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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 29, 2000
-----------------
[ ] 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
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 6,670,000 of Common
Stock, $.001 par value as of February 29, 2000. Transitional Small Business
Disclosure Format (Check one): [ ] Yes [X] No
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i
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HI-SHEAR TECHNOLOGY CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1 - FINANCIAL STATEMENTS
Balance Sheets ................................................1
February 29, 2000 and May 31, 1999
Statement of Operations .......................................2
Three-month periods ending February 29, 2000
and February 28, 1999, nine-month periods ending
February 29, 2000 and February 28, 1999
Statement of Cash Flows .......................................3
Nine-months ended February 29, 2000
and nine-months ended February 28, 1999
Notes to Financial Statements .................................4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .......................5
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION .........................................7
SIGNATURES ..............................................................8
ii
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
- --------------------------------------------------------------------------------
February 29, May 31,
2000 1999
------------- -------------
(UNAUDITED)
ASSETS:
Current Assets:
Cash and cash equivalents $ (53,000) $ 33,000
Accounts receivable 5,323,000 7,302,000
Inventories 5,861,000 3,275,000
Deferred taxes 1,704,000 1,200,000
Prepaid expenses and other current assets 62,000 112,000
------------- -------------
Total current assets 12,897,000 11,922,000
Land 1,128,000 -
Equipment, Net 3,257,000 3,390,000
Intangible assets 101,000 105,000
------------- -------------
$ 17,383,000 $ 15,417,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 3,690,000 $ 1,701,000
Current portion of long-term debt 802,000 348,000
Trade accounts payable 1,374,000 2,338,000
Accrued payroll and related costs 251,000 673,000
Other accrued liabilities 273,000 338,000
------------- -------------
Total current liabilities 6,390,000 5,398,000
Long-Term Debt, less current portion 1,748,000 811,000
------------- -------------
Total liabilities 8,138,000 6,209,000
Excess of Net Assets Acquired Over
Purchase Price 449,000 553,000
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 Feb. 29, 2000 and
6,670,000 shares at May 31, 1999 7,000 7,000
Additional paid-in capital 7,193,000 7,193,000
Retained Earnings 1,596,000 1,455,000
------------- -------------
Total stockholders' equity 8,796,000 8,655,000
------------- -------------
TOTAL $ 17,383,000 $ 15,417,000
============= =============
See notes to financial statements.
1
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HI-SHEAR TECHNOLOGY CORPORATION
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine-Month period Ended Three-Month period Ended
February 29, February 28, February 29, February 28,
--------------------------------- --------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES $ 7,909,000 $ 11,313,000 $ 2,343,000 $ 4,677,000
Cost of Revenues 5,091,000 7,564,000 1,485,000 3,303,000
------------- ------------- ------------- -------------
GROSS PROFIT 2,818,000 3,749,000 858,000 1,374,000
Selling, General and Administrative Expenses 2,423,000 2,366,000 736,000 696,000
Research and Development Expenses 413,000 420,000 126,000 97,000
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (18,000) 963,000 (4,000) 581,000
Interest (Expense) (306,000) (163,000) (128,000) (47,000)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME (324,000) 800,000 (132,000) 534,000
TAXES AND TAX CREDITS
Provision for Income Taxes Credits (466,000) (169,000) (166,000) (57,000)
------------- ------------- ------------- -------------
NET INCOME $ 142,000 $ 969,000 $ 34,000 $ 591,000
============= ============= ============= =============
NET INCOME PER COMMON SHARE $ 0.02 $ 0.15 $ 0.01 $ 0.09
============= ============= ============= =============
NET INCOME PER COMMON SHARE
ASSUMING DILUTION $ 0.02 $ 0.14 $ 0.01 $ 0.09
============= ============= ============= =============
WEIGHTED NUMBER OF COMMON SHARES 6,670,000 6,669,000 6,670,000 6,669,000
============= ============= ============= ==============
WEIGHTED NUMBER OF COMMON SHARES
ASSUMING DILUTION 6,670,000 6,684,000 6,670,000 6,685,000
============= ============= ============= ==============
</TABLE>
See notes to financial statements
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HI-SHEAR TECHNOLOGY CORPORATION
STATEMENT OF CASH FLOWS (UNAUDITED)
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Nine-Month period Ended
February 29, February 28,
------------- -------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 142,000 $ 969,000
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 419,000 332,000
Amortization of excess of net assets
acquired over purchase price (104,000) (104,000)
Deferred taxes (504,000) (198,000)
Interest expense 306,000 163,000
Changes in assets and liabilities:
Accounts receivable 1,979,000 409,000
Inventories (2,586,000) (1,701,000)
Prepaid expenses and other assets 50,000 46,000
Accounts payable (964,000) 489,000
Equipment purchase disbursements 382,000 -
Accrued payroll and related costs (422,000) 139,000
Other accrued liabilities (65,000) (49,000)
------------- -------------
Net cash provided by (used in) operating
activities (1,367,000) 495,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property (1,128,000) -
Purchase of equipment (665,000) (502,000)
------------- -------------
Net cash flow from investing activities (1,793,000) (502,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on note payable to bank 1,989,000 75,000
Proceeds from stock options exercised - 4,000
Proceeds from long-term debt 1,630,000 -
Interest payments on long-term debt and note
payable to bank (306,000) (163,000)
Principal payments on long-term debt (239,000) (130,000)
------------- -------------
Net cash provided by (used in)
financing activities 3,074,000 (214,000)
------------- -------------
NET INCREASE (DECREASE) IN CASH (86,000) (221,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 33,000 235,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ (53,000) $ 14,000
============= =============
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>
Nine-Month period Ended Three-Month period Ended
February 29, February 28, February 29, February 28,
--------------------------------- --------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Income $ 142,000 $ 969,000 $ 34,000 $ 591,000
============= ============= ============= =============
Weighted Average Number of Common
Shares Outstanding during the Period 6,670,000 6,669,000 6,670,000 6,669,000
------------- ------------- ------------- -------------
Effect of Dilutive Securities
Options 0 15,000 0 16,000
------------- ------------- ------------- -------------
Weighted Number of Common Shares and
Dilutive Potential Common Stock used
in Diluted EPS 6,670,000 6,684,000 6,670,000 6,685,000
============= ============= ============= =============
</TABLE>
Options on 137,000 shares of common stock were not included in computing EPS
assuming dilution for the nine-month period and the three-month period ended
February 29, 2000 because their effects were antidilutive. Options on 58,000
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 ended
February 28, 1999 because their effects were antidiultive.
4
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ITEM 2 - MANAGEMENT'S 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. 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 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 February 29, 2000 compared with Three Months Ended
---------------------------------------------------------------------
February 28, 1999
------------------
Revenues for the quarter were $2,343,000 as compared to $4,677,000 for
the same period last year. Delays by the Air Force in releasing its
requirements for ejection seat sequencers, in addition to the lack of
some customer supplied items necessary for other product shipments,
were the major reason for the lower revenues. Although most delays are
expected to clear in the fourth quarter, the Air Force sequencer
release will probably be delayed further such that revenues will not be
recognized within the fiscal year.
The Patriot Advanced Capability (PAC-3) anti-missile program,
previously a program that was delayed by the government earlier in the
year, has been awarded to Hi-Shear and activity has started moving
forward rapidly. The Company has started work on the manufacturing of
its innovative PAC-3 anti-missile electronic firing system according to
the Army's initial production schedule. The PAC-3 anti-missile
represents the significant upgrades that the Army is making to its
National Missile Defense program and is scheduled to expand rapidly
from low rate production to full production over the next two years.
Gross profits for the quarter ended were $858,000 or 37% of revenues as
compared to $1,374,000 or 29% of revenues for the same period last
year. Although the lower volume of revenue negatively impacted gross
profits for the quarter, gross profits measured as a percent of revenue
increased substantially as the result of production efficiencies
generated by the implementation of lean manufacturing techniques and
additional production capabilities. The quarter's selling and
administrative expenses of $736,000 were slightly higher than the
$696,000 spent during the same period last year as the result of
significant new business proposal efforts, which reflect the Company's
continued pursuit of strategic business opportunities and increased
marketing efforts.
5
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Research and development spending for the quarter increased to $126,000
compared to $97,000 for the same period last year, and reflects
spending for innovative new satellite product and significant laser
technology development efforts performed during the quarter. As a
result of these expenses and the lower volume of shipments made during
the period, an operating loss of $4,000 was incurred compared to the
operating income of $581,000 for the same period last year. Interest
expenses for the quarter were $128,000, and reflects the costs of
accumulated equipment and property purchases and increased inventory
levels during the period. The provision for Income Tax Credits reflects
a portion of the deferred tax asset which approximates the quarter's
portion of expected annual realization.
As a result of the above, net income for the third quarter was $34,000
compared to a net income of $591,000 for the same period last year.
Nine Months Ended February 29, 2000 compared with Nine Months Ended
-------------------------------------------------------------------
February 28, 1999
-----------------
Revenues for the nine months were $7,909,000 as compared to $11,313,000
last year. Some government programs were not released until later in
the fiscal year than expected, and were the major reason for the lower
revenues recognized during the period. In addition, some customer
provided items necessary for product shipment from inventory were not
received, preventing revenue recognition of those products during the
period. These items are expected to be received in the fourth quarter
allowing shipment of these products from inventory in the fiscal year.
Gross profit for the nine months was $2,818,000 or 36% of revenues as
compared to $3,749,000 or 33% of revenues in the first nine months of
last year. The increase in gross profits measured as a percent of
revenue is the result of the Company's continuing efforts to improve
production efficiencies and capabilities. Selling and administrative
expenses of $2,423,000 for the nine months of fiscal 2000 were at the
same level as last year.
Research and development spending was $413,000 compared to the $420,000
in the prior year and reflects the Company's continuing investment in
new product development. The resulting operating loss for the first
nine months of fiscal year 2000 was $18,000 compared to operating
income of $963,000 for the same period last year. Interest expense
during the nine months reflects higher borrowing related to accumulated
new equipment purchases, purchase of property and increased inventories
during the period. The provision for Income Tax Credits reflects a
portion of the deferred tax asset which approximates the nine months
portion of expected annual realization.
As a result of the above, net income for the first nine months of
fiscal year 2000 was $142,000 or $.02 per share as compared to a net
income of $969,000 or $.15 per share in last year's comparable period.
Santa Clarita Property Developments
-----------------------------------
The Company owns and maintains a 16-acre property in Santa Clarita,
California. The facility is currently used for the blending and storage
of pyrotechnic base mixes. There has been extensive residential and
commercial development in the area of the property, and this has
significantly increased the value of this property. In addition, the
construction of a connector highway to provide easy on and off access
to the local freeway has been approved. The property is located in the
Santa Clarita Business Park development area in which 220 acres of
commercial development has been approved for this Business Park.
6
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In light of these developments Hi-Shear has obtained approval to
perform the functions formerly performed at the Santa Clarita site at
its Torrance facility. The Company has drawn development plans and has
listed the Santa Clarita property for sale with a commercial real
estate brokerage firm for $3,548,014.
Liquidity and Capital Resources
-------------------------------
During the nine month period ended February 29, 2000, a significant
reduction in accounts payable was made to capture purchase discounts
and to pay invoices for the purchase of new manufacturing equipment
that was received prior to the fiscal year. Inventory rose during the
nine months due to the purchase of key materials required to fulfill
the Company's strategic objective of maintaining key inventory items in
stock in order to speed product delivery time. In addition, certain
contract inventory was not liquidated into revenues during the period
due to program timing delays and the lack of some customer supplied
items. This inventory will be reduced as these program timing delays
are cleared and products are shipped from inventory during the fourth
quarter.
To further expand Hi-Shear's production capability, additional
machining and test equipment was purchased and installed during this
fiscal year. Also, the amount of the Company's credit facility was
increased from $3,500,000 to $5,500,000 allowing for future working
capital needs. This increase in the credit facility was made without an
increase in interest rate.
Computer Systems and the Year 2000
----------------------------------
The Company has installed a system whose software is Year 2000
compliant. As of the date hereof, 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 2000.
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
Mr. George W. Trahan was named Chief Executive Officer and Co-chairman
upon the retirement of Mr. Thomas R. Mooney, the former CEO, in early
March. Mr. Trahan is a Director of the Company and has served as
Executive Vice President from 1993 until his election as President in
June 1998. Mr. Mooney will remain as a Director and Co-chairman and
will be available to the Company under a five-year consulting
agreement.
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: April 14, 2000 By: /s/ George W. Trahan
----------------------- ------------------------
George W. Trahan
President and CEO
Date: April 14, 2000 By: /s/ Gregory J. Smith
----------------------- ------------------------
Gregory J. Smith
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> FEB-29-2000
<CASH> (53)
<SECURITIES> 0
<RECEIVABLES> 5323
<ALLOWANCES> 0
<INVENTORY> 5861
<CURRENT-ASSETS> 12897
<PP&E> 4385
<DEPRECIATION> 419
<TOTAL-ASSETS> 17383
<CURRENT-LIABILITIES> 6390
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 8789
<TOTAL-LIABILITY-AND-EQUITY> 17383
<SALES> 7909
<TOTAL-REVENUES> 7909
<CGS> 5091
<TOTAL-COSTS> 2836
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 306
<INCOME-PRETAX> (324)
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<INCOME-CONTINUING> 142
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<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
