SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
CONTAINS ONLY FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED AUGUST 31, 1996.
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended August 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _______________
Commission file number: 0-21679
Hertz Technology Group, Inc.
- --------------------------------------------------------------------------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 13-3896069
- --------------------------------------------- --------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
75 Varick Street, 11th Floor, New York, NY 10013
- --------------------------------------------- --------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number, including area code: (212) 634-4000
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
- --------------------------------------------------------------------------------
(Title of Class)
Warrants
- --------------------------------------------------------------------------------
(Title of Class)
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 |_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
The Registrant's revenues for the fiscal year ended August 31, 1996 were
$12,159,534.
As of January 13, 1997, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $6,641,250. (based
upon the closing price of issuer's common stock, $.001 par value, as of January
13, 1997). As of January 13, 1997 the Registrant had 3,165,000 shares of common
stock issued and outstanding, $.001 par value.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
Documents Incorporated by Reference: None
<PAGE>
PART 1. Financial Information
ITEM 1. Financial Statements
HERTZ TECHNOLOGY GROUP INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Financial Statements of Hertz Technology Group Inc. and
Subsidiaries
Report of Independent Public Accountants ............................... F-1
Consolidated Balance Sheet - August 31, 1996 .......................... F-2
Consolidated Statements of Operations - For the years
ended August 31, 1996 and August 31, 1995 .......................... F-3
Consolidated Statements of Changes in Stockholders'
Equity - For the years ended September 30, 1996 and
August 31, 1995 .................................................... F-4
Consolidated Statements of Cash Flows - For the years
ended August 31, 1996 and August 31, 1995 ......................... F-5
Notes to Consolidated Financial Statements ............................ F-6
Report of Independent Accountants for Hertz Computer
Information Systems (1985) Ltd. .................................... F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hertz Technology Group, Inc.:
We have audited the accompanying consolidated balance sheet of Hertz Technology
Group, Inc. (a New York corporation) and Subsidiaries as of August 31, 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended August 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Hertz Computers
Information System (1985) Ltd. ("Hertz-Israel"), which statements reflect total
assets and revenues of 19% and 15%, respectively, in 1996 and total revenues of
17% percent in 1995 of the consolidated totals. Those statements were audited by
other auditors whose report has been furnished to us and our opinion, insofar as
it relates to the amounts included for this entity, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Hertz Technology Group, Inc. and Subsidiaries as of
August 31, 1996 and the results of its operations and its cash flows for each of
the two years in the period ended August 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN
New York, New York
December 23, 1996
F-1
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 275,529
Accounts receivable, less allowance for doubtful accounts of $123,869 1,756,454
Inventories 999,273
Prepaid expenses and other current assets 482,440
----------
Total current assets 3,513,696
----------
PROPERTY AND EQUIPMENT, net 231,422
----------
GOODWILL, net of accumulated amortization of $39,604 39,604
----------
OTHER ASSETS 28,612
----------
Total assets $3,813,334
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $1,126,372
Accounts payable and accrued expenses 893,571
Income taxes payable 247,327
Distribution payable to stockholders 390,648
Note payable to stockholder 246,686
----------
Total current liabilities 2,904,604
----------
OTHER 17,962
----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value: 25,000,000 shares authorized,
1,900,000 shares issued and outstanding 1,900
Additional paid-in capital 124,100
Retained earnings 764,768
----------
Total stockholders' equity 890,768
----------
Total liabilities and stockholders' equity $3,813,334
==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-2
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
NET SALES $ 12,159,534 $ 11,220,183
COST OF GOODS SOLD 8,336,963 8,102,977
------------ ------------
Gross profit 3,822,571 3,117,206
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,791,325 2,868,665
------------ ------------
Operating income 1,031,246 248,541
OTHER INCOME (EXPENSE):
Other income (expense), net (38,088) 14,671
Interest, net of interest income of $4,175 and $6,266 (163,327) (131,484)
------------ ------------
Income before provision for income taxes 829,831 131,728
PROVISION FOR INCOME TAXES 289,381 77,615
------------ ------------
Net income $ 540,450 $ 54,113
============ ============
HISTORICAL INCOME BEFORE PROVISION FOR INCOME TAXES
$ 829,831 $ 131,728
PRO FORMA PROVISION FOR INCOME TAXES 478,294 73,602
------------ ------------
Pro forma net income $ 351,537 $ 58,126
============ ============
PRO FORMA NET INCOME PER SHARE $ 0.19 $ 0.03
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
1,900,000 1,900,000
============ ============
SUPPLEMENTARY NET INCOME PER SHARE $ 0.20
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------ -------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, August 31, 1994 $1,900 $124,100 $ 560,853 $ 686,853
Net income for the year ended August 31, 1995 -- -- 54,113 54,113
------ -------- --------- ---------
BALANCE, August 31, 1995 1,900 124,100 614,966 740,966
Net income for the year ended August 31, 1996 -- -- 540,450 540,450
S corporation distributions to stockholders -- -- (390,648) (390,648)
------ -------- --------- ---------
BALANCE, August 31, 1996 $1,900 $124,100 $ 764,768 $ 890,768
====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 540,450 $ 54,113
Adjustments to reconcile net income to net cash (used in) provided by operating
activities-
Depreciation and amortization 103,413 21,200
Bad debt expense 101,869 14,000
Changes in operating assets and liabilities-
Accounts receivable 73,525 (298,293)
Inventories (41,064) (140,849)
Due from related parties 17,276 (22,366)
Prepaid expenses and other assets (435,733) 10,131
Accounts payable and accrued expenses (144,929) (15,616)
Income taxes payable 235,950 (31,758)
Other liabilities 2,345 1,621
Note payable to stockholder 13,230
--------- -----------
Net cash (used in) provided by operating activities 453,102 (394,587)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (112,818) (46,888)
Proceeds from repayment of note receivable from related party -- 8,902
--------- -----------
Net cash used in investing activities (112,818) (37,986)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under notes payable to banks (29,012) (715,259)
Borrowings under notes payable to banks 117,240 1,028,295
Borrowings (payments) under note payable to stockholder (274,912) 176,083
--------- -----------
Net cash (used in) provided by financing activities (186,684) 489,119
--------- -----------
Net increase (decrease) in cash 153,600 56,546
CASH, beginning of year 121,929 65,383
--------- -----------
CASH, end of year $ 275,529 $ 121,929
========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 109,554 $ 111,927
Income taxes paid 93,974 82,947
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996 AND AUGUST 31, 1995
1. COMPANY BACKGROUND AND
SIGNIFICANT ACCOUNTING POLICIES
Recapitalization
The Hertz Technology Group, Inc. (the "Company") was formed on June 18, 1996.
Effective November 12, 1996, on the date of the initial public offering ("IPO")
(Note 11), Hertz Computer Corporation ("Hertz Computer") and Hergo Ergonomic
Support Systems, Inc. ("Hergo"), two entities under common control, were
acquired by the Company (which is owned by the same shareholders) and become
wholly owned subsidiaries. Accordingly, the financial statements are presented
as consolidated. Hertz Computer owns 100% of Hertz Computers Information System
(1985) Ltd. ("Hertz-Israel").
Nature of Business
Hertz Computer and Hergo are both located in New York City and Hertz-Israel is
located in Ashdod, Israel. Hertz Computer assembles and sells personal computers
in the United States primarily within the New York Metropolitan area and also
exports to customers in Israel. Hertz-Israel primarily sells and services Hertz
Computer-manufactured personal computers in Israel. Hergo manufactures and sells
space saving modular racks and technical furniture to help organize all types of
computer hardware, communication and electronic equipment.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Hertz Computer, Hertz-Israel and Hergo. All
intercompany transactions have been eliminated in consolidation.
Revenue Recognition
Sales are recognized when the products are shipped. Payments received for
products not yet shipped are recorded as a current liability. The provision for
warranties is not material as all components are warranted to the Company by the
manufacturers.
Inventories
Inventories, which consist primarily of finished goods, raw material,
components, and work in process, are valued at the lower of cost or market on
the first-in, first-out (FIFO) basis.
F-6
<PAGE>
Inventories as of August 31, 1996 consist of:
Components $ 437,322
Raw materials 61,822
Work in process 82,161
Finished goods 417,968
------------
$ 999,273
============
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed under the
straight-line method over estimated useful lives ranging from 5 to 10 years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful lives of the assets.
Goodwill
Goodwill, which arose in 1991 in connection with the acquisition of
Hertz-Israel, is amortized on a straight-line basis over a period of 10 years.
Translation of Foreign Currency
The functional currency of Hertz-Israel is the U.S. dollar. The accounts of
Hertz-Israel have been translated in accordance with Statement of Financial
Accounting Standards No. 52. The financial statements of Hertz-Israel have been
remeasured into U.S. dollars as follows: at rates prevailing during the year for
revenue and expense items (except depreciation and amortization); at year-end
rates for assets and liabilities except for equipment and leasehold
improvements, which are translated at the rate in effect at the time of their
acquisition. Depreciation and amortization are remeasured based on the
historical dollar cost of underlying assets. The effect of translation has been
reflected currently in the consolidated statements of operations and it is not
material.
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. As
such, prior to the IPO, Hergo did not incur federal income tax expense, although
it does incur state and local tax expense. 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 which is subject to 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 was a C corporation for tax
filing purposes during the years ended August 31, 1996 and 1995. As such, an
effective tax rate of 46% was used in calculating Hergo's pro forma net income
tax provision.
F-7
<PAGE>
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 period as if the company were recapitalized on September 1, 1994.
Supplementary net income per share is calculated for the year ended August 31,
1996. Supplementary net income per share is computed as if $1,126,372 and
$246,686 of interest-bearing debt obligations were repaid from the net proceeds
of the IPO as of September 1, 1995 and assuming that (i) 274,612 of common
shares were issued as of September 1, 1995 to repay the interest-bearing debt
obligations; (ii) $90,451 of interest expense, net of income tax expense, was
eliminated as a result of such payment for the twelve months ended August 31,
1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," ("SFAS 121"),
which is effective for financial statements for fiscal years beginning after
December 15, 1995. SFAS 121 requires that long-lived assets and certain
identifiable intangible assets held and used by a company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be recoverable. The Company believes
that, as of August 31, 1996, no assets covered by SFAS 121 have been impaired.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," ("SFAS 123"). SFAS 123 allows companies to account for
stock-based compensation to employees under either (i) the new provisions of
SFAS 123 or (ii) the provisions of APB 25 with pro forma disclosure in the
footnotes to the financial statements as if the measurement provisions of SFAS
123 had been adopted. The Company intends to account for its stock-based
compensation to employees in accordance with the provisions of APB 25. As the
Company did not issue options, the implementation of SFAS 123 had no impact on
the financial position, results of operations and cash flows of the Company.
F-8
<PAGE>
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at August 31, 1996:
Furniture, fixtures and equipment $ 111,700
Warehouse equipment 96,961
Leasehold improvements 64,503
Vehicles 158,829
------------
431,993
Less- Accumulated depreciation and amortization (200,571)
------------
Property and equipment, net $ 231,422
============
3. NOTES PAYABLE TO BANKS
Line of Credit
In June 1995, Hertz Computer entered into a Revolving Line of Credit
("Agreement") with a bank ("Bank") under which the Company could borrow up to
$1,000,000 with interest accruing on any outstanding balance at the base rate of
the Bank, plus 1% (effective rate at August 31, 1996 was 9.25%). Repayment of
the borrowings is secured by a general security interest in substantially all
personal property of the Company and is personally guaranteed by the
stockholders. The Agreement was renewed on June 30, 1996 with substantially
similar terms and is effective through June 30, 1997. As of August 31, 1996, the
balance outstanding under this Agreement was $895,000.
In February 1996, Hertz-Israel entered into a line of credit agreement with a
bank for $300,000 with an interest rate equal to the six-month LIBOR rate plus
1.25% (effective rate at August 31, 1996 was 7.02%) which is effective through
March 9, 1997. Presently, two short-term loans totaling $206,168 at August 31,
1996 are outstanding against this line of credit. These loans were originally
due on September 9, 1996, but were extended six months and are presently due on
March 9, 1997. The interest rate for the extension period is the six-month LIBOR
rate plus 1.0%. An additional $25,204 is outstanding at August 31, 1996 against
this line of credit.
4. RELATED PARTY TRANSACTIONS
Note Payable to Stockholder - Short-Term
Hertz Technology Group has two notes payable at 9.25%, due on demand to two
stockholders in the amount of $211,966 and $34,720, respectively. The notes are
collateralized by the Company's assets and subordinated to the notes payable to
bank described in Note 3. Interest expense for both notes for the years ended
August 31, 1996 and 1995 was $36,369 and $29,214, respectively.
5. LIFE INSURANCE
Hertz Computer is the beneficiary of a life insurance policy in the amount of
$1,000,000 on the life of an officer of Hertz Computer. The policy's related
cash surrender value is included in other assets in the accompanying
consolidated balance sheets and amounted to $29,034, as of August 31, 1996.
F-9
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The future minimum lease payments of all operating leases as of August 31, 1996
for the Company are as follows:
Fiscal year:
1997 $ 232,517
1998 216,821
1999 209,935
2000 157,801
2001 115,509
Thereafter 144,387
------------
$ 1,076,970
============
Total rent expense related to the Company's premises for the years ended August
31, 1996 and 1995 was $213,361 and $153,404, respectively.
Litigation
In December 1996, the Company settled its litigation regarding tradedress and
copyright infringement. Such settlement terms were not material to the results
of operations for the year ended August 31, 1996.
Hertz Computer commenced an action against A.C. Purchasing Securities, Inc. and
others in Federal Court in the Southern District, New York to collect
approximately $140,000 for goods sold and delivered to defendant which was
purchasing computers for resale to the Government of Israel. The defendants have
counterclaimed, charging that Hertz Computer sold computers directly to the
Government of Israel, thereby, tortiously interfering with defendants' business
arrangement with the Government of Israel. The Company believes that Hertz
Computer has meritorious defenses to the counterclaim and that notwithstanding
defendants' large claim for damages, the maximum amount it could reasonably
expect to recover if it were successful in this suit would be the amount of the
profits it was deprived of by reason of Plaintiff's allegedly tortious conduct.
While the ultimate result of this matter cannot be determined, management does
not expect that it will have a material adverse effect on the Company's results
of operations or financial position.
7. PROFIT SHARING PLAN
Hertz Computer has a profit sharing plan covering all eligible employees. For
the year ended August 31, 1995, the Board of Directors approved the contribution
of approximately $60,000 to this plan and this amount is reflected as a
component of selling, general and administrative expense in the Company's
consolidated statements of operations. For the year ended August 31, 1996, the
Company did not contribute to this plan.
F-10
<PAGE>
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The most significant
component primarily relates to the allowances for doubtful accounts. Included in
prepaid expenses and other current assets at August 31, 1996 is a deferred tax
asset balance of $54,800.
Historical income tax expense consists of the following:
1996 1995
---- ----
Current:
Federal $ 169,624 $30,643
State and local 161,265 18,231
--------- -------
Total 330,889 48,874
--------- -------
Deferred:
Federal (21,682) 17,359
State and local (19,826) 11,382
--------- -------
Total (41,508) 28,741
--------- -------
Total $ 289,381 $77,615
========= =======
A reconciliation between the federal tax rate (34%) and the historical effective
tax rate for the year ended August 31, 1996 and 1995 is as follows:
1996 1995
---- ----
Statutory federal income tax rate 34% 34%
State and local taxes, net of federal benefit 11 15
Nondeductible losses in Hertz-Israel 8 6
S Corporation (benefit) provision (19) 2
Other 1 2
--- --
Effective tax rate 35% 59%
=== ==
9. SEGMENT OPERATIONS
The operating results of significant segments of the consolidated company at
August 31, 1996 are as follows:
Hertz
Computer Hertz-Israel Hergo Consolidated
-------- ------------ ----- ------------
Sales (unaffiliated) $7,676,989 $ 1,925,654 $2,556,891 $12,159,534
Inventory transfers from/(to) 781,288 (794,821) 13,533 --
Gross profit 1,979,234 340,018 1,503,319 3,822,571
Operating income 514,125 (98,284) 615,405 1,031,246
Assets 2,155,602 715,131 942,601 3,813,334
F-11
<PAGE>
The operating results of significant segments of the consolidated company at
August 31, 1995 are as follows:
Hertz
Computer Hertz-Israel Hergo Consolidated
-------- ------------ ----- ------------
Sales (unaffiliated) $7,055,231 $ 1,936,080 $2,228,872 $11,220,183
Inventory transfers from/(to) 1,015,634 (1,015,634) -- --
Gross profit 1,443,088 369,224 1,304,894 3,117,206
Operating income 195,859 21,926 30,756 248,541
Assets 1,848,574 780,873 736,756 3,366,203
10. GEOGRAPHIC AND CUSTOMER CONCENTRATION
The Company has a concentration of its sales in the New York Metropolitan area
of approximately 69% and 61% for the years ended August 31, 1996 and 1995,
respectively. Approximately 36% of its total sales in each of the years ended
August 31, 1996 and 1995 were to federal, state and city agencies or
government-affiliated organizations, including hospitals and schools.
11. INITIAL PUBLIC OFFERING
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 one
year from the effective date of the IPO and each warrant is convertible into one
share of common stock at a price of $5.50. Shortly thereafter, in November 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 common stock and
warrants of $5,499,221 net of commissions and offering expenses of $1,458,278.
As of August 31, 1996, deferred offering expenses relating to the IPO amount to
$237,687 and such costs are included in prepaid expenses and other current
assets in the accompanying balance sheet.
In November 1996, the Company utilized the proceeds from the IPO to pay
approximately $245,000 of notes payable to the current stockholders and the
entire balance of $895,000 of the current revolving credit line with the Bank as
of that date.
12. STOCK OPTION PLAN
On August 7, 1996, in order to attract and retain persons necessary for the
success of the Company, the Company adopted its 1996 Stock Option Plan ("Option
Plan") covering up to 750,000 of its shares of its common stock ("shares"),
pursuant to which officers, directors and key employees of the Company and
consultants to the Company are eligible to receive incentive and/or nonincentive
stock options. The Option Plan, which expires on August 6, 2006, will be
administered by the Company's Board of Directors or a committee designated by
such group.
F-12
<PAGE>
The selection of participants, allotment of shares, determination of
price and other conditions relating to the purchase of options will be
determined by the Board of Directors, or a committee thereof, in its sole
discretion. Incentive stock options granted under the Option Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Shares on the date of
the grant, except that the term of an incentive stock option granted under the
Option Plan to a shareholder owning more than 10% of the outstanding Shares may
not exceed five years and its exercise price may not be less than 110% of the
Fair market value of the Shares on the date of the grant. As of August 31, 1996,
no options have been granted under the Option Plan.
13. DISCRETIONARY SHARE BONUS AWARDS
The Company has reserved 100,000 shares for issuance to employees as a reward
for past performance or as an incentive for future performance. The
determination of the persons to receive Share Bonus Awards, the amount of shares
for each recipient and the time of vesting shall be determined by the Board of
Directors or by a committee to be designated by the Board of Directors. Shares
may be awarded with immediate vesting or with deferred vesting. No share awards
have been made as of August 31, 1996.
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
HERTZ COMPUTERS INFORMATION SYSTEMS (1985) LTD.
We have audited the balance sheets of Hertz Computers Information System (1985)
Ltd. ("the Company") as at August 31, 1996 and 1995 and the related statements
of income, statements of changes in shareholders' equity and statements of cash
flows for each of the two years in the period ended August 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors' Regulations (mode
of performance), 1973. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatements, either originating within the financial
statements themselves, or due to any misleading statement included therein. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Information regarding the effect of changes in the general purchasing power of
the Israeli currency on the profit and loss in accordance with the opinions of
the Institute of Certified Public Accountants in Israel, is not included in the
abovementioned statements.
The accounts of the Company are maintained in Israel Shekels. The financial
statements in U.S. Dollars have been translated to Israel Shekels solely for the
convenience of the readers.
F-14
<PAGE>
In our opinion, the aforementioned financial statements, except for the
abovementioned, present fairly, in all material respects, the financial position
of the Company as of August 31, 1996 and 1995, and the results of their
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended August 31, 1996, in conformity with generally accepted
accounting principles in Israel and in the United States (as applicable to these
financial statements, such accounting principles are practically identical).
In addition, we point out that we have received all the information and
explanations required, and that our opinion on the above statements is given
according to the best of our knowledge and explanations that we received and as
shown in the books of the Company.
Shlomo Ziv & Co.
Certified Public Accountants (Isr).
(A member of Summit International)
Tel-Aviv, Israel
November 21, 1996
F-15
<PAGE>
Part III
Item 1. Index to Exhibits
Item 23. Consent of Shlomo Ziv & Co., Certified Public Accountants
Item 27. Financial Data Schedule
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on behalf by the undersigned thereunto duly
authorized.
HERTZ TECHNOLOGY GROUP, INC.
Dated 1/15/97 /s/ Eli E. Hertz
------------------- ---------------------------------
Eli E. Hertz, Chairman, President
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacity indicated.
Dated 1/15/97 /s/ Eli E. Hertz
------------------- ---------------------------------
Eli E. Hertz, Chairman, President
and Chief Executive Officer
Dated 1/15/97 /s/ J. Marilyn Hertz
------------------- ---------------------------------
J. Marilyn Hertz, Vice Chairperson,
Secretary and Director
Dated 1/15/97 /s/ John C. Rudy
------------------- ---------------------------------
John C. Rudy, Vice President,
Principal Financial Officer, and
Chief Accounting Officer
Dated 1/15/97 /s/ Beryl Ackerman
------------------- ---------------------------------
Beryl Ackerman, Director
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants' we hereby consent to the use of our report
(and to all references to our Firm) including in or made a part of this Form
10KSB.
Shlomo Ziv & Co.
Certified Public Accountants (Isr).
Tel-Aviv
December 23, 1996
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 275529
<SECURITIES> 0
<RECEIVABLES> 1880323
<ALLOWANCES> 123869
<INVENTORY> 999273
<CURRENT-ASSETS> 3513696
<PP&E> 431993
<DEPRECIATION> 200571
<TOTAL-ASSETS> 3813334
<CURRENT-LIABILITIES> 2904604
<BONDS> 0
0
0
<COMMON> 1900
<OTHER-SE> 888868
<TOTAL-LIABILITY-AND-EQUITY> 3813334
<SALES> 12159534
<TOTAL-REVENUES> 12159534
<CGS> 8336963
<TOTAL-COSTS> 8336963
<OTHER-EXPENSES> 50000
<LOSS-PROVISION> 101869
<INTEREST-EXPENSE> 167502
<INCOME-PRETAX> 829831
<INCOME-TAX> 289381
<INCOME-CONTINUING> 540450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 540450
<EPS-PRIMARY> .19
<EPS-DILUTED> 0
</TABLE>
