UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
Current Report
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
HIRSCH INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
0-23434
(Commission File Number)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K filed
June 19, 1996, as set forth on the pages attached hereto:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HIRSCH INTERNATIONAL CORP.
By:\s\ Henry Arnberg
--------------------------
Henry Arnberg, President
Dated: August 16, 1996
<PAGE>
Item 7. Financial Statements and Exhibits.
List of Documents filed as part of this report:
(a) Financial Statements - Sewing Machine Exchange, Inc.
Independent Auditors' Report . . . . . . . . . . . . . . 3
Balance Sheet as of April 30, 1996 . . . . . . . . . . . 4
Statement of Income For the Year
Ended April 30, 1996 . . . . . . . . . . . . . . . . . . 5
Statement of Stockholders' Equity
For the Year Ended April 30, 1996 . . . . . . . . . . . 6
Statement of Cash Flows For the
Year Ended April 30, 1996 . . . . . . . . . . . . . . . 7
Notes to Financial Statements . . . . . . . . . . . . . 8-13
(b) Unaudited Pro Forma Consolidated
Financial Information - Hirsch International Corp.
and Subsidiaries . . . . . . . . . . . . . . . . . . . . 14
Pro Forma Consolidated Balance Sheet
as of April 30, 1996 . . . . . . . . . . . . . . . . . . 15
Pro Forma Consolidated Statement
of Income for the Year Ended January 31, 1996 . . . . . 16
Pro Forma Consolidated Statement
of Income For the Three Months
Ended April 30, 1996 . . . . . . . . . . . . . . . . . . 17
Notes to Pro Forma Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . 18
(c) Exhibits
Exhibit Description of Document
Number
23 Consent of Deloitte & Touche LLP . . . . . . . 19
27 Financial Data Schedule . . . . . . . . . . . 20
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Sewing Machine Exchange, Inc.
Chicago, Illinois
We have audited the accompanying balance sheet of Sewing Machine Exchange,
Inc. as of April 30, 1996, and the related statement of income, stockholders'
equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Sewing Machine Exchange, Inc. as of April
30, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company was acquired by Hirsch International
Corp. on June 7, 1996.
DELOITTE & TOUCHE LLP
Jericho, New York
June 13, 1996
3
<PAGE>
<TABLE>
SEWING MACHINE EXCHANGE, INC.
BALANCE SHEET
APRIL 30, 1996
<CAPTION>
ASSETS
Current Assets:
<S> <C>
Cash $ 82,757
Accounts receivable, net of an allowance for
doubtful accounts of $303,500 3,494,406
Inventories, net (Notes 3 and 6) 3,535,700
Other current assets 109,890
Total Current Assets 7,222,753
Property, plant and equipment, net of accumulated
depreciation and amortization (Note 4) 269,559
Total Assets $7,492,312
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 5) $3,627,495
Current maturities of long-term debt (Note 6) 2,272,846
Customer deposits payable 265,606
Total Current Liabilities 6,165,947
Long-term debt, less current maturities (Note 6) 193,582
Total Liabilities 6,359,529
Commitments and Contingencies (Notes 1 and 7)
Stockholders' Equity
Common stock, $100 par value; 1,000 shares authorized;
200 shares issued, and 132 shares outstanding 13,200
Additional paid-in capital 105,683
Retained earnings 1,013,900
Total Stockholders' Equity 1,132,783
Total Liabilities and Stockholders' Equity $7,492,312
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
SEWING MACHINE EXCHANGE, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1996
<CAPTION>
<S> <C>
Net sales and service income $27,827,947
Cost of goods sold 19,726,778
Selling, general and administrative expenses 7,301,869
Interest expense 229,363
Total expenses 27,274,780
Income before income taxes 553,167
Provision for income taxes (Note 2G) 30,248
Net income $ 522,919
</TABLE>
See notes to financial statements.
5
<PAGE>
<TABLE>
SEWING MACHINE EXCHANGE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
APRIL 30, 1996
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1995 132 $ 13,200 $105,683 $805,981 $924,864
Distributions to stockholders - - - (315,000) (315,000)
Net income - - - 522,919 522,919
Balance, April 30, 1996 132 $ 13,200 $105,683 $1,013,900 $1,132,783
</TABLE>
See notes to financial statements.
6
<PAGE>
<TABLE>
SEWING MACHINE EXCHANGE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1996
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $522,919
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 56,503
Loss on disposal of assets 8,200
Changes in operating assets and liabilities:
Accounts receivable (130,735)
Inventories 109,492
Other current assets (17,063)
Accounts payable and accrued expenses 220,444
Customer deposits payable 68,415
Net cash provided by operating activities 838,175 Cash flows from
investing activities:
Capital expenditures (88,806) Cash flows from financing activities:
Net repayments of debt (449,815)
Distributions to shareholders (315,000)
Net cash used in financing activities (764,815)
Decrease in cash (15,446)
Cash, beginning of year 98,203
Cash, end of year $ 82,757
Supplemental disclosure of cash flow information:
Interest paid $229,363
Income taxes paid $ 30,248
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
SEWING MACHINE EXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED APRIL 30, 1996
NOTE 1 - BUSINESS ORGANIZATION AND BASIS OF PRESENTATION
Sewing Machine Exchange, Inc. (the "Company") was incorporated on August 1,
1964 in the state of Illinois for the purpose of distributing, modifying, and
servicing computerized embroidery equipment, sewing and cutting machines and
parts. The Company grants credit to customers in the garment industry located
primarily in 11 midwestern states.
On June 7, 1996, the Company was acquired by Hirsch International Corp.
("Hirsch") in a transaction accounted for under the purchase method of
accounting. The Company's two stockholders received approximately $8.69 million,
payable by delivery of two promissory notes aggregating $8,500,000 and 9,375
shares of Hirsch common stock in exchange for all of the outstanding common
stock of the Company. Concurrent with the acquisition, Hirsch entered into
five-year employment contracts with the stockholders and all previously existing
employment contracts between the stockholders and the Company were terminated.
In connection with the acquisition, all amounts outstanding under the
Company's demand note (as discussed in Note 6A) were repaid, and the personal
guarantees of the stockholders were released.
The accompanying financial statements do not give effect to any adjustments
related to the purchase agreement.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Revenue Recognition - The Company distributes embroidery equipment
which it offers for sale. Revenue related to the sale of equipment is recorded
at the time of shipment.
The Company's customer support services include training, technical
support, warranty and maintenance services. Service revenues and costs are
recognized when services are provided. Revenue on service maintenance contracts
is recognized over the term of the contract. Sales of computer hardware and
software are recognized when shipped provided that no significant vendor and
post-contract and support obligations remain and collection is probable.
Warranty costs associated with products sold with warranty protection, as well
as other vendor and post-contract support obligations, are estimated based on
the Company's historical experience and recorded in the period the product is
sold.
(B) Allowance for Doubtful Accounts - The Company provides an allowance for
doubtful accounts determined by a specific identification of individual accounts
and a general reserve to cover other accounts based on historical experience.
The Company writes off receivables upon determination that no further
collections are probable.
8
<PAGE>
(C) Inventories - Inventories consisting of machines and parts are stated
at the lower of cost or market. Cost for machinery is determined by specific
identification and for all other items on a first-in, first-out basis. Reserves
are established to record provisions for slow moving inventories in the period
in which it becomes reasonably evident that the product is not saleable or the
market value is less than cost.
(D) Property, Plant and Equipment - Property, plant and equipment are
stated at cost less accumulated depreciation and amortization. Capitalized
values of property under leases are amortized over the life of the lease or the
estimated life of the asset, whichever is less. Depreciation and amortization
are provided on the straight-line or declining balance methods over the
following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C> <C>
Asset Category Lives in Years
Furniture and fixtures 5-7
Machinery and equipment 5-7
Automobiles 3-5
Leasehold improvements 9-31.5
</TABLE>
(E) Impairment of Long-Lived Assets - In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting For the Impairment of Long-Lived Assets and
For Long-Lived Assets To Be Disposed Of". SFAS 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of.
In accordance with SFAS 121, the Company reviews its long-lived assets,
including property, plant and equipment and identifiable intangibles, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. To determine
recoverability of its long-lived assets, the Company evaluates the probability
that future undiscounted net cash flows, without interest charges, will be less
than the carrying amount of the assets. Impairment is measured at fair value.
The adoption of SFAS 121 had no material effect on the Company's financial
statements.
(F) Income Taxes - The Company, with the consent of its stockholders, has
elected, under the Internal Revenue Code, to be an S corporation. In lieu of
corporation income taxes, the stockholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in these
financial statements.
(G) 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 amounts 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.
9
<PAGE>
(H) Fair Value of Financial Instruments - Financial instruments consist
primarily of investments in cash, trade account receivables, accounts payable
and debt obligations. At April 30, 1996, the fair value of the Company's
financial instruments approximated the carrying value.
<TABLE>
NOTE 3 - INVENTORIES
<CAPTION>
<S> <C>
Machines $ 2,225,521
Parts 1629,210
Less: Reserve for slow moving inventory (319,031)
Total $ 3,535,700
</TABLE>
<TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
<S> <C>
Machinery and equipment $ 126,430
Furniture and fixtures 166,667
Automobiles 149,942
Leasehold improvements 158,919
Total at cost 601,958
Less: Accumulated depreciation and amortization (332,399)
Property, plant and equipment, net $ 269,559
</TABLE>
<TABLE>
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<CAPTION>
<S> <C>
Accounts payable $ 2,574,961
Accrued commissions payable 244,000
Accrued payroll and fringe benefit costs 379,199
Accrued warranty costs 110,000
Other accrued expenses 319,335
Total accounts payable and accrued expenses $ 3,627,495
</TABLE>
<TABLE>
NOTE 6 - LONG-TERM DEBT
<CAPTION>
<S> <C>
Notes payable (A) $ 2,113,229
Notes payable to stockholders (B) 34,841
Term note (C) 258,333
Other (D) 60,025
Total 2,466,428
Less: Current maturities 2,272,846
Long-term maturities $ 193,582
</TABLE>
(A) The Company has a demand note payable to a financial institution with a
maximum availability amount equal to 85 percent of eligible accounts receivable,
65 percent of embroidery machines and parts inventory, and 50 percent of
industrial machines and parts inventory less the outstanding principal and
interest on the term note payable in the original principal amount of $500,000
subject to a limit of $2,500,000 as of April 30, 1996. The maximum availability
amount is reduced by the aggregate amount of any letters of credit
10
<PAGE>
issued on the Company's behalf. See Note 7 for letters of credit issued as
of April 30, 1996. The note requires monthly interest payments at an interest
rate of 1/2 percent over the prime rate (8.75 percent as of April 30, 1996). The
debt is secured by substantially all of the Company's assets and personal
guarantees of the stockholders. This demand note was repaid subsequent to
year-end, and the personal guarantees of the stockholders were released. See
Note 1.
(B) Unsecured notes payable to the two stockholders are due on January 1,
1997. Interest at 9.5 percent per annum is paid annually.
(C) Term note payable in monthly installments of the $8,333, plus interest
at 1.15 percent over prime rate (8.75 percent at April 30, 1996), final payment
due December 1, 1998, secured by substantially all of the Company's assets and
personal guarantees of the stockholders.
(D) Installment loans at various interest rates ranging from 4.9 percent to
14.5 percent with maturities through March 1999. As April 30, 1996, three loans
are outstanding with monthly payments totaling $2,564, all secured by
company-owned vehicles and other equipment covered by these loans.
Long-term debt of the Company at April 30, 1996 matures as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year Ending April 30,
1997 $ 2,272,846
1998 120,100
1999 73,482
$ 2,466,428
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
(A) Minimum Operating Lease Commitments - The Company has operating leases
for various automobiles and sales and service locations. The annual aggregate
rental commitments required under these leases, except for those providing for
month-to-month tenancy, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year Ending April 30,
1997 $ 94,580
1998 17,004
1999 17,004
2000 9,919
Total $ 138,507
</TABLE>
11
<PAGE>
Rent expense was approximately $125,000 (exclusive of rent paid to the
Company's two stockholders--see Note 7F) for the year ended April 30, 1996.
(B) Employee Benefit Plans - The Company has a profit sharing plan for
which employees are eligible based upon their length of service. Contributions
to the plan are made at the discretion of the Board of Directors, but are
limited to the maximum deduction allowable under the Internal Revenue Code. The
Company also maintains a 401(k) plan which provides for salary reductions and
for partial employee matching funds or contributions to the plan. The Company's
contribution to the plan was $84,000 for the year ended April 30, 1996.
(C) Litigation - The Company is a defendant in various litigation matters,
all arising in the normal course of business. Based upon discussion with Company
counsel, management does not expect that these matters will have a material
adverse effect on the Company's financial statements.
(D) Stock Repurchase Agreements - Under the terms of an agreement between
its two stockholders, upon the death of either stockholder, the Company is
required to purchase from the estate all shares then owned at an aggregate price
equal to 150 percent of the book value of those shares. Proceeds of life
insurance on the lives of the stockholders is to be used to repurchase the
shares; if insurance proceeds are not sufficient to cover the price of the
shares, the balance may be paid over a five-year period. At April 30, 1996, the
aggregate purchase price for each stockholder would have been approximately
$880,000. The amount of life insurance in effect is approximately $1,100,000 for
one stockholder and approximately $850,000 for the other. These agreements were
terminated in connection with the acquisition (See Note 1).
(E) Dependency Upon Major Suppliers - During the fiscal year ended April
30, 1996, the Company made purchases of approximately $9,600,000 and $5,300,000
from Melco Industries, Inc. ("Melco") and Tajima Industries Ltd. ("Tajima"),
respectively, the manufacturers of certain of the embroidery machines the
Company sells. This amounted to approximately 49 and 27 percent, respectively,
of the Company's total purchases for the years ended April 30, 1996.
The Melco Agreement expires on December 31, 1999; however, it will be
automatically renewed for three-year intervals thereafter unless 180-day prior
written notice is given by either party. The Melco Agreement, among other
things, establishes certain sales performance objectives for the Company which
are established on an annual calendar year basis. The Company met its sales
performance objective for the calendar year ended December 31, 1995.
The Company has a distributorship agreement with Melco (the "Melco
Agreement") which provides the Company with the exclusive right to distribute
Melco products in 11 midwestern states.
12
<PAGE>
The Company has a distributorship agreement with Tajima (the "Tajima
Agreement") which provides the Company with the exclusive right to distribute
Tajima's products in seven midwestern states. The Tajima Agreement in terminable
by Tajima and/or the Company if a default, as defined in the Agreement, by
either party occurs. The Tajima Agreement is renewable in one-year terms and has
been renewed through February 1997. The Tajima Agreement, among other things,
establishes certain annual minimum purchase quotas for the Company which are
established on an annual basis. The minimum purchase of embroidery machines for
the period February 1995 through February 1996 was met.
Concurrently with the acquisition of the Company by Hirsch (see Note 1),
the Company's Tajima Agreement was combined with Hirsch's agreement with Tajima
and was effectively extended through February 2005.
There are several manufacturers of multihead embroidery equipment. Although
management of the Company believes that the likelihood of the loss of Melco
and/or Tajima as a supply source is remote, if Melco and/or Tajima terminated
the current distributor relationship with the Company, management believes that
it could establish a similar arrangement with another manufacturer of embroidery
equipment.
(F) Related Party Transactions - The Company leases its principle facility
located in Chicago, Illinois from the Company's two stockholders. Rent expense
paid to the stockholders was approximately $142,000 for the year ended April 30,
1996. In conjunction with the acquisition of the Company by Hirsch as discussed
in Note 1, the lease was terminated, and a new lease was entered into between
Hirsch and the stockholders. The new lease expires on June 7, 1998 and requires
monthly rent payments of $8,800.
(G) Standby Letter of Credit - At April 30, 1996, the Company had a standby
letter of credit in the amount of $750,000 (see Note 6A).
13
<PAGE>
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
On June 7, 1996, Hirsch International Corp. ("Hirsch") acquired all of the
outstanding capital stock of Sewing Machine Exchange, Inc. ("SMX"). This
acquisition will be accounted for by Hirsch as a purchase and accordingly, the
acquired assets and assumed liabilities will be recorded at their estimated fair
market values at the date of acquisition. The cost in excess of fair value of
SMX will be recorded as goodwill. The purchase price was $8.69 million, payable
by delivery of a promissory note in the principal amount of $4.25 million to
each of the two shareholders of SMX and by delivery of an aggregate of 9,375
shares of the Company's Class A Common Stock. Pursuant to the terms of the
promissory notes, the Company was required to make a principal payment on each
note in the amount of $2.5 million on June 13, 1996 with the balance of each
note ($1.75 million) payable in 60 equal monthly installments of principal and
interest beginning July 7, 1996. Concurrent with the acquisition, the Company
entered into five-year employment contracts with SMX's former shareholders.
On June 10, 1996, Hirsch entered into a term loan agreement with a bank
(the "Term Loan Agreement") pursuant to which the bank lent $7,500,000 to Hirsch
to fund the acquisition of SMX and to repay SMX's credit facilities. The loan is
repayable in twenty (20) equal quarterly installments of principle and interest
(LIBOR plus 100 basis points) beginning September 30, 1996.
The following unaudited pro forma consolidated balance sheet as of April
30, 1996 and the unaudited pro forma consolidated statements of income for the
year ended January 31, 1996 and the three months ended April 30, 1996 give
effect to the purchase by Hirsch of the stock of SMX as if the transaction
occurred at the beginning of each period presented. The pro forma adjustments
assume the transaction occurred (a) on April 30, 1996 for the pro forma
consolidated balance sheet, and (b) as of the beginning of the period for the
consolidated statements of income for the year ended January 31, 1996 and the
three months ended April 30, 1996.
The pro forma financial information is based on the historical consolidated
financial statements of Hirsch and the historical financial information of SMX
and should be read in conjunction with such financial statements and
accompanying notes. The purchase method of accounting was used to prepare the
pro forma financial statements using the purchase price established in the stock
purchase agreement and estimated fair values of the net assets. The actual
purchase accounting adjustments to reflect the fair values of the net assets
will be based on management's evaluation; therefore, the adjustments that have
been used in the pro forma consolidated financial information are subject to
change pending the final allocation of the purchase price.
The pro forma financial information does not purport to be indicative of
the financial position or results of operations which would have actually been
obtained if the acquisition had occurred on the dates indicated nor the results
of operations which will be reported in the future.
14
<PAGE>
<TABLE>
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
(UNAUDITED)
<CAPTION>
Hirsch SMX Pro forma Pro forma
Historical Historical Adjustments Consolidated
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,586,371 $ 82,757 $376,771 [5] $ 7,045,899
Short-term investments available-for-sale 2,768,285 - - 2,768,285
Accounts receivable, net 14,243,010 3,494,406 (305,101)[2] 17,110,315
(322,000)[4]
Net investment in sales-type leases - current portion 1,326,468 - - 1,326,468
Inventories, net 9,718,603 3,535,700 (375,000)[4] 12,879,303
Deferred income taxes 1,071,353 - - 1,071,353
Other current assets 632,955 109,890 - 742,845
Total Current Assets 36,347,045 7,222,753 (625,330) 42,944,468
Net investment in sales-type leases - non-current portion 7,381,133 - - 7,381,133
Purchased technologies, net 924,680 - - 924,680
Goodwill - - 8,803,061[4] 8,803,061
Property, plant and equipment, net 4,854,324 269,559 - 5,123,883
Other assets 1,359,067 - - 1,359,067
Total Assets $50,866,249 $7,492,312 $8,177,731 $ 66,536,292
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Trade acceptance payable $ 9,139,804 $ - $ - $9,139,804
Accounts payable and accrued expenses 5,912,469 3,627,495 (305,101)[2] 9,773,863
39,000 [4]
500,000 [4]
Current maturities of long-term debt 232,200 2,272,846 2,200,000 [5] 2,591,817
(2,113,229)[5]
Income taxes payable 1,296,633 - - 1,296,633
Customer deposits payable 1,456,229 265,606 - 1,721,835
Total Current Liabilities 18,037,335 6,165,947 320,670 24,523,952
Long-term debt, less current maturities 1,725,750 193,582 8,800,000 [5] 10,719,332
Total Liabilities 19,763,085 6,359,529 9,120,670 35,243,284
Commitments and Contingencies
Stockholders' Equity:
Hirsch preferred stock - - - -
Hirsch Class A common stock 34,246 - 94 [4] 34,340
Hirsch Class B common stock 27,322 - - 27,322
SMX common stock - 13,200 (13,200)[4] -
Additional paid-in capital 11,885,627 105,683 (105,683)[4] 12,075,377
189,750 [4]
Unrealized holding loss on short-term investments
available-for-sale (16,874) - - (16,874)
Retained earnings 19,172,843 1,013,900 (1,013,900)[4] 19,172,843
Total Stockholders' Equity 31,103,164 1,132,783 (942,939) 31,293,008
Total Liabilities and Stockholders' Equity $50,866,249 $7,492,312 $8,177,731 $66,536,292
</TABLE>
15
<PAGE>
<TABLE>
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JANUARY 31, 1996
(UNAUDITED)
<CAPTION>
Hirsch SMX Pro forma Pro forma
Historical Historical [1] Adjustments Consolidated
<S> <C> <C> <C> <C>
Net sales $ 87,974,185 $27,827,947 $ (400,000)[3] $ 115,402,132
Interest income related to sales type leases 3,022,239 - - 3,022,239
Total revenue 90,996,424 27,827,947 (400,000) 118,424,371
Cost of goods sold 58,835,780 19,726,778 (254,000)[3] 78,308,558
Selling, general and administrative expenses 20,638,144 7,318,639 587,000 [6] 28,243,783
Interest expense 396,976 229,363 470,000 [7] 1,096,339
Other income, net (276,702) - - (276,702)
Total expenses 79,594,198 27,274,780 803,000 107,371,978
Income before income taxes 11,402,226 553,167 (1,203,000) 10,752,393
Provision for income taxes 4,837,294 30,248 (305,542)[8] 4,562,000
Net income $ 6,564,932 $ 522,919 $ (897,458) $ 6,190,393
Income per share $ 1.09 $ 1.03
Weighed average number of shares used in
the calculation of income per share 6,009,355 6,009,449
</TABLE>
16
<PAGE>
<TABLE>
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED APRIL 30, 1996
(UNAUDITED)
<CAPTION>
Hirsch SMX Pro Forma Pro Forma
Historical Historical Adjustments Consolidated
<S> <C> <C> <C> <C>
Net sales $ 23,868,173 $ 7,431,282 $ (227,000)[3] $ 31,072,455
Interest income related to sales type leases 820,939 - - 820,939
Total revenue 24,689,112 7,431,282 (227,000) 31,893,394
Cost of goods sold 15,643,569 5,305,297 (151,000)[3] 20,797,866
Selling, general and administrative expenses 5,729,187 1,955,719 147,000 [6] 7,831,906
Interest expense 69,197 50,204 118,000 [7] 237,401
Other income, net (74,766) - - (74,766)
Total expenses 21,367,187 7,311,220 114,000 28,792,407
Income before income taxes 3,321,925 120,062 (341,000) 3,100,987
Provision for income taxes 1,351,470 30,248 (119,718)[8] 1,262,000
Net income $ 1,970,455 $ 89,814 $(221,282) $ 1,838,987
Income per share $ 0.32 $ 0.30
Weighed average number of shares used in
the calculation of income per share 6,212,899 6,212,993
</TABLE>
17
<PAGE>
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SMX's historical financial statements are as of and for the year ended
April 30, 1996. In accordance with Regulations S-X, Article 11, Paragraph 7(3),
as such year end is within 93 days of Hirsch's year end, such financial
statements may be consolidated with Hirsch.
2. The pro forma adjustments to accounts receivable, and accounts payable
represent the elimination of intercompany balances.
3. The pro forma adjustments to net sales and cost of sales for the year
ended January 31, 1996 and the three months ended April 30, 1996 represent the
elimination of intercompany sales and related cost of sales.
4. The pro forma adjustments to goodwill, accounts receivable, inventory,
accrued expenses, common stock, additional paid-in capital and retained earnings
represent the costs in excess of net assets acquired (approximately $8,800,000),
the recording of additional purchase accounting reserves (primary accounts
receivable and inventory) ($736,000), the issuance of Hirsch common stock, the
estimated costs of the acquisition ($500,000), and the elimination of the
historical SMX equity section.
5. The pro forma adjustments to long-term debt and cash represent (a) the
repayment of a $2,113,229 demand note held by SMX; (b) borrowing by Hirsch of
$7,500,000 from a bank to finance the acquisition; (c) a $3,500,000 promissory
note issued by Hirsch to the former stockholders of SMX; and (d) excess funds
borrowed recorded as cash.
6. The pro forma adjustment to selling general and administrative expenses
represents the amortization of the excess of cost over the fair value of net
assets acquired, amortized on a straight-line basis over an estimated life of 15
years.
7. The pro forma adjustment to interest expense represents the additional
interest expense relating to the new bank financing and the promissory note
issued (calculated at an assumed interest rate of 6.0 percent).
8. The pro forma adjustment to the provision for income taxes represents
the difference between SMX's historic S Corp. effective tax rate and Hirsch's C
Corp. effective tax rate and the tax impact of the pro forma adjustments.
18
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-94914 of Hirsch International Corp. on Form S-8 of our report dated June 13,
1996 (relating to the financial statements of Sewing Machine Exchange, Inc.),
appearing in this Form 8-K/A of Hirsch International Corp.
DELOITTE & TOUCHE LLP
August 16, 1996
19
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915909
<NAME> Hirsch
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jan-31-1996
<PERIOD-END> Apr-30-1996
<CASH> 82,757
<SECURITIES> 0
<RECEIVABLES> 3,839,200
<ALLOWANCES> (303,500)
<INVENTORY> 3,535,700
<CURRENT-ASSETS> 7,222,753
<PP&E> 601,958
<DEPRECIATION> (332,399)
<TOTAL-ASSETS> 7,492,312
<CURRENT-LIABILITIES> 6,165,947
<BONDS> 0
0
0
<COMMON> 13,200
<OTHER-SE> 1,119,583
<TOTAL-LIABILITY-AND-EQUITY> 7,492,312
<SALES> 27,827,947
<TOTAL-REVENUES> 27,827,947
<CGS> 19,726,778
<TOTAL-COSTS> 27,045,417
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229,363
<INCOME-PRETAX> 553,167
<INCOME-TAX> 30,248
<INCOME-CONTINUING> 522,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 522,919
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
