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, 1999
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 14, 1999
Common Stock, par value
$.001 per share 2,129,083
- ----------------------- ------------------
Class Shares Outstanding
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
MAY 31, 1999
INDEX
Page
----
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
May 31, 1999 and August 31, 1998 3
Consolidated Statements of Operations
for the three months and nine months ended
May 31, 1999 and May 31, 1998 4
Consolidated Statements of Cash
Flows for the nine months ended
May 31, 1999 and May 31, 1998 5
Consolidated Statements of Stockholders
Equity for year ended August 31, 1998 and
nine months ended May 31, 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of financial condition and results of
operations for the three and nine months ended
May 31, 1999 8
PART II. Other Information
Item 2. Changes in securities and use of proceeds 14
SIGNATURES 15
-2-
<PAGE>
PART I
FINANCIAL INFORMATION
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MAY 31, AUGUST 31,
1999 1998
---- ----
Unaudited Audited
--------- -------
CURRENT ASSETS:
Cash $ 72,232 $ 140,254
Marketable securities 1,703,563 1,759,994
Accounts receivable, less allowance for
doubtful accounts of $96,133 and
$130,829 respectively 921,127 2,362,030
Inventories, net 638,983 709,228
Prepaid expenses and other current assets 423,798 205,229
----------- -----------
Total current assets 3,759,703 5,176,735
----------- -----------
PROPERTY AND EQUIPMENT, net 1,728,863 1,543,277
----------- -----------
GOODWILL, net of accumulated amortization
of $73,383 and $27,002 respectivelly 257,250 237,881
----------- -----------
Deferred Tax 209,963 209,963
OTHER ASSETS 290,513 148,490
----------- -----------
Total assets $ 6,246,292 7,316,346
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 31, AUGUST 31,
1999 1998
---- ----
CURRENT LIABILITIES:
Accounts payable $ 200,428 $ 616,035
Notes payable 167,467 126,667
Accrued expenses - other current payables 283,627 416,954
----------- -----------
Total current liabilities 651,522 1,159,656
----------- -----------
NONCURRENT LIABILITIES:
Notes payable to banks and others 275,942 260,473
----------- -----------
Total noncurrent liabilities 275,942 260,473
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value: 3,000,000
shares authorized 2,306,949 shares
and 2,256,900 shares issued, and 2,129,083
and 2,186,032 shares outstanding
as of May 31, 1999 and
August 31, 1998, (respectively) 2,306 2,256
Additional paid-in capital 5,837,890 5,772,190
Less: Treasury Stock, 177,867 and 70,868
shares at cost as of
May 31, 1999 and August 31, 1998,
(respectively) (284,526) (108,028)
Accumulated Deficit (236,842) 229,799
----------- -----------
Total stockholders' equity 5,318,828 5,896,217
----------- -----------
Total liabilities and stockholders'
equity $ 6,246,292 $ 7,316,346
=========== =========
The accompanying notes are an integral part of these consolidated statements
-3-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------- -------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,734,931 $ 2,466,999 $ 5,007,769 $ 6,237,325
COST OF GOODS SOLD 878,838 1,815,036 2,619,904 4,255,462
----------- ----------- ----------- -----------
Gross Profit 856,093 651,963 2,387,865 1,981,863
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 971,243 969,105 2,942,858 2,897,543
----------- ----------- ----------- -----------
Operating loss (115,150) (317,142) (554,993) (915,680)
OTHER INCOME (EXPENSE)
Other (3,925) 40,943 (7,095) 23,985
Interest, net 19,256 13,845 61,084 124,735
----------- ----------- ----------- -----------
Loss before provision for income taxes (99,819) (262,354) (501,004) (766,960)
PROVISION FOR INCOME TAXES (9,542) (97,018) (34,363) (333,298)
----------- ----------- ----------- -----------
Net loss $ (90,277) $ (165,336) $ (466,641) $ (433,662)
=========== =========== =========== ===========
NET LOSS PER SHARE - BASIC $ (0.04) (0.08) (0.22) (0.20)
=========== =========== =========== ===========
NET LOSS PER SHARE - DILUTED $ (0.04) (0.08) (0.22) (0.20)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic 2,129,083 2,139,066 2,135,480 2,118,019
=========== =========== =========== ===========
Diluted 2,129,083 2,139,066 2,135,480 2,118,019
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
-4-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED MAY 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
-------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (466,641) $ (433,663)
Adjustments to reconcile net income to net cash provided by activities-
Depreciation and amortization 320,095 215,906
Allowance for doubtful accounts (34,696) (100,989)
Issuance of stock to Employees 79,725
Changes in operating assets and liabilities-
Accounts receivable 1,475,599 (37,369)
Inventories 70,245 557,083
Prepaid expenses and other current assets (218,569) (503,543)
Other assets (142,024) (49,065)
Accounts payable and accrued expenses (552,997) 230,957
Capital Lease 0 6,839
----------- -----------
Net cash provided by operating activities 451,012 (34,119)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (272,300) (420,067)
(Purchase) Sale of Marketable Securities 56,431 912,436
Acquisition of Business Acquired, net 0 (624,190)
----------- -----------
Net cash used in investment activities (215,869) (131,821)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (176,498) (47,459)
Repayment of notes payable to related party (126,667)
----------- -----------
Net cash used in financing activities (303,165) (47,459)
----------- -----------
Net decrease in cash and cash equivalents (68,022) (213,399)
CASH and cash equivalents, beginning of period 140,254 326,121
----------- -----------
CASH and cash equivalents, end of period $ 72,232 $ 112,722
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Non Cash Financing Activity
Capital leases entered into this period 187,000
Business Acquired
Assets Acquired 850,925
Goodwill 163,860
less: Liabilities Assumed 390,595
-----------
624,190
===========
Issuance of stock to Employees $ 79,725
Interest paid $ 16,215 $ 27,285
Income taxes paid $ 35,277 $ 94,370
</TABLE>
The accompanying notes are an integral part of these consolidated statements
-5-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR YEAR ENDED AUGUST 31,1998 AND NINE MONTHS ENDED MAY 31,1999
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Paid- in Treasury (Accumulated
Stock Capital Stock Deficit) Total
----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, August 31,1997 $ 2,110 5,592,611 -- $ 1,040,079 $ 6,634,800
Net Loss -- -- -- (810,280) (810,280)
Issuance of stock to Employees 50 79,675 -- -- 79,725
Issuance of shares to related party in
connection with purchase of Edutec 96 99,904 100,000
Repurchase of Treasury stock -- -- $ (108,028) -- (108,028)
----------- --------- ----------- ----------- -----------
BALANCE, August 31,1998 2,256 5,772,190 (108,028) 229,799 5,896,217
Net Loss -- -- -- (466,641) (466,641)
Issuance of shares for purchase
of RemoteIT 50 65,700 65,750
Repurchase of Treasury stock -- -- (176,498) -- (176,498)
----------- --------- ----------- ----------- -----------
BALANCE, May 31, 1999 $ 2,306 $ 5,837,890 $ (284,526) $ (236,842) $ 5,318,828
=========== =========== =========== =========== ===========
</TABLE>
-6-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
MAY 31, 1999
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 10-QSB. Operating results for the three month and
nine-month periods ended May 31, 1999 are not necessarily indicative of the
results that may be expected for the year ended August 31, 1999. 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, 1998.
2. EARNINGS PER SHARE
For the period ended November 30 , 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". In
Accordance with the requirements of SFAS No. 128, net earnings per common share
amounts ("basic EPS") was computed by dividing net earnings by the weighted
average number of common shares outstanding and contingently issueable shares
(which satisfy certain conditions) and excluding any potential dilution. Net
earnings per common share amounts - assuming dilution ("diluted EPS") was
computed by reflecting potential dilution from the exercise of stock options.
SFAS No. 128 requires the presentation of both basic EPS and diluted EPS on the
face of the income statement. Earnings per share amounts for the same prior-year
periods have been restated to conform with the provisions of SFAS No. 128.
No diluted EPS is presented, for the three month and nine month periods ended on
May 31, 1999 and 1998, as the effect of dilutive securities would be
anti-dilutive on loss per common share.
3. STOCK DIVIDEND
At a special meeting held on April 16, 1999, the Board of Directors of the
Company approved a 100% stock dividend payable on May 18, 1999 to stockholders
of record on April 29, 1999. As a result of the stock dividend each of the
Company's Class A Warrants are exercisable to purchase two shares of Common
Stock at a price of $8.25 per share. All share and per share data included in
this report have been restated to reflect this as a stock split.
4. ACQUISITION OF REMOTEIT.COM
On March 1, 1999 the Company acquired all the outstanding stock of RemoteIt.com,
Inc. from its stockholders in exchange for which the Company issued 50,000
shares of its Common Stock (adjusted to reflect the 100% stock dividend of May
18, 1999).The Company is reflecting the purchase price based on the value of its
Common Stock of $65,750 as Goodwill.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company offers full service for Novell(R) and Microsoft(R) networking
solutions, Internet and Web related services including high speed communication
services such as T1 and DSL from companies such as Northpoint(R) and
BellAtlantic(R) under the "RemoteIT.com" name, through its RemoteIT.com
subsidiary. The Company custom designs and assembles personal workstations,
networking, communication and WEB servers under the "Hertz Computer(R)" name
through its Hertz Computer subsidiary. Through its Edutec(R) subsidiary, the
Company offers customizable state-of-the-art training rooms at its New York City
headquarters. The rooms are equipped with the latest PC workstations and A/V
presentation technology. RemoteIT.com. Hertz Computer and Edutec comprise the
Technology Group.
The Company also designs, manufactures and sells ergonomically engineered
modular technical office furniture, open racking systems, data and
communications cabinets and enclosures, personal workstations, training desks,
assembly workbenches, KVM switches and other technical workspace solutions under
the "Hergo(R)" name through its Hergo subsidiary. The Company, through its LAN
Metal subsidiary provides custom specialty metal manufacturing and fabrication
products and also manufacturers the line of Hergo products. Together Hergo and
LAN comprise the "Hergo Group."
Three Months and Nine Months Ended May 31, 1999 compared to Three Months
and Nine Months Ended May 31, 1999
Revenues
Company sales for the three months ended May 31, 1999, were $1.73 million,
compared to $2.47 million for the period ended May 31, 1998, a 30% decrease. Net
sales for the nine months ended May 31, 1999 were $5.01 million compared to
$6.24 million for the nine month period ended May 31, 1998, a 20% decrease. A
substantial portion of the reduction in sales was attributed to the decline in
computer sales. For the three months ended May 31, 1999 the Hergo Group sales
combined were $1,283,000 compared to sales of $1,455,000 for the comparable
period in 1998, a decrease of $172,000 (12%). Hergo Group sales for the nine
months ended May 31, 1999 were $3,907,000 compared to $3,706,000 for the nine
month period ended May 31, 1998, a $201,000 (5%) increase. Sales of the
Technology Group were $452,000 for the three months ended May 31, 1999 compared
to $1,012,000 for the three months ended May 31, 1998. Sales for the Technology
Group for the nine months ended May 31, 1999 were $1,101,000 compared to
$2,531,000 for the comparable period in the previous year. RemoteIT.com was
acquired on March 1, 1999 and contributed $245,000 in sales.
The Company believes that the newly formed subsidiary RemoteIT.com, together
with the Hergo Group, currently offers the best opportunities for future growth.
RemoteIT.com is providing networking and communications products and services,
Internet connectivity, Web development, and other value- added services. The
recent partnering with Northpoint Communications and Bell Atlantic are steps
that have been taken to provide the latest available technologies in
communication and networking services. The PC hardware market has become
increasingly competitive and over saturated and the Company is be directing its
efforts in computer hardware manufacturing primarily to support the integration
and networking business generated by RemoteIT.com. The Company is also directing
its resources to expanding Hergo's national
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
presence through better distribution channels within the reseller and dealer
marketplace and expanding the product line to include products currently in high
demand such as data and communications cabinets and enclosures. To this end the
Company has invested considerable resources in its acquisition of precision CNC
laser and other advanced fabricating machinery.
Gross Profit
Gross profit in dollars and as a percentage of sales increased substantially
during the three months and nine months ended May 31, 1999 as compared to the
comparable three-month and nine-month periods in the previous year.
Gross profit was $856,000 (49% of net sales) for the three months ended May 31,
1999 as compared with $652,000 (26% of net sales) for the three months ended May
31, 1998, an increase of $204,000 (31%). Gross profit was $2,388,000 (48% of net
sales) and $1,982,000 (32% of net sales) for the nine months ended May 31, 1999
and May 31,1998, respectively, an increase of $406,000 (21%).
Improved profit margins from the Hergo Group for the current three month and
nine month periods were the result of efficiencies gained by new machinery and
the reduction of the costs that were needed to start the LAN production
operation when the division was acquired in the quarter ended February 28, 1998.
Gross profit generated from the Hergo Group for the three months and nine months
ended May 31, 1999 was $748,000 (59% of net sales) and $2,163,000 (55% of net
sales) compared to $794,000 (55% of net sales) and $1,926,000 (52% of net sales)
for the three months and nine months ended May 31, 1998.
Gross profit generated from the Technology Group for the three months ended May
31, 1999 was $108,000 (24% of sales) compared to $109,000 (11% of sales ) for
the same period last year. The Gross profit for the three months ended May 31,
1998 was adjusted upward to add back the inventory write down from the Hertz
Computer division of $251,000. Gross profit from the Technology Group for the
nine months ended May 31,1999 and May 31,1998 was $225,000 (20% of net sales)
and $307,000 (12% of net sales) respectively. Here, too, the 1998 year to date
gross profit was adjusted upwards by $251,000 to reflect gross profit before an
inventory write down of the Technology Group.
The addition of the RemoteIT.com division increased the profit margin
percentages. This is consistent with the Company's intent on reducing the
hardware portion of its technology business in favor of a greater emphasis on
service related business.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Selling, General and Administrative
Selling, general, and administrative expenses increased slightly for the quarter
ended May 31, 1999 compared to the quarter ended May 31, 1998 ($2,000) and for
the nine months ended May 31, 1999 compared to the comparable period ended May
31, 1998 ($45,000).
Selling general and administrative expenses were impacted by the purchase of the
LAN Metal division in December 1997 with its associated expenses, establishment
of a shipping and warehousing facility for the Hergo line, as well as increases
in selling expenses both in Hergo and in Hertz Computer. In March 1999, the
Company acquired RemoteIT.com. Increased expenses included sales, and
administrative salaries as well as advertising (including Web site design of
RemoteIT) and various types of administrative expenses. Administrative expense
increases included additional costs associated with investigating possible
business ventures.
Other administrative expenses that were incurred in the quarter and nine months
ended May 31, 1998 and which are not repeated in the current quarter and nine
month period included issuance of stock to an employee, and some additional
legal and accounting costs. Additionally, during the period a year ago,
additional reserves were established for resolution of an IRS audit, payment of
final income taxes in reference to the closing of the Hertz Israel entity, and
increased reserves for bad debts.
Other Income (Expense):
Other expense for the three months ended May 31, 1999 was $4,000 compared to
Other Income of $41,000 for the three months ended May 31, 1998. Other Expense
for the nine months ended May 31, 1999 was $7,000 compared to Other Income of
$24,000 for the same period last year. The income that was recorded in the
previous year was primarily due to an insurance claim and the refund of options
by an outside consultant.
Net Interest Income for the three months ended May 31, 1999 increased by $5,000
as compared to the three months ended May 31, 1998. Net Interest income
decreased by $64,000 for the nine months ended May 31, 1999 as compared to the
nine months ended May 31, 1998. The decrease in interest income for the
nine-month period was primarily due to the reduction of marketable securities
balances. This was further reduced by interest expense generated by the deferred
payments of the purchase price of the LAN Metal acquisition. The increase in
interest income for the three-month period was due to the increase in interest
expense incurred in May 1998 for the payment of interest in the settlement of an
IRS audit.
Provision for Income Taxes
The Company recorded a tax benefit of $10,000 and $34,000 for the three-month
and nine-month periods ended May 31, 1999 respectively. The tax benefit for the
three months and nine months ended May 31, 1998 was $97,000 and $333,000
respectively.
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Income and Earnings Per Share
Operations for the three months ended May 31, 1999 resulted in a loss of
approximately $90,000 or $.04 per share compared to a loss of $165,000 or $.08
per share for the three months ended May 31, 1998.
Operations for the nine months ended May 31, 1999 resulted in a loss of
approximately $467,000 or $.22 per share compared to a loss of approximately
$434,000 or $.20 per share for the comparable period last year.
Loss before provision for income taxes, however, for the three months and nine
months ended May 31, 1999 was $100,000 ($.05 per share) and $501,000 ($.23 per
share) respectively compared to a loss for the three months and nine months
ended May 31, 1998 of $262,000 ($.12 per share) and $767,000 ($.36 per share).
Liquidity and Capital Resources
The Company, as of May 31, 1999 had working capital of $3,108,000 of which
$1,776,000 was in cash and marketable securities, which are available to fund
the Company's operations and expansion plan.
For the nine months ended May 31,1999, the Company had cash provided by
operations of $451,000, as compared to a negative cash flow by operations of
$34,000, for the comparable period last year. The collections of the relatively
high August 1998 accounts receivable net of the accounts payable was the
principal reason for the increase.
Cash used in investment activities for the nine months ended May 31, 1999 was
$216,000. The primary uses were purchasing of machinery for the Hergo product
line, as well as equipment purchased for use in the new RemoteIT.com subsidiary.
During the nine months ended May 31, 1999, the Company purchased on the open
market a total of 107,000 shares of its stock for a total of $176,000.
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements under the caption "Management's Discussion and Analysis" and
elsewhere in this Form 10-QSB constitute "forward-looking statements" within the
meaning of Section 21E of the Securities and Exchange Act of 1934. Words
"believe," "expect," "future," "intend," "plan," and similar expressions as they
relate to the Company or the Company's management identify forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, competition, success of new product
development, effect of advertising and promotional efforts, brand awareness, the
existence of or adherence to development schedules, continued patronage by
existing customers, the ability to attract qualified managerial personnel, the
existence or absence of adverse publicity, changes in business strategy or
development plans, quality of management and terms and deployment of capital,
business abilities and judgment of personnel and success in acquiring
businesses.
Year 2000 Compliance
The Company is on schedule with a project that addresses the Year 2000 (Y2K)
issue of computer systems and other equipment with embedded chips or processors
not being able to properly recognize and process date-sensitive information
after December 31, 1999. Many systems use only two digits rather than four to
define the year and these systems will not be able to distinguish between the
year 1900 and the year 2000. This may lead to disruptions in the operations of
business and governmental entities resulting from miscalculations or system
failures. The project is designed to ensure the compliance of all of the
Company's applications, operating systems and hardware platforms, and to address
the compliance of key business partners. Key business partners are those
customers and vendors that have a material impact on the Company's operations.
All phases of the project should be completed by the end of 1999 thus minimizing
the impact of the Y2K problem on the Company's operations.
The total estimated cost of the required modifications to become Y2K compliant
should not be material to the Company's financial position.
Failure to make all internal business systems Y2K compliant could result in an
interruption in, or a failure of, some of the Company's business activities or
operations. Y2K disruptions in the operations of key vendors could impact the
Company's ability to obtain components necessary for the manufacture of products
and fulfillment of contractual obligations. If one or more of these situations
occur, the Company's results of operations, liquidity and financial condition
could be materially and adversely affected. The Company is unable to determine
the readiness of its key business partners at this time and is therefore unable
to determine whether the consequences of Y2K failures will have a material
impact on the Company's results of operations, liquidity or financial condition.
The Y2K project is expected to significantly reduce the Company's level of
uncertainty about the Y2K problem and reduce the possibility of significant
interruptions of normal business operations.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
New Accounting Standards
In June 1997, the FASB issued SFAS No. 131, "Disclosure about segments of an
Enterprise and Related Information," which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds assets and reports revenue. The Company will adopt SFAS
No. 131 for reporting on the 10K for fiscal year end 1999.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) As a result of a 100% stock dividend paid on May 18, 1999, each of the
Company's Class A Warrants became exercisable to purchase two (2) shares
of the Common Stock at a price of $8.25 per share. In addition, the market
price at which the shares of the Company's Common Stock must trade before
the Company may redeem the warrants has been reduced to $13.13 per share.
The Warrants are exercisable through November 11, 2001.
(b) The Company registered Common Stock and Warrants in an initial public
offering on Form SB-2 which became effective on November 12, 1996. After
deducting $1,488,778 in expenses incurred in connection with the offering,
an aggregate of $5,468,721 of net proceeds was realized by the Company.
The use of these net proceeds was reported on Forms SR filed with the
Securities and Exchange Commission on February 11, 1997 and on August 18,
1997 in the Company's annual report on Form 10-KSB for the years ended
August 31, 1997, and August 31, 1998 and in its quarterly reports on Form
10-QSB for the quarters ended February 28, 1998 , May 31, 1998, November
30, 1998, and February 28, 1999. Updating these reports, as of May 31,
1999 the disposition of the proceeds was as follows:
Construction of plant building and facilities $ 360,140
Purchases and installation of machinery and equipment $1,102,233
(a) Acquisition of Landau Metal Products $ 624,190
(b) Improvement to physical facilities $ 52,199
(c) Equipment purchases $ 60,281
(d) Edutec acquisition and initial funding expenses $ 152,000
Repayment of Indebtedness $1,315,058
S Corporation Distribution $ 688,034
Marketing Plan $ 312,972
To be used to fund marketing plan, acquire equipment,
product development and working capital $ 801,614
Grand Total: $5,468,721
14
<PAGE>
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
/s/ Eli E. Hertz
Dated: 07/14/99 ---------------------------------
Eli E. Hertz, Chairman, President
And Chief Executive Officer
/s/ Barry J. Goldsammler
Dated: 07/14/99 ---------------------------------
Barry J. Goldsammler,
Chief Financial and Accounting
Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 72,232
<SECURITIES> 1,703,563
<RECEIVABLES> 1,017,260
<ALLOWANCES> 96,133
<INVENTORY> 638,983
<CURRENT-ASSETS> 3,759,704
<PP&E> 2,002,577
<DEPRECIATION> 273,714
<TOTAL-ASSETS> 6,318,042
<CURRENT-LIABILITIES> 651,522
<BONDS> 275,942
0
0
<COMMON> 2,306
<OTHER-SE> 5,316,522
<TOTAL-LIABILITY-AND-EQUITY> 6,318,042
<SALES> 5,007,769
<TOTAL-REVENUES> 5,007,769
<CGS> 2,619,904
<TOTAL-COSTS> 2,619,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,215
<INCOME-PRETAX> (501,004)
<INCOME-TAX> (34,363)
<INCOME-CONTINUING> (466,641)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (466,641)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
