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, 2000
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.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3896069
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification number)
75 Varick Street 10013
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(Address of principal executive offices) (Zip Code)
212-634-4000
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(Issuer's telephone number)
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(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, 2000
Common Stock, par value
$.001 per share 2,249,593
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Class Shares Outstanding
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
MAY 31, 2000
INDEX
Page
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PART I. Financial Information
Item 1. Financial Statements
Accountants Review Report 3
Consolidated Balance Sheets as of
May 31, 2000 and August 31, 1999 4
Consolidated Statements of Operations
for the three months and nine months ended
May 31, 2000 and May 31, 1999 5
Consolidated Statements of Cash
Flows for the three months and nine months ended
May 31, 2000 and May 31, 1999 6
Consolidated Statements of Stockholders Equity for year
ended August 31, 1999 and Nine months ended May 31, 2000 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis
of financial condition and results of
operations for the three months and nine months ended
May 31, 2000 10-13
SIGNATURES 14
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<PAGE>
ACCOUNTANT'S REVIEW REPORT
To the Board of Directors and Shareholders of
Hertz Technology Group, Inc.
We have reviewed the accompanying consolidated balance sheet of Hertz Technology
Group, Inc. and Subsidiaries as of May 31, 2000, and the related consolidated
statements of operations, shareholders' equity and cash flows for the
three-month period and nine-month period then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
July 11, 2000
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<PAGE>
PART I
FINANCIAL INFORMATION
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MAY 31, AUGUST 31,
------- ----------
2000 1999
---- ----
Unaudited Audited
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 245,134 $ 32,456
Marketable securities 767,353 1,592,158
Accounts receivable, less allowance for
doubtful accounts of $81,133 and $96,133 respectively 908,252 1,033,726
Inventories 569,737 669,601
Prepaid expenses and other current assets 205,403 282,790
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Total current assets 2,695,879 3,610,731
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PROPERTY AND EQUIPMENT, net 1,545,925 1,783,728
GOODWILL, net 194,689 244,284
DEFERRED INCOME TAXES 0 136,173
OTHER ASSETS 405,100 308,075
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Total assets $ 4,841,593 $ 6,082,991
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LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 31, AUGUST 31,
----------- -----------
2000 1999
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CURRENT LIABILITIES:
Accounts payable $ 272,436 $ 261,688
Accrued expenses and other current liabilities 367,439 237,570
Current portion of capital lease obligations 57,924 46,974
Current portion of notes payable 130,046 126,666
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Total current liabilities 827,845 672,898
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CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION 190,054 194,318
NOTES PAYABLE 16,595 126,667
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Total liabilities 1,034,494 993,883
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SHAREHOLDERS EQUITY:
Common stock, $.001 par value: 6,000,000 shares authorized 2,315,418 shares
and 2,306,950 shares issued as of May 31, 2000 and August 31, 1999, respectively 2,315 2,307
Additional paid-in capital 5,845,091 5,837,889
Less: Treasury Stock, 177,867 shares at cost (286,016) (286,016)
Accumulated Deficit (1,754,291) (465,072)
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Total shareholders' equity 3,807,099 5,089,108
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Total liabilities and shareholders' equity $ 4,841,593 $ 6,082,991
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MAY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,666,055 $ 1,734,931 $ 4,946,371 $ 5,007,769
COST OF SALES 1,166,483 878,838 2,964,535 2,619,904
----------- ----------- ----------- -----------
Gross Profit 499,572 856,093 1,981,836 2,387,865
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,212,313 971,243 3,143,932 2,942,858
----------- ----------- ----------- -----------
Operating loss (712,741) (115,150) (1,162,096) (554,993)
OTHER INCOME (EXPENSE)
Other (49,799) (3,925) (26,291) (7,095)
Interest, net (154) 19,256 35,341 61,084
----------- ----------- ----------- -----------
Loss before provision (benefit) for income taxes (762,694) (99,819) (1,153,046) (501,004)
PROVISION (BENEFIT) FOR INCOME TAXES 136,173 (9,542) 136,173 (34,363)
----------- ----------- ----------- -----------
Net loss $ (898,867) $ (90,277) $(1,289,219) $ (466,641)
=========== =========== =========== ===========
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.42) (0.04) (0.61) (0.22)
=========== =========== =========== ===========
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 2,130,688 2,129,083 2,129,623 2,135,480
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED MAY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,289,219) ($ 466,641)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 397,884 273,714
Amortization of goodwill 49,595 46,381
Provision for doubtful accounts (15,000) (34,696)
Loss on disposal/sale of assets 38,319 0
Changes in operating assets and liabilities:
Decrease in marketable securities 824,805 56,431
Decrease in accounts receivable 140,474 1,475,599
Decrease in inventories 99,864 70,245
(Increase) decrease in prepaid expenses and other current assets 77,387 (218,569)
Decrease in deferred income taxes 136,173 0
(Increase) decrease in other assets 3,175 (142,024)
Increase (decrease) in accounts payable, accrued expenses and other
current liabilities 140,617 (552,997)
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Net cash provided by operating activities 604,074 507,443
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (142,043) (272,300)
Software development cost (100,200) 0
Proceeds from sale of assets 9,655 0
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Net cash used in investment activities (232,588) (272,300)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (127,704) (126,667)
Repayment of capital lease obligations (38,314) 0
Purchase of treasury stock 0 (176,498)
Proceeds from exercise of stock options 7,210 0
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Net cash used in financing activities (158,808) (303,165)
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Net decrease in cash and cash equivalents 212,678 (68,022)
CASH and cash equivalents, beginning of period 32,456 140,254
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CASH and cash equivalents, end of period $ 245,134 $ 72,232
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 23,759 $ 16,215
Income taxes paid $ 0 $ 35,277
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Capital lease obligations incurred $ 45,000 $ 187,000
Entry into financing agreement $ 21,012 $ 0
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER EQUITY
FOR YEAR ENDED AUGUST 31,1999 AND NINE MONTHS ENDED MAY 31,2000
(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, 1998 $ 2,257 $ 5,772,189 $ (108,028) $ 229,799 $ 5,896,217
Net Loss - - - (694,871) (694,871)
Issuance of stock to Employees 50 65,700 - - 65,750
Treasury stock - - (177,988) - (177,988)
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BALANCE, August 31, 1999 2,307 5,837,889 (286,016) (465,072) 5,089,108
Net Loss - - - (1,289,219) (1,289,219)
Stock Options Exercised 8 7202 7,210
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BALANCE, May 31, 1999 $ 2,315 $ 5,845,091 $ (286,016) $(1,754,291) $ 3,807,099
=========================================================================
</TABLE>
See Notes to Consolidated Financial Statements
-7-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
MAY 31, 2000
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, 2000 are not necessarily indicative of the results that may be expected for
the year ended August 31, 2000. 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, 1999.
2. EARNINGS PER SHARE
No diluted shares were used in the calculation of diluted EPS for the
three-month and nine-month periods ended May 31, 2000 and 1999, since they would
have an antidilutive effect.
3. SEGMENT INFORMATION
The Company operates primarily in two industry segments: (i) The Technology
Group and (ii) Hergo. The tables below present information about the reported
segments.
Quarter Ended May 31, 2000:
<TABLE>
<CAPTION>
Technology
Group Hergo Other Consolidated
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<S> <C> <C> <C> <C>
Sales (unaffiliated) $ 339,000 $1,327,000 $1,666,000
Loss before Tax (428,000) (98,000) (237,000) (763,000)
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</TABLE>
Quarter ended May 31, 1999:
<TABLE>
<CAPTION>
Technology
Group Hergo Other Consolidated
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<S> <C> <C> <C> <C>
Sales (unaffiliated) $ 452,000 $1,283,000 $ 1,735,000
Loss before Tax (373,000) 313,000 (40,000) (100,000)
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</TABLE>
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<PAGE>
Nine Months Ended May 31, 2000:
<TABLE>
<CAPTION>
Technology
Group Hergo Other Consolidated
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<S> <C> <C> <C> <C>
Sales (unaffiliated) $ 1,062,000 $3,884,000 $4,946,000
Loss before Tax (609,000) 265,000 (809,000) (1,153,000)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nine Months ended May 31, 1999:
<TABLE>
<CAPTION>
Technology
Group Hergo Other Consolidated
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales (unaffiliated) $ 1,101,000 $3,907,000 $ 5,008,000
Loss before Tax (1,111,000) 722,000 (112,000) (501,000)
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</TABLE>
Assets at May 31, 2000:
<TABLE>
<CAPTION>
Technology
Group Hergo Other Consolidated
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<S> <C> <C> <C> <C>
Assets 1,410,000 2,448,000 984,000 4,842,000
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</TABLE>
4. CAPITAL TRANSACTIONS
At the Annual Meeting of Shareholders on February 16, 2000, the Company
increased the authorized Common Stock from 3,000,000 to 6,000,000 shares. In
addition, the Company increased the stock options available under the 1996 Stock
Option Plan from 500,000 to 750,000 shares.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company offers full networking solutions and Internet and Web related
services, including high speed communication services such as T1 and DSL, 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. These 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 division, provides custom specialty metal manufacturing and fabrication
products and also manufactures the line of Hergo products. Together Hergo and
LAN comprise the "Hergo Group."
Three Months and Nine Months Ended May 31, 2000 compared to Three Months
and Nine Months Ended May 31, 1999
Revenues
Company net sales for the three months ended May 31, 2000, were $1.67 million,
compared to $1.73 million for the period ended May 31, 1999, a 4% decrease. Net
sales for the nine months ended May 31, 2000 were $4.95 million compared to
$5.01 million for the nine month period ended May 31, 1999, a 1% decrease.
For the three months ended May 31, 2000 the Hergo Group sales were $1,327,000
compared to sales of $1,283,000 last year for the comparable period, an increase
of 3%. The Hergo Group sales for the nine months ended May 31, 2000 were
$3,884,000 compared to $3,907,000 for the nine month period ended May 31, 1999,
a 1% decrease.
The Technology Group sales for the quarter ended May 31, 2000 were $339,000
compared to $452,000 for the comparable period in the previous year, a decrease
of 25%. For the nine months ended May 31, 2000 Technology Group sales were
$1,062,000 compared to $1,101,000 for the nine months ended May 31, 1999, a
decrease of 4%. The decrease in volume is attributed to the reduced emphasis by
the Company on the personal computer line of business which is generating
negative margins.
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<PAGE>
Gross Profit
Gross profit was $500,000 (30% of net sales) for the three months ended May 31,
2000 as compared with $856,000 (49% of net sales) for the three months ended May
31, 1999, a decrease of $356,000. Gross profit was $1,982,000 (40% of net sales)
and $2,388,000 (48% of net sales) for the nine months ended May 31, 2000 and May
31,1999, respectively, a decrease of $406,000.
Gross profit generated from the Hergo division for the three months and nine
months ended May 31, 2000 was $495,000 (37% of net sales) and $1,822,000 (47% of
net sales) compared to $748,000 (58% of net sales) and $2,163,000 (55% of net
sales) for the three months and nine months ended May 31, 1999. Several factors
contributed to lower gross profit for the quarter. Among them, higher labor and
utilities costs as well as increased costs of depreciation and amortization.
During the current quarter substantial maintenance contracts were established to
cover the highly computerized technical equipment purchased in the past year.
The costs of the contracts and the depreciation on the same machines were
substantial. The additional machinery, however, is expected to increase
efficiency and in the long run should help in reducing labor cost associated
with the equipment. During the quarter ended May 31, 2000 the Company reduced
the carrying value of some of its inventory due to obsolescence and design
changes. The amount of the write down of the inventory was in excess of $75,000.
The combination of the increases of these expenses amounted to $159,000 and
$225,000,respectively, for the three month and nine month periods ended on May
31, 2000
Gross profit generated from the Technology Group for the three months ended May
31, 2000 was $5,000 (1% of net sales) compared to $108,000 (24% of net sales)
for the comparable three-month period last year. Gross profit for the Technology
Group for the nine months ended May 31, 2000 was $160,000 (15% of net sales)
compared to gross profit of $ 225,000 (20% of net sales) for the nine-month
period ended May 31, 1999. Many of the costs of this group are fixed in nature
and the group's low volume of sales of products and services resulted in the
high Cost of Sales. This result was further aggravated during the previous
quarter by the expenses incurred in connection with the DSL product and the
completion of the collocation program . The communication costs incurred for
these projects was $57,000 for the quarter and $118,000 for the nine month
period.
Selling, General and Administrative
Selling, general and administrative expenses increased for the quarter ended May
31, 2000 as compared to the preceding period by $241,000 and increased by
$201,000 for the nine months ended May 31, 2000 compared to the nine months
ended May 31, 1999.
Among the increases in expenses for the quarter and nine months ended May 31,
2000 was a marketing test program promoting DSL services. This marketing test
program included radio advertising, print, Internet and telemarketing campaign
at costs exceeding $72,000. Additional costs were incurred in purchasing ,
installing, and customizing a new accounting system.
Other Income (Expense):
Other expense for the three months and nine months ended May 31, 2000 was
$50,000 and $26,000 compared to other expense of $4,000 and $7,000 for the
comparable periods last year.
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<PAGE>
The largest component of the other expense was the large expense incurred in the
disposal of obsolete and redundant equipment.
Net interest income for the three months and nine months ended May 31, 2000
decreased by $19,000 and $26,000 for the comparable periods last year. The
decrease in interest income was primarily due to the reduction of marketable
securities balances.
Provision for Income Taxes
For accounting purposes the Company wrote off its deferred tax asset of $136,000
during the quarter ended May 31, 2000, which amounted to about 15% of the
Company loss for the quarter. Because of this, and due to the fact that the
Company had recorded a $10,000 and $34,000 tax benefit in the quarter and nine
months ended May 31, 1999, total provision for taxes increased by $146,000 and
$170,000 for the three months and nine months ended May 31, 2000.
Net Income and Earnings Per Share
Operations for the three months ended May 31, 2000 resulted in a loss of
approximately $899,000 or $.42 per share compared to a loss of $90,000 or $.04
per share for the three months ended May 31, 1999.
Operations for the nine months ended May 31, 2000 resulted in a loss of
approximately $1,289,000 or $.61 per share compared to a loss of approximately
$467,000 or $.22 per share for the comparable period last year.
Liquidity and Capital Resources
For the nine months ended May 31, 2000, the Company had cash provided by
operations of $604,000 as compared to $507,000 for the comparable period last
year. In the current year the bulk of the cash provided was generated from the
sale of marketable securities.
Net purchases of fixed assets for the nine months ended May 31, 2000, were
$142,000 as compared to $272,000 for the nine months ended May 31, 1999.
Additionally, the Company had incurred $100,000 of expenses in software
development costs during the nine months ended May 31, 2000.
The Company, as of May 31, 2000 had working capital of $1,868,000 of which
$1,012,000 was in cash and marketable securities, which are available to fund
the Company's operations
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<PAGE>
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.
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<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: 07/17/00 ----------------------------------------
Eli E. Hertz, Chairman, President
And Chief Executive Officer
/s/ Barry J. Goldsammler
Dated: 07/17/00 ----------------------------------------
Barry J. Goldsammler, Chief Financial
and Accounting
Officer
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