<PAGE>
================================================================================
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 February 28, 1997
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to __________________
Commission file number 001-12810
--------------
Hi-Shear Technology Corporation
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-2535743
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization (Identification No.)
24225 Garnier Street, Torrance, CA 90505-5355
- ---------------------------------------------------------
(Address of principal executive offices)
(Issuer's telephone number) (310) 784-2100
----------------------------
- -------------------------------------------------------------------------------
(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: 6,631,000 of Common Stock, $.001 par
value as of February 28, 1997.
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
================================================================================
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page No.
--------
PART 1 - FINANCIAL INFORMATION
Condensed consolidated balance sheets................................ 1
third quarter ended February 28, 1997
and Year-Ended May 31, 1996
Condensed consolidated statement of Operations....................... 2
third quarter three month period ended February 28, 1997 and
February 29, 1996, nine month period ended February 28, 1997
and February 29, 1996
Condensed consolidated statement of cash flow........................ 3
nine months ended February 28, 1997
and nine months ended February 29, 1996
Notes to Financial Statements........................................ 4
PART 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL.................. 4
CONDITION AND RESULTS OF OPERATIONS
SIGNATURES.................................................................. 7
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------
THIRD QUARTER
ENDED YEAR ENDED
FEBRUARY 28, MAY 31,
1997 1996
-------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 87,000 $ 76,000
Accounts Receivable 3,638,000 4,322,000
Inventories 4,772,000 3,805,000
Prepaid expenses and other current assets 71,000 57,000
-------------- ------------
Total current assets 8,568,000 8,260,000
Equipment, Net 1,450,000 1,258,000
OTHER ASSETS
Deferred Costs 328,000 417,000
Other intangible assets 145,000 150,000
-------------- ------------
Total $ 10,491,000 $ 10,085,000
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 2,286,000 $ 2,636,000
Current portion of long-term debt 178,000 242,000
Accounts payable 2,029,000 1,425,000
Accrued payroll and related costs 318,000 480,000
Other accrued liabilities 421,000 449,000
-------------- ------------
Total current liabilities 5,232,000 5,232,000
Long-Term Debt 28,000 144,000
-------------- ------------
Total liabilities 5,260,000 5,376,000
Excess of Net Assets Acquired Over Purchase Price 863,000 967,000
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; issed and outstanding, 6,631,000 shares at
Feb. 28, 1997 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 (2,631,000) (3,242,000)
-------------- ------------
Total stockholders' equity 4,368,000 3,742,000
-------------- ------------
TOTAL $ 10,491,000 $ 10,085,000
============== ============
</TABLE>
1
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED THREE-MONTH PERIOD ENDED
-------------------------- ---------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1997
<S> <C> <C> <C> <C>
REVENUES $ 10,785,000 $ 7,429,000 $ 3,656,000 $ 2,517,000
Cost of Revenues 7,847,000 5,131,000 2,758,000 1,715,000
------------ ----------- ----------- -----------
GROSS PROFIT 2,938,000 2,298,000 898,000 802,000
Selling, General and Administrative Expenses 1,845,000 1,581,000 570,000 558,000
Research and Development Expenses 268,000 210,000 63,000 88,000
------------ ----------- ----------- -----------
OPERATING INCOME 825,000 507,000 265,000 156,000
Interest Expense 208,000 191,000 65,000 63,000
------------ ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 617,000 316,000 200,000 93,000
Provision for Income taxes 6,000 16,000 9,000
------------ ----------- ----------- -----------
NET INCOME $ 611,000 $ 300,000 $ 200,000 $ 84,000
============ =========== =========== ===========
NET INCOME PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $ 0.09 $ 0.05 $ 0.03 $ 0.01
============ =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING DURING THE PERIOD 6,630,044 6,575,585 6,631,000 6,606,087
========= ========= ========= =========
</TABLE>
2
<PAGE>
HI-SHEAR TECHNOLOGY
STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
---------------------------------
FEBRUARY 28, FEBRUARY 29
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 611,000 $ 300,000
Adjustments to reconcile net
income to net cash used in, provided
by operating activities:
Depreciation and amortization 341,000 170,000
Amortization of excess of net assets
acquired over purchase price (104,000) (227,000)
Changes in assets and liabilities:
Accounts receivables 684,000 1,567,000
Inventories (967,000) (2,117,000)
Prepaid expenses and other assets (14,000) (500,000)
Accounts payable 604,000 (386,000)
Accrued payroll and related costs (162,000) (16,000)
Other accrued liabilities (28,000) 157,000
----------- -----------
Net cash (used in) provided by
operating activities 965,000 (1,052,000)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (440,000) (80,000)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds (payments) on note payable
to bank (350,000) 1,435,000
Proceeds from stock warrants exercised 602,000
Proceeds from stock options exercised 15,000 57,000
Principal payments on long-term debt (179,000) (1,501,000)
----------- -----------
Net cash provided by (used in)
financing activities (514,000) 593,000
----------- -----------
NET INCREASE (DECREASE) IN CASH 11,000 (539,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 76,000 1,248,000
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 87,000 $ 709,000
=========== ===========
</TABLE>
See notes to the financial statements
3
<PAGE>
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 OPERATION
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 space, 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, three product areas have been
identified and funded thorugh R&D investments. The Company has completed
development in two of the commercial areas, the LifeShear rescue cutters
and high security locks and 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 February 28, 1997, compared with Three Months Ended
----------------------------------------------------------------------
February 29, 1996.
-----------------
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 third quarter is directly related to the new orders
4
<PAGE>
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 February 28, 1997 were $3.6 million as
compared to $2.5 million for the same period last year. The primary source
of the 44% increase in the Company's revenues over the same period last
year was the increase in new orders received during the second half of
fiscal 1996. In fiscal year ended May 31, 1996, the Company's new orders
rose 43% over the previous year 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 during fiscal 1997. The Company's new orders for the first
three quarters were $13.2 million, compared to $10.2 million in the first
three quarters of 1996. The United States Air Force awarded a contract to
the Company for new sequencers during the first nine months which acts to
replace an outstanding sequencer repair contract with the Company. This
award for new sequencers improves manufacturing efficiencies and lowers
cost in the aerospace and defense operations. 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 continues to aggressively submit
proposals for new orders.
Gross profit for the quarter ended February 28, 1997 was $.9 million or
24.5% of revenues as compared to $0.8 million or 31.8% 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 2% to $0.570
million versus $0.558 million during the same period last year. The
quarter's 44% increase in revenues coupled with tight cost controls reduced
selling, general and administrative expenses to 15.5% of revenues as
compared to 22.2% during the same period last year. Research and
development expenses for the three months decreased to $.063 million from
$0.088 million, decreasing to 1.7% of revenues as compared to 3.5% during
the same period last year. Management expects that the aggregate level of
research and development expenses incurred in 1997's third quarter will
continue at this level for the next quarter. As a result of the foregoing,
operating income for the period compared to the same period last year
increased 69.8% to $0.265 million or 7.2% of revenues versus $0.156 million
or 6.2% of revenues.
Interest expenses of $.065 million for the quarter were comparable to the
third quarter of 1996. The Company's pre-tax income rose to $0.200 million
during the third quarter of fiscal 1997 versus $0.093 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 138% to $0.200 million compared
to $0.084 million last year.
Nine Months Ended February 28, 1997, compared with Nine Months Ended
--------------------------------------------------------------------
February 29, 1996.
-----------------
For the nine months ending February 1997, revenues increased 45% to $10.7
million as compared to $7.4 million for the same period last year. As noted
under the third 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 nine months of fiscal
1997, total new orders were $13.2 million, an increase of 29% over the
first nine months of 1996. This year's $13.2 million total of new orders
for nine months compares to totals of $13.2 million and $9.2 million for
the entire fiscal years of 1996 and 1995 respectively. Backlog at February
28, 1997 was $15.9
5
<PAGE>
million as compared to $15.9 million and $11.3 million at February 29, 1996
and February 28, 1995.
Gross profit for the nine months ended February 28, 1997, was $2.9 million
or 27.2% of revenues as compared to $2.3 million or 30.9% of revenues in
the first nine months of fiscal 1996. The decrease in gross profit margins
primarily reflects a change of product mix. Continuing tight cost control
of selling, general and administrative expenses limited the increase over
last year to 16.7%, resulting in selling, general and administrative
expenses of $1.845 million for the first nine months of 1997 as compared to
$1.581 million in last year's period. The 45% increase in revenues over the
first nine months of fiscal 1997, consequentially reduced selling, general
and administrative expenses to 17.1% of revenues versus 21.2% for the first
nine months of fiscal 1996. Research and development expenses for the first
nine months of fiscal year 1997 were $0.3 million, up $58,000, to 2.5% of
revenues for the period versus 2.8% during the same period last year.
Management believes that the aggregate level of expenditures incurred in
1997's first nine months is indicative of the level for the fourth quarter
of 1997.
Operating income for the first nine months of 1997 rose to 7.6% of revenues
or $0.8 million from $0.5 or 6.8% of revenues for the same period last
year. Interest expenses for the period increased only slightly to $.208
million reflecting average bank borrowings during the period.
The Company's income taxes for both fiscal periods were virtually offset by
a 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 nine months of 1997 was $0.6 million or
5.7% of revenues as compared to $0.3 million or 4.0% of sales during the
comparable period last year.
Liquidity and Capital Resources
-------------------------------
The Company generated $1.0 million of cash from operations for the first
nine months of 1997 as compared with the use of $1.1 million of cash by its
operations for the first nine months of 1996. The $2.1 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 its inventory levels while
significantly increasing shipments during the nine-month period.
6
<PAGE>
SIGNATURES
----------
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
<TABLE>
<CAPTION>
<S> <C>
Date: 01 April 1997 By: /s/ Thomas R. Mooney
---------------- ---------------------
Thomas R. Mooney
Chairman and President
Date: 01 April 1997 By: /s/ George W. Trahan
---------------- ---------------------
George W. Trahan
Executive Vice President
(Principle Accounting Officer)
</TABLE>
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 3,638
<ALLOWANCES> 0
<INVENTORY> 4,772
<CURRENT-ASSETS> 8,568
<PP&E> 1,450
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,491
<CURRENT-LIABILITIES> 5,232
<BONDS> 0
0
0
<COMMON> 6,992
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,491
<SALES> 10,785
<TOTAL-REVENUES> 10,785
<CGS> 7,847
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208
<INCOME-PRETAX> 617
<INCOME-TAX> 6
<INCOME-CONTINUING> 611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 611
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
