<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, 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
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(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 November 30, 1999. Transitional Small Business
Disclosure Format (Check one): [ ] Yes [X] No
i
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HI-SHEAR TECHNOLOGY CORPORATION
INDEX
PAGE NO.
--------
PART 1 - FINANCIAL INFORMATION
Condensed consolidated Balance Sheets ................................1
November 30, 1999 and May 31, 1999
Condensed consolidated Statement of Operations .......................2
three months and six months ended
November 30, 1999 and 1998
Condensed consolidated Statement of Cash Flow ........................3
six months ended November 30, 1999
and 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
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<TABLE>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
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<CAPTION>
NOVEMBER 30, MAY 31,
1999 1999
-------------------- --------------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalent $ (33,000) $ 33,000
Accounts Receivable 5,498,000 7,302,000
Inventories 4,868,000 3,275,000
Deferred taxes 1,536,000 1,200,000
Prepaid expenses and other current assets 137,000 112,000
-------------------- --------------------
Total current assets 12,006,000 11,922,000
Land 1,128,000
Equipment, Net 3,309,000 3,390,000
Other Assets
Other intangible assets 102,000 105,000
-------------------- --------------------
$ 16,545,000 $ 15,417,000
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 3,123,000 $ 1,701,000
Current portion of long-term debt 702,000 348,000
Trade Accounts payable 784,000 2,338,000
Accrued payroll and related costs 518,000 673,000
Other accrued liabilities 221,000 338,000
-------------------- --------------------
Total current liabilities 5,348,000 5,398,000
Long-Term Debt 1,952,000 811,000
-------------------- --------------------
Total liabilities 7,300,000 6,209,000
Excess of Net Assets Acquired Over Purchase Price 483,000 553,000
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 Nov. 30, 1999 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 1,562,000 1,455,000
-------------------- --------------------
Total stockholders' equity 8,762,000 8,655,000
-------------------- --------------------
TOTAL $ 16,545,000 $ 15,417,000
==================== ====================
See notes to financial statements.
</TABLE>
1
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<TABLE>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
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<CAPTION>
SIX-MONTH PERIOD THREE-MONTH PERIOD
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES $ 5,566,000 $ 6,636,000 $ 2,008,000 $ 3,914,000
Cost of Revenues 3,606,000 4,262,000 1,229,000 2,695,000
--------------- --------------- --------------- ---------------
GROSS PROFIT 1,960,000 2,374,000 779,000 1,219,000
Selling, General and Administrative Expenses 1,687,000 1,669,000 837,000 828,000
Research and Development Expenses 287,000 324,000 131,000 115,000
--------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS) (14,000) 381,000 (189,000) 276,000
Interest (Expense) (178,000) (115,000) (95,000) (69,000)
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES AND TAX CREDITS (192,000) 266,000 (284,000) 207,000
Provision for Income Taxes Credits (300,000) (112,000) (200,000) (60,000)
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ 108,000 $ 378,000 $ (84,000) $ 267,000
=============== =============== =============== ===============
NET INCOME PER COMMON SHARE $ 0.02 $ 0.06 $ (0.01) $ 0.04
=============== =============== =============== ===============
NET INCOME PER COMMON SHARE
ASSUMING DILUTION $ 0.02 $ 0.06 $ (0.01) $ 0.04
=============== =============== =============== ===============
WEIGHTED NUMBER OF COMMON SHARES 6,670,000 6,669,000 6,670,000 6,669,000
=============== =============== =============== ===============
WEIGHTED NUMBER OF COMMON SHARES
ASSUMING DILUTION 6,671,000 6,676,000 6,670,000 6,671,000
=============== =============== =============== ===============
See notes to financial statements
</TABLE>
2
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<TABLE>
HI-SHEAR TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
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<CAPTION>
SIX-MONTH PERIOD
ENDED NOVEMBER 30,
-------------------------------------
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 108,000 $ 378,000
Adjustments to reconcile net income
to net cash used in provided by
operating activities:
Depreciation and amortization 276,000 217,000
Amortization of excess of net assets
acquired over purchase price (69,000) (69,000)
Deferred taxes (336,000) (132,000)
Changes in assets and liabilities:
Accounts receivable 1,804,000 427,000
Inventories (1,593,000) (1,142,000)
Prepaid expenses and other assets (25,000) ---
Accounts payable (1,554,000) 374,000
Accrued payroll and related costs (155,000) 133,000
Other accrued liabilities (117,000) (28,000)
--------------- ---------------
Net cash provided by (used in) operating activities (1,661,000) 158,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property (1,128,000) ---
Purchase of equipment (193,000) (245,000)
--------------- ---------------
Net cash flow from investing activities (1,321,000) (245,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on note payable to bank 1,422,000 825,000
Proceeds from stock options exercised --- 2,000
Proceeds from long-term debt 1,630,000 ---
Principal payments on long-term debt (136,000) (90,000)
--------------- ---------------
Net cash provided by
(used in) financing activities 2,916,000 737,000
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (66,000) 650,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 33,000 235,000
--------------- ---------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ (33,000) $ 885,000
=============== ===============
See notes to financial statements
</TABLE>
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.
Six-Month Period Ended November 30,
-------------------------------------
1999 1998
Net Income $ 108,000 $ 378,000
=============== ===============
Weighted Number of Common Outstanding
during the period 6,670,000 6,669,000
--------------- ---------------
Effect of Dilutive Securities Options 1,000 7,000
--------------- ---------------
Weighted Number of Common Shares and
Dilutive Potential Common Stock used
in Diluted EPS 6,671,000 6,676,000
=============== ===============
Options on 145,000 shares of common stock were not included in computing EPS
assuming dilution for the six-month period ended November 30, 1999 because their
effects were antidilutive. 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
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, 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, 1999, compared with Three Months Ended
- ----------------------------------------------------------------------
November 30, 1998
- -----------------
Revenues for the quarter were $2.0 million as compared to $3.9 million for the
same period last year. Program timing changes from the United States Government
were the major reason for the lower revenues recognized during the period. In
addition some customer provided items necessary for product shipment were
delayed, preventing revenue recognition of those products during the period.
These delays are expected to clear in subsequent periods of the fiscal year.
Gross profits for the quarter ended were $779,000 or 39% of revenues as compared
to $1,219,000 or 31% of revenues for the same period last year. Although the
lower volume of revenue negatively impacted gross profits for the quarter, gross
profits as a percent of revenue increased substantially as the result of
production efficiencies generated by the implementation of lean manufacturing
techniques. The quarter's selling and administrative expenses of $837,000 were
at the same level as last year. These amounts reflect the Company's continued
pursuit of strategic business opportunities and increased marketing efforts.
Research and development spending for the quarter was $131,000 compared to
$115,000 for the same period last year and reflects spending for new satellite
product and laser technology development efforts. As a result of these expenses
and the lower volume of shipments made during the period, operating loss for the
period was $189,000 compared to the operating income of $276,000 for the same
period last year. Interest expenses for the quarter were $95,000 and reflect
increased borrowing during the period. The provision for Income Tax Credits
reflects a portion of the deferred tax asset which approximates the quarters
portion of expected annual realization.
5
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As a result of the above, net loss for the second quarter was $84,000 compared
to a net income of $267,000 for the same period last year.
Six Months Ended November 30, 1999 compared with Six Months Ended
- ------------------------------------------------------------------------------
November 30, 1998
- -----------------
Revenues for the six months were $5.6 million as compared to $6.6 million last
year. Program timing changes from the United States Government that affected the
second quarter were the major reason for the lower revenues. Gross profit for
the six months was $2.0 million or 35% of revenues as compared to $2.4 million
or 36% of revenues in the first six months of last year. Gross profits during
the six-month period reflects the improved gross margin experienced during the
second quarter and resulted from improved production efficiencies. Selling and
administrative expenses of $1.7 million for the six months of fiscal 2000 were
at the same level as last year.
Research and development spending was $287,000 compared to the $324,000 in the
prior year and reflect the Company's continuing investment in new product
development. The resulting operating loss for the first six months of fiscal
year 2000 was $14,000 compared to operating income of $381,000 for the same
period last year. Interest expense during the six months reflects higher
borrowing during the period. The provision for Income Tax Credits reflects a
portion of the deferred tax asset which approximates the six months portion of
expected annual realization.
As a result of the above, net income for the first six months of fiscal year
2000 was $108,000 or $.02 per share as compared to a net income of $378,000 or
$.06 per share in last year's comparable period.
Liquidity and Capital Resources
- -------------------------------
During the six month period ended November 30, 1999, a significant reduction in
accounts payable was made to capture purchase discounts and to pay invoices for
the purchase of new manufacturing equipment acquired prior to the fiscal period.
Inventory rose during the six 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. This inventory will be reduced as these program
timing delays are cleared and products are shipped during the third quarter.
Primarily because of the efforts outlined above, the Company experienced a
negative cash flow of $1.7 million from operations for the first six months of
fiscal 2000 as compared with a positive cash flow of $158,000 for the comparable
six months of fiscal 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 has installed a system whose software is Year 2000 compliant.
6
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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.
As of the date hereof, the Company has experienced no problems relating to Year
2000 compliance. However, the full extent of potential problems relating 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.
7
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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: January 14, 2000 By: /s/ Thomas R. Mooney
-------------------- -----------------------------------
Thomas R. Mooney
Chairman and CEO
Date: January 14, 2000 By: /s/ George W. Trahan
-------------------- -----------------------------------
George W. Trahan
President and COO
Date: January 14, 2000 By: /s/ Gregory J. Smith
-------------------- -----------------------------------
Gregory J. Smith
Chief Accounting Officer
8
<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>
<CIK> 0000918027
<NAME> Hi-Shear Technology Corporation
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<EXCHANGE-RATE> 1
<CASH> (33)
<SECURITIES> 0
<RECEIVABLES> 5,498
<ALLOWANCES> 0
<INVENTORY> 4,868
<CURRENT-ASSETS> 12,006
<PP&E> 4,437
<DEPRECIATION> 276
<TOTAL-ASSETS> 16,545
<CURRENT-LIABILITIES> 5,348
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0
0
<COMMON> 7
<OTHER-SE> 8,755
<TOTAL-LIABILITY-AND-EQUITY> 16,545
<SALES> 5,566
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<CGS> 3,606
<TOTAL-COSTS> 1,974
<OTHER-EXPENSES> 0
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<INCOME-TAX> (300)
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<CHANGES> 0
<NET-INCOME> 108
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
