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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 February 28, 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: 6,664,000 of Common Stock, $.001 par
value as of February 28, 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
Third quarter ended February 28, 1998
and Year-Ended May 31, 1997
Condensed Consolidated Statement of Operations.................. 2
Third quarter three month period ended February 28, 1998
and February 28, 1997, nine month period ended
February 28, 1998 and February 28, 1997
Condensed Consolidated Statement of Cash Flow................... 3
Nine months ended February 28, 1998
and nine months ended February 28, 1997
Notes to Financial Statements................................... 4
Part 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 5
Signatures................................................................ 8
ii
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<CAPTION>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
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February 28, May 31,
1998 1997
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(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 53,000 $ 19,000
Accounts Receivable 5,233,000 6,307,000
Inventories 4,353,000 2,633,000
Prepaid expenses and other current assets 102,000 50,000
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Total current assets 9,741,000 9,009,000
Equipment, Net 2,317,000 1,491,000
Other Assets
Deferred Costs 209,000 298,000
Other intangible assets 111,000 115,000
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Total $ 12,378,000 $ 10,913,000
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 2,386,000 $ 2,511,000
Current portion of long-term debt 213,000 128,000
Accounts payable 2,093,000 1,763,000
Accrued payroll and related costs 362,000 423,000
Other accrued liabilities 397,000 456,000
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Total current liabilities 5,451,000 5,281,000
Long-Term Debt 516,000 16,000
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Total liabilities 5,967,000 5,297,000
Excess of Net Assets Acquired Over Purchase Price 725,000 829,000
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, 6,664,000 shares at
Feb. 28, 1998 and 6,636,000 shares at May 31, 1997 7,000 7,000
Additional paid-in capital 7,159,000 7,001,000
Accumulated deficit (1,480,000) (2,221,000)
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Total stockholders' equity 5,686,000 4,787,000
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TOTAL $ 12,378,000 $ 10,913,000
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See notes to financial statements.
1
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HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
Nine-Month Period Three-Month Period
Ended February 28, Ended February 28,
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1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $11,128,000 $10,785,000 $3,348,000 $3,656,000
Cost of Revenues 7,982,000 7,847,000 2,322,000 2,758,000
----------- ----------- ---------- ----------
Gross Profit 3,146,000 2,938,000 1,026,000 898,000
Selling, General and Administrative Expenses 1,926,000 1,845,000 623,000 570,000
Research and Development Expenses 287,000 268,000 99,000 63,000
----------- ----------- ---------- ----------
Operating Income 933,000 825,000 304,000 265,000
Interest Expense 187,000 208,000 63,000 65,000
----------- ----------- ---------- ----------
Income before provision for income taxes 746,000 617,000 241,000 200,000
Provision for Income Taxes 6,000 6,000 2,000
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Net Income $ 740,000 $ 611,000 $ 239,000 $ 200,000
=========== =========== ========== ==========
Net Income per Common Share and
Net Income per Common Share
assuming dilution $ 0.11 $ 0.09 $ 0.04 $ 0.03
=========== =========== ========== ==========
</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>
Nine-Month period
Ended February 28,
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1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 740,000 $ 611,000
Adjustments to reconcile net income
to net cash used in, provided by
operating activities:
Depreciation and amortization 355,000 341,000
Amortization of excess of net assets
acquired over purchase price (104,000) (104,000)
Changes in assets and liabilities:
Accounts receivable 1,074,000 684,000
Inventories (1,719,000) (967,000)
Prepaid expenses and other assets (52,000) (14,000)
Accounts payable 330,000 604,000
Accrued payroll and related costs (61,000) (162,000)
Other accrued liabilities (59,000) (28,000)
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Net cash (used in) provided by
operating activities 504,000 965,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,088,000) (440,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on note payable to bank (125,000) (350,000)
Proceeds from long-term debt 750,000 0
Proceeds from stock options exercised 159,000 15,000
Principal payments on long-term debt (166,000) (179,000)
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Net cash provided by (used in)
financing activities 618,000 (514,000)
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NET INCREASE (DECREASE) IN CASH 34,000 11,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,000 76,000
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 53,000 $ 87,000
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</TABLE>
See notes to the financial statements
3
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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 that, 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 average number of shares of dilutive potential
common stock.
<TABLE>
<CAPTION>
Nine-Month Period Three-Month Period
Ended February 28, Ended February 28,
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1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Income $ 740,000 $ 611,000 $ 239,000 $ 200,000
========== ========== ========== ==========
Weighted Average Number of Common
Outstanding during the period 6,651,000 6,630,044 6,663,000 6,631,000
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Effect of Dilutive Securities
Options 44,038 12,733 40,307 13,050
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Weighted number of common shares
and dilutive potential common
stock used in diluted EPS 6,695,038 6,642,777 6,703,307 6,644,050
========== ========== ========== ==========
</TABLE>
Options on 17,000 shares of common stock and 73,500 warrants on common stock
were not included in computing diluted EPS for the nine-month period and the
three-month period ended February 28, 1998 because their effects were
antidilutive. Options on 122,500 shares of common stock and 73,500 warrants on
common stock were not included in computing diluted EPS for the nine-month
period and the three-month period ended February 28, 1997 because their effects
were antidilutive.
4
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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. 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 February 28, 1998, compared with Three Months Ended
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February 28, 1997.
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Revenues for the quarter ending February 28, 1998 were $3,348,000 as
compared to $3,656,000 for the same period last year. This slight decrease
over the same period last year was due primarily to customer changed
purchase order delivery schedules to a later quarter. Gross profit for the
quarter ending February 28, 1998 was $1,026,000 or 31% of revenues as
compared to $898,000 or 25% of revenues for the same period last year. The
increase in gross profitability resulted from the product mix experienced
during the quarter.
Selling, general and administrative expenses were $623,000 for the quarter
compared to the $570,000 incurred during the same period last year.
Additional expenses for increased marketing and proposal efforts were spent
during the period.
Operating income increased 15% for the period to $304,000 as compared to
the $265,000 of operating income in the same period last year.
Net income for the third quarter was $239,000 up 19% from the $200,000 for
the same period last year.
Automobile Air Bag Inflator
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During the quarter, the Company was awarded a patent for its automobile air
bag inflator technology by the United States Patent and Trademark Office.
This automobile air bag inflator technology with its lower projected cost,
offers the automobile industry a high performance, non-toxic, low cost
alternative to current air bag inflator systems.
5
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Nine Months Ended February 28, 1998, compared with Nine Months Ended
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February 28, 1997.
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For the nine months ending February 28, 1998, revenues were $11,128,000 as
compared to $10,785,000 last year. The increase in revenues is
attributable to the increased bookings in the previous fiscal year.
Gross profit for the nine months was $3,146,000 or 28% of revenues as
compared to $2,938,000 or 27% of revenues in last year's first nine months.
The increase in gross profit margins primarily reflects the product mix
shipped during the nine months. Selling, general and administrative
expenses were $1,926,000 or 17% of revenues for the first nine months of
fiscal 1998 as compared to $1,845,000 or 17% of revenues in last year's
period. Additional expenses for increased marketing and proposal efforts
were incurred during the period. Research and development activities for
the nine-month period amounted to $287,000 and reflect the same level of
activity as the $268,000 spent for the same period last year.
Operating income for the first nine months of fiscal 1998 was $933,000 up
13% as compared to $825,000 for the same period last year. Interest
expense of $187,000 during the first nine months is slightly lower than the
$208,000 incurred last year, and reflects less average borrowing.
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 last fiscal year end, the net operating loss carry
forward was $6,000,000 for federal income tax purposes and $2,940,000
for state income tax purposes.
Net income for the first nine months was $740,000 up 21% as compared to
$611,000 for last year's comparable period.
Liquidity and Capital Resources
-------------------------------
The net cash flow of $503,000 provided by operating activities basically
reflects the net income earned during the first six months of fiscal 1998
offset by the Company's working capital needs during the period.
Inventories were increased during the quarter in preparation for delivery
commitments on existing contracts during the fourth quarter of the year.
During the first nine months of the fiscal year, the Company invested
$1,088,000 in capital equipment related primarily to its Precision
Machining Center. To fund these investments the Company used its cash
provided by operations and also entered into a long-term leasing
arrangement with its commercial bank to finance $750,000 of this new
capital equipment. The Company also continues to maintain a $3.5 million
line of credit with its bank and pays market interest on the outstanding
balance. As of February 28, 1998, there is $2,386,000 outstanding on this
line of credit.
The Company believes that its net working capital of $4.3 million and its
lines of credit will be sufficient for its operations for the foreseeable
future. Although there are no assurances, the Company believes that any
capital required for commercial high volume inflator production or other
commercial investments, could be met through either additional debt or
equity financing.
6
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Precision Machining Center
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The Company purchased computer aided manufacturing equipment to increase
its in-house machining capability and 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.
At the end of the quarter, operations in the Precision Machining Center
were increased to a two-shift basis. Over 90% of all Hi-Shear machined
components are now made in this machining center. This accomplishment has
been met nine months ahead of the Company's objective. In addition to this
internal work, orders are now being solicited for outside contracts.
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: 6 April 1998 By: /s/ Thomas R. Mooney
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Thomas R. Mooney
Chairman and President
Date: 6 April 1998 By: /s/ George W. Trahan
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George W. Trahan
Executive Vice President
(Principle Accounting Officer)
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
OPERATIONS & BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 5,233
<ALLOWANCES> 0
<INVENTORY> 4,353
<CURRENT-ASSETS> 9,741
<PP&E> 2,317
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,378
<CURRENT-LIABILITIES> 5,451
<BONDS> 0
0
0
<COMMON> 6,664
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 3,348
<TOTAL-REVENUES> 3,348
<CGS> 2,322
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 241
<INCOME-TAX> 2
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
