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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2005
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ________________.
Commission File No.: 0-23434
HIRSCH INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-2230715
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Wireless Boulevard, Hauppauge, New York 11788
(Address of principal executive offices)
Registrant's telephone number, including area code: (631) 436-7100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes[ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 25, 2005.
Class of Number of
Common Equity Shares
Class A Common Stock, 7,912,010
par value $.01
Class B Common Stock, 550,018
par value $.01
HIRSCH INTERNATIONAL CORP. and SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information Page
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - April 30, 2005
and January 29, 2005 3-4
Condensed Consolidated Statements of Operations for
the Three Months Ended April 30, 2005 and 2004 5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended April 30, 2005 and 2004 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Item 4. Controls and Procedures 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits 14
Signatures 15
Certifications 16-19
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
April 30, 2005 January 29, 2005
----------------------- -------------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,992 $ 6,398
Restricted cash 5,650 5,650
Accounts receivable, net of an allowance for possible
losses of $630,000 4,775 4,914
Inventories, net (Note 3) 8,263 5,776
Other current assets 221 393
Assets of discontinued operations (Note 5) 722 831
----------------------- -------------------------
Total current assets 24,623 23,962
----------------------- -------------------------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization 1,832 1,949
OTHER ASSETS 764 715
----------------------- -------------------------
TOTAL ASSETS $27,219 $26,626
======================= =========================
See notes to condensed consolidated financial statements.
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
April 30, 2005 January 29, 2005
-------------------- ------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES:
Accounts payable and accrued expenses
(Note 4) $ 9,007 $ 8,346
Capitalized lease obligations - Short Term 154 148
Deferred gain on sale of building - Short Term 120 119
Customers deposits and other 462 585
Liabilities of discontinued operations (Note 5) 1,505 1,495
-------------------- ------------------------
Total current liabilities 11,248 10,693
-------------------- ------------------------
Capitalized lease obligations-less current
maturities 1,229 1,270
Deferred gain on sale of building-less current
maturities 579 608
-------------------- ------------------------
Total liabilities 13,056 12,571
-------------------- ------------------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized:
1,000,000 shares; issued:
none - -
Class A common stock, $.01 par value; authorized:
20,000,000 shares, issued: 9,076,000 and 9,002,000 shares,
respectively 90 90
Class B common stock, $.01 par value; authorized:
3,000,000 shares, outstanding: 550,000 and 600,000,
respectively 6 6
Additional paid-in capital 41,471 41,465
Accumulated deficit (25,387) (25,489)
-------------------- ------------------------
16,180 16,072
Less: Treasury stock, at cost 1,164,000 shares 2,017 2,017
-------------------- ------------------------
Total stockholders' equity 14,163 14,055
-------------------- ------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,219 $26,626
==================== ========================
See notes to condensed consolidated financial statements.
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended
April 30, 2005 April 30, 2004
------------------ --------------------
NET SALES $13,508 $ 9,387
COST OF SALES 9,297 6,305
-------------------- --------------------
GROSS PROFIT 4,211 3,082
-------------------- --------------------
OPERATING EXPENSES
Selling, General & Administrative Expenses 3,964 4,075
Severance costs 147 0
-------------------- --------------------
Total operating expenses 4,111 4,075
-------------------- --------------------
OPERATING INCOME (LOSS) 100 (993)
-------------------- --------------------
OTHER EXPENSE (INCOME)
Interest expense 37 49
Other income (50) (32)
-------------------- --------------------
Total other expense (income) (13) 17
-------------------- --------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX
PROVISION AND DISCONTINUED
OPERATIONS 113 (1,010)
INCOME TAX PROVISION 11 14
-------------------- --------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 102 (1,024)
LOSS FROM DISCONTINUED OPERATIONS , NET ( NOTE
5) 0 (83)
-------------------- --------------------
NET INCOME (LOSS) $ 102 $(1,107)
==================== ====================
EARNINGS (LOSS) PER SHARE
Basic
Earnings (loss) from continuing operations $0.01 ($0.12)
Loss from discontinued operations 0.00 (0.01)
-------------------- --------------------
NET INCOME (LOSS) PER SHARE $0.01 ($0.13)
==================== ====================
Diluted
Earnings (loss) from continuing operations $0.01 ($0.12)
Loss from discontinued operations 0.00 (0.01)
-------------------- --------------------
NET INCOME (LOSS) PER SHARE $0.01 ($0.13)
==================== ====================
WEIGHTED AVERAGE NUMBER OF SHARES IN THE CALCULATION OF
EARNINGS (LOSS) PER SHARE
Basic 8,448 8,334
Diluted 9,179 8,334
See notes to condensed consolidated financial statements.
HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three Months Ended
April 30, 2005 April 30, 2004
------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 102 ($ 1,107)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 166 192
Recognized Gain on Sale of Building (30) (30)
Provision for reserves 105 -
Changes in assets and liabilities:
Accounts receivable 90 1,895
Net investment in sales-type leases 100 (7)
Inventories (2,001) (374)
Prepaid taxes 0 (8)
Other assets 179 42
Trade acceptances payable 0 (751)
Accounts payable and accrued expenses (77) (653)
----------------- -------------------
Net cash used in operating
activities (1,366) (801)
----------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5) (40)
----------------- -------------------
Net cash used in investing
activities (5) (40)
----------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (41) (35)
Restricted Cash 0 (2,650)
Exercise of stock options 6 1
----------------- -------------------
Net cash used in financing activities (35) (2,684)
Decrease in cash and cash
equivalents (1,406) (3,525)
Cash and cash equivalents, beginning of period 6,398 8,963
----------------- -------------------
Cash and cash equivalents, end of period $ 4,992 $ 5,438
================= ===================
Supplemental disclosure of cash flow information:
$
Interest paid 43 $ 49
$
Income taxes paid 11 $ 21
================= ===================
See notes to condensed consolidated financial statements.
Hirsch International Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended April 30, 2005 and April 30, 2004
1. Business Organization and Basis of Presentation
The accompanying condensed consolidated financial statements as of and
for the three month periods ended April 30, 2005 and 2004 include the accounts
of Hirsch International Corp.("Hirsch"), HAPL Leasing Co., Inc. ("HAPL"),
Hometown Threads, LLC ("Hometown") through October 22, 2004, and Hirsch Business
Concepts, LLC ("HBC") (collectively, the "Company").
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all the adjustments, consisting of
normal accruals, necessary to present fairly the results of operations for each
of the three month periods ended April 30, 2005 and April 30, 2004, the
financial position at April 30, 2005 and cash flows for the three month periods
ended April 30, 2005 and April 30, 2004, respectively. Such adjustments
consisted only of normal recurring items. The condensed consolidated financial
statements and notes thereto should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended January 29, 2005 as filed
with the Securities and Exchange Commission.
Our accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnote disclosures required by accounting principles
generally accepted in the United States for complete financial statements.
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires us 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.
The interim financial results are not necessarily indicative of the results to
be expected for the full year. Certain amounts from prior periods have been
reclassified to conform to the current period's presentation.
2. Stock Based Compensation
The Company accounts for its stock-based employee compensation plans
under the recognition and measurement principles of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price equal to
the market value of the Common Stock on the date of grant. The following table
details the effect on net income and earnings (loss) per share if the Company
had applied the fair value recognition provisions of Statement of Financial
Accounting Statement ("SFAS") No. 123, Accounting for Stock-Based Compensation,
as amended by SFAS No. 148, to stock-based employee compensation.
Three Months Ended
April 30, 2005 April 30, 2004
------------------ -------------------
(in thousands)
Net income (loss), as reported $ 102 ($1,107)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method (22) (9)
------------------ -------------------
Pro-forma net income (loss) $80 ($1,116)
================== ===================
Earnings (loss) per share:
Basic - as reported $0.01 ($0.13)
Basic - pro forma $0.01 ($0.13)
Diluted - as reported $0.01 ($0.13)
Diluted - pro forma $0.01 ($0.13)
The following weighted average assumptions were used in the Black-Scholes
option-pricing model for grants in Fiscal 2006: dividend yield of 0.0%,
volatility of 74%, risk-free interest rate of 4.13% for grants on 4/1/2005,
Fiscal 2005: dividend yield of 0.0%, volatility of 67% and risk free interest
rate of 3.72% for grants on 12/1/2004, 77% volatility and 3.4% risk free
interest rate for grants on 9/8/2004 and 77% volatility and 3.35% risk free rate
for grants on 9/17/2004; and an expected life of 5 years.
3. Inventories
April 30, 2005 January 29, 2005
-------------------- ----------------------
New Machines and Software $ 5,612 $ 3,824
Used Machines
Parts 416 566
3,953 2,979
-------------------- ----------------------
9,981 7,369
Less: Reserve for slow moving
inventory (1,718) (1,593)
-------------------- ----------------------
Inventories, net $ 8,263 $ 5,776
==================== ======================
4. Warranty Reserve
The warranty reserve included in Accounts Payable and Accrued Expenses was
$568,000 for the first quarter ended April 30, 2005. Additional warranty expense
of $25,000 was recorded during the first quarter ended April 30, 2005.
5. Discontinued Operations
In the fourth quarter of Fiscal 2002, the Company determined that its
HAPL Leasing subsidiary was not strategic to the Company's ongoing objectives
and discontinued its operations. Accordingly, the Company reported its
discontinued operations in accordance with SFAS 144. The consolidated financial
statements have been reclassified to segregate the assets, liabilities and
operating results of these discontinued operations for all periods presented.
Management intends to wind down or sell the assets by January 2006.
Assets and liabilities of discontinued operations of HAPL Leasing are as follows
(in thousands):
April 30, January 29,
2005 2005
----------------- --------------
Assets:
Accounts receivable................ $ 3 $ 92
MLPR and residuals................. 563 583
Prepaid taxes and other assets..... 8 8
----------------- --------------
Total Assets............................. $ 574 $ 683
================= ==============
Liabilities:
Accounts payable and accrued expenses $1,000 $1,009
Income taxes payable................ 87 87
----------------- --------------
Total Liabilities........................ $1,087 $1,096
================= ==============
Summary operating results of the discontinued operations of HAPL Leasing (in
thousands) are as follows:
For the three months ended
April 30, 2005 April 30, 2004
------------------- ---------------
Revenue.................................. $4 $295
Gross profit............................. 4 186
(Loss) from discontinued operations...... - -
During the quarter ended April 30, 2004, the Company determined that
its Hometown Threads, LLC subsidiary was not strategic to the Company's
long-term objectives. On October 22, 2004, the Company sold substantially all of
the assets of its Hometown subsidiary to Embroidery Acquisition LLC ("Buyer"), a
wholly owned subsidiary of PCA, LLC ("PCA") pursuant to the terms of a certain
Asset Purchase Agreement ("Agreement") entered into between the Company,
Hometown, Buyer and PCA.
The Buyer has withheld $200,000 from the selling price primarily
associated with a note receivable on the books of Hometown Threads and $142,000
in deferred income from deposits received for stores not yet opened. The Company
deferred the recognition of income on these items until the contingencies are
resolved during the six month hold-back period. The Company expects to resolve
the contingencies in the early part of fiscal 2006, however, the Company is
unable to predict the outcome at this time.
Assets and liabilities of the discontinued operations of Hometown Threads, LLC
are as follows (in thousands):
April 30, January 29,
2004 2005
------------------ --------------
Assets:
Accounts receivable................ $148 $148
------------------ --------------
Total Assets............................. $148 $148
================== ==============
Liabilities:
Accounts payable and accrued expenses $418 $399
------------------ --------------
Total Liabilities........................ $ 418 $ 399
================== ==============
Summary operating results of the discontinued operations of Hometown Threads,
LLC (in thousands) are as follows:
For the three months ended
April 30, 2004 April 30, 2004
------------------ -----------------
Revenue................................. $ 0 $523
Gross profit............................ 0 265
Loss from discontinued operations....... $0 ($ 83)
6. Contingencies
As of April 30, 2005, the Company had $5.6 million in restricted cash
which is used to collateralize outstanding standby letters of credit opened
against the credit line at Congress Financial
7. Earnings per Share
A reconciliation of shares used in calculating basic and diluted earnings per
common share for the three months ended April 30, 2005 follows:
Basic 8,448,303
Effect of assumed conversion
of employee stock options 730,836
-------
Diluted 9,179,139
=========
Options to purchase approximately 98,000 shares of common stock at prices
ranging from $1.12 to $2.72 that were outstanding during the three months ended
April 30, 2005 were excluded from the computation of diluted earnings per share
because the options' exercise prices exceeded the average fair market value of
the Company's common stock.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis contains forward-looking
statements which involve risks and uncertainties. When used herein, the words
"anticipate", "believe", "estimate" and "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in or implied by
these forward-looking statements. Factors that could cause or contribute to such
differences should be read in conjunction with, and is qualified in its entirety
by, the Company's Condensed Consolidated Financial Statements, including the
Notes thereto. Historical results are not necessarily indicative of trends in
operating results for any future period.
Three months ended April 30, 2005 as compared to the three months ended April
30, 2004.
Net sales. Net sales for the three months ended April 30, 2005 were
$13.5 million, an increase of $4.1 million, or 43.9%, compared to $9.4 million
for the three months ended April 30, 2004. The increase in sales for the three
months ended April 30, 2005 is attributable to increased sales of small (2
through 8 head) and mutli-head (12 and larger) machines versus sales of
single-head machines. The market for small and multi-head machines has
demonstrated some growth during the first quarter for fiscal 2006.
Cost of sales. For the three months ended April 30, 2005, cost of sales
increased $3.0 million to $9.3 million from $6.3 million for the three months
ended April 30, 2004. The increase is directly related to the increase in sales
volume over the same period. The Company's gross margin decreased to 31.2% for
the three months ended April 30, 2005 as compared to 32.8% for the three months
ended April 30, 2004. Gross margin as a percentage of sales decreased during the
three months ended April 30, 2005 primarily as the result of continued pricing
pressures in what remains an extremely competitive market and changes in product
mix to lower margin multi-head machines. The recent adverse fluctuation in the
yen, which is the currency the company's embroidery machines are priced in, has
affected and is likely to continue to affect and exert pressure on the Company's
machine sales pricing competitiveness.
Operating Expenses. For the three months ended April 30, 2005 and 2004,
operating expenses were relatively constant at $4.1 million. Included in
operating expenses for the quarter ended April 30, 2005 was $147,000 in
severance costs associated with the Company's continuing reorganization.
Interest Expense (Income). Interest expense for the three months ended
April 30, 2005 decreased to $37,000 from $49,000 for the three months ended
April 30, 2004. Interest expense is primarily associated with the sale/leaseback
transaction of the corporate headquarters.
Other Income. Other income for the three months ended April 30, 2005
increased to $50,000 from $32,000 for the three months ended April 30, 2004. The
increase in other income is related to favorable currency translations during
the first quarter of fiscal 2006.
Income tax expense. The income tax expense recorded for the three
months ended April 30, 2005 and 2004 represents taxes due on year end income for
various state and local income taxes, for which the Net Operating Loss
carry-forwards from prior years do not apply.
Income (Loss) from Continuing Operations. Income from continuing
operations for the three months ended April 30, 2005 was $0.1 million, an
increase $1.1 million from a net loss of $1.0 million for the three months ended
April 30, 2004. The increase in sales volume and the maintenance of operating
costs directly contributed to income from continuing operations for the first
quarter of fiscal 2006.
Loss from Discontinued Operations. During the quarter ended April 30,
2004, the Company determined that its Hometown Threads, LLC subsidiary was not
strategic to the Company's long-term objectives. On October 22, 2004, the
Company sold substantially all of the assets of its Hometown subsidiary to
Embroidery Acquisition LLC, a wholly owned subsidiary of PCA, LLC. As a result,
Hometown Threads, LLC was accounted for as discontinued operations in the
consolidated financial statements for all periods presented. The loss from
discontinued operations was $83,000 as of April 30, 2004. The loss on
discontinued operations for April 30, 2004 is attributable to the Hometown
Threads operation.
Net Income (Loss). Net income for the three months ended April 30, 2005
was $0.1 million an increase of $1.2 million over the net loss of $1.1 million
for the three months ended April 30, 2004. The increase in sales volume and the
maintenance of operating costs directly contributed to the net income for the
first quarter of fiscal 2006.
Liquidity and Capital Resources
Operating Activities and Cash Flows
The Company's working capital was $13.4 million at April 30, 2005,
increasing $0.1 million, or 0.8%, from $13.3 million at January 29, 2005.
During the three months ended April 30, 2005, the Company's cash and cash
equivalents decreased by $1.4 million to $5.0 million. Net cash of $1.366
million was used by the Company's operating activities primarily used to
increase inventory and $0.035 million was used in financing activities, plus
capital expenditures of $0.005 million.
Inventory purchase commitments are covered by current purchases of
foreign currency. The Company believes that no material foreign currency
exchange risk exists relating to outstanding payables. As of April 30, 2005 the
Company did not own any foreign currency futures contracts.
Future Commitments
The following table shows the Company's contractual obligations.
Payments due by period (in thousands)
Less than More than 5
Contractual Obligations Total 1 year 1 - 3 years 4-5 years years
- ------------------------------------- ------------ ------------ ----------- ---------- --------------
Capital lease obligations $ 1,935 $ 309 $ 982 $ 644 $0
Operating lease obligations 1,820 591 828 401 0
Purchase commitments 600 600
------------ ------------ ----------- ---------- --------------
Total $ 4,355 $ 1,500 $ 1,810 $ 1,045 $ 0
============ ============ =========== ========== ==============
Revolving Credit Facility and Borrowings
The Company has a Loan and Security Agreement ("the Congress
Agreement") with Congress Financial Corporation ("Congress") for three years
expiring on November 26, 2005. The Congress Agreement, as amended, August 31,
2004 provides for a credit facility of $12 million for Hirsch and all
subsidiaries. Advances made pursuant to the Congress Agreement may be used by
the Company and its subsidiaries for working capital loans, letters of credit
and deferred payment letters of credit. The terms of the Congress Agreement
require the Company to maintain certain financial covenants. The Company was in
compliance with its covenants at April 30, 2005. The Company has placed $5.7
million in restricted cash to support standby letters of credit of approximately
$4.5 million at April 30, 2005 and a $0.6 million standby letter of credit
backing the lease on the Company's facilities in Hauppauge.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies
and estimates from those disclosed in Item 7 of our Annual Report on Form 10-K
for the year ended January 29, 2005.
Future Capital Requirements
The Company believes that its existing cash and funds generated from
operations, together with its revolving credit facility, will be sufficient to
meet its working capital and capital expenditure requirements.
Backlog and Inventory
The ability of the Company to fill orders quickly is an important part
of its customer service strategy. The embroidery machines held in inventory by
the Company are generally shipped within a week from the date the customer's
orders are received, and as a result, backlog is not meaningful as an indicator
of future sales.
Inflation
The Company does not believe that inflation has had, or will have in
the foreseeable future, a material impact upon the Company's operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the potential
loss arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The recent adverse fluctuation in the yen,
which is the currency the company's embroidery machines are priced in, has
affected and is likely to continue to affect the Company's machine sales pricing
competitiveness. Embroidery machinery prices have either been maintained or
risen in US dollars due to these adverse exchange rate fluctuations. As a
result, in order for the company to maintain various product margins for its
imported embroidery machines, its competitiveness has been adversely affected.
Some but not all of the Company's competitors face similar circumstances. The
Company has a formal policy that prohibits the use of currency derivatives or
other financial instruments for trading or speculative purposes. The policy
permits the use of financial instruments to manage and reduce the impact of
changes in foreign currency exchange rates that may arise in the normal course
of the Company's business. Currently, the Company does not use interest rate
derivatives.
The Company may enter into forward foreign exchange contracts
principally to hedge the currency fluctuations in transactions denominated in
foreign currencies, thereby limiting the Company's risk that would otherwise
result from changes in exchange rates.
Any Company debt, if utilized, is U.S. dollar denominated and floating
rate-based. At quarter-end, there was no usage of the revolving credit facility.
If the Company had utilized its credit facility, it would have exposure to
rising and falling rates, and an increase in such rates would have an adverse
impact on net pre-tax expenses. The Company does not use interest rate
derivatives to protect its exposure to interest rate market movements.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and the Chief Financial
Officer, the Company carried out an evaluation of the effectiveness of the
design and operation of the disclosure controls and procedures, as defined in
Rules 13a-15e and 15d-15e of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective, as of the end of the period covered by
this Report, in ensuring that material information relating to the Company
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rule and
forms, including ensuring that such material information is accumulated and
communicated to the Company's Management, including the Company's Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
There have been no changes in the Company's internal controls over
financial reporting that occurred during the period covered by this report that
have materially affected, or are reasonably likely to affect, the Company's
internal controls over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits
*3.1 Restated Certificate of Incorporation of the Registrant
**3.2 Amended and Restated By-laws of the Registrant
***4.1 Specimen of Class A Common Stock Certificate
***4.2 Specimen of Class B Common Stock Certificate
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
Rule 15d - 14(a).
31.2 Certification of Chief Financial Officer to Section Rule 13a-14(a) or
Rule 15d - 14(a).
32.1 Certification of Chief Executive Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
- --------------------------------------------------------------------------------
*Incorporated by reference from the Registrant's Form 10-Q filed for the
quarter ended July 31, 1997.
**Incorporated by reference from the Registrant's
Form 10-Q filed for the quarter ended October 31, 1997.
***Incorporated by reference from the Registrant's Registration Statement on
Form S-1, Registration Number 33-72618
- --------------------------------------------------------------------------------
SIGNATURES
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.
Registrant
By: /s/ Paul Gallagher
----------------------
Paul Gallagher,
CEO, President and Chief Operating Officer
By: /s/ Beverly Eichel
----------------------
Beverly Eichel,
VP of Finance and Chief Financial Officer
Dated: June 08, 2005