Add
HRSH to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| HRSH > SEC Filings for HRSH > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
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 include, without limitation, the risks and uncertainties discussed under the caption "Risk Factors" in the Company's Form 10K for the year ending December 31, 2008 and in the Company's other filings made with the Securities and Exchange Commissions from time to time. The discussion and analysis should be read in conjunction with, and is qualified in its entirety by, the Company's 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 March 31, 2009 as compared to March 31, 2008.
Net sales. Net sales for the three months ended March 31, 2009 were $6.8 million, a decrease of $4.9 million, or 41.9%, compared to $11.7 million for the three months ended March 31, 2008. The decrease in sales for the three months is primarily attributable to a decrease in sales of new embroidery machines of $4.7 million, $0.5 million in MHM screenprinting machines, $0.5 million in parts and supplies and $0.3 million in software due to the general slowdown in demand for capital goods. The decrease in those categories is offset by an increase in sales of Kornit and Mimaki Digital Printers of $0.3 million and sales of U.S. Graphics of $0.9 million. All other products combined for a decrease of $0.1 million for the three months ended March 31, 2009.
Cost of sales. For the three months ended March 31, 2009, cost of sales decreased 33.8% or $2.6 million to $5.1 million from $7.7 million for the three months ended March 31, 2008. The decrease was primarily the result of $2.8 million in Tajima new embroidery machines, $0.2 million in MHM screenprinting, $0.4 million from parts and supplies and $0.3 million from change in currency exchange. Offsetting the overall decrease was an increase in costs from Kornit and Mimaki digital printers of $0.2 million,$1.0 million in costs relating to the sales of U. S. Graphics and $0.1 million in all other categories net. The Company's gross margin decreased to 24.3% for the three months ended March 31, 2009 as compared to 33.8% for the three months ended March 31, 2008. For the three month period ended March 31, 2009 compared to the three month period ended March 31, 2008, the Company experienced a decrease in sales for the new embroidery machine category which lowered gross margin by $1.9 million, and lower gross margin on software of $0.2 million and MHM Screen Printing of $0.3 million. Offsetting these declines were increases in gross margin from Kornit and Mimaki digital printing of $0.1 million, and all other products combined for a zero margin effect. The fluctuation of the dollar against the yen, which is the currency the Company's embroidery machines are purchased in, has affected and is likely to continue to affect the Company's machine sales pricing competitiveness and gross margins.
Operating Expenses. For the three months ended March 31, 2009 operating expenses were $4.4 million, a decrease of $0.3 million, or 6.4% as compared to $4.7 million for the three months ended March 31, 2008. The decrease in operating expenses for the three months ended March 31, 2009 is primarily the result of the reductions in salaries and commissions offset by the additional expenses of U.S. Graphic's of $1.2 million which included an impairment charge to its fixed assets of $0.3 million.
Interest Expense. Interest expense for the three months ended March 31, 2009 increased to $19,000 from $0 for the three months ended March 31, 2008. For the three months ended March 31, 2009, interest expense was related to the U.S Graphic's line of credit.
Other Income. Other income for the three months ended March 31, 2009 decreased by $82,000 to $23,000 from $105,000 for the three months ended March 31, 2008 primarily attributable to a decrease in interest income for the quarter due to lower cash balances.
Income Tax Provision. Income tax expense for the three months ended March 31, 2009 was $17,000 versus $0 for the three months ended March 31, 2008. For the three months ended March 31, 2009 the amounts represent minimum AMT tax estimates for the current year.
Net Loss. Net loss for the three months ended March 31, 2009 was $2.7 million an increase of $2.1 million as compared to net loss of $0.6 million for the three months ended March 31, 2008. The increase is primarily from an increase in operating loss due to the decrease in sales volume and the acquisition of U.S. Graphic Arts.
Liquidity and Capital Resources
Operating Activities and Cash Flows
The Company's working capital was $8.3 million at March 31, 2009, decreasing $2.3 million, or 21.7%, from $10.6 million at December 31, 2008.
During the three months ended March 31, 2009, the Company's cash and cash equivalents decreased by $2.3 million from $4.9 million at December 31, 2008 to $2.6 million at March 31, 2009. Net cash of $2.2 million was used by the Company's operating activities primarily to pay down accounts payable by $2.3 million. Cash of $0.1 million was used in investing activities for capital expenditures primarily for a new computer system.
The Company purchases inventory in Yen and Euro and maintains bank accounts denominated in Yen and Euro in order to facilitate payments. The Company purchases yen and euro in anticipation of current invoice maturities in order to mitigate the impact of currency fluctuations. As of March 31, 2009 the Company did not own any foreign currency futures contracts.
Revolving Credit Facility and Borrowings
At this time, the Company is seeking a new credit facility to augment its current cash position and to enhance liquidity. There is no assurance that the Company will be successful in such efforts.
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 December 31, 2008.
Future Capital Requirements
The Company has incurred significant losses since last year and has not generated positive cash flow from operations. As of March 31, 2009 the Company had cash and cash equivalents of $2.6 million. Management believes that current cash levels may not be sufficient to fund the Company's operations through the foreseeable future and it is currently seeking a new credit facility to augment its current cash position and enhance liquidity. There is no assurance that the Company will be successful in such efforts.
The Company is impacted by its continuing losses from continuing operations which was $2.7 million for the three months ended March 31, 2009, as well as its continued liquidity issues. During the last several years, the Company has taken steps to reduce overhead including a reduction in personnel, salary reductions, closing offices and converting fixed labor costs to variable labor costs. The Company will continue to look to reduce costs while it seeks additional business from new and existing customers. The Company believes that the current economic climate is having an adverse effect upon its ability to develop new business as potential customers have been reluctant to purchase capital equipment. The Company is also exploring strategic alternatives with respect to the Company and its majority owned subsidiary, U.S. Graphics. There is no assurance that the Company will be successful in such efforts.
In light of the foregoing, substantial doubt is raised as to the Company's ability to continue as a going concern.
These financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, did not include any adjustment that might result from the uncertainty discussed above.
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.
|
|