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, 2002
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 organizat 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: 10,281,526 shares of the
Registrant's $.01 par value common stock were outstanding at May 31, 2002.
HIA, INC.
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements.. . . . . . . . . . 3
Item 2. Management's Discussion and Analysis or Financial
and Results of Operations . . . . . . . . . . . . . .11
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities and Use of Proceeds. . . . . . 15
Item 3. Defaults upon Senior Securities .. . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders. 15
Item 5. Other Information . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Part 1.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of May 31, 2002
and November 30, 2001. . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the three and six months
ended May 31, 2002 and 2001 . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows for the six months
ended May 31, 2002 and 2001 . . . . . . . . . . . . . . . . . 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, 2001 is based upon an audited balance sheet. All
other information is unaudited.)
May 31, November 30,
2002 2001
---- ----
ASSETS
Current Assets:
Cash $ 4,000 $ 1,000
Accounts receivable, net of allowance for
doubtful accounts of $105,000 and $146,000 6,098,000 3,452,000
Inventories 6,629,000 3,784,000
Other current assets 162,000 204,000
---------- -------------
Total current assets 12,893,000 7,441,000
---------- -------------
Property and equipment, at cost:
Leasehold improvements 326,000 289,000
Equipment 1,358,000 1,347,000
--------- ---------
1,684,000 1,636,000
Less accumulated depreciation
and amortization 1,322,000 1,216,000
--------- ---------
Net property and equipment 362,000 420,000
Other assets 201,000 195,000
Goodwill, net of amortization 1,151,000 1,151,000
of $383,000 and $383,000
Non-compete agreement, net of amortization
of $45,000 and $37,000 105,000 113,000
--------- -------------
TOTAL ASSETS $14,712,000 $9,320,000
=========== ==========
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, 2001 is based upon an audited balance sheet. All
other information is unaudited).
May 31, November 30,
LIABILITIES 2002 2001
---- ----
Current Liabilities:
Note payable to bank $2,765,000 $1,815,000
Current maturities of long-term obligations 471,000 487,000
Accounts payable 4,587,000 477,000
Checks written in excess of deposits 494,000 207,000
Accrued expenses and other current liabilities 616,000 593,000
------------ -------------
Total current liabilities 8,933,000 3,579,000
----------- -------------
Long-term Obligations:
Notes payable, less current maturities 1,019,000 1,165,000
Capital lease obligations, less current maturities 42,000 117,000
------------- ------------
Total long-term obligations 1,061,000 1,282,000
---------- -----------
TOTAL LIABILITIES 9,994,000 4,861,000
----------- -------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock of $.01 par value;
authorized 20,000,000 shares: issued
13,108,196; outstanding 10,281,526
and 10,126,525 131,000 131,000
Additional paid-in capital 3,109,000 3,109,000
Retained earnings 2,043,000 1,831,000
----------- ----------
5,283,000 5,071,000
Less treasury stock: 2,826,670 and
2,981,671 shares at cost (565,000) (612,000)
------------- ---------------
Total stockholders' equity 4,718,000 4,459,000
---------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $14,712,000 $9,320,000
================== ==========
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, 2002 May 31, 2001 May 31, 2002 May 31, 2001
Net sales $14,323,000 $13,057,000 $10,605,000 $9,285,000
Cost of sales 9,844,000 9,191,000 7,201,000 6,580,000
-------------- ------------- ----------- -------------
Gross profit 4,479,000 3,866,000 3,404,000 2,705,000
Selling, general
& administrative
expenses 4,076,000 4,270,000 2,183,000 2,128,000
--------- ---------- ------------- ---------
Operating income(loss) 403,000 (404,000) 1,221,000 577,000
Other income (expense):
Interest income 27,000 65,000 10,000 25,000
Interest expense (116,000) (220,000) (62,000) (119,000)
Misc. income (expense) 22,000 (3,000) 19,000 (12,000)
------------ -------- ---------- --------------
Total other expense (67,000) (158,000) (33,000) (106,000)
Income (loss) before income
tax expense 336,000 (562,000) 1,188,000 471,000
Income tax expense (124,000) -- (414,000) --
------------ ---------------- ------------ ------------
NET INCOME (LOSS) $212,000 ($562,000) $774,000 $471,000
======= ======== ======== ========
Net income (loss) per share
Basic $ .02 ($ .06) $ .08 $ .05
Diluted $ .02 ($ .06) $ .08 $ .05
Weighted average common shares outstanding:
Basic 10,257,845 10,187,446 10,187,146 10,194,775
Dilutive 10,382,845 10,187,446 10,187,146 10,194,775
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, 2002 May 31, 2001
OPERATING ACTIVITIES:
Net Income (loss) $212,000 ($562,000)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 114,000 183,000
Reserve for obsolescence of inventory 132,000 - 0 -
Changes in current assets and
current liabilities:
Accounts receivable (2,646,000) (1,578,000)
Inventories (2,977,000) (1,964,000)
Other current assets 42,000 (108,000)
Accrued expenses and other current liabilities 7,000 20,000
Accounts payable 4,110,000 2,940,000
Decrease (increase) in other assets (6,000) 9,000
------------ -------------
NET CASH USED IN
OPERATING ACTIVITIES (1,012,000) (1,060,000)
----------- ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (48,000) (36,000)
NET CASH USED IN
INVESTING ACTIVITIES (48,000) (36,000)
--------------- ----------
FINANCING ACTIVITIES:
Proceeds from note payable to bank 4,180,000 5,492,000
Payments on borrowings on note payable to bank (3,230,000) (4,244,000)
Repayments of long-term debt (146,000) (144,000)
Payments on capital lease obligations (75,000) (85,000)
Increase in checks written in excess of deposits 287,000 175,000
Purchase of treasury stock - 0 - (248,000)
Sale of treasury stock 47,000 150,000
------------ --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,063,000 1,096,000
----------- -----------
NET DECREASE IN CASH 3,000 --
CASH, BEGINNING OF PERIOD 1,000 --
------------- ----------------
CASH, END OF PERIOD $ 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, 2002 are not necessarily indicative of the results that may be obtained for
the year ending November 30, 2002. 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, 2001
filed with the Securities and Exchange Commission on February 28, 2002.
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 (10,233,637 and 10,180,369 for 2002 and
2001). 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, 2002 and May 31, 2001, total stock options in the
amount of 1,020,000 and 295,000 are not considered in the computation of diluted
earnings per share as their inclusion would be anti-dilutive. Included in the
dilutive earnings per share computation are 750,000 options.
C. Stockholders' Equity
Purchase of Treasury Stock
On October 31, 2000, the Company sent to all its stockholders a tender offer for
up to 3,000,000 shares of its common stock for a purchase price of $.25 per
share. The offer expired on December 15, 2000 and on January 4, 2001, a total of
732,956 shares of common stock were tendered for a total purchase price of
$183,239. A total of $56,677 was incurred for legal, accounting, transfer agent
and other related costs, related to this tender offer.
During January and February 2001, the Company acquired from non-affiliate
stockholders 33,500 shares of its common stock at a price of $.25 per share.
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 May 31, 2002, 270,000 options remain under this stock option offer.
Shareholders' Agreement
On February 14, 2001, the Company and Carl J. Bentley, Alan C. Bergold and Don
Champlin (collectively, the "Shareholders") entered into an amended
Shareholders' Agreement. Upon the death of any Shareholder, the Shareholders and
the Company shall purchase, and the executor, administrator, surviving spouse,
or other legal representative of the Deceased Shareholder's estate shall sell
the shares of common stock of the Company owned by the Deceased shareholder at
the time of his death. The price per share of each share of common stock
purchased upon the death of any Shareholder shall be the greater of nine times
the average net profit of the Company as defined in the Shareholders' Agreement
for the prior fiscal year divided by the number of shares of common stock of the
Company issued and outstanding as of the end of such fiscal year or $1.35 per
share. In order to fund the purchase of shares of common stock upon the death of
a Shareholder, each Shareholder purchased life insurance policies on the lives
of the other two Shareholders. If the aggregate number of the Deceased's shares
of common stock is greater than the aggregate number of the Deceased's shares of
common stock remaining after the purchase by each of the surviving Shareholders
for an amount equal to the purchase price multiplied by the number of such
remaining shares of common stock. stock. The Company shall pay the Deceased
Shareholder's estate in 120 monthly installments with interest at 6% per year.
D. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for under the purchase method. For all business combinations for which
the date of acquisition is after June 30, 2001, SFAS 141 also establishes
specific criteria for the recognition of intangible assets separately from
goodwill and requires unallocated negative goodwill to be written off
immediately as an extraordinary gain, rather than deferred and amortized. SFAS
142 changes the accounting for goodwill and other intangible assets after an
acquisition. The most significant changes made by SFAS 142 are: 1) goodwill and
intangible assets with indefinite lives will no longer be amortized; 2) goodwill
and intangible assets with indefinite lives must be tested for impairment at
least annually; and 3) the amortization period for intangible assets with finite
lives will no longer be limited to forty years. SFAS 142 is effective for fiscal
years beginning after December 15, 2001, with early application permitted in
certain circumstances. The Company does not believe that the adoption of SFAS
141 will have a material effect on its financial position, results of
operations, or cash flows. The Company has adopted SFAS 142 in the first quarter
of the fiscal year ending November 30, 2002.
In accordance with SFAS No. 142, the Company discontinued the amortization of
goodwill effective December 1, 2001. Results of operations prior to the adoption
of SFAS No. 142 are not restated. The following reconciles the reported net
income (loss) and earnings (loss) per share to that which would have resulted
had SFAS No. 142 been applied to the six month period ended May 31, 2001.
May 31, 2001
Reported net loss ($562,000)
Add: Goodwill amortization, net of tax 77,000
------------
Adjusted net loss ($485,000)
==========
Reported basic loss per share ($ .06)
Add: Goodwill amortization, net of tax, per basic share .01
-------------
Adjusted basic loss per share ($ .05)
In June 2001, the FASB also approved for issuance SFAS 143 "Asset Retirement
Obligations." SFAS 143 establishes accounting requirements for retirement
obligations associated with tangible long-lived assets, including (1) the timing
of the liability recognition, (2) initial measurement of the liability, (3)
allocation of asset retirement cost to expense, (4) subsequent measurement of
the liability and (5) financial statement disclosures. SFAS 143 requires that an
asset retirement cost should be capitalized as part of the cost of the related
long-lived asset and subsequently allocated to expense using a systematic and
rational method. The Company will adopt the statement effective no later than
January 1, 2003, as required. The transition adjustment resulting from the
adoption of SFAS 143 will be reported as a cumulative effect of a change in
accounting principle. The Company does not believe that the adoption of this
statement will have a material effect on its financial position, results of
operations, or cash flows.
In October 2001, the FASB also approved SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 144 replaces SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
new accounting model for long-lived assets to be disposed of by sale applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, Reporting Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, for the disposal of segments of
a business. Statement 144 requires that those long-lived assets be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. Therefore, discontinued
operations will no longer be measured at net realizable value or include amounts
for operating losses that have not yet occurred. Statement 144 also broadens the
reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of Statement 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, are to be applied prospectively. The Company does not believe that
the adoption of this statement will have a material effect on its financial
position, results of operations, or cash flows.
E. Supplemental Disclosure of Cash Flow Information
Cash payments for interest were $116,000 and $220,000 for the six months ended
May 31, 2002 and 2001. Cash payments for income taxes were $108,000 and $147,000
for the six months ended May 31, 2002 and 2001.
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 decreased by $48,000 for the six
months ended May 31, 2002 as compared the six months ended May 31, 2001 due to
the increase in accounts receivable of $1,068,000 and an increase in inventories
of $1,013,000 substantially offset by an increase in accounts payable of
$1,170,000, the increase in other current assets of $150,000, and the increase
in cash provided by operations of $831,000. The increase in accounts receivables
were primarily due to higher sales volume in May 2002 as compared to May 2001 of
$803,000. The increase in inventories was primarily due to a 14% higher sales
volume during the 2nd quarter of 2002 as compared to the 2nd quarter of 2001.
The increase of accounts payable was due primarily to the increase in
inventories. The increase in other current assets was primarily due to the
decrease in prepaid income taxes of $147,000.
The net cash used in investing activities increased by $12,000 as a result of
the increase of $12,000 in purchases of fixed assets for the six months ended
May 31, 2002 as compared to the similar six months in the prior year.
The net decrease in cash provided by financing activities of $33,000 was
primarily due to the decrease in net borrowings to the bank of $298,000 offset
substantially by the increase in checks written in excess of deposits of
$112,000 and the net purchase in treasury stock of $146,000. The decrease in net
borrowings to the bank was primarily due to the increase in net cash provided by
operations.
The purchase of treasury stock was a result of the tender offer sent to all its
shareholders on October 31, 2000 for up to 3,000,000 shares of its common stock
for a purchase price of $.25 per share. The offer expired on December 15, 2000
and on January 4, 2001, a total of 732,956 shares of common stock were tendered
for a total purchase price of $183,239. A total of approximately $57,000 was
incurred for legal, accounting, transfer agent and other related costs, related
to this tender offer. In addition, during January and February 2001, the Company
acquired from non-affiliate stockholders 33,500 shares of its common stock at a
price of $.25 per share.
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 February 28, 2002, 270,000 options remain under this stock option offer.
The following is a summary of working capital and current ratio for the periods
presented:
May 31, 2002 November 30, 2001
------------ -----------------
Working Capital $3,960,000 $3,862,000
Current Ratio 1.45 to 1 2.08 to 1
The Company's working capital increased by $98,000 during the six months ended
May 31, 2002 as compared to November 30, 2001 primarily as a result of the
$212,000 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 2002. As of May 31, 2002,
the Company and its subsidiary have an available line-of-credit of $5,000,000.
As of May 31, 2002, $2,235,000 is unused under the line of credit. The line of
credit expires on December 31, 2002. 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 12, 2001, the Company executed an amendment to the
loan agreement with Wells Fargo Bank regarding a change in the debt covenants.
The bank agreed to waive the minimum debt service covenant for the 1st and 2nd
quarters of fiscal 2001 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, 2002 as compared to November 30,
2001 is primarily attributable to the relative increase in accounts payable of
$4,110,000, an increase in checks written in excess of deposits of $287,000 and
the increase in bank borrowings of $950,000 as compared to the increase in
accounts receivable of $2,646,000 and the increase in inventories of $2,845,000.
Income Taxes
As of May 31, 2002, the Company has recorded a current net deferred tax asset
totaling $151,000 and has recorded a noncurrent net deferred tax asset totaling
$36,000. 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, 2002 Compared to Three Months Ended May 31, 2001.
Net sales for the three months ended May 31, 2002 were up $1,320,000 as compared
to May 31, 2001 primarily due to the favorable weather conditions experienced in
the 2nd quarter of fiscal 2002 as compared to the inclement weather during the
2nd quarter of fiscal 2001.
Cost of Sales were up $621,000 for the three months ended May 31, 2002 as
compared to the three months ended May 31, 2001. $329,000 of the increase was
attributable to the increase in sales.
Gross profit was 32.1% during the three months ended May 31, 2002 as compared to
29.1% during the three months ended May 31, 2001 an increase of 3%. The increase
was due to the combination of better pricing from vendors and more selective
pricing on slower moving items of inventory to customers.
Selling, general and administrative expenses for the three months ended May 31,
2002 is comparable to the same period in the prior year.
Other expenses decreased by $73,000 for the three months ended May 31, 2002 as
compared to the three months ended May 31, 2001 primarily due to the decrease in
interest expense of $57,000 which was a direct result of the reduction of the
prime rate of interest.
Net income increased $303,000 for the three months ended May 31, 2002 as
compared to the three months ended May 31, 2001 primarily due to the increase in
gross profit of $699,000 substantially offset by the increase in income tax of
$414,000.
Six Months Ended May 31, 2002 Compared to Six Months Ended May 31, 2001.
Net sales increased by $1,266,000 for the six months ended May 31, 2002 as
compared to May 31, 2001 primarily as a result of the increased sales in the 2nd
quarter of fiscal 2002 as compared to the 2nd quarter of fiscal 2001.
Cost of Sales increased by $653,000 for the six months ended May 31, 2002 as
compared to May 31, 2001 primarily as a result of the relative cost of the
additional sales generated in the 2nd quarter of fiscal 2002 as compared to the
2nd quarter of fiscal 2001. The company recorded a reserve for obsolescence and
shrinkage in the amount of $132,000 to record inventory which may have to be
returned to the vendors or sold at greatly reduced prices by year end in order
to liquidate slow and non-moving inventory. This amount is included in the cost
of sales for the six months ended May 31, 2002.
Gross profit was 31.3% during the three months ended May 31, 2002 as compared to
29.6% during the six months ended May 31, 2001 an increase of 1.7%. The increase
was due to the combination of better pricing from vendors and more selective
pricing on slower moving items of inventory to customers.
Selling, general and administrative expenses decreased by $194,000 during the
six months ended May 31, 2002 as compared to May 31, 2001 primarily due to the
decrease of amortization expense of $76,000 which was a result of the cessation
of recording amortization of goodwill beginning December 1, 2001.
Other expenses decreased by $91,000 during the six months ended May 31, 2002 as
compared to May 31, 2001 primarily due to the reduction of interest expense. The
decrease was attributable to the average interest rate of 4.56% for the six
months ended May 31, 2002 as compared to the average interest rate of 7.95% for
the six months ended May 31, 2001 and the lower average line-of-credit balance
of $2,103,000 for the first six months of fiscal 2002 as compared to $3,337,000
for the first six months of fiscal 2001.
Net income increased $774,000 for the six months ended May 31, 2002 as compared
to the six months ended May 31, 2001 primarily due to the increase in gross
profit of $613,000 and a decrease in selling, general and administrative
expenses of $194,000.
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
$2,103,000 would increase the Company's yearly interest expense by approximately
$11,000, 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.
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
NONE
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: July 12, 2002 By: Alan C. Bergold
Alan C. Bergold
Chief Financial Officer &
President