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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, 1999
---------------
[ ] 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
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-2535743
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporatoin 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 6,670,000 of Common
Stock, $.001 par value as of August 31, 1999. Transitional Small Business
Disclosure Format (Check one): [ ] Yes [X] No
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HI-SHEAR TECHNOLOGY CORPORATION
INDEX
PAGE NO.
--------
PART 1 - FINANCIAL INFORMATION
Condensed consolidated Balance Sheets .................................1
August 31, 1999 and May 31, 1999
Condensed consolidated Statement of Operations ........................2
Three-months ended August 31, 1999
and August 31, 1998
Condensed consolidated Statement of Cash Flow .........................3
Three-months ended August 31, 1999
and August 31, 1998
Notes to Financial Statements .........................................4
PART 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL .................5
CONDITION AND RESULTS OF OPERATIONS
SIGNATURES .................................................................7
ii
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<TABLE>
PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
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<CAPTION>
AUGUST 31 MAY 31
1999 1999
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 185,000 $ 33,000
Accounts receivable 5,952,000 7,302,000
Inventories 3,573,000 3,275,000
Deferred taxes 1,333,000 1,200,000
Prepaid expenses and other current assets 53,000 112,000
--------------- ---------------
Total current assets 11,096,000 11,922,000
Land 1,128,000
Equipment, Net 3,350,000 3,390,000
Intangible assets 104,000 105,000
--------------- ---------------
$ 15,678,000 $ 15,417,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 2,403,000 $ 1,701,000
Current portion of long-term debt 349,000 348,000
Trade accounts payable 1,344,000 2,338,000
Accrued payroll and related costs 690,000 673,000
Other accrued liabilities 313,000 338,000
--------------- ---------------
Total current liabilities 5,099,000 5,398,000
Long-Term Debt, less current portion 1,213,000 811,000
--------------- ---------------
Total liabilities 6,312,000 6,209,000
Excess of Net Assets Acquired Over Purchase Price 518,000 553,000
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 6,670,000 shares
at August 31, 1999; 6,670,000 shares at May 31, 1999 7,000 7,000
Additional paid-in capital 7,193,000 7,193,000
Retained earnings 1,648,000 1,455,000
--------------- ---------------
Total stockholders' equity 8,848,000 8,655,000
--------------- ---------------
TOTAL $ 15,678,000 $ 15,417,000
=============== ===============
</TABLE>
See notes to financial statements.
1
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<TABLE>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
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<CAPTION>
THREE-MONTH PERIOD
ENDED AUGUST 31,
-----------------------------------
1999 1998
<S> <C> <C>
REVENUES $ 3,558,000 $ 2,723,000
Cost of Revenues 2,377,000 1,567,000
--------------- ---------------
GROSS PROFIT 1,181,000 1,156,000
Selling, General and Administrative Expenses 850,000 842,000
Research and Development Expenses 156,000 209,000
--------------- ---------------
OPERATING INCOME 175,000 105,000
Interest (Expense) (83,000) (46,000)
--------------- ---------------
INCOME BEFORE PROVISION FOR INCOME TAX AND
TAX CREDITS 92,000 59,000
Provision for Income Taxes Credits (100,000) (52,000)
--------------- ---------------
NET INCOME $ 192,000 $ 111,000
=============== ===============
EARNINGS PER COMMON SHARE AND PER
COMMON SHARE ASSUMING DILUTION $ 0.03 $ 0.02
=============== ===============
WEIGHTED NUMBER OF COMMON SHARES 6,670,000 6,669,000
=============== ===============
WEIGHTED NUMBER OF COMMON SHARES
ASSUMING DILUTION 6,671,000 6,697,000
=============== ===============
</TABLE>
See notes to financial statements.
2
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<TABLE>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS (UNAUDITED)
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<CAPTION>
THREE-MONTH PERIOD
ENDED AUGUST 31,
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 192,000 $ 111,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 135,000 106,000
Amortization of excess of net assets
acquired over purchase price (35,000) (35,000)
Deferred taxes (133,000) (66,000)
Changes in assets and liabilities:
Accounts receivable 1,350,000 1,015,000
Inventories (298,000) (1,084,000)
Prepaid expenses and other assets 59,000 (19,000)
Accounts payable (994,000) (164,000)
Accrued payroll and related costs 17,000 37,000
Other accrued liabilities (24,000) (99,000)
--------------- ---------------
Net cash provided by operating activities 269,000 (198,000)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property (1,128,000)
Purchase of equipment (94,000) (192,000)
--------------- ---------------
Net cash flows from investing activities (1,222,000) (192,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable to a bank 2,552,000 1,550,000
(Payments) on note payable to a bank (1,850,000) (1,150,000)
Proceeds from stock options exercised 2,000
Proceeds from long-term debt 430,000
Principal payments on long-term debt (27,000) (52,000)
--------------- ---------------
Net cash provided by
(used in) financing activities 1,105,000 350,000
--------------- ---------------
Net increase (decrease) in cash 152,000 (40,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 33,000 236,000
--------------- ---------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 185,000 $ 196,000
=============== ===============
</TABLE>
See notes to 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, 1999.
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,
-----------------------------------
1999 1998
<S> <C> <C>
Net Income $ 192,000 $ 111,000
Weighted Average Number of Common
Shares Outstanding during the Period 6,670,000 6,669,000
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Effect of Dilutive Securities Options 1,000 28,000
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Weighted Number of Common Shares and
Dilutive Potential Common Stock used 6,671,000 6,697,000
in Diluted EPS ------------- -------------
</TABLE>
Options on 162,000 shares of common stock were not included in computing diluted
EPS for the three-month period ended August 31, 1999 because their effects were
antidilutive. Options on 25,000 shares of common stock and 73,500 warrants on
common stock were not included in computing diluted EPS for the three-month
ended August 31, 1998 because their effects were antidiultive.
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, missiles, advanced fighter aircraft and military systems.
Commercial satellite manufacturers and launch vehicle assemblers, NASA,
the U.S. Government, foreign space agencies and others in the aerospace
business use the Company's aerospace products.
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, 1999 compared with Three Months Ended
August 31, 1998
-------------------------------------------------------------------
Revenues for the quarter ending August 31, 1999 were $3,558,000 as
compared to $2,723,000 for the same period last year. Increased
satellite and launch vehicle activities and accelerated deliveries
accounted for the higher revenues. Gross profit for the quarter was
$1,181,000 or 33 % of revenues compared to $1,156,000 or 42% of
revenues for the same period last year. This quarters product mix and
average gross profitability was more in line with the Company's average
product mix compared to that experienced during the first quarter of
last year. Selling, General and Administrative spending for the quarter
of $850,000 was at the same level as last year.
Operating Income of $175,000 or 5% of revenue for the quarter is up
from $105,000 or 4% for the same period last year. Improved gross
profit and lower Research and Development expenses posted during the
quarter accounted for the higher operating income. An increased level
of interest was incurred during the period compared to last year and
reflected interest paid during the first quarter on borrowings which
funded the purchase of property and equipment. The provision for Income
Tax Credits reflects a portion of the deferred tax asset which
approximates the quarters portion of expected annual realization.
Net Income for the first quarter was $192,000 or $.03 per share
compared to $111,000 or $.02 per share reported for the first quarter
last year.
Liquidity and Capital Resources
-------------------------------
Cash flow provided by operating activities was $269,000 during the
quarter compared to a negative $198,000 cash flow for the same period
last year. This cash flow for the period primarily resulted from
collection of outstanding accounts receivables and higher
profitability.
5
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During the quarter, the Company exercised its option to purchase
property used by the Company for its operations in Santa Clarita,
California for $1,128,000 including related expenses.
Air Bag Technology
------------------
During the quarter, the high volume production design for the Company's
advanced technology air bag inflator was carried out under the joint
venture between Hi-Shear and Atlantic Research Corporation. The product
design is a low cost design, which results in the lowest cost inflator
in the industry with significant potential product profitability.
However, for reasons totally unrelated to the quality and value of the
technology, Atlantic Research has declined to enter into a joint
venture for production of the product. Recognizing the attributes of
this unique inflator design, Hi-Shear intends to move forward with a
new partner for production to fully exploit this product in the
marketplace.
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 has installed a system whose software is Year 2000
compliant.
NON-IT. The Company determined that some older test equipment contained
imbedded CPUs that were not Year 2000 compliant. Supporting CPU's in
this test equipment have been replaced. These replacements were a part
of normal maintenance and did 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.
6
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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: October 8, 1999 By: /s/ Thomas R. Mooney
-------------------- --------------------------------
Thomas R. Mooney
Chairman and CEO
Date: October 8, 1999 By: /s/ George W. Trahan
----------------------- --------------------------------
George W. Trahan
President and COO
Date: October 8, 1999 By: /s/ Gregory J. Smith
----------------------- --------------------------------
Gregory J. Smith
Chief Accounting Officer
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 10-QSB for
the period ended August 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000918027
<NAME> Hi-Shear Technology Corporation
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<CURRENCY> US DOLLARS
<S> <C>
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<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
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<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
