales of new products may occur at different times of
the year. Generally, in these periods certain inefficiencies are
experienced which result in higher costs to the Company. In
addition, the Company usually experiences somewhat lower sales in
the quarters ended December 31 and September 30 as automobile
manufacturers traditionally close their plants for vacations or
model changeovers during these periods resulting in lower demand for
the Company's products.
Inflation
The Company believes that the relatively moderate rate of inflation
has not had a significant impact on the Company's revenues or
profitability.
Safe Harbor for Forward-looking Statements
Except for historical information contained herein, certain
statements in this Management's Discussion and Analysis of results
of operation and financial condition and other sections of this
document contain forward-looking statements that are made pursuant
to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," or variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of
future performance and involve unknown risks and uncertainties which
may cause the Company's actual results in future periods to differ
materially from forecasted results. Those risks include, among
others, risks associated with automotive and non-automotive build
rates, customer sourcing decisions, manufacturing process
<PAGE>
efficiencies, cost and timing of start-up of new products and risks
related to technological changes in components which affect the life
of the product. Further, there can be no assurance that the Company
will regain its Q1 status at the Ford Visteon division. These and
other risks are described in the Company's Form 10-K for the year
ended June 30, 1998 filed with the Securities and Exchange
Commission ("SEC") and Forms 10-Q filed quarterly with the SEC,
copies of which are available from the SEC or may be obtained upon
request from the Company.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company (the "Meeting")
was held on November 18, 1998. Proxies for the Meeting were
solicited pursuant to the Regulation 14A of the Securities Exchange
Act of 1934, as amended, and there was no solicitation in
opposition.
At the Meeting, James E. Lineberger, Daniel W. Brady, Samuel M.
Berry, Ronald G. Assaf, James D. Gerson and John F. Creamer were
elected as directors of the Registrant for terms of one year. The
votes were as follows:
Shares Shares Abstentions
Voted Voted and
For Against Broker Non-
votes
James E. Lineberger 4,650,425 7,008 242,567
Daniel W. Brady 4,646,425 11,008 242,567
Samuel M. Berry 4,648,925 8,508 242,567
Ronald G. Assaf 4,651,625 5,808 242,567
James D. Gerson 4,647,925 9,508 242,567
John F. Creamer 4,652,625 4,808 242,567
Item 5. Other Information
Cash Dividend
On January 27, 1999, the Company announced a 2 1/2 cent cash
dividend to be distributed in February 1999. Through the first six
months of fiscal 1999, $245,000 has been distributed. Subsequent
dividends will depend upon future operating results.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 $600,000 Equipment Acquisition Note dated October 28,
1998.
10.2 Management contract between the Company and Lineberger &
Co., LLC dated November 30, 1998.
(b) There were no reports on Form 8-K filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HILITE INDUSTRIES, INC.
Date: February 12, 1999 /s/ Daniel W. Brady
Daniel W. Brady
Chief Executive Officer
Date: February 12, 1999 /s/ Roy Wiegmann
Roy Wiegmann
Chief Financial Officer
EQUIPMENT ACQUISITION NOTE NO. 1
Dallas, Texas __________, 1998 $600,000.00
FOR VALUE RECEIVED, the undersigned promises to pay To the order
of COMERICA BANK-TEXAS (the "Bank") at 1601 Elm Street, Dallas, Texas
75201, the principal sum of Six Hundred Thousand and No/100ths
Dollars ($600,000.00) in consecutive monthly installments of
principal in the amount of Ten Thousand and No/100ths Dollars
($10,000.00) each, beginning December 1, 1998, and on the 1st day of
each calendar month thereafter, plus interest on the unpaid principal
balance of this Note at the Applicable Rate (hereinafter defined), on
the first day of each month during the term of this Note, beginning
December 1, 1998 until maturity, and thereafter at a default rate
equal to the rate of interest otherwise prevailing hereunder plus
three percent (3%) per annum (but in no event in excess of the Legal
Rate, as hereinafter defined), with all outstanding principal and
accrued but unpaid interest due and payable in full on the earlier of
(i) November 1, 2003, or (ii) at Bank's sole option, the Termination
Date.
All capitalized terms used but not defined herein, shall have
the meanings given to such terms in that certain Second Amended and
Restated Secured Loan Agreement, dated January 30th, 1998, among the
undersigned and Bank (as renewed, extended, modified and restated
from time to time, the "Agreement").
This Note is an "Equipment Acquisition Note" as described in the
Agreement, and is subject to the terms and provisions thereof, and
the holder hereof is entitled to the benefits thereof and may enforce
the agreements contained therein and exercise the remedies provided
for thereby or otherwise in respect thereof, all in accordance with
the terms thereof.
Subject to the provisions hereof, the undersigned shall have the
option (an "Interest Option") exercisable from time to time to
designate portions of the unpaid principal balance of this Note to
bear interest at the Prime Rate (such portions being herein referred
to as a "Prime Rate Balance") or at the LIBOR Rate (such portions
being herein referred to as a "LIBOR Balance"), provided, however,
that no LIBOR Balance designated for any LIBOR Interest Period
(hereinafter defined) shall be less than $500,000.
The term "Applicable Rate", as used herein, shall mean (i) with
respect to any Prime Rate Balance outstanding from time to time, a
fluctuating per annum rate of interest equal to the Prime Rate, and
(ii) with respect to any LIBOR Balance outstanding from time to time,
a per annum rate of interest equal to one and one-half percent (1.5%)
above the LIBOR Rate for the LIBOR Interest Period then in effect
with respect to such LIBOR Balance. Each determination by Bank of
the LIBOR Rate or Prime Rate, as the case may be, shall, in the
absence of manifest error, be conclusive and binding.
The term "Interest Notice" shall mean the written notice given
by the undersigned of the Interest Option selected hereunder and
specifying the amount of principal to bear interest at the rate
selected.
<PAGE>
The term "Prime Rate", as used herein, shall mean that annual
rate of interest designated by the Bank as its prime rate and which
is changed by the Bank from time to time. The Bank's prime rate is a
reference rate and does not necessarily represent the lowest or best
rate actually charged by the Bank to any of its customers. The Bank
may make commercial loans at rates of interest at, above or below its
prime rate.
The term "LIBOR Rate", as used herein, shall mean, with respect
to any LIBOR Interest Period, the interest rate per annum
conclusively determined by the Bank to be the per annum rate (as
adjusted for any applicable reserve requirements applicable to
"eurocurrency liabilities" pursuant to Regulation D or any other
applicable regulation of the Board of Governors (or any successor)
which prescribes reserve requirements applicable to "eurocurrency
liabilities" as presently defined in Regulation D, or any
eurocurrency funding) at which deposits in immediately available
funds in U.S. dollars are offered to the Bank (at such time as the
Bank elects on the first day of such LIBOR Interest Period) by prime
banks in the interbank eurodollar market selected by Bank for
delivery on the first day of such LIBOR Interest Period in an amount
equal to the principal amount of the corresponding LIBOR Balance for
a period equal to the length of such LIBOR Interest Period.
The term "LIBOR Interest Period", as used herein, shall mean,
with respect to any LIBOR Balance, a period commencing on the date
upon which, pursuant to an Interest Notice, the principal amount of
such LIBOR Balance begins to accrue interest at the LIBOR Rate (or,
in the case of a rollover to a successive LIBOR Interest Period, the
last day of the immediately preceding LIBOR Interest Period) and
ending 30, 60, 90, 180 or 360 days (whichever is selected by the
undersigned in the applicable Interest Notice) after the commencement
date; provided, that: (i) any LIBOR Interest Period which would
otherwise end on a day which is not a LIBOR Business Day shall be
extended to the next succeeding LIBOR Business Day (unless such LIBOR
Business Day falls in another calendar month, in which case such
LIBOR Interest Period shall end on the next preceding LIBOR Business
Day); and (ii) any LIBOR Interest Period which begins on the last
LIBOR Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end
of such LIBOR Interest Period) shall, subject to clause (A) above,
end on the last LIBOR Business Day of a calendar month.
The term "LIBOR Business Day", as used herein, shall mean a day
on which dealings in U.S. dollars are carried out in the interbank
eurodollar market selected by Bank.
The Interest Option shall be exercisable by the undersigned
subject to the other limitations in this Note on the undersigned's
option to designate a portion of the unpaid principal balance hereof
as a LIBOR Balance and only in the manner provided below:
<PAGE>
At least two (2) LIBOR Business Days prior to the date
hereof the undersigned shall give the Bank (an Interest Notice)
specifying the initial Interest Option(s) and the respective initial
amounts of the Prime Rate Balance, and LIBOR Balance designated by
the undersigned. If the required Interest Notice shall not have been
timely received by the Bank or fails to designate all or any portion
of the unpaid principal balance of this Note as either a Prime Rate
Balance or a LIBOR Balance in accordance with the terms and
provisions of this Note, the undersigned shall be deemed conclusively
to have designated such amounts to be a Prime Rate Balance and to
have given the Bank notice of such designation.
At least two (2) LIBOR Business Days prior to the
termination of any LIBOR Interest Period for a LIBOR Balance, the
undersigned shall give the Bank an Interest Notice specifying the
Interest Option which is to be applicable to such LIBOR Balance upon
the expiration of such LIBOR Interest Period, provided, however, no
Interest Option specifying an interest rate based on the LIBOR Rate
shall end after the Termination Date. If the required Interest
Notice shall not have been timely received by the Bank prior to the
expiration of such LIBOR Interest Period, the undersigned shall be
deemed conclusively to have designated such LIBOR Balance to become a
Prime Rate Balance immediately upon the expiration of such LIBOR
Interest Period and to have given the Bank notice of such
designation.
The undersigned shall have the right to convert an eligible
portion of the Prime Rate Balance to a LIBOR Balance by giving the
Bank an Interest Notice of such designation at least two (2) LIBOR
Business Days prior to the effective date of such exercise.
Additionally, upon termination of any LIBOR Interest Period, the
undersigned shall have the right, on any LIBOR Business Day, to
convert all or a portion of such principal amount from the LIBOR
Balance to a Prime Rate Balance by giving Bank an Interest Notice of
such selection at least two (2) LIBOR Business Days prior to
effective date of such exercise. An Interest Notice shall be
irrevocable and binding on the undersigned and the undersigned shall
indemnify Bank against any loss or expense incurred by Bank due to
sums paid or payable to fund the LIBOR Balance when such LIBOR
Balance is not made on such date.
Each change in the interest rate applicable to the Prime Rate
Balance or the LIBOR Balance shall become effective without prior
notice to the undersigned automatically as of the opening of business
on the date of such change in the Prime Rate or the LIBOR Rate, as
the case may be provided, that, the LIBOR Rate shall not change
during any applicable LIBOR Interest Period. Interest on this Note
shall be calculated on the basis of a 360-day year for the actual
number of days outstanding.
<PAGE>
If the Bank determines that deposits in U.S. dollars (in the
applicable amounts) are not being offered to the Bank in the
interbank eurodollar market selected by the Bank for such LIBOR
Interest Period, or that the rate at which such dollar deposits are
being offered will not adequately and fairly reflect the cost to the
Bank of making or maintaining a LIBOR Balance for the applicable
LIBOR Interest Period, the Bank shall forthwith give notice thereof
to the undersigned, whereupon until the Bank notifies the undersigned
that such circumstances no longer exist, (i) the right of the
undersigned to select an Interest Option based upon the LIBOR Rate
shall be suspended, and (ii) each LIBOR Balance in effect shall
thereupon automatically be converted into a Prime Rate Balance in
accordance with the provisions hereof. If notice has been given by
the Bank to the undersigned requiring a LIBOR Balance to be repaid or
converted, then unless and until the Bank notifies the undersigned
that the circumstances giving rise to such repayment or conversion no
longer apply, the only Interest Option available shall be a rate
based upon the Prime Rate. If the Bank notifies the undersigned that
the circumstances giving rise to such repayment or conversion no
longer apply, the undersigned may thereafter select a rate based upon
the LIBOR Rate in accordance with the terms of this Note.
If the adoption of any applicable law, rule or regulation, or
any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive
(whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or
impractical for the Bank to make or maintain a LIBOR Balance, the
Bank shall so notify the undersigned and any then-existing LIBOR
Balance shall automatically convert to a Prime Rate Balance either
(i) on the last day of the then-current LIBOR Interest Period
applicable to such LIBOR Balance, if the Bank may lawfully continue
to maintain and fund such LIBOR Balance to such day, or
(ii) immediately, if the Bank may not lawfully continue to maintain
such LIBOR Balance to such day.
If either (i) the adoption of any applicable law, rule or
regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank
with any request or directive (whether or not having the force of
law) of any such authority, central bank or comparable agency shall
subject the Bank to any tax (including without limitation any United
States interest equalization or similar tax, however named), duty or
other charge with respect to any LIBOR Balance, this Note or the
Bank's obligation to compute interest on the principal balance of
this Note at a rate based upon the LIBOR Rate, or shall change the
basis of taxation of payments to the Bank of the principal of or
interest on any LIBOR Balance or any other amounts due under this
Note in respect of any LIBOR Balance or the Bank's obligation to
compute the interest on the balance of this Note at a rate based upon
<PAGE>
the LIBOR Rate, or (ii) any governmental authority, central bank or
other comparable authority shall at any time impose, modify or deem
applicable any reserve (including, without limitation, any imposed by
the Board of Governors of the Federal Reserve System) other than as
is included above, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended
by, the Bank, or shall impose on the Bank (or its eurodollar lending
office) or any relevant interbank eurodollar market any other
condition affecting any LIBOR Balance, this Note or the Bank's
obligation to compute the interest on the balance of this Note at a
rate based upon the LIBOR Rate; and the result of any of the
foregoing is to increase the cost to the Bank of maintaining any
LIBOR Balance, or to reduce the amount of any sum received or
receivable by the Bank under this Note by an amount deemed by the
Bank to be material, then upon demand by the Bank, the undersigned
shall pay to the Bank such additional amount or amounts as will
compensate the Bank for such increased cost or reduction. The Bank
will promptly notify the undersigned of any event of which it has
knowledge, occurring after the date hereof, which will entitle the
Bank to compensation pursuant to this paragraph. A certificate of
the Bank claiming compensation under this paragraph and setting forth
the additional amount or amounts to be paid to the Bank hereunder
shall be conclusive in the absence of manifest error.
The undersigned may not repay any LIBOR Balance or convert all
or any portion of a LIBOR Balance to a Prime Rate Balance prior to
the expiration of the applicable LIBOR Interest Period, unless
(i) such repayment or conversion is specifically required by the
terms of this Note, (ii) the Bank demands that such repayment or
conversion be made, or (iii) the Bank, in its sole discretion,
consents to such repayment or conversion. If for any reason any
LIBOR Balance is repaid or converted prior to the expiration of the
corresponding LIBOR Interest Period, the undersigned shall pay to the
Bank on demand any amounts required to compensate the Bank for any
losses, costs or expenses which it may incur as a result of such
repayment or conversion. A certificate of the Bank claiming
compensation under this paragraph and setting forth the additional
amount or amounts to be paid to the Bank hereunder shall be
conclusive in the absence of manifest error.
The books and records of the Bank shall be the best evidence of
the principal amount and the unpaid interest amount owing at any time
hereunder and shall be conclusive absent manifest error. Interest
shall accrue and be computed on the principal balance outstanding
from time to time hereunder until the same is paid in full.
This Note is secured by the Collateral described in the
Agreement (including, without limitation, all Accounts, Chattel
Paper, Documents, Equipment, Fixtures, Real Property, General
Intangibles, Goods, Instruments and Inventory of North American
Spring & Stamping Corp. (Delaware), Hilite Industries-Texas, Inc.,
Hilite Industries-Delaware, Inc., and the undersigned), and reference
is hereby made to the Agreement for, among other things, the
conditions under which this Note may or must be paid in whole or in
<PAGE>
part prior to its due date. Bank is hereby granted a security
interest in all property of the undersigned at any time in the
possession of Bank or any Affiliate of Bank (or as to which Bank or
any Affiliate of Bank at any time controls possession by documents or
otherwise) and in all balances of deposit or other accounts
(including, without limitation, an account evidenced by a certificate
of deposit).
If an Event of Default occurs and is not cured within the time,
if any, provided for by the Agreement, or the undersigned or any
indorser, guarantor or accommodation party (or any of them) fails to
pay this Note or any other Indebtedness when due (by demand, upon
maturity, upon acceleration or otherwise) then the Bank may at its
option and without prior notice to the undersigned or any indorser,
guarantor or accommodation party (or any of them) exercise any one or
more of the rights and remedies granted by the Agreement or any
document contemplated thereby or given to a secured party under
applicable law, including, without limitation, the right to
accelerate this Note and any other Indebtedness and the right to sell
or liquidate all or any portion of the Collateral, and may set off
against the principal of and interest on this Note or against any
other Indebtedness (i) any amount owing by Bank to the undersigned,
(ii) any property of the undersigned at any time in the possession of
Bank or any Affiliate of Bank, and (iii) any amount in any deposit or
other account (including, without limitation, an account evidenced by
a certificate of deposit) of the undersigned with Bank or any
Affiliate of Bank.
This Note shall bind the undersigned and the undersigned's
heirs, personal representatives, successors and assigns.
If at any time the relevant Contract Rate exceeds the Legal
Rate, the interest payable hereunder shall be computed upon the basis
of the Legal Rate, but any subsequent reduction in the relevant
Contract Rate shall not reduce the applicable interest rate hereunder
below the Legal Rate until the aggregate amount of interest accrued
and payable hereunder equals the total amount of interest which would
have accrued hereunder if the applicable interest rate hereunder had
been at all times computed solely on the basis of the relevant
Contract Rate.
No agreements, conditions, provisions or stipulations contained
in this Note, or the default of the undersigned, or the exercise by
the holder hereof of the right to accelerate the payment or the
maturity of principal and interest, or to exercise any option
whatsoever contained herein, or in any other agreements between the
undersigned and Bank, or the arising of any contingency whatsoever,
shall entitle the holder of this Note to collect, in any event,
interest exceeding the maximum rate of nonusurious interest allowed
from time to time by applicable state or federal law as now or as may
hereinafter be in effect (the "Legal Rate"). Unless preempted by
federal law, the rate of interest from time to time in effect
hereunder shall not exceed the "applicable rate ceiling" from time to
<PAGE>
time in effect under Article 5069-1D.001 et seq., Vernon's Texas
Civil Statutes (and as the same may be incorporated by reference in
other Texas statutes), as amended or codified. All agreements,
conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel the
undersigned to pay a rate of interest exceeding the Legal Rate shall
be without binding force or effect, at law or in equity, to the
extent only of the excess of interest over such Legal Rate. In the
event any interest is charged in excess of the Legal Rate
(hereinafter referred to as the "Excess"), the undersigned
acknowledges and stipulates that any such charge shall be the result
of an accidental and bona fide error, and such Excess shall be first
applied to reduce the principal then unpaid hereunder; second,
applied to reduce any obligation for other Indebtedness of the
undersigned to Bank; and third, returned to the undersigned, it being
the intention of the parties hereto not to enter at any time into an
usurious or other illegal relationship. The undersigned recognizes
that such an unintentional result could inadvertently occur. By the
execution of this Note, the undersigned covenants that (a) the credit
or return of any Excess shall constitute the acceptance by the
undersigned of such Excess, and (b) the undersigned shall not seek or
pursue any other remedy, legal or equitable, against Bank or any
holder hereof based, in whole or in part, upon the charging or
receiving of any interest in excess of the Legal Rate. For the
purpose of determining whether or not any Excess has been contracted
for, charged or received by Bank or any holder hereof, all interest
at any time contracted for, charged or received by Bank or any holder
hereof, in connection with this Note, shall be amortized, prorated,
allocated and spread in equal parts during the entire term of this
Note. For the sole purpose of computing the extent of the
Indebtedness and obligations of the undersigned asserted hereunder by
Bank or any holder hereof, the figures set forth herein and the
provisions hereof shall be automatically recomputed by the
undersigned, and by any court considering the same, to give effect to
the adjustments or credits required by this paragraph.
<PAGE>
THE UNDERSIGNED AND ALL ACCOMMODATION PARTIES, GUARANTORS AND
ENDORSERS, IF ANY, (I) WAIVE DEMAND AND NOTICE OF DEMAND, (II) WAIVE
PRESENTMENT, NOTICE OF INTENTION TO DEMAND, PROTEST AND NOTICE OF
PROTEST, NOTICE OF DISHONOR, NOTICE OF INTENTION TO ACCELERATE,
NOTICE OF ACCELERATION, AND ALL OTHER NOTICES OTHER THAN AS EXPRESSLY
PROVIDED IN THE AGREEMENT, (III) AGREE THAT NO EXTENSION OR
INDULGENCE TO THE UNDERSIGNED OR RELEASE OR NON-ENFORCEMENT OF ANY
SECURITY, WHETHER WITH OR WITHOUT NOTICE, SHALL AFFECT THE
OBLIGATIONS OF ANY ACCOMMODATION PARTY, GUARANTOR OR ENDORSER, AND
(IV) AGREE TO REIMBURSE THE HOLDER OF THIS NOTE FOR ANY AND ALL COSTS
AND EXPENSES INCURRED IN COLLECTING OR ATTEMPTING TO COLLECT ANY AND
ALL PRINCIPAL AND INTEREST UNDER THIS NOTE (INCLUDING, BUT NOT
LIMITED TO, COURT COSTS AND REASONABLE ATTORNEYS' FEES, WHETHER
IN-HOUSE OR OUTSIDE COUNSEL IS USED AND WHETHER SUCH COSTS AND
EXPENSES ARE INCURRED IN FORMAL OR INFORMAL COLLECTION ACTIONS,
FEDERAL BANKRUPTCY PROCEEDINGS, APPELLATE PROCEEDINGS, PROBATE
PROCEEDINGS, OR OTHERWISE.
The undersigned, if two or more in number, shall be jointly and
severally bound hereunder.
All notices required or permitted under this Note shall be in
writing and shall be deemed to have been delivered when delivered in
accordance with the provisions of the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Note this
_____ day of ____________, 1998.
HILITE INDUSTRIES, INC.
By: /s/ Samuel M. Berry
Name: Samuel M. Berry
Title: President and
Chief Operating Officer
HILITE INDUSTRIES AUTOMOTIVE, LP,
a Texas limited partnership
By:HILITE INDUSTRIES-TEXAS, INC.,
a Delaware corporation,
as its general partner
By: /s/ Daniel W. Brady
Name: Daniel W. Brady
Title: Chief Executive
Officer
Lineberger & Co., LLC
1120 Boston Post Road
Darien, Connecticut 06820
---
Tel: (203) 655-7578
Fax: (203) 655-7397
Mr. Samuel M. Berry November 30, 1998
President
Chief Operating Officer
Hilite Industries, Inc.
1671 S. Broadway
Carrollton, Texas 75006
Dear Mr. Berry:
This letter confirms (effective October 1, 1998) Lineberger & Co.,
LLC and Hilite Industries, Inc. have agreed, pursuant to the
October 1997 Management and Consultant Service Agreement, to extend
the term for an additional three years.
Further, it is agreed that effective November 1, 1998, the fee for
services rendered will be increased by $50,000 to $350,000 per
annum with the fee payable at a monthly rate of $29,166.67 on the
fifteenth of each month.
Agreed: Very truly yours,
/s/ Samuel M. Berry /s/ James E. Lineberger
Samuel M. Berry James E. Lineberger
Chief Operating Officer
Hilite Industries, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 13,735,224
<ALLOWANCES> 198,420
<INVENTORY> 11,031,017
<CURRENT-ASSETS> 26,748,997
<PP&E> 45,567,463
<DEPRECIATION> 17,964,850
<TOTAL-ASSETS> 58,135,725
<CURRENT-LIABILITIES> 13,420,996
<BONDS> 0
0
0
<COMMON> 49,000
<OTHER-SE> 28,211,661
<TOTAL-LIABILITY-AND-EQUITY> 58,135,725
<SALES> 42,583,193
<TOTAL-REVENUES> 42,583,193
<CGS> 33,659,222
<TOTAL-COSTS> 38,108,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 689,811
<INCOME-PRETAX> 3,784,874
<INCOME-TAX> 1,428,723
<INCOME-CONTINUING> 2,356,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,356,151
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
