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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, 2000
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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 6,670,000 of Common
Stock, $.001 par value as of August 31, 2000. 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 I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Balance Sheets .....................................................1
August 31, 2000 and May 31, 2000
Statement of Operations ............................................2
Three-months ended August 31, 2000
and August 31, 1999
Statement of Cash Flows.............................................3
Three-months ended August 31, 2000
and August 31, 1999
Notes to Financial Statements ......................................4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL .............5
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
Item 5 - Other Information..............................................6
SIGNATURES ..................................................................7
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<TABLE>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
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<CAPTION>
AUGUST 31 MAY 31
2000 2000
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(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents 294,000 0
Accounts receivable 7,634,000 8,906,000
Inventories 3,814,000 2,909,000
Deferred taxes 775,000 775,000
Prepaid expenses and other current assets 377,000 382,000
------------ ------------
Total current assets 12,894,000 12,972,000
Land held for sale 846,000 846,000
Equipment, Net 3,200,000 3,307,000
Deferred taxes 1,060,000 1,060,000
Intangible assets 99,000 100,000
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$18,099,000 $18,285,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 4,520,000 $ 4,550,000
Current portion of long-term debt 835,000 835,000
Trade accounts payable 850,000 725,000
Accrued payroll and related costs 458,000 615,000
Other accrued liabilities 358,000 274,000
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Total current liabilities 7,021,000 6,999,000
Long-Term Debt, less current portion 1,330,000 1,539,000
------------ ------------
Total liabilities 8,351,000 8,538,000
Excess of Net Assets Acquired Over Purchase Price 380,000 414,000
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 7,000 7,000
Additional paid-in capital 7,193,000 7,193,000
Retained earnings 2,168,000 2,133,000
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Total stockholders' equity 9,368,000 9,333,000
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TOTAL $18,099,000 $18,285,000
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See notes to financial statements.
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HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE-MONTH PERIOD
ENDED AUGUST 31,
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2000 1999
REVENUES $ 2,313,000 $ 3,558,000
Cost of Revenues 1,533,000 2,377,000
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GROSS MARGIN 780,000 1,181,000
Selling, General and Administrative Expenses 553,000 1,006,000
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OPERATING INCOME 227,000 175,000
Interest (Expense) (176,000) (83,000)
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INCOME BEFORE PROVISION FOR INCOME TAX AND
TAX CREDITS 51,000 92,000
Provision for Income Taxes (Credits) 15,000 (100,000)
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NET INCOME $ 36,000 $ 192,000
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EARNINGS PER COMMON SHARE AND PER
COMMON SHARE ASSUMING DILUTION $ 0.01 $ 0.03
============ ============
WEIGHTED NUMBER OF COMMON SHARES 6,670,000 6,670,000
============ ============
WEIGHTED NUMBER OF COMMON SHARES
ASSUMING DILUTION 6,670,000 6,671,000
============ ============
See notes to financial statements.
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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,
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2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 36,000 $ 192,000
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 144,000 135,000
Amortization of excess of net assets
acquired over purchase price (34,000) (35,000)
Deferred taxes 0 (133,000)
Changes in assets and liabilities:
Accounts receivable 1,272,000 1,350,000
Inventories (905,000) (298,000)
Prepaid expenses and other assets 5,000 59,000
Accounts payable 125,000 (994,000)
Accrued payroll and related costs (157,000) 17,000
Other accrued liabilities 84,000 (24,000)
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Net cash provided by (used in) operating activities 570,000 269,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property 0 (1,128,000)
Purchase of equipment (37,000) (94,000)
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Net cash flows provided by (used in) investing (37,000) (1,222,000)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) from note payable to a bank (30,000) 702,000
Proceeds from stock options exercised 0 0
Proceeds from long-term debt to a bank, net 0 430,000
Principal payments on long-term debt (209,000) (27,000)
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Net cash provided by
(used in) financing activities (239,000) 1,105,000
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Net increase (decrease) in cash 294,000 152,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 0 33,000
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 294,000 $ 185,000
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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, 2000.
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.
Three-Month Period
Ended August 31,
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2000 1999
Net Income $ 36,000 $ 192,000
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Weighted Average Number of Common
Shares Outstanding during the Period 6,670,000 6,670,000
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Effect of Dilutive Securities Options --- 1,000
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Weighted Number of Common Shares and
Dilutive Potential Common Stock used
in Diluted EPS 6,670,000 6,671,000
=========== ===========
Options on 137,000 shares of common stock were not included in computing EPS
assuming dilution for the three-month period ended August 31, 2000 because their
effects were antidilutive. 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 antidiultive.
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ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Hi-Shear Technology Corporation designs and manufactures high reliability
pyrotechnic, mechanical and electronic products for the aerospace industry, and
has adapted its technology to a select group of emerging non-aerospace products.
Its aerospace products are primarily used in commercial space satellites and
launch vehicles, exploration missions, strategic missiles, advanced fighter
aircraft and military systems. Customers such as commercial satellite
manufacturers, launch vehicle assemblers, the U.S. Government including NASA,
foreign space agencies and commercial launch ventures, and others in the
aerospace business widely use the Company's aerospace products. In addition,
Hi-Shear has developed a low-cost environmentally safe air bag inflator
technology for use in automobile air bag safety systems and specialized cutters
for use by rescue workers in emergency situations.
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, 2000 compared with Three Months Ended August 31,
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1999
----
Revenues posted for the quarter ending August 31, 2000 were $2,313,000 which was
$1,245,000 less than the first quarter last year due to a lower level of launch
vehicle components due in this period, and certain electronic product revenues
not recognized in the period due to revenue milestone timing on these contracts.
These programs were awarded in the fourth quarter of fiscal year 2000 and the
milestones will be recognized as revenue in subsequent quarters of this fiscal
year. Gross Margin of $780,000 or 34% of revenue was at the same percentage
level as the $1,181,000 or 33% of revenue experienced during the same period
last year but on a much reduced level of revenue. This margin realized on
reduced revenue during the quarter shows the benefits of reducing fixed costs
throughout the organization.
Selling, General and Administrative costs of $553,000 have been reduced compared
to the $850,000 reported for the same period last year. This is the result of
significant cost reduction efforts accomplished in general and administrative
expenses. Research and Development expenses previously reported separately from
General and Administrative expenses will no longer be reported separately.
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Operating Income of $227,000 or 11% of revenue during the period was improved
from the $175,000 or 5% of revenues last year as the result of improvements in
manufacturing efficiencies, lowered administrative costs and reduced product
turn around which more than offset the lower volume of revenue during the
quarter compared to last year.
Interest costs during the quarter doubled compared to the same period last year
and reflected the borrowing necessary to fund the purchase of the Santa Clarita
property, receivables, and to replace the working funds previously supplied by
customers in the form of progress payments.
Net Income for the first quarter was $36,000 or $0.01 per share after interest
expense and recognizing a provision for income taxes of approximately 40% of
pretax earnings. This compares to a Net Income of $192,000 or $0.03 per share
after interest expense recognizing a $100,000 income from income tax credits for
the same period last year.
Liquidity and Capital Resources
-------------------------------
Cash flow provided by operating activities was $570,000 during the quarter
compared to a $269,000 cash flow for the same period last year. This improvement
in cash flow for the period primarily resulted from collection of outstanding
accounts receivables and lower costs incurred during the quarter.
Computer Systems and Year 2000
------------------------------
The Company has installed a system whose software is Year 2000 compliant. As of
the date hereof and during fiscal year 2001, the Company has experienced no
problems relating to Year 2000 compliance. However, the full extent of potential
problems related to Year 2000 compliance is as yet undetermined and problems
relating to Year 2000 compliance may affect the Company and its customers and
suppliers during fiscal year 2001.
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
On September 1, 2000, the Company filed a form 8-K that disclosed the
resignation of McGladrey & Pullen, LLP as the Company's independent accountants,
dated August 25, 2000. The Board of Directors is currently evaluating proposals
from several audit firms that have expressed interest in providing their
independent public accounting services to the Company. Because of the
resignation of its former accounting firm, the financial statements for the
quarter ended August 31, 2000 contained herein, have not been reviewed by
independent accountants. The Company expects to identify the selection of its
new auditing firm promptly. At that time a quarterly review of the financial
statements will be performed.
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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 13, 2000 By: /S/ George W. Trahan
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George W. Trahan
President and CEO
Date: October 13, 2000 By: /S/ Gregory J. Smith
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Gregory J. Smith
Chief Accounting Officer
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