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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, 1997
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to __________________
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: 6,631,000 of Common Stock, $.001 par
value as of November 30, 1997.
Transitional Small Business Disclosure Format (Check one): [_] Yes [X] No
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HI-SHEAR TECHNOLOGY CORPORATION
INDEX
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<CAPTION>
Page No.
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<S> <C>
Part 1 - Financial Information
Condensed consolidated balance sheets.............. 1
November 30, 1997 and May 31, 1997
Condensed consolidated statement of Operations..... 2
three months and six months ended
November 30, 1997 and 1996
Condensed consolidated statement of cash flow...... 3
six months ended November 30, 1997
and 1996
Notes to Financial Statements...................... 4
Part 2 - Management's Discussion and Analysis of Financial... 4
Condition and Results of Operations
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,
1997 1997
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<S> <C> <C>
(UNAUDITED)
ASSETS:
Current Assets:
Cash $ 163,000 $ 19,000
Accounts Receivable 6,113,000 6,307,000
Inventories 3,477,000 2,633,000
Prepaid expenses and other current assets 79,000 50,000
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Total current assets 9,832,000 9,009,000
Equipment, Net 2,217,000 1,491,000
Other Assets
Deferred Costs 238,000 298,000
Other intangible assets 112,000 115,000
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Total $12,399,000 $10,913,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 3,036,000 $ 2,511,000
Current portion of long-term debt 34,000 128,000
Accounts payable 2,222,000 1,763,000
Accrued payroll and related costs 535,000 423,000
Other accrued liabilities 402,000 456,000
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Total current liabilities 6,229,000 5,281,000
Long-Term Debt 0 16,000
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Total liabilities 6,229,000 5,297,000
Excess of Net Assets Acquired Over Purchase Price 760,000 829,000
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, 6,658,000 shares
at Nov. 30, 1997 and 6,636,000 shares at May 31, 1997 7,000 7,000
Additional paid-in capital 7,123,000 7,001,000
Accumulated deficit (1,720,000) (2,221,000)
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Total stockholders' equity 5,410,000 4,787,000
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TOTAL $12,399,000 $10,913,000
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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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<TABLE>
<CAPTION>
Six-Month period Three-Month period
November 30, Ended November 30,
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1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 7,779,000 $ 7,128,000 $ 4,200,000 $ 3,852,000
Cost of Revenues 5,660,000 5,088,000 3,050,000 2,706,000
------------ ------------ ------------ ------------
Gross Profit 2,119,000 2,040,000 1,150,000 1,146,000
Selling, General and Administrative Expenses 1,303,000 1,275,000 670,000 678,000
Research and Development Expenses 188,000 205,000 90,000 127,000
------------ ------------ ------------ ------------
Operating Income 628,000 560,000 390,000 341,000
Interest Expense 123,000 143,000 70,000 73,000
------------ ------------ ------------ ------------
Income before provision for income taxes 505,000 417,000 320,000 268,000
Provision for Income Taxes 4,000 5,000 3,000 3,000
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Net Income $ 501,000 $ 412,000 $ 317,000 $ 265,000
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Net Income per Common Share and
Common Equivalent Share $ 0.08 $ 0.06 $ 0.05 0.04
============ ============ ============ ============
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding during the period 6,645,000 6,630,000 6,654,000 6,631,000
============ ============ ============ ============
</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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1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 501,000 $ 412,000
Adjustments to reconcile net income to net cash
used in provided by operating activities:
Depreciation and amortization 257,000 225,000
Amortization of excess of net assets
acquired over purchase price (69,000) (69,000)
Changes in assets and liabilities:
Accounts receivable 194,000 532,000
Inventories (844,000) (598,000)
Prepaid expenses and other assets (29,000) (13,000)
Accounts payable 459,000 718,000
Accrued payroll and related costs 112,000 (51,000)
Other accrued liabilities (54,000) (29,000)
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Net cash (used in) provided by
operating activities 527,000 1,127,000
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CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of equipment (920,000) (138,000)
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CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds (payments) on note payable to bank 525,000 225,000
Proceeds from stock warrants exercised
Proceeds from stock options exercised 122,000 15,000
Principal payments on long-term debt (110,000) (119,000)
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Net cash provided by
(used in) financing activities 537,000 121,000
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NET INCREASE (DECREASE) IN CASH 144,000 1,110,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 19,000 76,000
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 163,000 $ 1,186,000
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</TABLE>
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, 1997.
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 designs and manufactures highly reliable
electronic and pyrotechnic-separation products for the aerospace industry,
and has adapted its technology to a select group of emerging commercial
products. Its aerospace products are primarily used in commercial space
satellites and launch vehicles, exploration missions, strategic missiles,
advanced fighter aircraft and military systems. The Company's aerospace
products are used by customers ranging from commercial satellite
manufacturers, launch vehicle assemblers, NASA, the U.S. Government,
foreign space agencies and commercial launch ventures, and others in the
aerospace business.
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 and pricing of its new
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, 1997, compared with Three Months Ended
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November 30, 1996.
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Revenues for the quarter ending November 30, 1997 were $4,200,000 as
compared to $3,852,000 for the same period last year. This represents a 9%
increase over the same period last year and was due primarily to an
increase in new orders for commercial aerospace products received during
fiscal year 1997. Orders received during the second quarter totaled
$6,084,000.
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Gross profit for the quarter ending November 30, 1997 was $1,150,000 or 27%
of revenues as compared to $1,146,000 or 29% of revenues for the same
period last year. The difference in gross margin reflects the product mix
shipped during the quarter. Operating income increased 14% for the period
to $390,000 as compared to the $341,000 of operating income in the same
period last year. The increase in operating income is primarily the result
of lower research and development expenses and the Company's control of
general and administrative expenses.
Interest expenses of $70,000 for the quarter were slightly less than last
year due to reduced borrowing. Net income for the second quarter was
$317,000 up 20% from the $265,000 for the same period last year.
Airbag Joint Agreement
During the quarter, the Company announced the signing of a joint venture
agreement with Baico Inflator Company covering automotive air bag
inflators. The two phased joint venture calls for the companies to first
join forces in the final development of a new air bag inflator for the
global automotive market, and then to establish a manufacturing operation.
BAICO is currently a major manufacturer of air bag inflators and supplies
its air bag inflators to automotive manufacturers in North America, Europe
and Asia.
The new inflator, initially developed by Hi-Shear, uses an alternative
propellant which is non-toxic and deploys virtually particulate free. In
addition, the products of combustion are occupant friendly. The new
technology also represents a lower cost approach to inflator design by
eliminating the need for certain components common on today's inflators.
The new inflator will easily lend itself to the "smart" air bag systems of
tomorrow by tailoring the speed and level of the air bag's deployment to
the severity of the crash and the position of the occupants as measured by
the car's electronics. The parties currently plan to finalize the
inflator's design early next year, with manufacturing to start as early as
1999.
LifeShear Teams with Hurst "Jaws of Life"
Also, during the quarter the Company signed a distribution agreement with
Hale Products the maker of the Hurst "Jaws of Life". Under the agreement,
Hale Products will exclusively market and distribute Hi-Shear's LifeShear
rescue tool to its customers in the public safety markets in North America,
Canada and Japan. Hi-Shear will manufacture LifeShear and its accompanying
power units at its Torrance facility for sales in these regions.
Six Months Ended November 30, 1997, compared with Six Months Ended November
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30, 1996.
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For the six months ending November 30, 1997, revenues increased 9% to
$7,779,000 as compared to $7,128,000 last year. The increase in revenues
is attributable to increased commercial aerospace shipments made during the
period.
Gross profit for the six months was $2,119,000 or 27.2% of revenues as
compared to $2,040,000 or 28.6% of revenues in last year's first six
months. The difference in gross profit margins primarily reflects the
product mix shipped during the period. Continuing tight cost controls of
selling, general and administrative expenses minimized the increase in
comparable period to period comparisons to $28,000, resulting in period
expenses of $1,303,000 for the first six months of fiscal 1998 as compared
to $1,275,000 in last year's period. The increase in this year's period
revenues consequentially reduced selling, general and administrative
expenses to 16.7% of revenues versus 17.9% for the first six months of
fiscal 1997. Research and development
5
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activities this year were at the same level as last year. Operating income
for the first six months of FY1998 rose 12% to $628,000 from $560,000 last
year. Interest expense during the six months was reduced from the same
period last year due to reduced average borrowings during the first six
months of fiscal 1998.
Statutory income taxes for federal and state purposes on the Company's
Income before provision for tax income 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 $6,000,000 for federal income tax purposes and $2,940,000
million for state income tax purposes.
Resulting net income for the first six months of FY1998 was up 22% to
$501,000 or $.08 per share as compared to $412,000 or $.06 per share in
last year's comparable period.
Liquidity and Capital Resources
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The net cash flow provided by operating activities basically reflects the
net income earned during the first six months of fiscal 1998. Inventories
were increased during the period for delivery on existing contracts during
the second half of the year. In September the Company renewed its
$3,500,000 revolving credit agreement with Southern California Bank for a
three year period ending November 1, 2000.
Precision Machining Center
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The Company purchased $920,000 of computer aided manufacturing equipment to
increase its in-house machining capability. This automated manufacturing
capability will generate significant cost control, schedule and quality
improvements. In addition to producing the Company's products, the
facility will also be used as a profit center by subcontracting the
machining centers capabilities to other companies needing this critical
manufacturing resource. As of November 30, 1997, the Precision Machining
Center was fully operational.
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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: 16 December 1997 By: /s/ Thomas R. Mooney
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Thomas R. Mooney
Chairman and President
Date: 16 December 1997 By: /s/ George W. Trahan
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George W. Trahan
Executive Vice President
(Principle Accounting Officer)
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
OPERATIONS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 163
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<RECEIVABLES> 6,113
<ALLOWANCES> 0
<INVENTORY> 3,477
<CURRENT-ASSETS> 9,832
<PP&E> 2,217
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<TOTAL-ASSETS> 12,399
<CURRENT-LIABILITIES> 6,229
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0
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<COMMON> 6,658
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