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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended May 31, 2003
Commission File Number 0-9599
HIA, INC.
(Exact name of Registrant as 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 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 such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes__x__ No___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 9,983,701
shares of the Registrant's $.01 par value common stock were outstanding
at May 31, 2003.
HIA, INC.
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements. . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis or Financial
Condition and Results of Operations . . . . . . . . . . . .9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . .12
Part II. Other Information
Item 1. Legal Proceedings .. . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities and Use of Proceeds. . . .. . . . 13
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . 13
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 May 31, 2003
and November 30, 2002. . . . . . . . . . . .. . . . . . . . . . 4
Consolidated Statements of Operations for the three and six months
ended May 31, 2003 and 2002 . . . . ... . . . . . . . . . 6
Consolidated Statements of Cash Flows for the six months
ended May 31, 2003 and 2002 . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . .. . . . 8
Forward Looking Statements
Statements made in this Form 10-Q that are historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions
of Section 27A of the Securities Act of 1933 ("The ACT") and Section 21E
of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect,"
"believes," "anticipate," "estimated," "approximate," or "continue," or
the negative thereof. The Company intends that such forward-looking
statements be subject to the safe harbors for such statements. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgements as to
what may occur in the future. However, forward-looking statements are
subject to risks, uncertainties and important factors beyond the control
of the Company that could cause actual results and events to differ
materially from historical results of operations to revise any forward-
looking statements to reflect events or circumstances after the date of
such statement or to reflect the occurrence of anticipated or
unanticipated events.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Information as of November 30, 2002 is based upon an audited balance sheet.
All other information is unaudited.)
May 31, November 30,
2003 2002
ASSETS
Current Assets:
Cash $ 4,000 $ 7,000
Accounts receivable, net of allowance for
doubtful accounts of $106,000 and $225,000 5,014,000 2,702,000
Inventories 6,286,000 4,011,000
Other current assets 221,000 184,000
Total current assets 11,525,000 6,904,000
Property and equipment, at cost:
Leasehold improvements 348,000 337,000
Equipment 1,401,000 1,387,000
1,749,000 1,724,000
Less accumulated depreciation
and amortization 1,515,000 1,437,000
Net property and equipment 234,000 287,000
Other assets 282,000 204,000
Goodwill, net of amortization 1,151,000 1,151,000
of $383,000 and $383,000
Non-compete agreement, net of amortization
of $60,000 and $52,000 90,000 98,000
TOTAL ASSETS $13,282,000 $8,644,000
The accompanying notes are an integral part of the consolidated financial
statements.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
(Information as of November 30, 2002 is based upon an audited balance sheet.
All other information is unaudited).
May 31, November 30,
LIABILITIES 2003 2002
Current Liabilities:
Note payable to bank $2,663,000 $1,009,000
Current maturities of long-term
Obligations 325,000 424,000
Accounts payable 3,308,000 294,000
Checks written in excess of deposits 735,000 86,000
Accrued expenses and other current
Liabilities 668,000 1,004,000
Total current liabilities 7,699,000 2,817,000
Long-term Obligations:
Notes payable, less current maturities 713,000 860,000
Total long-term obligations 713,000 860,000
TOTAL LIABILITIES 8,412,000 3,677,000
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock of $.01 par value;
authorized 20,000,000 shares: issued
13,108,196; outstanding 9,983,701
and 9,861,525 131,000 131,000
Additional paid-in capital 3,109,000 3,109,000
Retained earnings 2,393,000 2,527,000
5,633,000 5,767,000
Less treasury stock: 3,124,995 and
3,246,671 shares at cost (763,000) (800,000)
Total stockholders' equity 4,870,000 4,967,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,282,000 $8,644,000
The accompanying notes are an integral part of the consolidated financial
statements.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended Three Months Ended
May 31, 2003 May 31, 2002 May 31, 2003 May 31, 2002
Net sales $11,760,000 $14,323,000 $8,237,000 $10,605,000
Cost of sales 7,863,000 9,844,000 5,518,000 7,201,000
Gross profit 3,897,000 4,479,000 2,719,000 3,404,000
Selling, general
& administrative
expenses 4,067,000 4,076,000 2,026,000 2,183,000
Operating income
(loss) (170,000) 403,000 693,000 1,221,000
Other income (expense):
Interest income 27,000 27,000 8,000 10,000
Interest expense (88,000) (116,000) (47,000) (62,000)
Misc. income
(expense) 19,000 22,000 7,000 19,000
Total other
expense (42,000) (67,000) (32,000) (33,000)
Income (loss) before income
tax expense (212,000) 336,000 661,000 1,188,000
Income tax
expense 78,000 (124,000) (242,000) (414,000)
NET INCOME(LOSS) ($134,000) $212,000 $419,000 $774,000
======= ======== ======== ========
Net income (loss) per share
Basic ($ .01) $ .02 $ .04 $ .08
Diluted ($ .01) $ .02 $ .04 $ .08
Weighted average common
shares outstanding:
Basic 9,958,446 10,257,845 9,983,737 10,187,146
Dilutive 9,958,446 10,382,845 9,983,737 10,187,146
The accompanying notes are an integral part of the consolidated financial
statements.
HIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended
May 31, 2003 May 31, 2002
OPERATING ACTIVITIES:
Net Income (loss) ($134,000) $212,000
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 86,000 114,000
Deferred income taxes (78,000) - 0 -
Inventory reserve 32,000 132,000
Changes in current assets and
current liabilities:
Accounts receivable (2,312,000) (2,646,000)
Inventories (2,307,000) (2,977,000)
Other current assets (37,000) 42,000
Accounts payable 3,014,000 4,110,000
Accrued expenses and other
current liabilities (336,000) 7,000
NET CASH USED IN
OPERATING ACTIVITIES (2,072,000) (1,006,000)
INVESTING ACTIVITIES:
Purchases of property and equipment (25,000) (48,000)
Decrease (increase) in other assets - 0 - (6,000)
NET CASH USED IN
INVESTING ACTIVITIES (25,000) (54,000)
FINANCING ACTIVITIES:
Proceeds from note payable to bank 4,589,000 4,180,000
Payments on borrowings on note payable
to bank (2,935,000) (3,230,000)
Repayments of long-term debt (147,000) (146,000)
Payments on capital lease obligations (99,000) (75,000)
Increase in checks written in excess
of deposits 649,000 287,000
Sale of treasury stock 37,000 47,000
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,094,000 1,063,000
NET INCREASE (DECREASE) IN CASH (3,000) 3,000
CASH, BEGINNING OF PERIOD 7,000 1,000
CASH, END OF PERIOD $ 4,000 $ 4,000
The accompanying notes are an integral part of the consolidated financial
statements
HIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis for Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions of Form 10-Q 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,
2003 are not necessarily indicative of the results that may be obtained
for the year ending November 30, 2003. These statements should be read
in conjunction with the consolidated financial statements and notes
thereto included in the Registration's Form 10-K for the year ended
November 30, 2002 filed with the Securities and Exchange Commission on
February 28,2003.
B. Net Income (Loss) Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
provides for the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings (loss) per share includes no dilution and is computed by
dividing income (loss) available to common stockholders by the
weighted-average number of shares outstanding during the period (9,958,446
and 10,233,637 for 2003 and 2002). Diluted earnings per share reflect the
potential of securities that could share in the earnings of the Company,
similar to fully diluted earnings per share.
For the periods ended May 31, 2003 and May 31, 2002, total stock options in
the amount of 750,000 and 1,020,000 are not considered in the computation
of diluted earnings per share as their inclusion would be anti-dilutive.
C. Stockholders' Equity
Purchase of Treasury Stock
On January 1, 2001, the Board of Directors granted an option to each of the
officers of the Company to purchase a total of 750,000 shares of treasury
stock at $.20 per share by December 31, 2003. The options' exercise price
was greater than the common stock's market price at the date of grant.
On July 18, 2001, the Board of Directors granted common stock options to
ten middle and senior managers of the Company. The options totaled
460,000 shares of which 165,000 shares of options expired on December
31, 2001 if not subscribed by that date. The option price was $.30 per
share. The remainder of the options were to be exercised no later than
December 31, 2002. As of December 31, 2001, 105,000 shares were subscribed
to by the managers which meant that the remaining 60,000 options expired
as of that date. Three senior managers were given, as a bonus for 2001,
an additional 16,667 shares (valued at $.30 per share) which were granted
on December 20,2001 when the market price was $.21 per share. As of
December 31, 2002,senior managers subscribed to 124,000 shares of options
at a price of $.30 per share. The remaining options outstanding, a total
of 171,000 shares, expired on that date.
D. Supplemental Disclosure of Cash Flow Information
Cash payments for interest were $88,000 and $116,000 for the six months
ended May 31, 2003 and May 31, 2002. Cash payments for income taxes were
$73,000 and $108,000 for the six months ended May 31, 2003 and May 31, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The net cash used in operating activities increased by $1,066,000 for the
six months ended May 31, 2003 as compared the six months ended May 31, 2002
due to the decrease of net income of $346,000, and the decrease in accounts
payable of $1,096,000 and the decrease in accrued expenses and other current
liabilities of $343,000 partially offset by the decrease in accounts
receivable of $334,000 and a decrease in inventories of $670,000. The
decrease in accounts payable were primarily attributable to the decrease in
accounts receivables and inventories. The decrease in accrued expenses and
other current liabilities were primarily attributable to an approximate
$350,000 decrease in the comparative balances as of November 30, 2001 and
November 30, 2002 in accruals for bonuses, profit sharing, and income taxes,
the decrease in accounts receivables and inventories were primarily due to
lower sales volume in May 2003 as compared to May 2002; a decrease of
$2,563,000.
The net cash used in investing activities decreased by $29,000.
The net increase in cash provided by financing activities of $1,031,000
was primarily due to the increase in net borrowings to the bank of
$704,000 and an increase in checks written in excess of deposits of
$362,000. The increase in net borrowings to the bank was primarily
attributable to the reduction in accrued expenses of $343,000 and the
decrease of net income of $346,000.
On July 18, 2001, the Board of Directors granted common stock options to
ten middle and senior managers of the Company. The options totaled
460,000 shares of which 165,000 shares of options expired on December 31,
2001 if not subscribed by that date. The option price was $.30 per share.
The remainder of the options were to be exercised no later than December 31,
2002. As of December 31, 2001, 105,000 shares were subscribed to by the
managers which meant that the remaining 60,000 options expired as of that
date. Three senior managers were given, as a bonus for 2001, an additional
16,667 shares (valued at $.30 per share) which were granted on December 20,
2001 when the market price was $.21 per share.
The following is a summary of working capital and current ratio for the
periods presented:
May 31, 2003 November 30, 2002
Working Capital $3,826,000 $4,087,000
Current Ratio 1.50 to 1 2.45 to 1
The Company's working capital decreased by $261,000 during the six months
ended May 31, 2003 as compared to November 30, 2002 primarily as a result
of the decrease of $346,000 in net income. Management believes that the
present working capital is adequate to conduct its present operations. The
Company does not anticipate any additional material capital expenditures
for fiscal 2003. As of May 31, 2003, the Company and its subsidiary have an
available line-of-credit of $5,750,000. As of May 31, 2003, $3,087,000 is
unused under the line of credit. The line of credit expires on June 30,
2004. The line-of-credit agreement limits the payment of dividends by CPS
Distributors, inc. and its subsidiaries ("CPS") to HIA, Inc. CPS is the
wholly-owned subsidiary of HIA, Inc. The line-of-credit agreement also
limits the payment of any expenses of HIA, Inc. by CPS in excess of $50,000
during any twelve-month period. This restriction does not have a
significant impact on HIA, Inc.'s ability to meet its cash needs as its
cash needs are minimal. On June 17, 2003, the Company executed an amendment
to the loan agreement with Wells Fargo Bank regarding a change in the debt
covenant. The bank agreed to waive the minimum debt service covenant for
the 2nd quarter of fiscal 2003 and decrease the covenant restriction's for
the remainder of the term of the agreement.
The decrease in the current ratio as of May 31, 2003 as compared to November
30, 2002 is primarily attributable to the relative increase in accounts
payable of $3,014,000, an increase in checks written in excess of deposits
of $649,000 and the increase in bank borrowings of $1,654,000 as compared to
the increase in accounts receivable of $2,312,000, the increase in
inventories of $2,275,000 and the decrease in accrued expenses of $336,000.
Income Taxes
As of May 31, 2003, the Company has recorded a current net deferred tax
asset totaling $170,000 and has recorded a noncurrent net deferred tax
asset totaling $131,000. Based upon the Company's recent history of
taxable income and its projections for future earnings, management believes
that it is more likely than not that sufficient taxable income will be
generated in the near term to utilize the net deferred tax assets.
Results of Operations
Three Months Ended May 31, 2003 Compared to Three Months Ended May 31, 2002.
Net sales for the three months ended May 31, 2003 were down $2,368,000 as
compared to May 31, 2002 primarily due to the continued drought conditions
and economic circumstances in the Rocky Mountain Region combined with the
wet spring weather conditions experienced in the 2nd quarter of fiscal 2003
which delayed work by irrigation contractors particularly in the months of
March and April.
Cost of Sales were down $1,683,000 for the three months ended May 31, 2003
as compared to the three months ended May 31, 2002 primarily attributable to
the reduction in net sales.
Gross profit was 33.0% during the three months ended May 31, 2003 as compared
to 32.1% during the three months ended May 31, 2002 an increase of .9%. The
increase was primarily due to the change in the product mix of items sold
which lines of product were less price competitive.
Selling, general and administrative expenses for the three months ended May
31, 2003 were down $157,000 as compared to the three months ended May 31,2002.
Other expenses for the three months ended May 31, 2003 were comparable to the
three months ended May 31, 2002.
Net income decreased $355,000 for the three months ended May 31, 2003 as
compared to the three months ended May 31, 2002 primarily due to the decrease
in operating income of $528,000 partially offset by a decrease in income tax
expense of $172,000. The decrease in operating income was primarily due to
the decrease in gross profit of $685,000 primarily due to the decrease in
sales.
Six Months Ended May 31, 2003 Compared to Six Months Ended May 31, 2002.
Net sales decreased by $2,563,000 for the six months ended May 31, 2003 as
compared to May 31, 2002 primarily due to the continued drought conditions
and economic circumstances in the Rocky Mountain Region combined with the
wet spring weather conditions experienced in the 2nd quarter of fiscal 2003
which delayed work by irrigation contractors particularly in the months of
March and April.
Cost of Sales decreased by $1,981,000 for the six months ended May 31, 2003
as compared to May 31, 2002 primarily as a result of the relative decrease
in sales during first six months of fiscal 2003 as compared to the first
six months of fiscal 2002.
Gross profit was 33.1% during the six months ended May 31, 2003 as compared
to 31.3% during the six months ended May 31, 2002 an increase of 1.8%. The
increase was primarily due to the change in the product mix of items sold
which lines of product were less price competitive.
Selling, general and administrative expenses decreased by $9,000 during
the six months ended May 31, 2003 as compared to May 31, 2002.
Other expenses decreased by $25,000 during the six months ended May 31,
2003 as compared to May 31, 2002 primarily due to the reduction of interest
expense. The decrease was attributable to the lower average line-of-credit
balance of $1,973,000 for the first six months of fiscal 2003 as compared
to $2,103,000 for the first six months of fiscal 2002 and the reduction of
interest payments in long-term obligations of $19,000.
Net income decreased $346,000 for the six months ended May 31, 2003 as
compared to the six months ended May 31, 2002 primarily due to the decrease
in gross profit of $582,000 and a decrease in income tax expense of
$202,000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk through interest rates related to its
investment of current cash and cash equivalents. These funds are generally
highly liquid with short-term maturities, and the related market risk is
not considered material. The Company's note payable to bank has a variable
interest rate. A 10% increase in short-term interest rates on the note
payable to bank of $1,973,000 would increase the Company's yearly interest
expense by approximately $12,000, assuming borrowed amounts remain
outstanding at current levels. The Company's management believes that
fluctuation in interest rates
in the near term will not materially affect the Company's consolidated
operating results, financial position or cash flow.
Item 4. Controls and Procedures
The Company maintains a set of disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the reports
filed by the Company under the Securities Exchange Act of 1934, as amended
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. As of the end of the quarterly
period covered by this report, the Company carried out an evaluation,
under the supervision of the President and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Exchange Act. Based on that
evaluation, the President and Chief Financial Officer concluded that our
disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls
or other factors that could significantly affect those controls subsequent
to the date of their evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Part II
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
a.) The following documents are filed as exhibits to this
Form 10Q:
Exhibit (31) Rule 13a-14(a)/15d-14(a) Certification
Exhibit (32) Section 1350 Certification
b.) Reports of Form 8-K
NONE
Exhibit 32
Certification Pursuant to Section 1350 of Chapter 63
Of Title 18 of the United States Code
I, Alan C. Bergold, the President and Chief Financial Officer of HIA, Inc.,
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that: (i) the report fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and (ii) the information contained in the report fairly
presents,in all material respects, the financial condition and results of
operations of HIA, Inc.
__________/s/________________________
Alan C. Bergold
President & Chief Financial Officer
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 hereunto duly authorized.
HIA, INC.
Date:____07/09/03___________________ _________/s/_____________________
Alan C. Bergold
Chief Financial Officer &
President
Exhibit 31
CERTIFICATION
I, Alan C. Bergold, certify that:
1. I have reviewed this quarterly report on Form 10-Q of HIA, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;and 6. The registrant's other certifying officers and I have
indicated in this quarterly report whether there were significant changes
in internal controls
c) or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July _9_, 2003 ________________/s/___________
Alan C. Bergold
President & Chief Financial
Officer
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