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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 1996
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 001-12810
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HI-SHEAR TECHNOLOGY CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 22-2535743
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24225 Garnier Street, Torrance, CA 90505-5355
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(Address of principal executive offices)
(Issuer's telephone number) (310) 784-2100
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(Former name, former address and former fiscal year, if changed since last
report. Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subjected to such filing requirements for the past 90 days.
[X] Yes [_] No
[X] Yes [_] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,629,574 of Common Stock, $.001 par
value as of November 30, 1996.
Transitional Small Business Disclosure Format (Check one): [_] Yes [X] No
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HI-SHEAR TECHNOLOGY CORPORATION
INDEX
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PAGE NO.
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PART 1 - FINANCIAL INFORMATION
<S> <C>
Condensed consolidated balance sheets
November 30, 1996 and May 31, 1996........................ 1
Condensed consolidated statement of Operations
three months and six months ended
November 30, 1996 and 1995................................ 2
Condensed consolidated statement of cash flow
six months ended November 30, 1996 and 1995.............. 3
Notes to Financial Statements................................ 4
PART 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................... 4
SIGNATURES........................................................ 7
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
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<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
1996 1996
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(UNAUDITED)
ASSETS:
<S> <C> <C>
Current Assets:
Cash $ 1,186,000 $ 76,000
Accounts Receivable 3,790,000 4,322,000
Inventories 4,402,000 3,805,000
Prepaid expenses and other current assets 70,000 57,000
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Total current assets 9,488,000 8,260,000
Equipment, Net 1,233,000 1,258,000
Other Assets
Deferred Costs 357,000 417,000
Other intangible assets 147,000 150,000
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Total $ 11,185,000 $ 10,085,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 2,861,000 $ 2,636,000
Current portion of long-term debt 231,000 242,000
Accounts payable 2,143,000 1,425,000
Accrued payroll and related costs 431,000 480,000
Other accrued liabilities 416,000 449,000
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Total current liabilities 6,082,000 5,232,000
Long-Term Debt 36,000 144,000
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Total liabilities 6,118,000 5,376,000
Excess of Net Assets acquired Over Purchase Price 898,000 967,000
Stockholders' Equity
Preferred stock, $1.00 par value; 500,000 shares
authorized; no shares issued
Common stock, $.001 par value - 25,000,000 shares
authorized; issued and outstanding, 6,631,000 shares
at Nov. 30, 1996 and 6,628,000 shares at May 31, 1996 7,000 7,000
Additional paid-in capital 6,992,000 6,977,000
Accumulated deficit (2,830,000) (3,242,000)
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Total stockholders' equity 4,169,000 3,742,000
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TOTAL $ 11,185,000 $ 10,085,000
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See notes to financial statements.
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HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
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<CAPTION>
SIX-MONTH PERIOD THREE-MONTH PERIOD
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
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1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES $ 7,128,000 $ 4,912,000 $ 3,852,000 $ 2,562,000
5,088,000 3,418,000 2,706,000 1,729,000
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GROSS PROFIT 2,040,000 1,494,000 1,146,000 833,000
Selling, General and Administrative Expenses 1,275,000 1,021,000 678,000 568,000
Research and Development Expenses 205,000 122,000 127,000 58,000
----------- ----------- ----------- -----------
OPERATING INCOME 560,000 351,000 341,000 207,000
Interest Expense 143,000 128,000 73,000 77,000
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 417,000 223,000 268,000 130,000
Provision for Income Taxes 5,000 7,000 3,000 4,000
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NET INCOME $ 412,000 $ 216,000 $ 265,000 $ 126,000
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $ 0.06 $ 0.03 $ 0.04 $ 0.02
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING DURING THE PERIOD 6,629,574 6,560,418 6,631,000 6,593,698
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
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HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED NOVEMBER 30,
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1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 412,000 $ 216,000
Adjustments to reconcile net income
to net cash used in provided by
operating activities:
Depreciation and amortization 225,000 112,000
Amortization of excess of net assets
acquired over purchase price (69,000) (152,000)
Changes in assets and liabilities:
Accounts receivable 532,000 335,000
Inventories (598,000) (1,712,000)
Prepaid expenses and other assets (13,000) (444,000)
Accounts payable 718,000 111,000
Accrued payroll and related costs (51,000) (58,000)
Other accrued liabilities (29,000) 99,000
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Net cash (used in) provided by
operating activities 1,127,000 (1,493,000)
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CASH FLOWS FROM INVESTING
ACTIVITIES-
Purchase of equipment (138,000) (39,000)
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CASH FLOWS FROM FINANCING
ACTIVITIES-
Proceeds (payments) on note payable to bank 225,000 725,000
Proceeds from stock warrants exercised 602,000
Proceeds from stock options exercised 15,000 5,000
Principal payments on long-term debt (119,000) (858,000)
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Net cash provided by
(used in) financing activities 121,000 474,000
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NET INCREASE (DECREASE) IN CASH 1,110,000 (1,058,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 76,000 1,248,000
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,186,000 $ 190,000
============ ============
See notes to financial statements
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Reference is made to the Company's Annual Report on Form 10-KSB for
the year ending May 31, 1996.
The accompanying unaudited financial statements reflect all
adjustments which, in the opinion of the Company, are the results of
operations for the interim periods presented. All such adjustments are
of a normal, recurring nature. The results of the Company's operations
for any interim period are not necessarily indicative of the results
for full fiscal year.
PART 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Hi-Shear Technology Corporation (the "Company") designs and manufactures
highly reliable electronic and pyrotechnic-separation products for the
aerospace and defense industry, and has adapted its technology to a select
group of emerging commercial products. The Company operates through two
business groups, Aerospace and Defense Products and Commercial Products.
The Company's Aerospace and Defense Products are used by customers ranging
from NASA and the U.S. Government to foreign governments and agencies and
other aerospace and defense companies. Its Aerospace and Defense Products
are primarily used in spare, strategic missile and weapon systems and
advanced fighter aircraft. Beginning in fiscal year 1993, the Company
began the design, testing and development of a select group of commercial
products that utilize its highly reliable aerospace and defense technology.
Since beginning its commercial group, the Company has completed development
of two commercial product lines, the LifeShear rescue cutters and high
security locks. The Company has also accelerated the development of a low-
cost environmentally safe liquid airbag inflator system.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements included elsewhere in this report. This discussion contains
forward looking statements about the Company's business, and actual
results may differ from those anticipated in these forward-looking
statements as a result of certain factors including, the acceptance of its
new aerospace and defense products, the acceptance and pricing of its
commercial products, the development and nature of its relationship with
key strategic partners, the allocation of the federal budget and the
economy in general.
Three Months Ended November 30, 1996, compared with Three Months Ended
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November 30, 1995.
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Historically, it generally requires 6-9 months for a new order to be
converted into revenues. The time from receipt of an order and inclusion in
backlog to delivery and realization as revenue is due to a combination of
factors, including customers' required delivery schedules and the lead
times required for manufacturing the Company's line of high precision
aerospace and defense products. The increase in the Company revenues for
the second quarter is directly related to the new orders
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booked during the second half of fiscal year 1996 and the higher level of
starting backlog at the beginning of the year.
Revenues for the three months ending November 30, 1996 were $3.9 million as
compared to $2.6 million for the same period last year. The primary source
of the 50% increase in the Company's revenues over the same period last
year was the increase in new orders in the second half of fiscal 1996. In
fiscal year ended May 31, 1996, the Company's new orders rose 43% to $13.2
million. This increase in new orders primarily occurred during the second
half of the fiscal year, with fiscal year end backlog rising to $15.8
million as compared to $12.9 at the prior years end. The increase in new
orders over the prior year's period has continued in fiscal 1997. The
Company's fiscal year 1997 second quarter new orders rose to $5.8 million,
a 157% increase over 1996's second quarter. The Company's backlog on
November 30, 1996 stood at $15.9 million as compared to $14.2 million and
$13.0 million at November 30, 1995, and 1994 respectively. During the
second quarter, the United States Air Force placed an order with the
Company for new sequencers which acts to replace an outstanding sequencer
repair contract with the Company. There can be no assurance that the
Company will be able to continue increasing its new orders at this rate in
the future, although the Company has aggressively submitted proposals for
new orders.
Gross profit for the quarter ended November 30, 1996 was $1.1 million or
28.6% of revenues as compared to $0.8 million or 30.4% of revenues for the
same period last year. The lower margin of profit reflects a change during
the period in the Company's previous corresponding product mix. Selling,
general and administrative expenses for the quarter rose 19% to $0.678
million versus $0.568 million during the same period last year. The
quarter's 50% increase in revenues coupled with tight cost controls reduced
selling, general and administrative expenses to 17.6% of revenues as
compared to 22.2% during the same period last year. Research and
development expenses for the three months increased to $0.13 million from
$0.058 million, increasing to 3.3% of revenues as compared to 2.3% during
the same period last year. Management expects that the aggregate level of
research and development expenses incurred in 1997's second quarter will
continue at these levels for the next two quarters. As a result of the
foregoing, operating income for the period compared to the same period last
year increased 65% to $0.341 million or 8.8% of revenues versus $0.207
million or 8.1% of revenues.
Interest expenses for the quarter were lower at $0.07 million as compared
to $0.08 million in the comparable period in 1996. The lower interest
expenses reflect reduced average borrowings during the period as compared
to the same period last year and an increased cash flow from operations
during the period to finance the Company's growth. The Company's pre tax
income rose to $0.268 million during the second quarter of fiscal 1997
versus $0.130 million in last year's comparable period. In both year's
periods, the Company utilized its net operating loss carry forward for both
federal and state tax purposes. Net income for this year's period
increased 110% to $0.265 million compared to $0.126 million last year.
Six Months Ended November 30, 1996, compared with Six Months Ended November
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30, 1995.
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For the six months ending November 1996, revenues increased 45% to $7.1
million as compared to $4.9 million for the same period last year. As
noted under the second quarter's discussion, the increase in revenues is
mostly attributable to the increase in new orders achieved by the Company
in the second half of the last fiscal year. For the first six months of
fiscal 1997, total new orders were $9.6 million, an increase of 53% over
the first six months of 1996. This year's $9.6 million total of new orders
for six months is in comparison to totals of $13.2 million and $9.2 million
for
5
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the entire fiscal years of 1996 and 1995 respectively. Backlog at
November 30, 1996 was $15.9 million as compared to $14.2 million and $13.0
million at November 30, 1995 and 1994.
Gross profit for the six months ended November 30, 1996, was $2.0 million
or 28.6% of revenues as compared to $1.5 million or 30.4% of revenues in
the first six months of fiscal 1996. The decrease in gross profit margins
primarily reflects a change of product mix. Continuing tight cost controls
of selling, general and administrative expenses limited the increase in
comparable period to period comparisons to 25%, resulting in selling,
general and administrative expenses of $1.275 million for the first six
months of 1997 as compared to $1.021 million in last year's period. The 45%
increase in revenues over the first six months of fiscal 1997,
consequentially reduced selling, general and administrative expenses to
17.6% of revenues versus 22.2% for the first six months of fiscal 1996.
Research and development expenses for the first six months of fiscal year
1997 were $0.2 million, up $83,000, to 3.3% of revenues for the period
versus 2.3% during the same period last year. Management believes that the
aggregate level of expenditures incurred in 1997's first six months is
indicative of the level for the second half of 1997.
Operating income for the first six months of 1997 rose to 7.9% of revenues
or $0.6 million from $0.3 or 7.2% of revenues for the same period last
year. Interest expenses for the period increased only slightly in the
period reflecting the reduced demand for bank borrowings due to increasing
cash flow from operations.
The Company's income taxes for both fiscal periods were virtually offset by
an net operating loss carry forward for both federal and state purposes.
At fiscal year end, the net operating loss carry forward was $6 million for
federal income tax purposes and $2.9 million for state income tax purposes.
Resulting net income for the first six months of 1997 was $0.4 million or
5.8% of revenues as compared to $0.2 million or 4.4% of sales during the
comparable period last year.
Liquidity and Capital Resources
-------------------------------
The Company generated $1.1 million of cash from operations for the first
six months of 1997 as compared with the use of $1.5 million of cash by its
operations for the first six months of 1996. The $2.6 million improvement
reflects increased operating profits this period, as well as control of the
Company's working capital needs. The Company tightly controlled the
collection of its accounts receivable, and the growth in inventories. In
the second quarter, the Company renewed its $3.5 million line of credit.
6
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SIGNATURES
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In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HI-SHEAR TECHNOLOGY CORPORATION
Date: 13 January 1997 By: /s/ THOMAS R. MOONEY
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Thomas R. Mooney
Chairman and President
Date: 13 January 1997 By: /s/ GEORGE W. TRAHAN
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George W. Trahan
Executive Vice President
(Principle Accounting Officer)
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 1,186
<SECURITIES> 0
<RECEIVABLES> 3,790
<ALLOWANCES> 0
<INVENTORY> 4,402
<CURRENT-ASSETS> 9,448
<PP&E> 1,233
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,185
<CURRENT-LIABILITIES> 6,082
<BONDS> 0
0
0
<COMMON> 6,629
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,185
<SALES> 7,128
<TOTAL-REVENUES> 7,128
<CGS> 5,088
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 417
<INCOME-TAX> 5
<INCOME-CONTINUING> 412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 412
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
