<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, 1999
------------------
[ ] 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 February 28, 1999.
Transitional Small Business Disclosure Format (Check one): [ ] Yes [X] No
================================================================================
<PAGE>
HI-SHEAR TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part 1 - Financial Information
Condensed consolidated Balance Sheets............................ 1
Third quarter ended February 28, 1999
and Year-ended May 31, 1998
Condensed consolidated Statement of Operations................... 2
Third quarter three-months period ended February 28, 1999
and February 28, 1998, nine-months period ended
February 28, 1999 and February 28, 1998
Condensed consolidated Statement of Cash Flow.................... 3
Nine-months ended February 28, 1999
and nine-months ended February 28, 1998
Notes to Financial Statements.................................... 4
Part 2 - Management's Discussion and Analysis of Financial............ 5
Condition and Results of Operations
Signatures............................................................ 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------
February 28, May 31,
1999 1998
--------------------- --------------------
(UNAUDITED)
ASSETS:
<S> <C> <C>
Current Assets:
Cash and cash equivalent $ 14,000 $ 236,000
Accounts receivable 5,301,000 5,711,000
Inventories 4,363,000 2,662,000
Deferred taxes 738,000 540,000
Prepaid expenses and other current assets 64,000 109,000
--------------- ---------------
Total current assets 10,480,000 9,258,000
Equipment, Net 2,525,000 2,351,000
Other Assets
Other intangible assets 106,000 110,000
--------------- ---------------
$ 13,111,000 $ 11,719,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 1,586,000 $ 1,511,000
Current portion of long-term debt 215,000 204,000
Trade accounts payable 1,885,000 1,395,000
Accrued payroll and related costs 664,000 525,000
Other accrued liabilities 329,000 379,000
--------------- ---------------
Total current liabilities 4,679,000 4,014,000
Long-Term Debt 328,000 469,000
--------------- ---------------
Total liabilities 5,007,000 4,483,000
Excess of Net Assets Acquired Over Purchase Price 587,000 691,000
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 Feb. 28, 1999 and 6,668,000 shares at May 31, 1998 7,000 7,000
Additional paid-in capital 7,186,000 7,182,000
Retained earnings (accumulated deficit) 324,000 (644,000)
--------------- ---------------
Total stockholders' equity 7,517,000 6,545,000
--------------- ---------------
TOTAL $ 13,111,000 $ 11,719,000
=============== ===============
</TABLE>
See notes to financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENT OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
Nine-Month period Three-Month period
Ended February 28, Ended February 28,
----------------------------------- ---------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues $ 11,313,000 $ 11,128,000 $ 4,677,000 $ 3,348,000
Cost of Revenues 7,564,000 7,982,000 3,303,000 2,322,000
------------- ------------- ------------ ------------
Gross Profit 3,749,000 3,146,000 1,374,000 1,026,000
Selling, General and Administrative Expenses 2,366,000 1,926,000 696,000 623,000
Research and Development Expenses 420,000 287,000 97,000 99,000
------------- ------------- ------------ ------------
Operating Income 963,000 933,000 581,000 304,000
Interest Expense 163,000 187,000 47,000 63,000
------------- ------------- ------------ ------------
Income Before Provision for Income Taxes 800,000 746,000 534,000 241,000
Provision for Income Taxes (169,000) 6,000 (57,000) 2,000
------------- ------------- ------------ ------------
Net Income $ 969,000 $ 740,000 $ 591,000 $ 239,000
============= ============= ============ ============
Net Income per Common Share $ 0.15 $ 0.11 $ 0.09 $ 0.04
============= ============= ============ ============
Net Income per Common Share
Assuming Dilution $ 0.14 $ 0.11 $ 0.09 $ 0.04
============= ============= ============ ============
Weighted Number of Common Shares 6,669,000 6,651,000 6,669,000 6,663,000
============= ============= ============ ============
Weighted Number of Common Shares
Assuming Dilution 6,684,000 6,695,000 6,685,000 6,703,000
============= ============= ============ ============
</TABLE>
See notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
Nine-Month period
Ended February 28,
----------------------------------------------
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 969,000 $ 740,000
Adjustments to reconcile net income
to net cash used in, provided by
operating activities:
Depreciation and amortization 332,000 355,000
Amortization of excess of net assets
acquired over purchase price (104,000) (104,000)
Deferred taxes (198,000)
Changes in assets and liabilities:
Accounts receivable 409,000 1,074,000
Inventories (1,701,000) (1,719,000)
Prepaid expenses and other assets 46,000 (52,000)
Accounts payable 489,000 330,000
Accrued payroll and related costs 139,000 (61,000)
Other accrued liabilities (49,000) (59,000)
------------- -------------
Net cash provided by operating activities 332,000 504,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (502,000) (1,088,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on note payable to bank 75,000 (125,000)
Proceeds from long-term debt 750,000
Proceeds from stock options exercised 4,000 159,000
Principal payments on long-term debt (130,000) (166,000)
------------- -------------
Net cash provided by
(used in) financing activities (51,000) 618,000
------------- -------------
NET INCREASE (DECREASE) IN CASH (221,000) 34,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 235,000 19,000
------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 14,000 $ 53,000
============= =============
</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.
<TABLE>
<CAPTION>
Nine-Month Period Three-Month Period
Ended February 28, Ended February 18,
------------------------------------- ------------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $ 969,000 $ 740,000 $ 591,000 $ 239,000
============ ============ ============ ============
Weighted Average Number of Common
Shares Outstanding during the Period 6,669,000 6,651,000 6,669,000 6,663,000
------------ ------------ ------------ ------------
Effect of Dilutive Securities
Options 15,000 44,000 16,000 40,000
------------ ------------ ------------ ------------
Weighted Number of Common Shares and
Dilutive Potential Common Stock used
in Diluted EPS 6,684,000 6,695,000 6,685,000 6,703,000
============ ============ ============ ============
</TABLE>
Options on 58,000 shares of common stock at 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, 1999 because their effects were antidilutive.
Options on 17,000 shares of common stock at 73,500 warrants on common stock were
not included in computing diluted EPS for the nine-month period and the three-
month ended February 28, 1998 because their effects were antidiultive.
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 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 February 28, 1999 compared with Three Months Ended
---------------------------------------------------------------------
February 28, 1998
-----------------
Revenues for the quarter ending February 28, 1999 were $4.7M as compared to
$3.3M for the same period last year. This represents a 40% increase in
revenue compared to the third quarter of fiscal year 1998. During the
quarter, the Company aggressively delivered shipments that were previously
delayed by customers.
Gross profit for the quarter was $1.4M an increase of 34% over the $1.0M
reported for the same period last year and can be attributed to the
Company's increased product throughput, increased productivity, and reduced
cycle times. The quarter's selling and administrative expenses were $696K
as compared to $623K for the same period last year. The increase is
attributed to increased proposal activity and innovative marketing
programs.
Operating income as percent of revenues in the third quarter rose to 12.4%
compared to 9.1% in the same period last year as a result of improved
product shipment and on-time delivery. The increase in operating income
reduced average borrowings and resulted in interest expenses of $47K for
the quarter, $16K lower than interest expense during the same period last
year.
Net income for the third quarter was $591K or $.09 per share as compared to
$239K or $.04 per share reported for the same period last year.
During the quarter, the Company began its implementation and training of
ISO 9001, a worldwide, international quality management system that focuses
on standard processes to maintain and improve quality assurance in design,
development, production, installation and servicing of customers. As a
result of this training, the Company is already seeing the benefits of ISO
9001 by way of improved product quality, increased product throughput,
reduced cycle times, and improved on-time delivery.
5
<PAGE>
A 1,500 square foot Class-10,000 Clean Room has been added to the Company's
manufacturing facility. This clean room is currently being used to
assemble, align, integrate and test complex laser assemblies as well as
precision electro-optical "plug and play" modules where cleanliness is
required for product quality. It supports scan mirror assemblies, focus
and precision mechanisms utilizing the latest visible, infra-red and
distance measuring equipment to ensure the highest quality of precision
optical elements. The Company works with major aerospace, commercial
electronics and optics companies, producing individual components as well
as the complete "plug and play" assemblies.
Nine Months Ended February 28, 1999 compared with Nine Months Ended
-------------------------------------------------------------------
February 28, 1998
-----------------
Revenues of $11.3M for the nine months were slightly ahead of the $11.1M of
revenues realized during the same period last year as a result of improved
on-time delivery.
Gross profit for the nine months increased to $3.7M or 33% of revenues as
compared to $3.1M or 28% of revenues in last year's first nine months.
This increase in gross profit is the result of increased productivity and
successful integration of the Company's Precision Machining Center.
Research and Development costs for the nine months grew to $420K as
compared to $287K for the same period last year. This increased new
product development effort represents the Company's continued commitment to
develop its commercial products including state-of-the-art electro-optic
and laser technology.
Operating income for the nine months was $963K as compared to $933K for the
same period last year and resulted from the greater efficiencies in
production offset by increased marketing and new product development
efforts. Interest expense during the past nine months was reduced from the
same period last year due to reduced average borrowings during the nine
months of fiscal 1999.
The nine-month provision for income tax credit amounted to $169K compared
to a tax expense of $6K for the nine-months of fiscal year 1998. The
Company determined that it was more likely than not that a portion of its
accumulated deferred tax asset would be realized, and recognized a portion
of this deferred tax asset during the first nine-months of the year.
Net income of $969K or $.15 per share was reported for the nine months, an
increase of over 30% over the $740K or $.11 per share reported for the same
period last year.
Liquidity and Capital Resources
-------------------------------
The Company generated a cash flow of $332K from operations for the nine
months of fiscal 1999 as compared to $504K for the nine months of fiscal
1998. This difference in cash flow reflects reduced cash from Customer
collections compared to last year and a buildup of inventory for shipments
anticipated in the fourth quarter. Cash flow is projected to be positive
for the fiscal year.
6
<PAGE>
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 expected before the end of 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 these
customers 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: April 14, 1999 By: /s/ Thomas R. Mooney
------------------ --------------------
Thomas R. Mooney
Chairman and CEO
Date: April 14, 1999 By: /s/ George W. Trahan
------------------ ----------------------
George W. Trahan
President and COO
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 5,301
<ALLOWANCES> 0
<INVENTORY> 4,363
<CURRENT-ASSETS> 10,480
<PP&E> 2,857
<DEPRECIATION> 332
<TOTAL-ASSETS> 13,111
<CURRENT-LIABILITIES> 4,679
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 7,510
<TOTAL-LIABILITY-AND-EQUITY> 13,111
<SALES> 4,677
<TOTAL-REVENUES> 4,677
<CGS> 3,303
<TOTAL-COSTS> 793
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 534
<INCOME-TAX> (57)
<INCOME-CONTINUING> 591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 591
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
