10-Q 1 a2034980z10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM I0-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2000 ----------------- Commission file number 1-7633 ------ Hi-Shear Industries Inc. ----------------------- (Exact name of registrant as specified in its charter) A Delaware Corporation I.R.S Employer Identification No. 11-2406878 3333 New Hyde Park Road, North Hills, New York 11042 Registrant's telephone number, including area code: (516) 627-8600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ 5,854,618 Common Shares were outstanding as of January 8, 2001. HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES INDEX

Page Number ------ Part I. Financial Information: Item 1. Financial Statements: Consolidated Balance Sheets as of ~~August~~November 3130, 2000 and May 31, 2000 1 Consolidated Statements of Operations for the three and six months ended ~~August~~November 3130, 2000 and 1999 2 Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~August~~November 3130, 2000 and 1999 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk 7 Part II. Other Information: 7

HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(000 Omitted) ----------------------------- ~~August~~November 3130, May 31, 2000 2000 -------------- ----------- (Unaudited) ASSETS Current assets: Cash and equivalents $~~154~~133 $70 Other 5939 52 -------------- ----------- Total current assets ~~213~~172 122 Property and equipment, at cost 175 175 Less: Accumulated depreciation (~~152~~159) (147) -------------- ----------- Net property and equipment 2316 28 Other assets 4,586 4,654 -------------- ----------- $4,~~822~~774 $4,804 ============== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Advances from officer $~~400~~500 $300 Accrued income taxes 3436 18 Other accrued expenses ~~255~~239 126 -------------- ----------- Total current liabilities ~~689~~775 444 Stockholders' equity: Common stock 614 614 Paid-in capital 11,153 11,153 Accumulated deficit (45,~~930~~064) (4,703) Less treasury stock (2,704) (2,704) -------------- ----------- Total stockholders' equity 43,~~133~~999 4,360 -------------- ----------- $4,~~822~~774 $4,804 ============== ===========

See notes to consolidated financial statements. -1- HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (000's ~~omitted~~Omitted except per share data) ----------------------------------------------- Three Months Ended Six Months Ended ----------------------------------------------- ~~August~~November 3130, November 30, 2000 1999 2000 1999 ---------------------- ---------------------- General and administrative expense $~~212~~117 $~~344~~268 $329 $612 Gain on sale of land - - - (1,037) Interest (income) expense 1012 (96) 22 (15) ---------------------- ---------------------- Income (Loss) Before Income Taxes (~~222~~129) ~~702~~(262) (351) 440 Provision for income taxes 5 5 10 10 ---------------------- ---------------------- Net Income (Loss) ($~~227~~134) ($~~697~~267) ($361) $430 ====================== ====================== Basic and diluted earnings per common share: Net Income (Loss) ($0.0402) ($0.1205) ($0.06) $0.07 ====================== ====================== Weighted average common shares outstanding 5,855 5,855 5,855 5,855 ====================== ======================

See notes to consolidated financial statements. -2- HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (000 Omitted) -------------------- ~~Three~~Six Months Ended ~~August~~November 3130, 2000 1999 -------------------- Cash flows from operating activities: Net income (loss) ($~~227~~361) $~~697~~430 Adjustments to reconcile net income (loss) to net cash used for operating activities: Depreciation and amortization 512 48 Increase (decrease) in accrued income taxes 1618 (1413) Gain on sale of land -- (1,037) Increase (decrease) in other accrued expenses ~~129~~113 (1626) Decrease (increase) in other assets 6181 (~~115~~149) -------------------- Net cash used for operating activities (16137) (~~481~~787) -------------------- Cash flows from investing activities: Proceeds from sale of land -- 1,117 -------------------- Net cash provided by investing activities -- 1,117 -------------------- Cash flows from financing activities: Proceeds from advances from officer ~~100~~200 -- -------------------- Net cash provided by ~~investing~~financing activities ~~100~~200 -- -------------------- Net increase in cash and cash equivalents 8463 ~~636~~330 Cash and cash equivalents - beginning of period 70 33 -------------------- Cash and cash equivalents - end of period $~~154~~133 $~~669~~363 ====================

See notes to consolidated financial statements. -3- HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying consolidated financial statements of Hi-Shear Industries Inc. and its subsidiaries (The Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The interim financial statements presented herein have not been audited by independent public accountants, but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. However, these results are not necessarily indicative of results for any other interim period or for the full year. The consolidated balance sheet data presented herein for May 31, 2000 was derived from the Company's audited consolidated financial statements for the fiscal year then ended. The preparation of financial statements in accordance with generally accepted accounting principles requires the Company's management to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended May 31, 2000. With the sale of Hi-Shear Corporation and Subsidiaries ("HSC") on February 26, 1996, the Company no longer conducts an operating business. The Company currently anticipates that upon final resolution of its claims against the U.S. Navy, it will complete the distribution of its assets to stockholders and seek stockholder approval to dissolve the Company. Until that time, management's plans to continue as a going concern include reducing expenses and obtaining bank or officers' loans, as required. Note B - Contingencies On January 31, 1996, the Company filed damage claims against the U.S. Navy totaling $62.9 million arising from the termination of two contracts held by a subsidiary, Defense Systems Corporation. The government audited these claims but did not express a willingness to negotiate a settlement of these claims with the Company. As a result, on February 11, 1997, the Company filed an appeal before the Armed Services Board of Contract Appeals requesting an adjudication of this dispute. At a hearing which concluded September 17, 1998, the Board heard evidence regarding this matter and on March 17, 2000 issued its decision awarding the Company claim damages totaling $18,410,000 plus interest. On July 17, 2000 the Company received notification that the Justice Department had filed an appeal regarding this decision. This appeal was subsequently withdrawn on November 19, 2000. Payment of the damage award is now subject to the submission of required paperwork by both parties to the US Treasury. The Company had previously written off additional costs associated with this matter due to uncertainty of the outcome, however, since the rendering of the favorable decision in May 1995 by the Armed -4- Services Board of Contract Appeals, the Company began capitalizing additional costs incurred, primarily claims preparation and legal, as claims receivable. At November 30, 2000 and May 31, 2000 claims receivable of $4.6 million are included as other long term assets on the balance sheet, as management believes such amounts are reasonable and collectable. In addition, the Company has netted deferred legal cost, subject to negotiations, against other assets for both periods of approximately $1.8 million which will be settled upon final resolution of the claim with the U.S. Navy. Since the timing of recovery of these claims cannot presently be determined, no recognition from any settlement proposal, other than the claim receivable noted above, has been reflected in the accompanying financial statements. Subsequent to the completion of the trial against the U.S. Navy, certain employees involved in preparing the case were promised a discretionary bonus contingent upon the successful recovery of monetary claims. In this regard, the Company has entered into agreements with two of these individuals providing for the payment of bonuses totaling 8% of the claim proceeds recovered. Note C - Net Income Per Share Basic net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of common and common equivalent shares outstanding during the period. The Company did not have any common equivalent shares outstanding during the three and six month periods ended November 30, 2000 and 1999. Note D - Sale of Land On June 4, 1999, in accordance with the terms of a lease between HSI Properties Inc., a wholly owned subsidiary of the Company, and Hi-Shear Technology Corporation (HSTC) a former subsidiary, dated June 4, 1993, HSTC exercised its option to purchase the property it was leasing in Saugus California. The sales price was $1,124,864. Proceeds from the sale were used as working capital by the Company. Note E - Advances From Officer of The Company On March 1, 2000, David A. Wingate, Chairman, President and Chief Executive of Hi- Shear Industries Inc. entered into an agreement with a bank to obtain a $500,000 unsecured line of credit at an interest rate of prime + 1.5%. Mr. Wingate is making these funds available to the Company at essentially the same rate of interest. At November 30, 2000 the Company had been advanced the full $500,000 against this line. -5- Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations On February 26, 1996, the Company sold its last remaining operating entity, Hi-Shear Corporation and its subsidiaries and effectively ceased operations. Since that time the Company has reduced corporate staff and expenses to a minimum level. During the six month periods ended November 30, 2000 and 1999, corporate overhead totaled $329,000 and $612,000 , respectively, which consist primarily of the ongoing costs necessary to pursue the settlement of the Company's dispute with the U.S. Navy. During the prior six month period the Company recorded a gain on the sale of land held by the Company. The interest expense reported during the current period relates to advances received from corporate officer. The interest income reported during the prior period was due to interest earned on the investment of the proceeds retained from the sale land. Liquidity and Capital Resources On February 26, 1996, the Company completed the sale of Hi-Shear Corporation to GFI Industries S.A. for a total purchase price of $46 million generating net proceeds from the sale , after deducting transaction costs, of $44.4 million. Of that amount, approximately $13 million was used to repay all amounts outstanding under the Company's loan agreements and the remaining balance was deposited in short term investment accounts. The Company has previously announced its intention to liquidate and distribute the proceeds from this sale as well as any settlement received from the resolution of the Company's long standing dispute with the U.S. Navy. In this regard, the Company made an initial liquidating distribution to shareholders of approximately $23.4 million ($4 per share) on August 1, 1996. At November 30, 2000 the Company had $133,000 remaining in cash and cash equivalents. The Company's cash requirements include ongoing costs relating to pursuing the settlement of the Company's dispute with the U.S. Navy and normal recurring general and administrative expenses. The Company is taking measures to further reduce expenses and anticipates that existing cash and cash equivalents and additional advances from officers will be sufficient to satisfy the Company's cash requirements through the time of settlement with the U.S. Navy, which management estimates to be during the third quarter of the current fiscal year and final liquidation of the Company. Forward Looking Statements The statements in this Management's Discussion and Analysis which are not historical fact are forward looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are subject to risks and uncertainties, including, but not limited to uncertainties surrounding the Company's dispute with the U.S. Navy which could cause actual results to vary materially from those discussed herein. -6- Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None Item 2. CHANGES IN SECURITIES None Item 3. DEFAULT UPON SENIOR SECURITIES None Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K On November 20, 2000, the Company announced that the U.S. Navy had withdrawn its appeal of a decision issued March 17, 200, awarding the Company $18,410,414 plus interest. -7- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HI-SHEAR INDUSTRIES INC. By: /s/ David A. Wingate ---------------------------------- David A. Wingate, Chairman, President & Chief Executive By: /s/ Victor J. Galgano ---------------------------------- Victor J. Galgano, Vice President & Chief Financial Officer Date: January 10, 2001 -8-

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