-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NHtuIPCIYtYkZBnOxCisI/Em0+f+m3bXKC46dKkoKAjCXGZzNOJtLwyidOZ3EdE5 be/dRniQDtFKuD5PgUppLQ== 0001005477-97-001833.txt : 19970714 0001005477-97-001833.hdr.sgml : 19970714 ACCESSION NUMBER: 0001005477-97-001833 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970711 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERTZ TECHNOLOGY GROUP INC CENTRAL INDEX KEY: 0001020726 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 133896069 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21679 FILM NUMBER: 97639386 BUSINESS ADDRESS: STREET 1: 75 VARICK ST STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013-1917 BUSINESS PHONE: 2126844141 MAIL ADDRESS: STREET 1: 75 VARICK STREET STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 10QSB 1 FORM 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended May 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1939 For the transition period from ___________ to ___________ Commission File Number: 0-21679 HERTZ TECHNOLOGY GROUP, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 13-3896069 - ------------------------------------- ---------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) identification number) 75 Varick Street 10013 - ----------------------------------------------- ---------------------------- (Address of principal executive offices) (Zip Code) 212-634-4000 --------------------------------- (Issuer's telephone number) - -------------------------------------------------------------------------------- (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 subject to such filing requirements for the past 90 days. Yes |X| No |_| State the number of shares outstanding of each of the issuer's classes of Common equity, as of the latest practicable date. July 7, 1997 Common Stock, par value $.001 per share 3,165,000 - -------------------------------- ------------------------- Class Shares Outstanding HERTZ TECHNOLOGY GROUP, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES MAY 31, 1997 INDEX Page PART I. Financial Information Item 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of May 31, 1997 and August 31, 1996 3 Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 1997 and May 31, 1996 4 Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 1997 and May 31, 1996 5 Notes to Financial Statements 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1997 8 PART II. Other Information Item 6. Exhibit Index 12 SIGNATURES 13 HERTZ TECHNOLOGY GROUP CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS MAY 31, AUGUST 31, 1997 1996 ---- ---- Unaudited --------- CURRENT ASSETS: Cash and cash equivalents $ 363,041 275,529 Marketable securities 3,518,738 - Accounts receivable, less allowance for doubtful accounts of $153,869 and $123,869 respectively 1,363,948 1,756,454 Inventories 875,133 999,273 Prepaid expenses and other current assets 305,412 482,440 -------------------------- Total current assets 6,426,272 3,513,696 -------------------------- PROPERTY AND EQUIPMENT, net 618,695 231,422 -------------------------- GOODWILL, net - 39,604 -------------------------- OTHER ASSETS 50,538 28,612 -------------------------- Total assets $ 7,095,505 3,813,334 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY MAY 31, AUGUST 31, 1997 1996 ---- ---- CURRENT LIABILITIES Notes payable $ - 1,126,372 Accounts payable and accrued expenses 479,599 893,571 Income taxes payable - 247,327 Distribution payable to stockholders - 390,648 Notes payable to stockholder - 246,686 -------------------------- Total current liabilities 479,599 2,904,604 -------------------------- OTHER 19,286 17,962 -------------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.001 par value: 25,000,000 shares authorized, 3,165,000 shares and 1,900,000 issued and outstanding, respectively 3,165 1,900 Additional paid-in capital 5,606,556 124,100 Retained earnings 986,899 764,768 -------------------------- Total stockholders' equity 6,596,620 890,768 -------------------------- Total liabilities and stockholders' equity $ 7,095,505 3,813,334 ==========================
The accompanying notes are an integral part of these condensed balance sheets -3- HERTZ TECHNOLOGY GROUP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1997 AND 1996 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------- ------- 1997 1996 1997 1996 ------------ ----------- ---------- ------------ NET SALES $ 2,762,625 $ 3,108,985 $ 8,684,456 $ 9,375,857 COST OF GOODS SOLD 1,852,118 2,156,431 5,568,413 6,532,666 ------------ ----------- ----------- ------------- Gross Profit 910,507 952,554 3,116,043 2,843,191 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 619,201 688,855 2,197,557 2,072,388 PROVISION FOR CLOSING COSTS OF HERTZ ISRAEL - - 158,749 - ------------ ----------- ----------- ------------- 619,201 688,855 2,356,306 2,072,388 ------------ ----------- ----------- ------------- Operating income 291,306 263,699 759,737 770,803 OTHER INCOME (EXPENSE): Other (102,359) 9,323 (98,316) 9,323 Interest, net 78,621 (60,747) 104,328 (148,113) ------------ ----------- ----------- ------------- Income before provision for income taxes 267,568 212,275 765,749 632,013 PROVISION FOR INCOME TAXES 55,520 102,896 204,985 244,500 ------------ ----------- ----------- ------------- Net income $ 212,048 $ 109,379 $ 560,764 $ 387,513 ============ =========== =========== ============= NET INCOME PER SHARE $ 0.06 - 0.17 - ============ =========== =========== ============= HISTORICAL INCOME BEFORE PROVISION FOR INCOME TAXES $ 212,275 $ 765,749 $ 632,013 UNAUDITED PROFORMA PROVISION FOR INCOME TAXES 131,642 307,062 366,233 ----------- ----------- ------------- PRO FORMA NET INCOME $ 80,633 $ 458,687 $ 265,780 =========== =========== ============= PRO FORMA NET INCOME PER SHARE $ 0.04 $ 0.14 $ 0.14 =========== =========== ============= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 3,665,652 1,900,000 3,223,782 1,900,000 ============ =========== =========== =============
The accompanying notes are an integral part of these condensed statements. -4- HERTZ TECHNOLOGY GROUP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW NINE MONTHS ENDED MAY 31, 1997 AND 1996 (UNAUDITED)
NINE MONTHS ENDED MAY 31, ------- 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 560,763 $ 387,510 Adjustments to reconcile net income to net cash used in operating activities- Depreciation and amortization 92,746 39,741 Bad debt expense 30,000 46,246 Changes in operating assets and liabilities- Accounts receivable 360,867 280,064 Inventories 124,141 (47,321) Due from related parties - 17,276 Prepaid expenses and other current assets 177,028 (69,790) Other assets (21,928) (43,288) Accounts payable and accrued expenses (413,979) (442,930) Income taxes payable (247,323) 184,529 Other liabilities 1,324 (15,617) -------------- ------------ Net cash provided by (used in) operating activities 663,639 336,420 -------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property and equipment (480,018) (82,623) Purchase of marketable securities (3,518,738) - -------------- ------------ Net cash used in investment activities (3,998,756) (82,623) -------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: (Repayments) borrowings under notes payable to other banks - 103,644 Repayment of credit line to a bank (1,126,372) - Proceeds from issuance of common stock and warrants, net of underwriting expense 6,053,025 - Payments of registration costs of common stocks and warrants (569,304) - Net (repayments) under note payable to stockholder (246,686) (195,127) Sub S distribution to stockholder (688,034) - -------------- ------------ Net cash provided by financing activities 3,422,629 (91,483) -------------- ------------ Net increase in cash and cash equivalents 87,512 162,314 CASH and cash equivalents, beginning of period 275,529 121,929 -------------- ------------ CASH and cash equivalents, end of period $ 363,041 $ 284,243 ============= =========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 21,683 $ 117,275 Income taxes paid $ 341,873 $ 79,972
The accompanying notes are an integral part of these condensed statements. -5- HERTZ TECHNOLOGY GROUP, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) May 31, 1997 1. BASIS OF PRESENTATION AND OPERATIONS The accompanying consolidated financial statements are unaudited and in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation in accordance with generally accepted accounting principles and with the instructions to Form 10QSB. Operating results for the three month and nine month periods ended May 31, 1997 are not necessarily indicative of the results that may be expected for the year ended August 31, 1997. For further information, refer to the financial statements and footnotes thereto included in the Hertz Technology Group, Inc. ("Hertz" or the "Company") audited financial statements for the year ended at August 31, 1996. Income Taxes Hergo, with the consent of its stockholders, elected to be treated as an S Corporation for federal and state tax purposes, which provides that, in lieu of Hergo paying income taxes, the stockholders separately account for their pro rata shares of Hergo's items of income, deductions, losses and credits. Effective November 12, 1996, the date of the Company's IPO, Hergo's S Corporation status was terminated and effective November 13, 1996 Hergo is a C Corporation. As such, Hergo did not incur federal income tax expense, although it did incur state and local tax expense for the September 1, 1996 through November 12, 1996 period. Immediately subsequent to this date, Hergo incurred federal income tax expense. Hertz Computer is a C corporation which incurs federal, state and local income tax expense. Pro Forma Net Income Pro forma net income is calculated as if Hergo were a C corporation for tax filing purposes during the nine month period ended May 31, 1997 and for the three and nine month periods ended May 31, 1996. As such, an effective tax rate of approximately 46% was used in calculating Hergo's pro forma income tax provision for these periods. The Company has included the effect of the warrants as if they were exercised in the calculation for pro forma net income per share. Net Income Per Share Pro forma net income per share has been computed by dividing pro forma net income by the weighted average number of shares of common stock outstanding during the periods as if the Company was recapitalized on September 1, 1995. The Company has included the effect of the warrants as if they were exercised in the calculation for net income per share. -6- 2. RECAPITALIZATION Effective November 12, 1996, the date of the initial public offering, Hertz Computer Corporation ("Hertz Computer") and Hergo Ergonomic Support Systems, Inc. ("Hergo"), two entities under common control, were acquired by the Company (which was owned by the same shareholders) and became wholly owned subsidiaries. Accordingly, the financial statements are presented as consolidated for all periods presented. Hertz Computer owns 100% of Hertz Computer Information System (1985) Ltd. ("Hertz-Israel"). On November 12, 1996, the Company registered 1,100,000 units, each unit consisting of one share of common stock, $.001 par value per share and two Class A warrants at an IPO price of $5.50 per unit. The warrants are exercisable for a four year period commencing one year from the effective date of the IPO at a price of $5.50. On November 18, 1996, the underwriter of the IPO exercised its over-allotment option to purchase 165,000 units from the Company (165,000 shares and 330,000 warrants) at $5.50 per unit. The Company realized proceeds from the sale of the units of $5,483,721 net of commissions and offering expenses of $1,473,778. Upon realizing these proceeds, the Company repaid $1,126,000, $246,686 and $688,000, respectively, relating to its credit line to a bank, note payables to shareholders and its distribution payable to shareholders related to the retained S Corporation earnings in Hergo. 3. PROVISION FOR CLOSING COSTS OF HERTZ -ISRAEL During the three month period ended February 28, 1997, the Company recorded a provision of $158,749 for the closing costs of Hertz-Israel. This represents a provision for write downs of property and equipment, goodwill and other closure related costs. The Company expects to close Hertz-Israel and liquidate its assets by the end of the fiscal year. 4. EARNINGS PER SHARE The Company will adopt SFAS No. 128, "Earning Per Share" during fiscal 1998. This statement establishes standards for computing and presenting earnings per share (EPS), replacing the presentation of currently required primary EPS with a presentation of basic EPS. The pro forma effect of this statement for the nine-month period ended May 31, 1997 is immaterial. When adopted, the Company will be required to restate its EPS data for all prior periods presented. The Company does not expect the impact of the adoption of this statement to be material to previously reported EPS amounts. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION General The Company custom designs and assembles PC's and related products and provides technical services and support under the "Hertz" name through its Hertz Computer subsidiary. It also designs, manufactures and sells ergonomically engineered modular support structures and technical furniture for micro computers and electronic devices under the "Hergo" name through its Hergo subsidiary. Three Months and Nine Months Ended May 31, 1997 compared to Three Months and Nine Months Ended May 31, 1996 Net Income Net income for the three months ended May 31, 1997 was $212,000 compared to $109,000 for the three months ended May 31, 1996, a 94% increase. Net income for the nine months ended May 31, 1997 was $561,000 compared to $388,000 for the nine months ended May 31, 1996, a 45% increase. Increases in the three months and nine months net income were due to several factors: increased gross profit percentages attributable to increased Hergo sales, elimination of interest expense due to the repayment of Company loan and lines of credit from the proceeds of the initial public offering and increased interest income generated from the proceeds of the initial public offering. Increased expenses for both the three month and nine month periods were related to the new public corporate structure as well as a non-recurring charge for a loss on marketable securities. Net Sales The Company's net sales for the three months-ended May 31, 1997 were $2.76 million, compared to $3.11 million for the three months-ended May 31, 1996, an 11% decrease. Net sales for the nine months ended May 31, 1997 were $8.68 million compared to $9.38 million, a 7% decrease. Hertz computer net sales declined for the quarter and the nine months due to the completion of some volume purchases by Government agencies in the prior period as well as the closing of Hertz Israel in the prior period. Effective March 1, 1997 the Company has granted the distribution rights to its Hertz PC's to an established, full service computer company in Israel. Hergo net sales increased 64% for the quarter and 57% for the nine months ended May 31, 1997 over the respective prior periods. -8- Gross Profit Gross profit was $911,000 (33% of net sales) and $953,000 (31% of net sales) for the three months ended May 31, 1997 and May 31, 1996, respectively, a decrease of $42,000. Gross profit was $3,116,000 (36% of net sales) and $2,843,000 (30% of net sales) for the nine months ended May 31, 1997 and May 31, 1996, respectively, an increase of $273,000. Increased gross profit percentages were due to the relative sales mix between Hertz and Hergo which offset the reduction in sales for the three month and nine month periods ended May 31, 1997. Also impacting favorably on the gross profit percentages was the closing of the Hertz Israel division, which historically operated at a lower gross margin. Selling General and Administrative Expenses Selling, general and administrative expenses decreased for the quarter ended May 31, 1997 by $70,000, and increased for the nine months ended May 31, 1997 by $125,000, as compared to the preceding respective periods. The primary reason for the decrease in selling, general and administrative expenses for the three months ended May 31, 1997 was the elimination of expenses generated by the Hertz Israel division, which was discontinued on February 28, 1997. For the nine months ended May 31, 1997 there were increased expenses related to the public corporate structure, increases in legal and accounting fees and increased advertising expenses. In addition, expenses were incurred in connection with the relocation of the corporate offices and the computer production facility. Some of these expenses were also offset by the reduction of operational expenditures in Hertz Israel. Other Income and Expenses Interest income increased by $67,000 for the three months and by $104,000 for the nine months ended May 31, 1997 respectively as compared to the proceeding respective periods. This increase is the result of interest income generated by funds from the public offering. Interest Expense decreased by $72,000 and $148,000 for the quarter and nine months ended May 31, 1997 respectively, as compared to the preceding respective periods, due to the repayments of the Company's outstanding loans and lines of credits using the proceeds from the IPO. The increase in interest income was partially offset by a $102,000 loss incurred in the sale of marketable securities. Provision for Closing Costs of Hertz-Israel During the three month period ended February 28, 1997, the Company recorded a provision of $158,749 for the closing costs of Hertz-Israel. This represents a provision for write downs of property and equipment, goodwill and other closure related costs. The Company expects to close Hertz-Israel and liquidate its assets by the end of the fiscal year 1997. -9- Provision for Income Taxes From September 1, 1996 through November 12, 1996 Hergo was classified as a subchapter "S" corporation and incurred no federal corporation tax. The tax provision from November 13, 1996 through May 31, 1997 was calculated at a blended rate between Hertz Computer as a "C" corporation for the full period and Hergo as a "C" corporation from November 13, 1996 through May 31, 1997. The tax provision for the three months ended and the nine months ended May 31, 1997 was $56,000 and $205,000, respectively. The tax provision for the three months and nine months ended May 31, 1996 ($103,000 and $245,000, respectively) was calculated with Hertz Computer as a "C" corporation and Hergo as a subchapter "S" corporation. As a result of management's decision to discontinue Hertz Israel's operations during the quarter ended February 28, 1997 the accumulated losses recorded for financial statement purposes will be recognized in the current year for tax purposes. Liquidity and Capital Resources During the nine-month period ended May 31, 1997 the Company completed an IPO of common stock and warrants, which became effective November 12, 1996. The proceeds from the IPO net of underwriting commissions and expenses totaled $6,053,000. In completing its IPO, the Company incurred additional expenses of $569,000 in connection with the registration of its common stock and warrants. As previously planned, the Company used $1,126,000 of the IPO proceeds to repay its loans and line of credit. As of May 31, 1997 the Company has $3,882,000 in cash and marketable securities as compared to $276,000 in the prior year. The Company has no long term debt. For the nine-months period ended May 31, 1997, the Company generated a positive cash flow from operation of $664,000 as compared to $336,000 for the nine-month period ended May 31, 1996.A positive cash flow was due to the reductions in inventory, accounts receivable and prepaid expenses offset in part by reductions in accounts payable and income taxes payable. Net purchases of fixed assets in the nine months ended May 31, 1997 were $480,000 as compared to $83,000 in the same period last year. The increase was largely due to expenditures related to the relocation of the corporate offices and computer production facility. Concurrent with the effective date of the IPO, as described above, Hergo's status has been changed from a subchapter "S" corporation for federal income tax purposes, to a "C" corporation. In connection with this change Hergo has made a subchapter "S" distribution of $688,000. -10- New Accounting Standards The Financial Accounting Standards Board has issued Statement # 128, "Earnings Per Share", which is effective on December 31, 1997. Had the Company presented it's Earnings Per Share under this standard, the difference would not be material. -11- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION EXHIBIT INDEX ITEM 6. Exhibit Exhibit 27. Financial Data Schedule -12- 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. Hertz Technology Group, Inc Dated: 07/10/97 /s/ Eli E. Hertz ------------------------------------ Eli E. Hertz, Chairman, President And Chief Executive Officer Dated: 07/10/97 /s/ Robert Cohen ------------------------------------ Robert Cohen, Chief Financial Officer -13- EX-27 2 FINANCIAL DATA SCHEDULE
5 Financial Data Schedule Worksheet Commercial and Industrial Companies - Article 5 of Regulation S-X 3-MOS AUG-31-1997 MAY-31-1997 363,041 3,518,738 1,517,817 153,869 875,133 6,426,272 820,534 201,838 7,095,505 479,599 0 0 0 3,165 6,593,455 7,095,505 8,684,456 8,684,456 5,568,413 5,568,413 158,749 30,000 116,217 765,749 204,985 560,764 0 0 0 560,764 .17 0
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