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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 August 31, 1998
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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: Approximately 6,669,000 of Common
Stock, $.001 par value as of August 31, 1998.
Transitional Small Business Disclosure Format (Check one): [_] Yes [X] No
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HI-SHEAR TECHNOLOGY CORPORATION
INDEX
Page No.
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Part 1 - Financial Information
Condensed consolidated Balance Sheets................... 1
August 31, 1998 and May 31, 1998
Condensed consolidated Statement of Operations.......... 2
three months ended August 31, 1998
and August 31, 1997
Condensed consolidated Statement of Cash Flow........... 3
three months ended August 31, 1998
and August 31, 1997
Notes to Financial Statements........................... 4
Part 2 - Management's Discussion and Analysis of Financial...... 5
Condition and Results of Operations
Signatures...................................................... 8
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PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
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<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1998 1998
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<S> <C> <C>
(UNAUDITED)
ASSETS:
Current Assets:
Cash and cash equivalent $ 196,000 $ 236,000
Accounts Receivable 4,696,000 5,711,000
Inventories 3,746,000 2,662,000
Deferred taxes 606,000 540,000
Prepaid expenses and other current assets 128,000 109,000
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Total current assets 9,372,000 9,258,000
Equipment, Net 2,437,000 2,351,000
Intangible assets 109,000 110,000
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$11,918,000 $11,719,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 1,911,000 $ 1,511,000
Current portion of long-term debt 221,000 204,000
Trade accounts payable 1,231,000 1,395,000
Accrued payroll and related costs 562,000 525,000
Other accrued liabilities 280,000 379,000
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Total current liabilities 4,205,000 4,014,000
Long-Term Debt, less current portion 399,000 469,000
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Total liabilities 4,604,000 4,483,000
Excess of Net Assets Acquired Over Purchase Price 656,000 691,000
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, 6,669,000 shares
at August 31, 1998; 6,668,000 shares at May 31, 1998 7,000 7,000
Additional paid-in capital 7,184,000 7,182,000
Accumulated deficit (533,000) (644,000)
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Total stockholders' equity 6,658,000 6,545,000
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$11,918,000 $11,719,000
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</TABLE>
See notes to financial statements.
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HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
Three-Month period
Ended August 31,
------------------------
1998 1997
<S> <C> <C>
Revenues $2,723,000 $3,579,000
Cost of Revenues 1,567,000 2,610,000
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Gross Profit 1,156,000 969,000
Selling, General and Administrative Expenses 842,000 632,000
Research and Development Expenses 209,000 98,000
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Operating Income 105,000 239,000
Interest Expense (Income) 46,000 54,000
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Income before provision for income taxes 59,000 185,000
Provision for Income Taxes (52,000) 2,000
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Net Income $ 111,000 $ 183,000
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Net Income per Common and per Common
Share Assuming Dilution $ 0.02 $ 0.03
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Weighted Number of Common Shares 6,669,000 6,636,000
========== ==========
Weighted Number of Common Shares
Assuming Dilution 6,697,000 6,666,000
========== ==========
</TABLE>
See notes to financial statements.
2
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HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
Three-Month period
Ended August 31,
--------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES-
<S> <C> <C>
Net income $ 111,000 $ 183,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 106,000 125,000
Amortization of excess of net assets
acquired over purchase price (35,000) (35,000)
Deferred taxes (66,000) -
Changes in assets and liabilities:
Accounts receivable 1,015,000 999,000
Inventories (1,084,000) (478,000)
Prepaid expenses and other assets (19,000) (26,000)
Accounts payable (164,000) (243,000)
Accrued payroll and related costs 37,000 25,000
Other accrued liabilities (99,000) (43,000)
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Net cash provided by operating activities (198,000) 507,000
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CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of equipment (192,000) (180,000)
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CASH FLOWS FROM FINANCING ACTIVITIES-
Proceeds (payments) on note payable to bank 400,000 (225,000)
Proceeds from stock options exercised 2,000 -
Principal payments on long-term debt (52,000) (63,000)
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Net cash provided by
(used in) financing activities 350,000 (288,000)
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NET INCREASE (DECREASE) IN CASH (40,000) 39,000
Cash and Cash Equivalent, beginning of period 236,000 19,000
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Cash and Cash Equivalent, end of period $ 196,000 $ 58,000
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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, 1998.
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.
2. Earnings per Share
The following data show the amounts used in computing earnings per share
and the weighted number of common shares assuming dilution.
<TABLE>
<CAPTION>
Three-Month Period Ended August 31,
-----------------------------------
1998 1997
<S> <C> <C>
Net Income $ 111,000 $ 183,000
========== ==========
Weighted Number of Common Outstanding
during the period 6,669,000 6,636,000
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Effect of Dilutive Securities Options 28,000 30,000
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Weighted Number of Common Shares
Assuming Dilution used in diluted EPS 6,697,000 6,666,000
========== ==========
</TABLE>
Options on 25,000 shares of common stock and 73,500 warrants on common stock
were not included in computing EPS assuming dilution for the three-month period
ended August 31, 1998 because their effects were antidilutive. Options on 75,000
shares of common stock and 73,500 warrants on common stock were not included in
computing EPS assuming dilution for the three-month period ended August 31, 1997
because their effects were antidilutive.
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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. The
statements are 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 August 31, 1998, compared with Three Months Ended August
---------------------------------------------------------------------------
31, 1997
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Revenues for the quarter ending August 31, 1998 were $2.7 million as
compared to $3.5 million for the same period last year and resulted from
changes made by customers in scheduled product delivery dates. A major
portion of this was due to a reallocation of Department of Defense funding
from procurement and maintenance funds to emergency operations in Eastern
Europe. This reallocation caused the United States Air Force to first
delay and then later reduce the number of ejection seat sequencers ordered
in Government Fiscal Year 1998. Air Force ejection seat sequencer orders
expected to be received in May/June were placed at a reduced level in
September and are now scheduled to be shipped in the Company's third and
fourth quarter. Emergency funds have been requested in the new Department
of Defense Government Fiscal Year 1999 budget to replace procurement
shortfalls experienced in Government Fiscal Year 1998.
Orders received during the first quarter of fiscal 1999 were $2.8 million
as compared to $3.2 million during the same time last year. This slight
decrease was a result of aerospace customers consolidating funding
initiatives that seek economies of scale in procurements through both long-
term agreements and multi-year contracts. The Company has successfully
entered into four such long-term agreements which should provide a more
stable business base over several years. Although initial orders were
being received at a slower rate in the first quarter, they are scheduled to
pick up in the second quarter and increase dramatically after one year.
Orders received in September are above the rate of those received in the
same period last year.
Orders received during the first quarter continued to be in core product
areas and include initiation devices and ejection seat sequencers. This
business has sole source arrangements with customers, both domestic and
international, which will require the Company's devices over the next
several years. The Company continues to focus its aerospace marketing
efforts to the
5
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growing commercial satellite market. The Company's successful laser
demonstration programs have generated interest from customers needing
rugged electro optic subassemblies. Specifically, the Department of Energy
National Ignition Facility (NIF), a $1.2 billion laser facility at Lawrence
Livermore Laboratories, has requirements for electro optic laser subsystems
exceeding $30 million over the next three years. The Company has determined
there are similar opportunities in the commercial chip making test
equipment field. Accordingly the Company expanded its marketing efforts in
the first quarter to pursue these opportunities. This effort should
generate fourth quarter sales in the commercial test equipment and a long-
term NIF contract.
Although revenues for the first quarter are down, aerospace orders in the
first quarter plus USAF funding at the beginning of the second quarter will
generate higher shipments in the third and fourth quarters.
Gross profits for the quarter ended August 31, 1998 were $1.15 million or
42% of revenues as compared to $969K or 27% of revenues for the same period
last year. This increase in gross profit and gross profit as a percentage
of revenues reflects the efficiencies generated by the machining center
operations which were not on line in the first quarter FY 1998.
The quarter's selling and administrative expenses were up $210K compared to
the same period last year. The increase is attributed to the Company's
pursuit of strategic business opportunities and increased marketing efforts
in commercial, aerospace and electro optic pursuits. Research and
development spending for the quarter was up $111K compared to the same
period last year and reflects concurrent spending for electro optic and
laser technology development efforts. As a result of these expenses and
reduced overall shipment volumes, operating income for the period was $105K
or 4% of revenues compared to the $239K or 7% of revenues in the same
period last year.
Interest expenses of $46K for the quarter were lower than interest expense
during the same period last year due to lower borrowing. Net income for
the first quarter was $111K or 4% of revenues compared to the $183K or 5%
of revenues for the same period last year and resulted from the activities
discussed above.
Liquidity and Capital Resources
-------------------------------
The Company generated a negative cash flow of $198K from operations for the
first three months of fiscal 1999 as compared with a positive $507K for the
first three months of fiscal 1998. This decrease in cash flow reflects an
increase in inventory as a result of delays in scheduled shipments which
will now be made later in fiscal year 1999. Cash flow is projected to be
positive for the fiscal year.
Computer Systems and the Year 2000
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The Company has made an assessment of its Year 2000 compliance program and
has developed a plan to be compliant with all requirements. In considering
its assessment the Company has analyzed its internal IT and non-IT systems
and determined as follows:
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IT. The Company is currently installing an MRP system whose software is
--
Year 2000 compliant. Scheduled initial implementation is in December 1998
with full implementation for the Company in FY 99.
Non-IT. The Company has determined that some older test equipment contains
------
imbedded CPU that are not Year 2000 compliant. Supporting CPU's in this
test equipment will be replaced prior to June 1, 1999. These replacements
are a part of normal maintenance and will not add any extraordinary costs
to operations.
In consideration of third party effects on business operations the Company
studied its customers and suppliers. The Company's customers are major
aerospace customers, U.S. Government (DoD, NASA, DOE) and foreign agencies.
All major aerospace companies have active Year 2000 compliance programs and
have stated they will be compliant. The Company is working with them to
assure them we will be compliant as suppliers. U.S. Government agencies
state they will be compliant. Foreign agencies represent less than 5% of
the Company's business and are too varied to contact. Since these agencies
recognize the problem and are working on it, the Company has projected that
as a minimum 80% will have no problem. The remaining 20% (1% of the
Company's business) would only suffer delay.
The Company orders common items from multiple suppliers. Major purchases
are raw metals and common electronic parts. These supplies are all
available on a short-term basis from multiple suppliers. Should any one
supplier have a problem, the Company can obtain parts from alternate
suppliers.
No unplanned costs are associated with Year 2000 compliance. Hardware and
software upgrades were scheduled as normal maintenance activities.
The Company has determined that a worst case scenario for a Year 2000
problem would be a delay caused by a non-compliant supplier. The effect on
the Company would be a two to four week delay in shipping parts to
customers. Because our build/test cycle is longer than the two to four
week delay, the Company could advise its customer and change schedules to
accommodate a problem. If this were to happen at year-end, it could slide
revenues into a new FY. Since the Company's revenue consists of multiple
sales of small lots, this would affect less than 2% of the Company's
revenue on a timing basis.
7
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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: 15 October 1998 By: /s/ Thomas R. Mooney
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Thomas R. Mooney
Chairman and CEO
Date: 15 October 1998 By: /s/ George W. Trahan
----------------- ----------------------
George W. Trahan
President and COO
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000918027
<NAME> HI-SHEAR TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 196
<SECURITIES> 0
<RECEIVABLES> 4,696
<ALLOWANCES> 0
<INVENTORY> 3,746
<CURRENT-ASSETS> 9,372
<PP&E> 2,543
<DEPRECIATION> 106
<TOTAL-ASSETS> 11,918
<CURRENT-LIABILITIES> 4,205
<BONDS> 0
0
0
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<OTHER-SE> 6,651
<TOTAL-LIABILITY-AND-EQUITY> 11,918
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<CGS> 1,567
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<OTHER-EXPENSES> 0
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<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
