<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 November 30, 1998
------------------
[_] 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: Approximately 6,669,000 of Common
Stock, $.001 par value as of November 30, 1998.
Transitional Small Business Disclosure Format (Check one): [_] Yes [X] No
================================================================================
i
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION
INDEX
Page No.
--------
Part 1 - Financial Information
Condensed consolidated Balance Sheets................... 1
November 30, 1998 and May 31, 1998
Condensed consolidated Statement of Operations.......... 2
three months and six months ended
November 30, 1998 and 1997
Condensed consolidated Statement of Cash Flow........... 3
six months ended November 30, 1998
Notes to Financial Statements........................... 4
Part 2 - Management's Discussion and Analysis of Financial... 5
Condition and Results of Operations
Signatures................................................... 8
ii
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalent $ 885,000 $ 236,000
Accounts Receivable 5,284,000 5,711,000
Inventories 3,804,000 2,662,000
Deferred taxes 672,000 540,000
Prepaid expenses and other current assets 109,000 109,000
----------- -----------
Total current assets 10,754,000 9,258,000
Equipment, Net 2,382,000 2,351,000
Other Assets
Other intangible assets 107,000 110,000
----------- -----------
$13,243,000 $11,719,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 2,336,000 $ 1,511,000
Current portion of long-term debt 215,000 204,000
Trade Accounts payable 1,769,000 1,395,000
Accrued payroll and related costs 658,000 525,000
Other accrued liabilities 351,000 379,000
----------- -----------
Total current liabilities 5,329,000 4,014,000
Long-Term Debt 368,000 469,000
----------- -----------
Total liabilities 5,697,000 4,483,000
Excess of Net Assets Acquired Over Purchase Price 622,000 691,000
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 Nov. 30, 1998 and 6,668,000 shares at May 31, 1998 7,000 7,000
Additional paid-in capital 7,184,000 7,182,000
Accumulated deficit (267,000) (644,000)
----------- -----------
Total stockholders' equity 6,924,000 6,545,000
----------- -----------
TOTAL $13,243,000 $11,719,000
=========== ===========
See notes to financial statements.
</TABLE>
1
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six-Month period Three-Month period
Ended November 30, Ended November 30,
-------------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 6,636,000 $ 7,779,000 $ 3,914,000 $ 4,200,000
Cost of Revenues 4,262,000 5,660,000 2,695,000 3,050,000
------------ ------------ ------------ ------------
Gross Profit 2,374,000 2,119,000 1,219,000 1,150,000
Selling, General and Administrative Expenses 1,669,000 1,303,000 828,000 670,000
Research and Development Expenses 324,000 188,000 115,000 90,000
------------ ------------ ------------ ------------
Operating Income 381,000 628,000 276,000 390,000
Interest Expense 115,000 123,000 69,000 70,000
------------ ------------ ------------ ------------
Income before provision for income taxes 266,000 505,000 207,000 320,000
Provision for Income Taxes (112,000) 4,000 (60,000) 3,000
------------ ------------ ------------ ------------
Net Income $ 378,000 $ 501,000 $ 267,000 $ 317,000
============ ============ ============ ============
Net Income per Common Share $ 0.06 $ 0.08 $ 0.04 $ 0.05
============ ============ ============ ============
Net Income per Common Share
Assuming Dilution $ 0.06 $ 0.07 $ 0.04 $ 0.05
============ ============ ============ ============
Weighted Number of Common Shares 6,669,000 6,645,000 6,669,000 6,654,000
============ ============ ============ ============
Weighted Number of Common Shares
Assuming Dilution 6,676,000 6,691,000 6,671,000 6,716,000
============ ============ ============ ============
</TABLE>
See notes to financial statements
2
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six-Month period
Ended November 30,
-------------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 378,000 $ 501,000
Adjustments to reconcile net income
to net cash used in provided by
operating activities:
Depreciation and amortization 217,000 257,000
Amortization of excess of net assets
acquired over purchase price (69,000) (69,000)
Deferred taxes (132,000)
Changes in assets and liabilities:
Accounts receivable 427,000 194,000
Inventories (1,142,000) (844,000)
Prepaid expenses and other assets (29,000)
Accounts payable 374,000 459,000
Accrued payroll and related costs 133,000 112,000
Other accrued liabilities (28,000) (54,000)
------------ ------------
Net cash provided by operating activities 158,000 527,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (245,000) (920,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on note payable to bank 825,000 525,000
Proceeds from stock options exercised 2,000 122,000
Principal payments on long-term debt (90,000) (110,000)
------------ ------------
Net cash provided by
(used in) financing activities 737,000 537,000
------------ ------------
NET INCREASE (DECREASE) IN CASH 650,000 144,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 235,000 19,000
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 885,000 $ 163,000
============ ============
</TABLE>
See notes to 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, 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.
Six-Month Period Ended November 30,
-----------------------------------
1998 1997
Net Income $ 378,000 $ 501,000
=============== ================
Weighted Number of Common Outstanding
during the period 6,669,000 6,645,000
--------------- ----------------
Effect of Dilutive Securities Options 7,000 46,000
--------------- ----------------
Weighted Number of Common Shares
Assuming Dilution used in diluted EPS 6,676,000 6,691,000
=============== ================
Options on 57,000 shares of common stock and 73,500 warrants on common stock
were not included in computing EPS assuming dilution for the six-month period
ended November 30, 1998 because their effects were antidilutive. Options on
17,000 shares of common stock and 73,500 warrants on common stock were not
included in computing EPS assuming dilution for the six-month period ended
November 30, 1997 because their effects were antidilutive.
4
<PAGE>
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 November 30, 1998, compared with Three Months Ended
----------------------------------------------------------------------
November 30, 1997
-----------------
Revenues for the quarter ending November 30, 1998 were $3.9M as compared to
$4.2M for the same period last year. This difference compared to the same
period last year was due primarily to delays in customer-furnished items,
purchase order changes and late deliveries from our suppliers.
Orders received during the second quarter of fiscal 1999 were $6.3M as
compared to $6.1M during the same quarter last year. This includes new
business in our satellite products from international customers to support
their growing satellite markets, and from the United States Air Force for
ejection seat sequencers.
The Company received a key order for commercial inspection equipment
devices in the optics area, and is working closely with Lawrence Livermore
Laboratories for an electro-optical subsystem to support the Department of
Energy $1.2 billion National Ignition Facility (NIF). The Company
continues to pursue growth in military laser programs with awards pending
on two development programs, and one large production program.
Gross profits for the quarter ended November 30, 1998 were $1.22M or 31% of
revenues as compared to $1.15M 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 material and outside production cost savings
generated by the Precision Machining Center operations.
5
<PAGE>
The quarter's selling and administrative expenses were up $158K compared to
the same period last year. The increase is attributed to the Company's
continued pursuit of strategic business opportunities and increased
marketing efforts in commercial, aerospace and electro-optic fields.
Research and development spending for the quarter was up $25K 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 the shipments made during the period, operating income for the
period was $276K or 7% of revenues compared to the $390K or 9% of revenues
in the same period last year.
Interest expenses of $69K for the quarter were slightly lower than interest
expense during the same period last year due to lower average borrowing
resulting from the activities discussed above. Net income for the second
quarter was $267K or 7% of revenues compared to the $317K or 8% of revenues
for the same period last year.
Six Months Ended November 30, 1998 compared with Six Months Ended November
--------------------------------------------------------------------------
30, 1997
--------
Revenues for the six months ending November 30, 1998, were $6.6M as
compared to $7.8M last year. This difference was due to mandated customer
delivery schedules and delays from customers in providing items needed for
product shipments.
Gross profit for the six months was $2.4M or 36% of revenues as compared to
$2.1M or 27% of revenues in the first six months of last year. The
difference in gross profit margins primarily reflects the product mix
shipped during the period and the continued success in reducing
manufacturing costs. Research and development activities this year were up
by $136K compared to the six months of FY 1998 and reflect continuing
investment in new product development.
Operating income for the first six months of FY 1999 was $381K or 6 % of
revenues compared to $628K or 8% of revenues for the same period last year
and resulted from the improved gross profitability. This reflects
additional selling, administrative, research and development expenditures.
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 1999.
Net income for the first six months of FY 1999 was $378K or $.06 per share
as compared to $501K or $.08 per share in last year's comparable period.
Liquidity and Capital Resources
-------------------------------
The Company generated a positive cash flow of $356K from operations for the
second three months of fiscal 1999 as compared with a positive $20K for the
second three months of fiscal 1998. This increase in cash flow reflects
accounts receivable collections made during the period. The cash and cash
equivalent assets of $885K for the period ending November 30, 1998 as
compared to $236K for the period ending May 31, 1998 reflects the end of
month cash receipts that were deposited but were not available to pay down
borrowings until cleared by the bank. The notes payable increase
represents a high level of borrowing at month's end before being paid down
by cash receipts. Cash flow is projected to be positive for the fiscal
year.
6
<PAGE>
Precision Machining Center
--------------------------
The Company continues to realize the efficiencies and material cost savings
from the Precision Machining Center (PMC) and has committed to
significantly upgrade its size and capabilities. Two additional machining
centers have been installed and are operational. The Company is
negotiating a line of credit of approximately $1M to fund additional
machines during the third quarter of fiscal year 1999.
Computer Systems and the Year 2000
----------------------------------
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:
IT. The Company is currently installing an MRP system whose software is
--
Year 2000 compliant. Initial implementation has been accomplished 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% of foreign
agencies (1% of the Company's business) would only experience delay in
shipments.
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 Year 2000 compliance 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 delays, 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
<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
Date: January 14, 1999 By: /s/ Thomas R. Mooney
---------------- --------------------
Thomas R. Mooney
Chairman and CEO
Date: January 14, 1999 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 10QSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000918027
<NAME> HI-SHEAR TECHNOLOGY CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 885
<SECURITIES> 0
<RECEIVABLES> 5,284
<ALLOWANCES> 0
<INVENTORY> 3,804
<CURRENT-ASSETS> 10,754
<PP&E> 3,731
<DEPRECIATION> 1,349
<TOTAL-ASSETS> 13,243
<CURRENT-LIABILITIES> 5,329
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 6,915
<TOTAL-LIABILITY-AND-EQUITY> 13,243
<SALES> 3,914
<TOTAL-REVENUES> 3,914
<CGS> 2,695
<TOTAL-COSTS> 943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 207
<INCOME-TAX> (60)
<INCOME-CONTINUING> 267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
