UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

                   For the fiscal year ended January 31, 2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                        Commission file number.: 0-23434

                           HIRSCH INTERNATIONAL CORP.
             (Exact name of registrant as specified in its charter)

                 DELAWARE                           11-2230715
      (State of other jurisdiction of           (I.R.S. Employer
       incorporation or organization)           Identification No.)

                200 Wireless Boulevard, Hauppauge, New York 11788
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (631) 436-7100

     Securities registered pursuant to Section 12(b) of the Act: NONE

     Securities registered pursuant to Section 12(g) of the Act:

                 Class A Common Stock, Par value $.01 per share
                                (Title of Class)

     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.[X] Yes   No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes  [X]No

     The   aggregate   market  value  of  the  Class  A  Common  Stock  held  by
non-affiliates  of the registrant was $1,092,500 based upon the closing price on
the Nasdaq  SmallCap  Market on the last business day of the  registrant's  most
recently  completed second fiscal quarter.  All executive officers and directors
of the  registrant  have been  deemed,  solely for the purpose of the  foregoing
calculation, to be "affiliates" of the registrant.

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest practicable date:

   Class of Common Equity               Number of Shares
   ----------------------               ----------------

     Class A Common Stock                  6,120,611
        Par value $.01

     Class B Common Stock                  2,668,139
        Par value $.01

                       DOCUMENTS INCORPORATED BY REFERENCE

     The  information  required by Part III of this Form 10-K is incorporated by
reference from the Registrant's  definitive proxy statement to be filed with the
Commission on or before May 30, 2003.


                           Hirsch International Corp.
                                    Form 10-K
                   For the Fiscal Year ended January 31, 2003
                                Table of Contents



Part I                                                                     Page
Item 1.           Business                                                 3-11
Item 2.           Properties                                                 12
Item 3.           Legal  Proceedings                                         12
Item 4.           Submission of Matters to a Vote of Security Holders        12


Part II

Item 5.           Market for Common Equity and Related Stockholder
                  Matters                                                 12-13

Item 6.           Selected Financial Data                                 13-15
Item 7.           Management's Discussion and Analysis of
                  Financial Condition and Results of Operations           15-23
Item 7A.          Quantitative and Qualitative Disclosures
                  About Market Risk                                          23
Item 8.           Financial Statements and Supplementary Data                24
Item 9.           Changes in and Disagreements on Accounting
                  And Financial Disclosure                                   24


Part III

Item 10.          Directors and Executive Officers of the

                  Registrant                                                 25
Item 11.          Executive Compensation                                     25
Item 12.          Security Ownership of Certain Beneficial
                  Owners and Management                                      25
Item 13.          Certain Relationships and Related Transactions             25
Item 14.          Controls and Procedures                                    25


Part IV

Item 15.          Exhibits, Financial Statement Schedules and

                  Reports on Form 8K                                      26-27
                  Signatures and Certifications                           28-33



PART I

Item 1.  Business

General

     Hirsch  International  Corp.  ("Hirsch"  or  the  "Company"),   a  Delaware
Corporation, was founded in 1970 and has become a leading single source provider
of electronic  computer-controlled  embroidery machinery and related value-added
products and services.  The Company  offers a complete  line of  technologically
advanced single- and multi-head  embroidery  machines,  proprietary  application
software,  a  diverse  line  of  embroidery  parts,  supplies,  accessories  and
proprietary  embroidery products.  In addition,  Hirsch provides a comprehensive
service program,  and user training and support.  Through its Hometown  Threads,
LLC venture,  the Company has moved from test  marketing  its retail  embroidery
services concept to implementation of a national franchise program.  The Company
believes  its  wide-range  of  product  offerings   together  with  its  related
value-added  products  and  services  place it in a  competitively  advantageous
position within its marketplace.

     The application of new technologies has transformed the embroidery industry
from one which was labor-intensive,  utilizing machinery with limited production
capabilities to an industry where investment in electronic,  computer-controlled
machinery and related application  software has increased labor efficiencies and
production   capacities  while  expanding  the  flexibility  and  complexity  of
embroidery  designs.  These developments have not only resulted in the expansion
of  existing  markets  but have  also led to the  creation  of new  markets  for
embroidery.  The industry has benefited  from the growth in consumer  demand for
licensed  products  carrying the names,  logos and designs of  professional  and
collegiate sports teams,  entertainment companies and their characters,  as well
as branded  merchandise  and related  goods.  Until  recently,  these trends and
others have  contributed to the increase in demand for  machinery,  software and
services  provided by Hirsch.  However,  beginning in the year ended January 31,
2000  (fiscal  2000) and  continuing  through  the year ended  January  31, 2003
(fiscal 2003), the Company and the embroidery  industry as a whole experienced a
decrease  in  overall  demand  driven  by  the  relocation  offshore  of  large,
multi-head  equipment  customers  that resulted in reduced  domestic  demand for
large  embroidery  machines.  As a result,  in the year ended  January  31, 2002
(fiscal 2002) the Company initiated a restructuring  program designed to address
the market shifts in the industry,  including closing and consolidating  certain
divisions,  reducing  total  employment  and  disposing of  facilities no longer
required to support its new business  model.  (See  Management's  Discussion and
Analysis of Financial Condition and Results of Operations).

     The  Company's  customer  base  includes  large  operators who run numerous
machines as well as  individuals  who  customize  products on a single  machine.
Principal  customer  groups  include:  (i)  contract  embroiderers,   who  serve
manufacturers that outsource their embroidery requirements;  (ii) manufacturers,
who use embroidery to embellish their apparel,  accessories,  towels, linens and
other products with decorative appeal; and (iii) embroidery  entrepreneurs,  who
produce  customized  products for individuals,  sports leagues,  school systems,
fraternal organizations, promotional advertisers and other groups.

     Hirsch has certain  exclusive  United States rights to sell new  embroidery
machines   manufactured  by  Tajima  Industries  Ltd.   ("Tajima")  and  certain
non-exclusive  rights to  distribute  to U S based  customers  who expand  their
operating  facilities  into the  Caribbean  region.  Tajima,  located in Nagoya,
Japan, is one of the world's leading  manufacturers of embroidery machines,  and
is regarded as a technological innovator and producer of high quality,  reliable
and durable  embroidery  equipment.  The Company has certain exclusive rights to
distribute Tajima machines in the continental United States and Hawaii.

     The Company  enjoys a good  relationship  with Tajima,  having spanned more
than 25 years.  Hirsch is one of Tajima's largest  distributors in the world and
collaborates  with Tajima in the  development  of new  embroidery  equipment and
enhancements to existing equipment. Until 1997, all Tajima equipment sold in the
US was assembled in Japan. At that time, Hirsch formed a new subsidiary,  Tajima
USA, Inc ("TUI"), which currently assembles two, four, six and eight-head Tajima
machines in the United States.  In December 1997, Hirsch sold a forty-five (45%)
percent  interest  in TUI to  Tokai  Industrial  Sewing  Machine  Company,  Ltd.
("Tokai"), Tajima's parent company's manufacturing arm.

     In  addition  to  offering  a  complete  line  of  technologically-advanced
embroidery machines and customer training,  support and service, Hirsch provides
an  array  of  value-added  products  to its  customers.  The  Company  is now a
distributor  in the United States of software  developed by its former  software
subsidiary,  Pulse  Microsystems Ltd.  ("Pulse")(See  Note 7 to the Consolidated
Financial  Statements).  Pulse  develops  and supplies  proprietary  application
software programs which enhances and simplifies the embroidery  process, as well
as enables the customization of designs and reduction of production costs.

     Throughout  fiscal  2001  until  the  fourth  quarter  of  fiscal  2002 the
Company's  leasing  subsidiary,  HAPL Leasing Co., Inc.  ("HAPL  Leasing"),  had
provided a wide range of financing options to customers wishing to finance their
purchases of embroidery  equipment.  In the fourth  quarter of fiscal 2002,  the
Company  determined  that its HAPL Leasing  subsidiary  was not strategic to its
business  objectives  and  discontinued  its  operations  (see  Note  7  to  the
Consolidated  Financial  Statements).  The  Company has  continued  to work with
customers  to  help  them  obtain  financing  through  independent  leasing  and
financing  companies,  as an attractive  alternative  for purchasers  looking to
begin  or  expand  operations.   Accordingly,   the  Company  has  reported  its
discontinued  operations in accordance with APB 30. The  consolidated  financial
statements  have been  reclassified  to segregate the assets and liabilities for
fiscal  2002 and  operating  results of these  discontinued  operations  for all
periods presented.

     Hirsch  also sells a broad range of  embroidery  supplies,  machine  parts,
accessories and proprietary  embroidery  products.  The Company's  equipment and
value-added  products are marketed  directly by an employee  sales force,  whose
efforts are augmented by trade journal  advertising,  informational "open house"
seminars,  an e-commerce  presence and trade shows. The Company's long-term goal
is to leverage its reputation, knowledge of the marketplace, Tajima distribution
rights, industry expertise and technological innovation to enable it to increase
the overall size of the embroidery equipment market and its market share.

     In the fourth quarter of fiscal 2002, the Company initiated a restructuring
plan in connection with its continuing operations. The plan was designed to meet
the changing needs of the Company's customers,  to reduce its cost structure and
improve efficiency.  The restructuring initiatives involved the consolidation of
the parts and supplies operation with existing Hirsch operations,  the provision
for the  downsizing of three of its existing  sales offices and reduction in the
overall administrative  personnel. The reduction in personnel during this period
represented 25% of its workforce or 56 people. The severance payable at year-end
is  expected  to  paid  approximately  by  June  30,  2003.  (See  Note 8 to the
Consolidated Financial Statements.)

     During the fourth  quarter of fiscal 2002 in view of the  overall  industry
decline in demand for embroidery  equipment and related products,  the resulting
decline in Company  revenue  delivered in the  territories  associated  with the
acquisition  of  SMX  Corporation  and  Sedeco  Corporation  and  the  Company's
impairment  evaluation,  the  Company  wrote-off  the balance of  $3,477,000  of
Goodwill as an impairment  charge to  operations.  During the fourth  quarter of
fiscal 2001,  the Company wrote off  approximately  $7,640,000 of goodwill as an
impairment charge to operations.  This write-off includes the remaining value of
goodwill  associated with its acquisition of the digitzing  embroidery  business
assets  of All Pro  Punching,  Inc.  (See Note 7 to the  Consolidated  Financial
Statements).

The Embroidery Industry

     The development of electronic  computer-controlled  embroidery machines has
led to new  embroidery  applications  and markets,  cost savings,  higher profit
margins  for  users  and  production  efficiencies  which  has  transformed  the
embroidery  industry  from  being  extremely   labor-intensive  to  an  industry
characterized  by a high level of  automation.  Past  innovations  to embroidery
machines  offered  superior design  flexibility and increased speed and provided
the manufacturer with the ability to embroider finished products, the ability to
efficiently embroider up to fifteen colors at a time, automatic thread trimming,
and other labor-saving  improvements.  Innovations include a narrow cylinder arm
sewing head that permits embroidery on small diameter apparel,  such as pockets,
sleeves, pant legs and socks. The embroidery industry on a world-wide basis also
benefits from the demand for licensed products  distributed by apparel and other
manufacturers.  Licensed  names,  logos and  designs  provided  by,  among other
sources, professional and collegiate sports teams and the entertainment industry
appear on caps,  shirts,  outerwear,  luggage  and other  softgoods  for sale at
affordable  prices.  In addition,  the intricacy of the designs capable of being
embroidered have attracted broad fashion and commercial appeal for special event
promotional  marketing.  Embroidery  equipment  may  contain  single or multiple
sewing heads,  each sewing head consisting of one to a group of needles that are
fed by spools of thread  attached to the  equipment.  The design and  production
capabilities  of the sewing  heads are  enhanced  through  the  application  and
integration of computers and specialized software.

Business Strategy

     The   Company's   objective   is  to  establish   and  maintain   long-term
relationships with its customers by providing them with a single source solution
for their embroidery  equipment,  software and related services. To achieve this
goal,  the Company has  developed a  comprehensive  approach  under which it (i)
assembles  and  sells  a  broad  range  of  Tajima  embroidery  machines,   (ii)
distributes  Pulse's  proprietary  application  software programs for embroidery
machines,  (iii) sells a broad range of  embroidery  supplies,  accessories  and
proprietary   products,   (iv)  reconditions,   remanufactures  and  sells  used
embroidery machinery, and (v) provides comprehensive customer training,  support
and service  for these  embroidery  machines.  The  Company  believes  that this
comprehensive  approach  positions it to become its customers'  preferred vendor
for their embroidery equipment and related services.  In addition,  the Company,
through its Hometown Threads, LLC subsidiary ("Hometown Threads"),  is currently
marketing  its  franchise  concept  to provide  retail  embroidery  services  at
Wal*Mart(R)  stores,  shopping  center and mall  locations.  To  complement  its
comprehensive  approach  effectively  and  efficiently,  the Company's  business
strategy includes the following:

     Embroidery  Machines.  The Company believes that offering Tajima embroidery
equipment  provides it with a  competitive  advantage  because  Tajima  produces
technologically advanced embroidery machines that are of high quality,  reliable
and  durable.  The  Company  markets  and  distributes  over 80 models of Tajima
embroidery  machines,  ranging  in size from 1 head per  machine,  suitable  for
sampling and small production  runs, to 30 heads per machine,  suitable for high
production runs for embroidered patches and small piece goods which become parts
of garments and other soft goods.  Embroidery  equipment  may contain  single or
multiple  sewing  heads.  The  selling  prices  of  these  machines  range  from
approximately  $10,000 to  $150,000.  Each  sewing  head  consists of a group of
needles that are fed by spools of thread attached to the equipment.  The needles
operate in conjunction with each other to embroider the thread into the cloth or
other surface in such  configuration as to produce the intended  design.  Thread
flowing to each needle can be of the same or varying colors. Each head creates a
design  and  heads  operating  at the same time  create  the same size and shape
designs,  although designs created at the same time can differ in color. Thus, a
30-head  machine with all heads  operating  simultaneously  creates an identical
design on thirty surfaces.  The design and production  capabilities are enhanced
through the integration of computers and specialized software applications.

     Assembly  Operations.  The Company's  Tajima USA, Inc.  ("TUI")  subsidiary
maintains  a  facility  located  in  Ronkonkoma,  New York,  near the  Company's
headquarters.  Assembly of Tajima machines of up to eight heads are completed at
this location, using both Tajima supplied sub-assembly kits and locally supplied
components.   Shorter  lead  times  and  production   flexibility   enhance  the
responsiveness to changing needs of the market.

     Pulse Microsystems Ltd.  Software.  Pulse, the Company's former subsidiary,
offers a wide range of proprietary  application software products to enhance and
simplify the embroidery process. Pulse's computer-aided design software packages
target the different functions  performed by embroiderers,  and are contained in
an integrated  product line. A majority of the Pulse's  proprietary  application
software  products are designed to operate in the  Microsoft(R)  Windows(R)  95,
Windows(R) 98,  Windows(R) 2000,  Windows(R) Me, Windows(R) XP and Windows(R) NT
environments that the Company believes will enhance creativity,  ease of use and
user  flexibility.   All  Tajima  machines,  as  well  as  other  manufacturers'
embroidery machines can be networked through Pulse software. It is the Company's
established  practice to  aggressively  market  this  software  with  embroidery
equipment  and as an  upgrade  to its  installed  base of  approximately  17,500
embroidery machines.  The Company believes that these products have broad appeal
to purchasers of  single-head  and  multi-head  embroidery  machines and present
opportunities  for the Company to increase  sales of  embroidery  equipment  and
software as the Company continues to emphasize marketing activities.

     Embroidery Supplies,  Accessories,  Machine Parts and Proprietary Products.
The Company's parts,  supplies and accessories  division offers a broad range of
embroidery supplies,  accessories and proprietary products, which is an integral
part of the  Company's  single  source  strategy.  The Company has  expanded the
product  line with the  introduction  of  proprietary  products.  Moreover,  the
expansion  of  the  Company's   marketing   efforts  is  directed  toward  trade
publications,  advertising as well as both industry and  proprietary  trade show
participation. The Company offers proprietary products together with a full line
of consumable  supplies,  parts and materials utilized in the embroidery process
and  continues  to develop  special  purpose  embroidery  replacement  parts and
products which act to simplify the embroidery process.

     Used Embroidery  Machinery.  The Company  accepts used embroidery  machines
from  customers on a trade-in  basis as a condition to the sale of a new machine
on a case by case basis.  The  Company's  ability to accept used  machines is an
important sales tool and necessary  element in the Company's sales strategy.  On
occasion,  the Company will also  purchase  used  machines  from  customers  and
third-party  leasing  companies.  The  Company  believes  that  the  market  for
reconditioned and remanufactured  embroidery  machines represents an established
share of the machine  market and operates  its Hirsch Used  Machine  Division to
capitalize on this source of revenue.

     Customer Support.  The Company provides  comprehensive  customer  training,
support and service for the embroidery  machines and software that it sells. The
Company's service department includes field service  technicians  throughout the
US who are directed  from its  headquarters  in Hauppauge,  New York.  After the
Company  delivers an embroidery  machine to a customer,  the  Company's  trained
personnel  may assist in the  installation,  setup and operation of the machine.
The Company employs a staff of service representatives who provide assistance to
its  customers by telephone.  While many  customer  problems or inquiries can be
handled by telephone,  where necessary the Company dispatches one of its service
technicians to the customer.

     Pulse  provides  telephone-based  software  support for the Pulse  software
distributed by the Company. In addition,  the Company provides  introductory and
advanced  training  programs  to  assist  customers  in the use,  operation  and
maintenance of the embroidery machines and software it sells.

     Retail  Embroidery  Services.  In fiscal 1999, the Company created a retail
embroidery concept known as "Hometown  Threads"(TM) for the purpose of providing
retail  embroidery   services  within   Wal*Mart(R)   establishments.   Hometown
Threads(TM)  continues to expand the number of locations in  Wal*Mart(R)  stores
and other mall and  shopping  center  locations  throughout  the United  States,
through its franchise program, and had 17 franchise locations in addition to its
own company operated store at the end of fiscal 2003.

Discontinued Operations

     In the fourth quarter of fiscal 2002, the Company  determined that its HAPL
Leasing  subsidiary was not strategic to its ongoing objectives and discontinued
HAPL's  Leasing's  operations.   Accordingly,   the  Company  has  reported  its
discontinued  operations in accordance with APB 30. The  consolidated  financial
statements  have been  reclassified  to segregate  the assets,  liabilities  and
operating  results of these  discontinued  operations for all periods  presented
(See Note 7 to the Consolidated Financial Statements).

     Effective  October 31, 2002,  the Company  completed the sale of all of the
outstanding  equity  interests  in Pulse,  pursuant to the terms of the purchase
agreement by and between Hirsch and 2017146 Ontario Limited  ("Purchaser") dated
as of October 31, 2002, ("The Agreement").

     Pursuant to the Agreement  Hirsch sold its entire equity  interest in Pulse
to the  Purchaser for an aggregate  consideration  of $5.0 Million to be paid as
follows:

(a) $0.5 Million Cash

(b) a $0.5 Million note payable in quarterly  installments  beginning  April 30,
2003 and including  interest accruing on the principal at the rate of US Prime +
1% per annum, and

(c) The assumption of $4.0 Million of Hirsch obligations.  All periods presented
have been restated to reflect the discontinued operations of Pulse.

Marketing and Customer Support

     The Company has been selling  embroidery  equipment since 1976 and believes
it is one of the leading  distributors  of Tajima  equipment  in the world.  The
Company  reinforces  recognition of its name through trade magazine  advertising
and  participation  in seminars and over 20 trade shows annually.  The Company's
sales staff is headed by Paul Gallagher,  President and Chief Operating  Officer
of the Company,  and currently  consists of  salespeople  who maintain  frequent
contact with customers in order to understand and satisfy each customer's needs.
The Company's  products are  generally  considered by the industry to consist of
the highest quality embroidery equipment available, and consequently the Company
does  not  attempt  to  compete  exclusively  on a  price  basis  but  rather  a
value-added  basis,  through  its  reputation,  knowledge  of  the  marketplace,
investment in  infrastructure  and  experience in the industry.  In a climate of
intense price competition by lower quality  manufacturers,  the Company attempts
to maintain a balance between market share and profit margins to the best degree
possible.  While in the short-term this may result in reduced market share,  the
Company  believes that this strategy  presents the most promising way to sustain
and grow its business over the long-term.

     The Company  believes  that a key  element in its  business is its focus on
service,  and  investment  in sales  support and  training,  infrastructure  and
technology to support operations. The Company provides comprehensive one to five
day training programs to assist customers in the use, operation and servicing of
the  embroidery  machines  and software it sells.  Customers  are trained in the
operation of  embroidery  machines as well as in embroidery  techniques  and the
embroidery  industry  in  general.  The  Company  provides  its  customers  with
proprietary  videotapes and manuals as training  tools.  Company  personnel also
provide technical support by telephone,  field maintenance  services and quality
control testing,  as well as advice with respect to matters generally  affecting
embroidery operations. Telephone software support is provided by Pulse.

     The  Company  maintains  a  training  center  at its  Hauppauge,  New  York
headquarters for the training of service technicians. Senior service technicians
also  receive  formal  training  from Tajima in addition  to  technical  updates
throughout  the year.  The  Company  will  continue  to  dedicate  resources  to
education  and training as the  foundation  for  providing  the highest level of
service.

     The Company  provides its customers  with a limited  warranty of up to five
years against malfunctions from defects in material or workmanship on the Tajima
machines it  distributes.  The  warranty  covers  specific  classes of parts and
labor. Tajima provides the Company with a six month warranty.  As a consequence,
the  Company  absorbs a portion  of the cost of  providing  warranty  service on
Tajima products.

Supplier Relationships with Tajima

     The Company has four separate distributorship agreements with Tajima which,
collectively,  provide the Company the exclusive  right to  distribute  Tajima's
complete line of standard embroidery,  chenille embroidery and certain specialty
embroidery  machines in 39 States.  The main agreement (the "East  Coast/Midwest
Agreement")  which covers 33 States,  became  effective on February 21, 1991 and
has an initial term of 20 years. The East Coast/Midwest  Agreement is terminable
by Tajima  and/or  the  Company on not less than two years'  prior  notice.  The
second agreement (the "Southwest Agreement") covers six states, became effective
on February 21, 1997 and had an initial term of five years.  This  agreement was
renewed  until  February 22, 2004.  Under the third  distributorship  agreement,
which  covers  nine  western  states and Hawaii,  the  Company is the  exclusive
distributor of Tajima's single, two, four and six-head model machines as well as
chenille or  chenille/standard  embroidery machines with less than four heads or
two stations, respectively (the "West Coast Agreement"). The initial term of the
West Coast Agreement, expired on February 20, 2002; the first renewal expired on
February 20, 2003 and the second  renewal  terminates on February 20, 2004.  The
fourth agreement ("the Caribbean  Agreement")  which was effective July 27, 1999
permits the Company to distribute Tajima machines to US-based  customers who are
operating expansion facilities in the Caribbean region. It has continued without
change from the initial trial period.

     Each of the first three  agreements  may be terminated  upon the failure by
the Company to achieve  certain  minimum sales quotas.  During fiscal 2003,  the
Company  failed to meet these  minimum  sales  quotas;  however,  Tajima  waived
meeting  these  minimum  sales  quotas for fiscal  2003.  Furthermore,  the East
Coast/Midwest Agreement may be terminated, among other reasons, if Henry Arnberg
and Paul Levine (or in certain  circumstances,  their spouses and children) fail
to own a sufficient  number of shares of voting stock to elect a majority of the
Company's Board of Directors or, subject to certain conditions contained therein
in the event of the death,  physical or mental  disability  of a duration of six
months or longer or the  incapacity of both Henry  Arnberg and Paul Levine.  The
Southwest  Agreement  may be  terminated if the Company fails to remain the sole
shareholder of its subsidiary that is the party to the Southwest Agreement.  The
West Coast  Agreement may be terminated  should any material change occur in the
current Class B shareholders, directors or officers of the Company.

     Although there can be no assurance,  management of the Company  believes it
is unlikely  that the Company  would lose Tajima as a source of supply  because:
(i) the Company has maintained a relationship  with Tajima for over 20 years and
is one of Tajima's  largest  distributors;  (ii) Tajima's  success in the United
States  is,  in large  part,  attributable  to the  Company's  knowledge  of the
marketplace as well as the Company's reputation for customer support;  (iii) the
Company supports Tajima's development activities; (iv) the ownership by Tokai of
a forty-five (45%) percent interest in the TUI venture.

Other Supplier Relationships

     The Company  purchases  personal  computers  that are  integrated  with the
embroidery  machines it  distributes.  The Company obtains its inventory for its
embroidery  supplies and accessories  business from many different sources.  The
Company believes that alternate sources of supply are readily available.

Customers

     The  Company's  customers  range from large  operators  utilizing  numerous
machines to individuals who customize  products on a single  machine.  Principal
customer groups include: (i) contract embroiderers, who serve manufacturers that
outsource their embroidery requirements; (ii) manufacturers,  who use embroidery
to embellish their apparel, accessories,  towels, linens and other products with
decorative  appeal; and (iii) embroidery  entrepreneurs,  who produce customized
products  for   individuals,   sports   leagues,   school   systems,   fraternal
organizations, promotional advertisers and other groups.

Competition

     The  Company  competes  with  original  equipment  manufacturers,  such  as
Barudan, Brother International,  Happy, Melco Industries and SWF, who distribute
products directly into the Company's markets.  The Company also competes against
local Tajima distributors in certain western US markets. The Company believes it
competes against these  competitors on the basis of its knowledge and experience
in the marketplace,  name  recognition,  customer service and the quality of the
embroidery equipment it distributes.

     Further,  the Company's customers are subject to competition from importers
of  embroidered  products,  which  could  materially  and  adversely  affect the
Company's  customers,  and  consequently  have a material  adverse effect on the
Company's business, financial conditions and results of operations.

     The Company's  success is  dependent,  in part, on the ability of Tajima to
continue  producing  products  that  are  technologically   superior  and  price
competitive with those of other manufacturers.

     The Company's  embroidery  supplies and accessories  business competes with
ARC, a division of Melco Industries,  MIM, a division of Brother Industries, and
other vendors of embroidery  supplies.  The Company believes that the market for
embroidery  supplies is  fragmented  and that the Company  will benefit from the
breadth of its product line,  development of  proprietary  products and the fact
that the Company is a single source provider.

Employees

     As of January 31,  2003,  the Company  employed  approximately  137 persons
engaged  in  sales,  service  and  supplies,   product   development,   finance,
administration  and  management  for the Company and TUI.  None of the Company's
employees are represented by unions.  The Company believes its relationship with
its employees is good.

Risk Factors

Dependence on Tajima

     For the fiscal year ending  January 31,  2003,  approximately  72.7% of the
Company's  revenues  resulted  from the sale or  lease of  embroidery  equipment
supplied by Tajima. Four separate distributorship agreements (collectively,  the
"Tajima Agreements") govern the Company's rights to distribute Tajima embroidery
equipment in the United  States and the  Caribbean.  Two of the  distributorship
agreements  with Tajima  collectively  provide the  Company  with the  exclusive
rights to distribute  Tajima's  complete line of standard  embroidery,  chenille
embroidery  and certain  specialty  embroidery  machines in 39 states.  The main
agreement  (the  "East  Coast/Midwest  Agreement"),  which now covers 33 states,
first became effective on February 21, 1991, has an initial term of 20 years and
contains a renewal  provision  which permits  successive five year renewals upon
mutual  agreement  of the  parties.  The  East  Coast/Midwest  Agreement  may be
terminated  by Tajima  and/or  the  Company  on not less than two  years'  prior
notice.  The second  agreement  (the  "Southwest  Agreement")  which  covers six
states,  became  effective on February 21, 1997, and had an initial term of five
years.  The  Southwest  Agreement  has been  renewed  and  currently  expires on
February 22, 2004. Under the third distributorship  agreement,  (the "West Coast
Agreement") which covers nine western continental states and Hawaii, the Company
is the exclusive distributor of Tajima's small machines, as well as chenille and
tandem  chenille/standard  embroidery  machines with less than four heads or two
stations,  respectively.  The West Coast Agreement, which had an initial term of
five years,  became effective on February 21, 1997. The first renewal expired on
February  20, 2003 and the second  renewal  expires on February  20,  2004.  The
fourth  Agreement (the  "Caribbean  Agreement") was for a one-year trial period,
effective  July 27,  1999,  that  permitted  the  Company to  distribute  Tajima
equipment to its existing US-based customers who establish expansion  facilities
in the Caribbean region.  Although the Caribbean Agreement has not been formally
renewed,  activity  under this  arrangement  has continued  without  change from
inception.  Each of the first three Tajima  Agreements  contains  language  that
permits termination if the Company fails to achieve certain minimum sales quotas
or annual  targets.  The  Company  failed to satisfy  these  quotas in 2003.  In
recognition  of difficult  general  industry  conditions,  Tajima waived meeting
these specific  targets in fiscal year 2003.  The Company  believes that meeting
the quotas for the foreseeable  future are unlikely and,  therefore,  unless the
contract is modified,  it will  continue to require a waiver.  Furthermore,  the
East Coast/Midwest  Agreement may be terminated if Henry Arnberg and Paul Levine
(or in certain  circumstances,  their  spouses  and  children)  fail to maintain
ownership of a  sufficient  number of shares of voting stock to elect a majority
of the Company's Board of Directors or, subject to certain conditions  contained
therein, in the event of the death,  physical or mental disability of a duration
of six months or longer,  or  incapacity  of both Henry Arnberg and Paul Levine.
The  Southwest  Agreement  may be  terminated if the Company fails to remain the
sole shareholder of its subsidiary that is the party to the Southwest Agreement.
The West Coast  Agreement may be terminated  should any material change occur in
the current Class B shareholders, directors or officers of the Company or should
there occur any change in control of the Company.  The termination of the Tajima
Agreements  (other than the Caribbean  Agreement)  would have a material adverse
effect on the Company's business, financial condition and results of operations.

     Importing  Tajima's  equipment  from Japan subjects the Company to risks of
engaging in business overseas,  including  international  political and economic
conditions,  changes in the exchange rates between currencies,  tariffs, foreign
regulation of trade with the United States, and work stoppages. The interruption
of supply or a  significant  increase  in the cost of Tajima  equipment  for any
reason could have a material adverse effect on the Company's business, financial
condition  and  results of  operation.  In  addition,  Tajima  manufactures  its
embroidery  machines in one location in Japan.  The Company  could be materially
and adversely  affected should this facility be seriously damaged as a result of
a fire, natural disaster or otherwise.  Further, the Company could be materially
and adversely  affected should Tajima be subject to adverse market,  business or
financial conditions.

     Embroidery  machines produced by Tajima are subject to competition from the
introduction by other manufacturers of technological  advances and new products.
Current  competitors  or new  market  entrants  could  introduce  products  with
features  that render  products  sold by the Company and  products  developed by
Tajima less marketable.  The Company relies on Tajima's embroidery  equipment to
be high quality and state of the art. The Company's  future success will depend,
to a certain extent,  on the ability of Tajima to adapt to technological  change
and address market needs including price competition.  There can be no assurance
that  Tajima  will be  able  to  keep  pace  with  technological  change  in the
embroidery  industry or the current demands of the  marketplace.  The failure of
Tajima to do so could have a material adverse effect on the Company's  business,
financial conditions and results of operations.

Embroidery Industry

     The  Company's  growth in past years has resulted in part from the increase
in demand for embroidered  products and the growth of the embroidery industry as
a whole.  The  embroidery  industry has recently  experienced;  (i) a decline in
demand for large embroidery machines, and; (ii) a trend toward the relocation of
manufacturing  facilities to Mexico, the Caribbean,  Far East and South America,
all of which have had a material adverse effect on the operations of the Company
and its business. A decrease in consumer preferences for embroidered products, a
general  economic  downturn  or other  events  having an  adverse  effect on the
embroidery industry would also have an adverse effect on the Company.

Foreign Currency Risks

     The Company pays for its Tajima  embroidery  machinery in Japanese Yen. Any
change in the valuation of the U.S.  Dollar  compared to the Japanese Yen either
increases the cost to the Company of its embroidery machine inventory or results
in competitive pressures for reduced US dollar pricing among Yen-based equipment
distributors and  manufacturers.  The Company has generally been able to recover
increased  costs  through  price  increases  to its  customers  or,  in  limited
circumstances, price reductions from Tajima, however, dollar price reductions do
reduce  dollar  contribution  margins and as a result create  overhead  coverage
pressure.  There can be no  assurance  that the Company  will be able to recover
such increased costs in the future or reduce  overheads to the necessary  degree
to maintain  profitability.  These transactions are not currently hedged through
any derivative currency product.

Assembly Facility

     The Company  assembles  Tajima  embroidery  machines  in the United  States
through its subsidiary TUI,  initially in  configurations of up to six heads per
machine and currently in  configurations  of up to eight heads.  Tajima provides
the  Company  with  technical   assistance  and  support.   TUI  operations  are
predominately dependent on continued demand for embroidery machines generated by
the Hirsch sales organization.

Retail Embroidery Services

     The  Company's  Hometown  Threads  venture  was  created for the purpose of
establishing   retail  embroidery  service  centers  within  Wal-Mart(R)  retail
locations. At the end of fiscal 2001, Hometown Threads concluded a pilot test of
its concept at two  Wal-Mart(R)  centers  located in Texas and was authorized by
Wal-Mart(R)  to  implement  a  strategy  to expand to up to 25 units.  While the
relationship with Wal-Mart(R) is good, the Company is dependent on the continued
existence  of the  master  lease  with  Wal-Mart(R)  for  implementation  of its
franchise program of Hometown Threads within Wal-Mart(R) locations. In addition,
there can be no assurance that locations outside of Wal-Mart(R) will provide the
same  opportunity  for  expansion  of the  franchise  program  as  those  within
Wal-Mart(R), or that the Wal-Mart(R) locations will be available concurrent with
qualified franchisees as those franchises are developed. As of the end of fiscal
2003, the Company's net investment in Hometown  Threads was  approximately  $2.0
million.  Although the Company believes it will be able to access the market for
retail embroidery services,  there is no guarantee that it will be successful in
doing so, or that it will be able to do so on a profitable basis.

Inventory

     The Company's  ordering cycle for new embroidery  machines is approximately
three to four  months  prior to  delivery  to the  Company.  Since  the  Company
generally  delivers new Tajima  embroidery  machines to its customers within one
week of receiving  orders,  it orders  inventory  based on past  experience  and
forecasted demand. The Company has reduced new machine inventories substantially
over the past two years, moving to "just in time" inventory management policies.
Due to the relatively  long lead times of the ordering  cycle,  any  significant
unanticipated  downturn or upturn in equipment sales could result in an increase
in  inventory  levels or shortage of product,  respectively,  which could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

Competition

     The Company competes with  distributors of embroidery  machines produced by
manufacturers  other than Tajima and with  manufacturers  who  distribute  their
embroidery  machines  directly  as well as with other  providers  of  embroidery
products and services.  The Company  believes that competition in the embroidery
industry  is  based  on  technological  capability  and  quality  of  embroidery
machines,  price and service. If other manufacturers develop embroidery machines
which are more  technologically  advanced  than  Tajima's  or if the  quality of
Tajima embroidery machines diminishes,  the Company would not be able to compete
as  effectively  which  could have a material  adverse  effect on its  business,
financial   condition  and  results  of  operations.   The  Company  also  faces
competition  in  selling   software,   embroidery   supplies,   accessories  and
proprietary  products  as well  as  providing  customer  training,  support  and
services. Due to the recent decline in overall demand in the industry, potential
customers may emphasize price differences over value-added  services and support
in purchasing new embroidery  machines.  Severe price competition may impair the
Company's  abilities  to provide its  customers  with  value-added  services and
support.  The Company's failure to compete effectively in these areas could have
a material  adverse effect on its business,  financial  condition and results of
operations.

     Effective  October 31,  2002,  the Company  has entered  into a  three-year
agreement with Pulse to act as its distributor of software in the US market. The
Company entered into a three year minimum  purchase  commitment with Pulse under
which the Company is obligated to purchase  $100,000 of software each month. The
commitment was effective November 1, 2002 and runs until October 31, 2005.

Dependence on Existing Management

     Changes  in  the  embroidery  industry  and  recent  restructuring  of  the
Company's  business have resulted in increased  responsibilities  for management
and have placed increased  demands upon the Company's  operating,  financial and
technical   resources.   The  Company's  continued  success  will  depend  to  a
significant  extent upon the abilities and continued  efforts of Henry  Arnberg,
Chairman of the Board and Chief Executive  Officer of the Company;  Paul Levine,
Vice Chairman of the Company and Chief  Executive  Officer of Hometown  Threads;
and Paul Gallagher,  its President and Chief Operating Officer. Mr. Gallagher is
bound by a 3 year  agreement  that  commenced on September 11, 2001. The loss of
the services of Messrs. Arnberg, Levine, Gallagher, or the services of other key
management  personnel  could have a material  adverse  effect upon the Company's
business, financial condition and results of operations.


ITEM 2.  Properties

     The Company's corporate headquarters is in Hauppauge,  New York in a 50,000
square foot facility.  During fiscal 2002,  this facility was sold to Brandywine
Realty  Trust  and  approximately  24,500  square  feet  was  leased  back  in a
concurrent  transaction (see Note 9B to the Consolidated  Financial Statements).
During fiscal year 2003, and as part of the Company's  restructuring  plans (see
Note 8 to the Consolidated  Financial  Statements),  the Company leased back the
25,500 square feet of the building  that had remained  empty since March 2001 in
order to consolidate  certain operations in Hauppauge,  NY. This property houses
the Company's executive offices, the Northeast sales office, technical services,
machine and parts  warehousing,  order  fulfillment and used machine storage and
repair facilities.

     In March 1997,  the  Company  entered  into a five-year  lease for a 25,000
square foot factory  facility in  Ronkonkoma,  New York where  Tajima USA,  Inc.
("TUI"),  operates a machine assembly facility. The lease has been renewed until
April 30, 2007.

     In  addition  to the  Company's  headquarters  and  the  assembly  facility
occupied by TUI, the Company leases 15 regional satellite offices. These offices
consist of regional  sales  offices and  training  centers.  All leased space is
considered  adequate for the operation of our business,  and no difficulties are
foreseen in meeting any future space requirements.

ITEM 3.  Legal Proceedings

     There are no material legal proceedings pending against the Company.

ITEM 4.  Submission of Matters to a Vote of Security Holders.

     The Company did not submit any matters to a vote of Security holders during
the fourth quarter of its most recent fiscal year.

                                    PART II

ITEM 5.  Market For Common Equity and Related Stockholder Matters

(a)  The Company's  outstanding  Common Stock  consists of two classes,  Class A
     Common Stock and Class B Common Stock.  The Class A Common Stock, par value
     $.01 per  share,  trades on the NASDAQ  Small Cap  Market  under the symbol
     "HRSH".  The following table sets forth for each period  indicated the high
     and low closing bid prices for the Class A Common  Stock as reported by the
     NASDAQ Stock Market.  Trading began in the Class A Common Stock on February
     17, 1994.
<TABLE>
<CAPTION>

Fiscal 2003                                                                     High              Low
-----------                                                                     ----              ---

<S>                       <C> <C>                                               <C>               <C>
First Quarter ended April 30, 2002.....................................         $ 0.63            $ 0.40
Second Quarter ended July 31, 2002.....................................         $ 0.55            $ 0.15
Third Quarter ended October 31, 2002...................................         $ 0.35            $ 0.15
Fourth Quarter ended January 31, 2003..................................         $ 0.44            $ 0.19

Fiscal 2002                                                                     High              Low
-----------                                                                     ----              ---

First Quarter ended April 30, 2001.....................................         $ 1.44            $ 0.90
Second Quarter ended July 31, 2001.....................................         $ 1.24            $ 0.90
Third Quarter ended October 31, 2001...................................         $ 1.17            $ 0.56
Fourth Quarter ended January 31, 2002..................................         $ 0.75            $ 0.40
</TABLE>

     The foregoing  over-the-counter  market quotations  represent  inter-dealer
prices,  without retail  mark-up,  mark-down or commission and may not represent
actual transactions.

(b)  As of March 21, 2003,  the Company  believes that there were  approximately
     1,791 beneficial owners of its Class A Common Stock.

(c)  The Company  intends to retain earnings for use in operations and expansion
     of its business and therefore does not anticipate  paying cash dividends on
     the  Class A Common  Stock or the Class B Common  Stock in the  foreseeable
     future.  The future  payment of dividends is within the  discretion  of the
     Board  of  Directors  and  will be  dependent,  among  other  things,  upon
     earnings,   capital  requirements,   financing  agreement  covenants,   the
     financial  condition of the Company and applicable  law. The Class A Common
     Stock and Class B Common Stock share ratably in any  dividends  declared by
     the Company on its Common Stock.  Any stock dividends on the Class A Common
     Stock and the Class B Common Stock will be paid in shares of Class A Common
     Stock.

(d)  Equity Compensation Plan Information
<TABLE>
<CAPTION>


                                                                                           (c) Number of securities
                                    (a) Number of                                                remaining available
                                        securities to be        (b) Weighted-average            for future issuance
                                        issued upon                  exercise price             under equity
                                        exercise of                  of outstanding             compensation plans
                                        outstanding                  options,                   [excluding
                                        options, warrants            warrants and               securities reflected
        Plan category                   and rights                   rights                     in column (a)]
 -----------------------------     ------------------------     -----------------------    ---------------------------

<S>                                       <C>                           <C>                        <C>
Equity compensation plans                 1,118,000                     $0.50                      1,243,000
approved by security holders

Equity compensation plans not
approved by security holders                100,000                     $0.50                              -
                                            -------                                                ---------
TOTAL                                     1,218,000                     $0.50                      1,243,000
                                          =========                                                =========
</TABLE>

Two of the non-affiliated Board members were granted warrants to purchase 50,000
shares of Class A Common  Stock at $0.50 per  share for their  past and  ongoing
services to the Company. The Board of Directors approved these grants on January
25,  2002.  These   non-affiliated  Board  members  were  also  granted  certain
registration  rights for the shares of Class A Common  Stock  issuable  upon the
exercise  of  the  warrants  pursuant  to the  terms  of a  registration  rights
agreement between the Company and such non-affiliated Board members.


ITEM 6.  Selected Financial Data

     The  following  selected  consolidated  financial  data  should  be read in
conjunction  with the  Consolidated  Financial  Statements and the Notes thereto
included  elsewhere  herein.  The  consolidated  financial  statement data as of
January 31, 2003 and 2002 and for the fiscal years ended January 31, 2003, 2002,
and  2001  are  derived  from,  and  qualified  by  reference  to,  the  audited
Consolidated  Financial  Statements included elsewhere herein and should be read
in  conjunction  with  those  Consolidated  Financial  Statements  and the Notes
thereto. The consolidated  financial statement data as of January 31, 2001, 2000
and 1999 and for the fiscal  years  ended  January 31, 2000 and 1999 are derived
from audited Consolidated Financial Statements not included herein.



<TABLE>
<CAPTION>

                                                                                Year Ended January 31,
                                                                 (in thousands of dollars, except per share amounts)
                                                     -----------------------------------------------------------------------------

Hirsch International Corp. and Subsidiaries             2003           2002            2001              2000             1999
-------------------------------------------------    -----------    -----------    --------------    --------------    -----------

Statement of Operations Data:

<S>                                                     <C>            <C>               <C>              <C>           <C>
Net sales...................................            $47,141        $50,887           $64,039          $ 83,839      $ 117,798

Cost of sales...............................             31,529         37,006            44,515            60,144         84,803

Operating Expenses (2)......................             17,954         30,544            34,502            33,864         38,154

Loss before income tax provision (benefit)              (2,113)       (16,080)          (14,517)          (10,999)        (9,082)

Income tax provision (benefit)..............              (431)       ( 5,881)               162               350        (3,041)

Loss before discontinued operations and
   cumulative effect of accounting change...            (1,878)       (10,199)          (14,788)          (11,643)        (6,432)

(Loss) Earnings on discontinued operations .(3)         (3,672)        (8,126)            ( 883)                 8          1,824

Cumulative effect of accounting change......                 --             --             --             ( 2,187)             --

Net loss (1)................................            (5,550)       (18,325)          (15,671)       (13,822)  (1)     (4 ,608)

Basic and diluted net loss per share from
...continuing operations.....................           $ (0.21)       $ (1.15)          $ (1.62)        $ (  1.25)     $ (  0.68)

Basic and diluted net loss income per share.           $ (0.63)       $ (2.06)          $ (1.72)        $ (  1.48)     $ (  0.49)

Shares used in the calculation of basic and
diluted net loss per share..................              8,789          8,893             9,112             9,348          9,413

</TABLE>

(1)  Net of the  cumulative  effect of SAB 101  accounting  change  for  revenue
     recognition.

(2)  Fiscal year 2002 SG&A  includes a write-down  of impaired  goodwill of $3.5
     million and restructuring  costs of $2.7 million and Fiscal 2001 includes a
     write-down of impaired goodwill of $7.6 million

(3)  Fiscal years 2003,  2002, 2001, 2000 and 1999 have been restated to reflect
     the discontinued operations of the Company.


<TABLE>
<CAPTION>
                                                                                   January 31,
                                                                            (in thousands of dollars)
                                                      -----------------------------------------------------------------------

Hirsch International Corp. and Subsidiaries             2003          2002         2001           2000             1999
                                                      ----------    ---------    ----------    -----------    ---------------
Balance Sheet Data:
<S>                                                     <C>          <C>           <C>            <C>               <C>
  Working capital.............................          $16,261      $22,001       $25,214        $29,627           $ 51,939

Total assets..................................           36,002       46,892        54,030         80,216            106,935

Long-term debt, less current maturities.......            2,388        2,608            79            989             15,640

Stockholders' equity..........................           16,065       21,459        40,278         56,253             70,207

</TABLE>

<TABLE>
<CAPTION>

                                                                          Hirsch International Corp
                                                                         Summarized Quarterly Data**

$ in thousands, except for per share amounts                                   Fiscal Quarter
                                                         ------------------------------------------------------------

                                                            First          Second           Third          Fourth
2003                                                     ------------    ------------    ------------    ------------
<S>                                                          <C>             <C>             <C>             <C>
Revenue.........................................             $12,421         $12,718         $11,430         $10,572
Gross Profit....................................               4,461           4,517           3,755           2,879

Income(Loss) On Discontinued Operations.........             (3,794)               9              94              19
Net (Loss)......................................             (4,517)           (434)           (502)            (97)
                                                         ------------    ------------    ------------    ------------

Basic and Diluted (Loss) Per Share..............             $(0.51)         $(0.05)         $(0.06)         $(0.01)
                                                         ============    ============    ============    ============


2002                                                     ------------    ------------    ------------    ------------
Revenue.........................................             $14,552         $13,049         $14,183          $9,103
Gross Profit....................................               5,229           3,866           3,684           1,102
Impairment of Goodwill..........................                   -               -               -           3,477
Restructuring...................................                   -               -               -           2,466

Income (Loss) On Discontinued Operations                          93           (171)             293         (8,341)
Net (Loss)......................................               (964)         (2,821)         (2,254)        (12,286)
                                                         ------------    ------------    ------------    ------------

Basic and Diluted (Loss) Per Share..............             $(.011)         $(0.32)         $(0.25)         $(1.38)
                                                         ============    ============    ============    ============
</TABLE>

**Note:  The  quarterly  data has been  restated  to  reflect  the  discontinued
operations of Pulse Microsystems, LTD.

ITEM 7. 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  Consolidated  Financial  Statements,  including  the  Notes
thereto.  Historical  results  are  not  necessarily  indicative  of  trends  in
operating  results for any future  period.  As used  herein,  "fiscal  year" and
"fiscal"  refers  to  the  applicable  fiscal  year  ending  January  31 of  the
applicable calendar year.

General

     Hirsch  International Corp. ("Hirsch" or the "Company") is a leading single
source  supplier of  electronic  computer-controlled  embroidery  machinery  and
related  value-added  products  and  services to the  embroidery  industry.  The
Company  offers  a  complete  line  of  technologically   advanced  single-  and
multi-head embroidery machines,  proprietary  application software and a diverse
line of embroidery  supplies and accessories.  Hirsch believes its comprehensive
customer  service,  user  training,  software  support  through  Pulse and broad
product  offerings  combine  to place  the  Company  in a  superior  competitive
position  within  its  marketplace.   The  Company  sells  embroidery   machines
manufactured by Tajima Industries Ltd.  ("Tajima") and Tajima USA, Inc. ("TUI"),
a  subsidiary  formed in fiscal 1998,  as well as a wide  variety of  embroidery
supplies,  microcomputers manufactured by Dell Computer Corporation and software
manufactured by Pulse Microsystems Ltd. ("Pulse").

     The  Company's  focus from 1995 through 1998 was on growth and expansion of
its installed  machine base and  increasing  the breadth of its offerings to the
embroidery  industry.  The  acquisitions of SMX and Sedeco increased the area in
which the Company is the exclusive  distributor of Tajima  embroidery  equipment
from 26 states to 39 states.  In January  1997,  Tajima  granted the Company the
exclusive  right to  distribute  small  (one  through  six-head  models)  Tajima
embroidery  machines in nine western  states and Hawaii.  With this expansion of
the Company's small machine territory to the West Coast, Hirsch gained the right
to distribute  Tajima  machines  throughout  the  continental  United States and
Hawaii.  In fiscal 1998 Hirsch formed TUI for the purpose of  assembling  Tajima
embroidery  machines in the United States.  Production at TUI consists of models
in  configurations  of up to eight  heads per  machine.  In  January  1998 Tokai
Industries (Tajima's  manufacturing arm) purchased a 45 percent interest in TUI.
This investment  reflects their continuing  confidence in this endeavor and will
be a contributing  factor in the  long-range  growth of TUI. In July 1999 Tajima
granted to Hirsch the  non-exclusive  right to  distribute  to its  existing  US
customers who have expanded their operations into the Caribbean region.

     The  Company  grew  rapidly  from the time of its initial  public  offering
through fiscal 1998. Growth during this period was fueled by rapid technological
advances in software and hardware,  the continued  strong demand for embroidered
products, the creation of new embroidery applications and the continued strength
of the "embroidery  entrepreneur" as a growing segment of the  marketplace.  The
Company  believes  that the  purchasers  of smaller  embroidery  machines  are a
significant  source of repeat  business  for the sale of  multi-head  embroidery
machines as the entrepreneurs' operations expand.

     Fiscal 2003 continued the trend toward  retrenchment  begun in the industry
in fiscal  1999,  with  retrenchment  driven  by the  relocation  and  continued
investment  offshore of large multi-head  equipment  customers.  While growth of
small machine customers  stabilized in the domestic market, the market continued
to experience a decline in large  machine  sales,  continuing  the change in the
sales mix of  embroidery  machines  and an overall  decline  in  demand.  It was
further  compounded by weakening value in foreign exchange of the Yen versus the
US dollar,  resulting in dollar price pressure for machine  sales.  All Japanese
equipment  based  competitors in the industry faced  difficulty in meeting these
new market demands. In fiscal 2002 the Company initiated a restructuring program
to  address  the  market   shifts  in  the  industry,   including   closing  and
consolidating  certain divisions,  reducing total employment,  and consolidating
facilities  that were no longer  required to support its new business model (See
Note 7 of Notes to Consolidated Financial Statements).  The Company believes the
continued  implementation  of  the  cost  reduction  program  coupled  with  its
reorganization  of  operational  functions  will allow it to position  itself to
return to profitable operations.

Results of Operations

     The following table presents  certain income statement items expressed as a
percentage of total  revenue for the fiscal years ended  January 31, 2003,  2002
and 2001.
<TABLE>
<CAPTION>

                                                                           2003            2002             2001
                                                                      ------------    ------------    -------------

<S>                                                                        <C>             <C>              <C>
Net sales...................................................               100.0%          100.0%           100.0%

Cost of sales...............................................                66.9%           72.7%            69.5%

Operating expenses..........................................                38.1%           60.0%            53.9%

Interest expense, net.......................................                 0.5%            0.6%             0.6%

Other expense (income), net.................................                -1.0%           -1.8%            -1.3%
                                                                      ------------    ------------    -------------

(Loss) income before income taxes and minority interest.....                -4.5%          -31.6%           -22.7%

Income tax (benefit) provision..............................                -0.9%                            -0.3%
                                                                                           -11.6%

Minority Interest...........................................                 0.4%            0.0%             0.2%

Loss on Discontinued Operations.............................                -7.8%          -16.0%            -1.4%
                                                                            -----          ------            -----
Net (loss) income...........................................               -11.8%          -36.0%           -24.5%
                                                                      ============    ============    =============
</TABLE>

**  Note:  The  results  of  operations   have  been  restated  to  reflect  the
discontinued operations of HAPL and Pulse.

Use of Estimates and Critical Accounting Policies

     The  preparation  of  Hirsch's  financial  statements  in  conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial  statements and revenues and
expenses during the period. Future events and their effects cannot be determined
with absolute certainty;  therefore, the determination of estimates requires the
exercise  of  judgment.   Actual  results  inevitably  will  differ  from  those
estimates,  and such  differences  may be material to our financial  statements.
Management continually evaluates its estimates and assumptions,  which are based
on  historical  experience  and other factors that are believed to be reasonable
under the circumstances. These estimates and Hirsch's actual results are subject
to the risk  factors  listed  above  under  Item 1 Business  -- "Risk  Factors".

Critical Accounting Policies

     Management  believes the following critical  accounting policies affect its
more  significant  estimates  and  assumptions  used in the  preparation  of its
consolidated financial statements:

     Revenue Recognition - The Company distributes  embroidery equipment that it
offers  for  sale or  lease.  Prior  to the  issuance  by the  SEC of the  Staff
Accounting  Bulletin  No.  101  ("SAB  101"),  revenue  related  to the  sale of
equipment  was  recorded  at the time of  shipment.  The Company has adopted the
recommendation  of SAB 101 effective with reporting for fiscal year 2000.  Where
installation and customer  acceptance are a substantive part of the sale, by its
terms,  the Company has deferred  recognition of the revenue until such customer
acceptance of installation  has occurred.  Comparisons of financial  performance
have been  retroactively  adjusted  to  reflect  the  impact  of this  change in
accounting  method.  In  fiscal  year  2003,  2002 and 2001,  most  sales of new
equipment did not require  installation  within the terms of the sales  contract
and accordingly sales are booked when shipped. The Company's policy is to accrue
the estimate cost of installation  on a quarterly  basis.  Service  revenues and
costs are recognized when services are provided.  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.  Sales
of parts and supplies are recognized when shipped.

     Long lived Assets - The Company  reviews its long-lived  assets,  including
property, plant and equipment, identifiable intangibles (goodwill) and purchased
technologies,  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  will be less  than the
carrying  amount of the  assets.  During  the  fourth  quarter  of fiscal  2001,
$7,640,000 of goodwill  associated  with the  acquisitions  of SMX  Corporation,
Sedeco Corporation and All Pro Punching, Inc. was written off. During the fourth
quarter  of Fiscal  2002,  the  remaining  balance  of  $3,477,000  of  goodwill
associated with the  acquisitions of SMX Corporation and Sedeco  Corporation was
written off. (See Note 15 to the Consolidated Financial Statements.)

     Income  Taxes - Current  income tax  expense is the amount of income  taxes
expected  to be payable  for the current  year.  A deferred  income tax asset or
liability is established  for the expected  future  consequences  resulting from
temporary  differences  in the  financial  reporting and tax bases of assets and
liabilities.  The Company  provides a valuation  allowance  for its deferred tax
assets when, in the opinion of management,  it is more likely than not that such
assets will not be realized.

     Allowance  for Doubtful  Accounts - The Company  maintains an allowance for
estimated  losses resulting from the inability of its customers to make required
payments.  An estimate of uncollectable amounts is made by management based upon
historical bad debts,  current  customer  receivable  balances,  age of customer
receivable  balances,  the customer's  financial  condition and current economic
trends. If the actual  uncollected  amounts  significantly  exceed the estimated
allowance, then the Company's operating results would be significantly adversely
affected.

     Inventories - Inventories  are valued at the lower of cost or market.  Cost
is  determined  using the average cost for supplies and parts and specific  cost
for embroidery  machines and peripherals.  The inventory balance is recorded net
of an estimated allowance for obsolete or unmarketable inventory.  The estimated
allowance  for obsolete or  unmarketable  inventory  is based upon  management's
understanding  of market  conditions and forecasts of future product demand.  If
the actual amount of obsolete or unmarketable  inventory  significantly  exceeds
the  estimated  allowance,  the  Company's  cost of sales,  gross profit and net
income would be significantly adversely affected.

     Warranty - The Company  instituted a five-year  limited warranty policy for
its embroidery machines. The Company's policy is to accrue the estimated cost of
satisfying future warranty claims on a quarterly basis. In estimating its future
warranty obligations,  the Company considers various relevant factors, including
the Company's stated warranty policies and practices,  the historical  frequency
of claims, and the cost to replace or repair its products under warranty. If the
number  of actual  warranty  claims or the cost of  satisfying  warranty  claims
significantly  exceeds the estimated  warranty  reserve,  the Company's  cost of
sales, gross profit and net income would be significantly adversely affected.

     Reserves for Discontinued Operations - In the fourth quarter of Fiscal 2002
and the first quarter of Fiscal 2003 the Company made provisions for the winding
down of the HAPL Leasing subsidiary. Management regularly reviews these reserves
and in Management's  opinion adequate  provisions have been made for the winding
down of HAPL's operations.


Fiscal Year 2003 as Compared to Fiscal Year 2002

     Net sales. Net sales for fiscal year 2003 were $47.1 million, a decrease of
$3.8  million,  or 7.5%  compared to $ 50.9  million  for fiscal year 2002.  The
Company believes that the reduction in the sales level for the fiscal year ended
January 31, 2003 is primarily  attributable  to a decrease in overall demand for
new multi-head  embroidery machines,  as well as increased pricing pressure from
the  marketplace on new and used machine  sales.  Sales of the Company's new and
used machines,  computer hardware and software,  application software for fiscal
year 2003  aggregated  approximately  $42.2 million as compared to $43.8 million
for fiscal  year 2002,  a decrease of $1.6  million or 3.7%.  Sales of parts and
supplies  dropped  $2.7  million,  or 46%,  which is  indicative  of the reduced
activity of the embroidery market in the US. Other revenues, including franchise
revenues increased $0.5 million from fiscal 2002.

     Cost of sales.  For fiscal year 2003,  cost of sales decreased $5.5 million
or 15.9%,  to $31.5  million from $37.0  million for fiscal year 2002.  The $5.5
million  decrease  was a result of the related  decrease in net sales for fiscal
year 2003 as compared  to fiscal  year 2002.  The  Company's  gross  margin as a
percent of sales  increased for fiscal year 2003 to 33.1%,  as compared to 27.3%
for fiscal  year 2002.  Included in cost of sales for 2002 was a  write-down  of
inventory  of  approximately  $1.8  million  (see  Note  4 to  the  Consolidated
Financial Statements).  Excluding the writedown of inventory,  gross margin as a
percent  of sales  would  have been  30.8%.  The  increase  in gross  margins is
attributable  to  the  increase  in  other  revenue  (which  includes  franchise
revenues), which carries higher gross margins contribution.

     Operating  Expenses.  Operating  expenses  for fiscal year 2003,  decreased
$12.5  million or 41.0 %, to $18.0  million  from $30.5  million for fiscal year
2002.   Excluding  the  non  recurring  charges  for  goodwill   impairment  and
restructuring  costs,  operating  expenses  were $18.0 million in fiscal 2003, a
decline of $6.6 million or 26.8% from $24.6 million in fiscal 2002. This decline
was attributable to the cost reduction initiatives the Company put into place at
the end of fiscal 2002. The Company  performed an impairment  evaluation  during
the fourth quarter of fiscal 2002 for the SMX Corporation and Sedeco Corporation
territories  and as a result  wrote off the balance of the  goodwill  associated
with these acquisitions. The goodwill write-off represented a per-share net loss
of $ 0.39 both on a basic and  diluted  basis for fiscal  year  2002.  Operating
expenses for 2002 also include  restructuring  charges  reflecting the Company's
plan to  reduce  operating  costs  relative  to the  anticipated  sales  volume.
Included in this  non-recurring  charge are $.6  million in  employee  severance
costs and $2.1 million in facilities combinations/lease restructures (see Note 8
to the Consolidated Financial Statements).

     Interest  Expense.  Interest  expense  for fiscal year 2003 was $.3 million
versus  interest  expense of $.3  million  for fiscal  year  2002.  The  Company
continued its aggressive  inventory  reduction  program in fiscal year 2003. The
results  of this  program  directly  reflect  increased  liquidity  and meant no
increase in interest  expense as a result of the eliminations of working capital
borrowings  outstanding against the Company's Revolving Credit Agreements during
both fiscal 2003 and fiscal 2002. The sale of the corporate  headquarters during
fiscal 2002 also reduced the need for working capital borrowings.

     Income tax  (benefit)  provision.  The income tax  provision  reflected  an
effective tax rate of approximately  20% for the twelve months ended January 31,
2003 as compared  to an income tax benefit  rate of 36.6 % for fiscal year 2002.
The tax  provision  for fiscal  2003  represents  Federal and State taxes on the
Company's 55% owned  subsidiary  and was reduced by the actual NOL carryback for
the prior year.  The benefit rate for the fiscal 2002 year is a direct result of
the Job Creation and Worker  Assistance Act temporarily  extending the carryback
of Net  Operating  Losses from two years to five years.  This change has enabled
the Company to carryback its two most recent years losses and obtain a refund of
approximately  $6  million.  The  difference  of the above  rate to the  federal
statutory rate for 2003 is the valuation  allowance  established on deferred tax
assets  since the  Company  cannot  determine  the future  utilization  of those
assets, as well as minimum franchise taxes for fiscal 2003.

     Loss on 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  operations.  The Company has made
provisions  for the cost of winding down the operations as well as the potential
losses that could be incurred in  disposing  of its minimum  lease  payments and
residual  receivables.  The operating  loss in fiscal 2002 includes $4.6 million
provision  for the  Ultimate  Net  Loss  ("UNL")  liability  and the sale of the
residual  receivable  associated  with it; $2.6 million  increase in the Minimum
Lease Payment Receivable  ("MLPR")  provision;  as well as $1.1 million in other
costs.  The operating loss in fiscal 2003 includes an additional $4.0 million to
account for expected  additional losses in liquidating the leasing  subsidiary's
remaining lease  portfolio.  The prior year's  Statement of Operations have been
restated  to reflect  the results of the HAPL  Leasing  subsidiary  as a loss on
discontinued operations.  Effective October 31, 2002, Hirsch International Corp.
("Hirsch")  completed the sale of all of the outstanding equity interests in its
wholly-owned  subsidiary,  Pulse  Microsystems Ltd.  ("Pulse"),  pursuant to the
terms of the  purchase  agreement  by and  between  Hirsch and  2017146  Ontario
Limited ("Purchaser") dated as of October 31, 2002 (the "Agreement").

     Pursuant to the Agreement, Hirsch sold all of its equity interests in Pulse
to the  Purchaser for an aggregate  consideration  of $5.0 million to be paid as
follows:  (a) $0.5 million cash, (b) a $0.5 million note payable in 11 quarterly
installments  beginning  April 30, 2003 and including  interest  accruing on the
principal  balance at the rate of US Prime +1% per annum, and (c) the assumption
of $4.0 million of Hirsch obligations.  All periods presented have been restated
to reflect the discontinued operations of Pulse. (See Note 7 to the Consolidated
Financial Statements.)

     Net (Loss).  The net loss for fiscal year 2003 was $5.5 million, a decrease
of $12.8 million, compared to a net loss of $ 18.3 million for fiscal year 2002.
This decrease is attributable to the decrease in operating  expenses  associated
with the restructuring  charge of $2.5 million and the Impairment of Goodwill of
$ 3.5 million and a reduction  in the Loss on  Discontinued  Operations  of $4.5
million as well as the reduction in Selling, General and Administrative expenses
of $6.5  million and an increase in Gross  Profit of $1.7  million,  offset by a
drop in tax benefit of $5.5 million.

Fiscal Year 2002 as Compared to Fiscal Year 2001

     Net sales. Net sales for fiscal year 2002 were $50.9 million, a decrease of
$13.1  million,  or 20.5%  compared to $ 64.0 million for fiscal year 2001.  The
Company believes that the reduction in the sales level for the fiscal year ended
January 31, 2002 is primarily  attributable  to a decrease in overall demand for
new multi-head  embroidery machines,  as well as increased pricing pressure from
the  marketplace.  Sales of the Company's used machines,  computer  hardware and
software,  parts and service,  application  software and embroidery supplies for
fiscal year 2002  aggregated  approximately  $16.1  million as compared to $25.8
million for fiscal year 2001, a decrease of $9.7 million or 37.6%.

     Cost of sales.  For fiscal year 2002,  cost of sales decreased $7.5 million
or 16.8%, to $37.0 million from $44.5 million for fiscal year 2001. The decrease
was a result  of the  related  decrease  in net sales  for  fiscal  year 2002 as
compared to fiscal year 2001.  The  Company's  gross margin  declined for fiscal
year 2002 to 27.3%, as compared to 30.5% for fiscal year 2001.  Included in cost
of sales was a writedown of inventory of approximately  $1.8 million (see Note 4
to the Consolidated Financial  Statements).  While the fluctuation of the dollar
against the yen has  historically had a minimal effect on Tajima equipment gross
margins,   since  currency  fluctuations  are  generally  reflected  in  pricing
adjustments in order to maintain  consistent gross margins on machine  revenues,
increased cost of sales  reflects the  continuing  product mix shift from larger
equipment  with  higher  gross  margins to smaller  equipment  with lower  gross
margins.  The lower gross  margins also reflect the  aggressive  pricing used to
meet market demand.

     Operating  Expenses.  As reported for fiscal year 2002,  operating expenses
decreased $4.0 million or 11.5%,  to $30.5 million from $34.5 million for fiscal
year 2001.  Excluding  the non  recurring  charges for goodwill  impairment  and
restructuring  costs,  operating  expenses were $24.6 million, a decline of $2.3
million or 8.6% from $26.9 million. During the fourth quarter of fiscal 2001, in
view of the overall  industry  decline in demand for  embroidery  equipment  and
related  products,  the resulting  decline in Company  revenue  delivered in the
territories  associated  with the  acquisition  of SMX  Corporation  and  Sedeco
Corporation  and the  Company's  impairment  evaluation,  the Company  wrote-off
approximately  $7.6 million of goodwill as an impairment  charge to  operations.
This  write-off  includes the remaining  value of goodwill  associated  with its
acquisition of the digitizing  embroidery  business  assets of All Pro Punching,
Inc.  of  approximately  $0.2  million,   reflecting   discontinuance  of  those
operations.  The goodwill  write-off  represented a per-share net loss of $ 0.84
both on a basic and diluted  basis for fiscal year 2001.  The Company  performed
another  impairment  evaluation  during the  fourth  quarter of 2002 for the SMX
Corporation  and Sedeco  Corporation  territories  and as a result wrote off the
balance  of the  goodwill  associated  with  these  acquisitions.  The  goodwill
write-off represented a per-share net loss of $ 0.39 both on a basic and diluted
basis for fiscal  year  2002.  Operating  expenses  also  include  restructuring
charges  reflecting the Company's plan to reduce operating costs relative to the
anticipated sales volume.  Included in this non-recurring charge are $.6 million
in employee  severance  costs and $2.1 million in facilities  combinations/lease
restructures (see Note 8 to the Consolidated Financial Statements).  The Company
also continued to incur  development  costs associated with the Hometown Threads
business  initiative,  which  were  partially  offset,  by the sale of its first
franchises.

     Interest  Expense.  Interest  expense for fiscal year 2002 was $0.3 million
versus  interest  expense of $0.4  million  for fiscal  year 2001.  The  Company
continued its aggressive  inventory  reduction  program in fiscal year 2002. The
results of this program  directly  reflect  increased  liquidity  and  decreased
interest expense as a result of reduced working capital  borrowings  outstanding
against the Company's Revolving Credit Agreements during fiscal 2002 as compared
to fiscal 2001. The sale of the corporate headquarters also reduced the need for
working capital borrowings.

     Income tax  (benefit)  provision.  The income tax  provision  reflected  an
effective  tax benefit rate of  approximately  35.9% for the twelve months ended
January 31,  2002 as  compared to an income tax benefit  rate of 1.4% for fiscal
year 2001.  The benefit rate for the fiscal 2002 year is a direct  result of the
Job Creation and Worker  Assistance Act  temporarily  extending the carryback of
Net Operating  Losses from two years to five years.  This change has enabled the
Company to  carryback  its two most recent  years  losses and obtain a refund of
approximately  $6  million.  The  difference  of the above  rate to the  federal
statutory rate for 2001 is the valuation  allowance  established on deferred tax
assets  since the  Company  cannot  determine  the future  utilization  of those
assets.

     Loss on 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  operations.  The Company has made
provisions  for the cost of winding down the operations as well as the potential
losses that could be incurred in  disposing  of its minimum  lease  payments and
residual  receivables.  The operating  loss in fiscal 2002 includes $4.6 million
provision  for  the  UNL  liability  and the  sale  of the  residual  receivable
associated with it; $2.6 million increase in the MLPR provision; as well as $1.1
million in other costs.  The prior  year's  Statement  of  Operations  have been
restated  to reflect  the results of the HAPL  Leasing  subsidiary  as a loss on
discontinued operations. (See Note 7 to the Consolidated Financial Statements.)

     Net  (Loss).  The net loss for  fiscal  year  2002 was  $18.3  million,  an
increase of $2.6  million,  compared  to a net loss of $15.7  million for fiscal
year 2001.  This  increase is  attributable  to the  decrease  in net sales,  an
increase in the cost of sales, an increase  operating  expenses  associated with
the restructuring  charge of $2.7 million and a loss on discontinued  operations
of $7.7  million.  These  charges  were  offset  by the  reduction  in  goodwill
impairment  charge  of  $4.2  million,  a  reduction  in  selling,  general  and
administrative  expenses of $2.9  million and an increase in tax benefit of $5.7
million.

Liquidity and Capital Resources

     The  Company's  working  capital  was $16.3  million at January  31,  2003,
decreasing $5.7 million or 25.9%,  from $22.0 million,  at January 31, 2002. The
decrease in working capital was principally due to decrease in the net assets of
discontinued  operations as well as continued reductions in inventory,  accounts
receivable and refundable income taxes. This reduction  reflects a reduced level
of business activity and receipt of Federal Income Taxes based on the carry-back
of prior year  losses.  The  Company has  financed  its  operations  principally
through cash provided by decreases in  Inventory,  Accounts  Receivable  and the
receipt of the tax refund.

     During fiscal year 2003,  the Company's  cash  increased by $4.6 million to
$7.7 million.  Net cash of $5.9 million was provided by the Company's  operating
activities and was largely driven by the  converting  receivables  and inventory
into cash as well as the reduction in the net assets of discontinued operations.
This was offset in part by decreases in accounts payable and accrued expenses.

     Cash used for investing activities of $547,000 was used for the purchase of
Fixed  Assets  and was  offset by the cash  received  from the sale of the Pulse
subsidiary.

     Cash used for Financing  Activities was for  additional  collateral for the
LCs outstanding, used to pay for embroidery machines as well as the repayment of
long-term debt and for the cost of the credit line with Congress Financial Corp.

Future Commitments

     The following table shows the Company's contractual  obligations related to
long-term  obligations  (See  Notes  9 and  14  to  the  Consolidated  Financial
Statements).
<TABLE>
<CAPTION>

Payments due by period (in thousands)
                                                                      Less                                       More
                                                                      than 1        1 - 3          4-5 years     than 5
Contractual Obligations                                 Total         year          years                        years
----------------------------------------------------    ----------    ----------    ----------     ----------    ----------

<S>                                                        <C>             <C>           <C>            <C>           <C>
Capital lease obligations.......................           $1,642          $101          $446           $451          $644

Operating Lease obligations.....................            4,399           959         2,143            842           455

Purchase Commitments                                        3,300         1,200         2,100

Employment Agreements                                       1,120           820           300              0             0
                                                        ----------    ----------    ----------     ----------    ----------

Total                                                     $10,461        $3,080        $4,989         $1,293        $1,099
                                                        ==========    ==========    ==========     ==========    ==========
</TABLE>

Revolving Credit Facility and Borrowings

     On November  26,  2002 the Company  satisfied  all of its  obligations  and
exited its Revolving Credit and Security  Facility with PNC Bank and replaced it
with a Loan and Security  Agreement  ("the  Congress  Agreement")  with Congress
Financial  Corporation  ("Congress")  for three years  expiring on November  26,
2005. The Congress  Agreement  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.

Future Capital Requirements

     Subsequent to the close of fiscal 2002, the Federal  Government  passed the
Job Creation and Worker  Assistance Act temporarily  extending the carry back of
Net  Operating  Losses  from  two  years  to five  years.  This  should  provide
approximately $6.0 million in cash available for operations.  Approximately $3.0
million  was  received  during the fiscal  year ended  January  31, 2003 and the
balance should be received during the second quarter of fiscal 2004. The Company
believes  these  proceeds,  with its  existing  cash and  funds  generated  from
operations,  together with its new credit  facility,  will be sufficient to meet
its working capital and capital expenditure  requirements and to finance planned
growth.

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.

     Recent Accounting Pronouncements - The Financial Accounting Standards Board
("FASB") has issued the following:

          June 2002 - SFAS No. 146 - "Accounting for Costs  Associated with Exit
     or Disposal  Activities." This Statement addresses financial accounting and
     reporting  for  costs  associated  with  exit or  disposal  activities  and
     nullifies  Emerging  Issues Task Force (EITF)  Issue No.  94-3,  "Liability
     Recognition for Certain  Employee  Termination  Benefits and Other Costs to
     Exit an Activity  (including  Certain Costs Incurred in a  Restructuring)."
     The principal  difference  between this  Statement and EITF 94-3 relates to
     its  requirements for recognition of a liability for a cost associated with
     an exit or disposal activity.  This Statement requires that a liability for
     a cost associated with an exit or disposal  activity be recognized when the
     liability is incurred.  Under EITF 94-3, a liability was  recognized at the
     date of an entity's commitment to an exit plan. This Statement is effective
     for exit or disposal activities that are initiated after December 31, 2002.
     The Company does not expect the adoption of SFAS No. 146 to have a material
     impact on its financial position or results of operations.

          December   2002  -  SFAS  No.   148,   "Accounting   for  Stock  Based
     Compensation-Transition  and  Disclosure."  This  statement  was  issued to
     provide  alternative  methods of transition  for a voluntary  change to the
     fair  value  based   method  of   accounting   for   stock-based   employee
     compensation.   In  addition,   this   Statement   amends  the   disclosure
     requirements  of Statement  123 to require  prominent  disclosures  in both
     annual and interim financial  statements about the method of accounting for
     stock-based  employee  compensation  and the effect of the  method  used on
     reported results.  This statement is effective for financial statements for
     fiscal years ending after  December 15, 2002.  This statement does not have
     any impact on the Company  because the Company  does not plan to  implement
     the fair value method.

          In  November  2002,  the  FASB  issued  FASB  Interpretation  No.  45,
     "Guarantor's   Accounting  and  Disclosure   Requirements  for  Guarantees,
     Including Indirect Guarantees of Indebtedness of Others",("FIN45").  FIN 45
     addresses  the  disclosures  to be made by a  guarantor  in its interim and
     annual financial  statements about its obligations  under  guarantees.  The
     disclosure  requirements in this Interpretation are effective for financial
     statements of interim or annual  periods ending after December 15, 2002. We
     do not expect  this  Interpretation  to have an effect on the  consolidated
     financial statements.

          In January 2003, the FASB issued Interpretation No. 46, "Consolidation
     of  Variable  Interest   Entities."  This   interpretation   clarifies  the
     application of Accounting Research Bulletin No. 51, "Consolidated Financial
     Statements," to certain  entities in which equity investors do not have the
     characteristics  of  a  controlling  financial  interest  or  do  not  have
     sufficient equity at risk for the entity to finance its activities  without
     additional subordinated financial support from other parties. FIN No. 46 is
     effective  February 1, 2003 for variable  interest  entities  created after
     January 31, 2003, and July 1, 2003 for variable  interest  entities created
     prior to February 1, 2003.  The Company does not expect the adoption of FIN
     No. 46 to have a  material  impact on its  financial  position,  results of
     operations or cash flows.


ITEM 7A. 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 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 year-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 8.  FINANCIAL STATEMENTS IN SUPPLEMENTARY DATA

     The information contained in pages F-1 through F-20 hereof.


ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.


                                    PART III

     Documents Incorporated by Reference:

          Portions of the  Registrant's  definitive  proxy statement to be filed
     pursuant  to  Regulation  14A not later  than 120 days after the end of the
     fiscal year (January 31, 2003) are  incorporated  by reference in Part III,
     Items 10-13 hereof.

ITEM 10. Directors and Executive Officers of the Registrant

ITEM 11. Executive Compensation

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

     The  information  required by Item 201(d) of Regulation S-K is incorporated
by reference from Item 5(d) of this Annual Report on Form 10-K.

ITEM 13. Certain Relationships and Related Transactions

     Effective  October 31, 2002,  the Company  completed the sale of all of the
outstanding equity interests in its Pulse Microsystems Ltd. subsidiary ("Pulse")
to an entity  affiliated  with Tas Tsonis,  a former director of the Company and
Chief Executive Officer of Pulse and Brian Goldberg,  a former Vice President of
the Company and President of Pulse.  The  consideration  received by the Company
was approximately equal to Pulse's net asset value. The terms of the transaction
were the product of an extensive arms-length  negotiation between Management and
the purchaser and were approved by the Board of Directors after  presentation by
and  consultation  with  Management.  Management  and the Board believe that the
consideration received by the Company for the transferred equity interests to be
within  a  range  of  value  that  was  fair  to  the  Company.  (See  Note 7 to
Consolidated Financial Statements).

ITEM 14. Controls and Procedures

     Evaluation  of Disclosure  Controls and  Procedures.  The  Company's  Chief
Executive   Officer  and  Chief   Financial   Officer,   after   evaluating  the
effectiveness of the Company's  "disclosure controls and procedures" (as defined
in Sections 13(a)-14(c) of the Securities and Exchange Act of 1934) as of a date
(the "Evaluation Date") not more than ninety (90) days before the filing of this
Annual Report,  have  concluded  that as of the  Evaluation  Date, the Company's
disclosure  controls and  procedures  were effective and designed to ensure that
material information  relating to the Company and its consolidated  subsidiaries
is  accumulated  and would be made known to them by others within those entities
as appropriate to allow timely decisions regarding required disclosures.

     Changes in Internal  Controls.  The Company does not believe that there are
significant  deficiencies  in the design or operation  of its internal  controls
that could adversely affect its ability to record, process, summarize and report
financial  data.  Although  there were no  significant  changes in the Company's
internal  controls or in other  factors  that could  significantly  effect those
controls subsequent to the Evaluation Date, the Company's senior management,  in
conjunction  with its Board of Directors,  continuously  reviews overall Company
policies  and  improves  documentation  of  important  financial  reporting  and
internal control matters. The Company is committed to continuously improving the
state of its internal controls, corporate governance and financial reporting.


                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) CONSOLIDATED FINANCIAL STATEMENTS                             PAGE(S)
                                                                  ------------
Index to Consolidated Financial Statements.......................           F1
Signature Page...................................................           26
Independent Auditors' Report                                               F-2
Consolidated Balance Sheets......................................   F-3 to F-4
Consolidated Statements of Operations............................          F-5
Consolidated Statements of Stockholders' Equity..................     F-6 -F-7
Consolidated Statements of Cash Flows............................          F-8
Notes to Consolidated Financial Statements.......................  F-9 to F-20
<TABLE>
<CAPTION>

(a)(3)   EXHIBITS

<S>      <C>
%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

*10.1    Distributorship  Agreement  Dated February 21, 1991 together with  Supplements and Amendments  thereto,  among Tajima
         Industries,  Ltd.,  Nomura  Trading  Co.  Ltd.,  Nomura  (America)  Corp.  and Hirsch  International  Corp.  ("Hirsch
         Distributorship Agreement")

@10.2    Amendment Number Two to Hirsch Distributorship Agreement, Dated June 7, 1996

@10.3    Distributorship  Agreement,  Dated February 21, 1991,  together with Supplement Dated February 21, 1996, among Tajima
         Industries, Ltd., Nomura Trading Co. Ltd., Nomura (America) Corp., and Sedeco, Inc.

@10.4    West Coast  Distributorship  Agreement,  Dated February 21, 1997, among Tajima  Industries,  Ltd., Nomura Trading Co.
         Ltd. and Nomura (America) Corp., and Hirsch International Corp.

+10.5    Memorandum of Request for Business with Mexico,  Latin American and Caribbean  Countries  among Hirsch  International
         Corp., Tajima Industries Ltd. and TM Trading Co., Ltd. dated as of July 27, 1999

+++10.6  Stock Option Plan, as amended

+++10.7  1994 Non-Employee Director Stock Option Plan, as amended

**10.8   Lease Agreement dated March 8, 2001 between the Company and Brandywine Operating Partnership, L.P.

++10.9   First Amendment to Lease dated December 2001 between the Company and Brandywine Operating Partnership, L.P.

***10.10  Share Purchase Agreement dated as of October 31, 2002, by and between Hirsch  International Corp. and 2017146 Ontario
          Limited.

****10.11 Loan and Security Agreement dated as of November 26, 2002, by and between Congress Financial  Corporation,  as Lender
          and Hirsch International Corp., as Borrower.

10.12     Amendment No. 1 to Loan and Security Agreement dated as of April 20, 2003.

21.1      List of Subsidiaries of the Registrant

23.1      Independent Auditor's Consent

99.1      Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2      Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
<FN>
---------------------------
%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  Form 10-K filed for the year
ended January 31, 1997.

+Incorporated  by reference  from  Registrant's  Form 10-Q filed for the quarter
ended October 31, 1999.

*Incorporated by reference from the Registrant's Registration Statement on Forms
S-1, Registration Number 33-72618.

**Incorporated by reference from Registrant's  Report on Form 8-K filed with the
Commission March 15, 2001.

++Incorporated  by  reference  from  Registrant's  Form 10-K for the fiscal year
ended January 31, 2002.

+++Incorporated by reference from Registrant's  definitive proxy statement filed
with the Commission on May 30, 2002.

***Incorporated by reference from Registrant's Report on Form 8-K filed with the
Commission on November 15, 2002.

****Incorporated  by  reference  from  Registrant's  Report on Form 8-K with the
Commission on December 6, 2002.
</FN>

---------------------------
</TABLE>

(b) REPORTS ON FORM 8-K

          (i)  On November 15, 2002, the Company filed a report on Form 8-K with
               the  Securities  and Exchange  Commission  announcing the sale of
               Pulse Microsystems, Ltd., its wholly-owned subsidiary.

          (ii) On December 6, 2002,  the Company filed a report on Form 8-K with
               the Securities and Exchange  Commission  announcing the execution
               of  Loan  and  Security   Agreement   with   Congress   Financial
               Corporation.

          (iii)On February  28,  2003,  the  Company  filed a report on Form 8-K
               with  the  Securities  and  Exchange  Commission  announcing  the
               appointment  of Paul  Levine as Vice  Chairman  of the  Company's
               Board of  Directors  and  Chief  Executive  Officer  of  Hometown
               Threads, LLC and Paul Gallagher as President of the Company.


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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/ Henry Arnberg
                                                 -----------------
                                                 Henry Arnberg,
                                                 Chief Executive Officer

Dated:  April 29, 2003

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

    Signature                                             Title                                      Date
    ---------                                             -----                                      ----

<S>                                  <C>                                                         <C>
/s/ Henry Arnberg                    Chairman of the Board of Directors and Chief Executive      April 29, 2003
-----------------                    Officer (Principal Executive Officer)
Henry Arnberg

/s/ Paul Levine                      Vice Chairman of the Board of Directors and Chief           April 29, 2003
---------------                      Executive Officer of Hometown Threads, LLC
Paul Levine

/s/ Paul Gallagher                   President and Chief Operating Officer and Director          April 29, 2003
------------------
Paul Gallagher

/s/ Beverly Eichel                   Vice President-Finance and Administration, and Chief        April 29, 2003
------------------                   Financial Officer (Principal Accounting and Financial
Beverly Eichel                       Officer), Secretary

/s/ Daniel Vasquez                   Corporate Controller                                        April 29, 2003
------------------
Daniel Vasquez

/s/ Ronald Krasnitz                  President TUI, and Director                                 April 29, 2003
-------------------
Ronald Krasnitz

/s/ Marvin Broitman                  Director                                                    April 29, 2003
-------------------
Marvin Broitman

/s/ Mary Ann Domuracki               Director                                                    April 29, 2003
----------------------
Mary Ann Domuracki

/s/ Herbert M. Gardner               Director                                                    April 29, 2003
----------------------
Herbert M. Gardner
</TABLE>


                                  CERTIFICATION
                        Pursuant to 18 U.S. Section 1350,
      As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


     I, Henry Arnberg, certify that:

     1. I have reviewed this annual report on Form 10-K of Hirsch  International
Corp. (the "registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officer and I are  responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date.

     5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the  registrant's  board of directors (or persons  fulfilling  the equivalent
function):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

     6. The registrant's  other certifying  officer and I have indicated in this
annual report whether or not here were significant  changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  April 29, 2003



                                            /s/ Henry Arnberg
                                            -----------------
                                            Henry Arnberg, Chairman and
                                            Chief Executive Officer



                                  CERTIFICATION
                        Pursuant to 18 U.S. Section 1350,
      As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


     I, Beverly Eichel, certify that:

     1. I have reviewed this annual report on Form 10-K of Hirsch  International
Corp. (the "registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officer and I are  responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (c)  presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date.

     5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the  registrant's  board of directors (or persons  fulfilling  the equivalent
function):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

     6. The registrant's  other certifying  officer and I have indicated in this
annual report whether or not here were significant  changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  April 29, 2003


                                            /s/ Beverly Eichel
                                            ------------------
                                            Beverly Eichel, Vice President -
                                            Finance, Chief Financial Officer
                                            and Secretary




                          Index to Financial Statements
                           Hirsch International Corp.


Independent Auditors' Report                                                F-2

Consolidated Financial Statements

         Balance Sheet as of January 31, 2003 and January 31, 2002    F-3 - F-4

         Statements of Operations for the years ended
            January 31, 2003, January 31, 2002 and January 31, 2001         F-5

         Statements of Stockholders Equity for the years ended
            January 31, 2003, January 31, 2002 and January 31, 2001   F-6 - F-7

         Statements of Cash Flows for the years ended
            January 31, 2003, January 31, 2002 and January 31, 2001         F-8

         Notes to the Consolidated Financial Statements              F-9 - F-20



Independent Auditors' Report


Board of Directors
Hirsch International Corp.
Hauppauge, New York


We  have  audited  the  accompanying   consolidated  balance  sheets  of  Hirsch
International  Corp. and  subsidiaries  as of January 31, 2003 and 2002, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  January 31,  2003.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion of these  consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits 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  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Hirsch International
Corp. and  subsidiaries as of January 31, 2003 and 2002 and the results of their
operations  and their cash flows for each of the three years in the period ended
January 31, 2003 in conformity with accounting  principles generally accepted in
the United State of America.




/s/ BDO Seidman, LLP
BDO Seidman, LLP
Melville, New York
April 10, 2003, except for Note 14, which is as of April 28, 2003



HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2003 AND 2002
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------

ASSETS                                                             2003                           2002

CURRENT ASSETS:
<S>                                                               <C>                           <C>
  Cash and cash equivalents                                       $7,707,000                    $3,121,000
  Restricted cash (Note 2)                                           900,000                     -
  Short term note receivable (Note 7)                                500,000                     -

  Accounts receivable, net of an allowance for possible
     losses of approximately $1,451,000 and $2,893,000,
     respectively (Notes 4 and 14)                                 4,354,000                     7,077,000
  Inventories, net (Notes 3, 4 and 14)                             9,498,000                    12,618,000
  Prepaid and refundable income taxes                              3,319,000                     6,120,000
  Other current assets                                               686,000                       367,000
 Assets of discontinued operations (Note 7)                        4,914,000                    13,786,000
                                                                   ---------                    ----------
                  Total current assets                            31,878,000                    43,089,000
                                                                  ----------                    ----------

PROPERTY, PLANT AND EQUIPMENT - Net of accumulated
     depreciation and amortization (Note 6)                        2,868,000                     3,206,000
OTHER ASSETS                                                       1,256,000                       597,000
                                                                   ---------                       -------
TOTAL ASSETS                                                     $36,002,000                   $46,892,000
                                                                 ===========                   ===========


See notes to consolidated financial statements.

                                                                                                                  (Continued)


HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2003 AND 2002

-----------------------------------------------------------------------------------------------------------------------------------


LIABILITIES AND STOCKHOLDERS' EQUITY                                           2003                     2002

CURRENT LIABILITIES:

  Trade acceptances payable                                                    $969,000               $2,185,000
  Accounts payable and accrued expenses (Notes 4 and 8)                       6,924,000                9,530,000
  Customers Deposits and other                                                  865,000                  202,000
Liabilities of discontinued operations (Note 7)                               6,859,000                9,171,000
                                                                              ---------                ---------
         Total current liabilities                                           15,617,000               21,088,000

CAPITALIZED LEASE OBLIGATIONS - Less current maturities (Note 9)              1,541,000                1,642,000
DEFERRED GAIN - (Note 9)                                                        847,000                  966,000
                                                                                -------                  -------

     Total liabilities                                                       18,005,000               23,696,000
                                                                             ----------               ----------

MINORITY INTEREST (Note 1)                                                    1,932,000                1,737,000

COMMITMENTS AND CONTINGENCIES (Note 14)

STOCKHOLDERS' EQUITY (Note 11): 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 and outstanding; 6,815,000 shares                            68,000                   68,000
  Class B common stock, $.01 par value; authorized: 3,000,000
     shares, outstanding:  2,668,000 shares                                      27,000                   27,000
  Additional paid-in capital                                                 41,397,000               41,397,000
  Retained earnings (deficit)                                               (23,825,000)             (18,275,000)
  Accumulated other comprehensive income (loss)                                -                        (156,000)
                                                                               -                        ---------
                                                                             17,667,000               23,061,000
  Less: Treasury Class A Common stock at cost, 695,000  shares               1,602,000                 1,602,000
                                                                             ----------                ---------
        Total stockholders' equity                                           16,065,000               21,459,000
                                                                             ----------               ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $36,002,000              $46,892,000
                                                                            ===========              ===========

See notes to consolidated financial statements.
</TABLE>


HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------



                                                                      Three Years Ended January 31,
                                                                2003             2002            2001
                                                                ----             ----            ----

<S>                                                         <C>             <C>             <C>
NET SALES                                                   $ 47,141,000    $ 50,887,000    $ 64,039,000

COST OF SALES (Note 14)                                       31,529,000      37,006,000      44,515,000
                                                            ------------    ------------    ------------

GROSS PROFIT                                                  15,612,000      13,881,000      19,524,000
                                                            ------------    ------------    ------------

OPERATING EXPENSES
    Selling, general and administrative expenses              17,954,000      24,601,000      26,862,000
    Impairment of Goodwill (Note 15)                                --         3,477,000       7,640,000
    Restructuring costs (Note 8)
                                                                    --         2,466,000            --
                                                            ------------    ------------    ------------
         Total operating expenses                             17,954,000      30,544,000      34,502,000
                                                            ------------    ------------    ------------

OPERATING LOSS                                                (2,342,000)    (16,663,000)    (14,978,000)
                                                            ------------    ------------    ------------

OTHER INCOME  (EXPENSE)
    Interest expense                                            (259,000)       (317,000)       (378,000)
    Other  income - net                                          488,000         900,000         839,000
                                                            ------------    ------------    ------------
         Total other income                                      229,000         583,000         461,000
                                                            ------------    ------------    ------------

LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
   INCOME TAXES, MINORITY INTEREST IN NET EARNINGS OF
   CONSOLIDATED SUBSIDIARY AND DISCONTINUED OPERATIONS        (2,113,000)    (16,080,000)    (14,517,000)

INCOME TAX PROVISION (BENEFIT) (Note 10)                        (431,000)     (5,881,000)        162,000

MINORITY INTEREST IN NET EARNINGS OF CONSOLIDATED
   SUBSIDIARY (Note 1)                                           196,000               0         109,000
                                                            ------------    ------------    ------------

LOSS FROM CONTINUING OPERATIONS                               (1,878,000)    (10,199,000)    (14,788,000)

LOSS ON DISCONTINUED OPERATIONS - NET OF TAX EXPENSE
   (BENEFIT) OF $308,000, $(863,000) AND $0, RESPECTIVELY
   (NOTE 7)                                                   (3,672,000)     (8,126,000)       (883,000)
                                                            ------------    ------------    ------------

NET LOSS                                                    $ (5,550,000)   ($18,325,000)   ($15,671,000)
                                                            ============    ============    ============

LOSS PER SHARE:
    Basic and diluted:
      Loss from continuing operations                       ($      0.21)   ($      1.15)   ($      1.62)

    Loss on discontinued operations                                (0.42)          (0.91)          (0.10)
                                                            ------------    ------------    ------------

    Basic and diluted                                       ($      0.63)   ($      2.06)   ($      1.72)
                                                            ============    ============    ============

WEIGHTED AVERAGE NUMBER OF SHARES IN THE
 CALCULATION OF LOSS
      Basic and diluted                                        8,789,000       8,892,900       9,112,200
                                                            ============    ============    ============
</TABLE>


See notes to consolidated financial statements.


HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                       Class A                        Class B
                                                    Common Stock                   Common Stock
                                                           (Note 11)                     (Note 11)
                                           --------------  -------------   -------------- -------------
                                                                                                           Additional
                                               Shares          Amount          Shares         Amount     Paid-In Capital
                                               ------          ------          ------         ------     ---------------
<S>                                           <C>               <C>           <C>             <C>          <C>
BALANCE, JANUARY 31, 2000                     6,815,000         $68,000       2,668,000       $27,000      $41,397,000
  Purchase of treasury shares (Note 12)              --              --              --            --               --
Comprehensive income:
    Gain on Foreign Currency
   Translation                                       --              --              --            --               --
    Net loss                                         --              --              --            --               --
Total comprehensive income                           --              --              --            --               --
                                              ---------          ------       ---------        ------        ----------
BALANCE, JANUARY 31, 2001                     6,815,000          68,000       2,668,000        27,000        41,397,000
Comprehensive income:
    Gain on Foreign Currency Translation             --              --              --            --              --
    Net loss                                         --              --              --            --              --
Total comprehensive income                           --              --              --            --              --
                                              ---------          ------       ---------        ------        ----------
BALANCE, JANUARY 31, 2002                     6,815,000          68,000       2,668,000        27,000        41,397,000
Purchase of treasury shares (Note 12)                --              --              --            --              --
Comprehensive income:
    Gain on Foreign Currency Translation             --              --              --            --              --
    Net loss                                         --              --              --            --              --
Total comprehensive income                           --              --              --            --              --
                                              ---------        --------       ---------       -------      -----------
BALANCE, JANUARY 31, 2003                     6,815,000        $ 68,000       2,668,000       $27,000      $41,397,000
                                              =========        ========       =========       =======      ===========
</TABLE>
<TABLE>
<CAPTION>

                                               Accumulated
                                                   other
                                               Comprehensive   Retained Earnings     Treasury
                                               Income (Loss)       (Deficit)           Stock                Total
                                               -------------       ---------           -----                -----
                                                 (Note 2)

<S>                                               <C>             <C>                <C>                <C>
BALANCE, JANUARY 31, 2000                         $221,000        $15,721,000        $( 1,181,000)      $56,253,000
Purchase of treasury shares (Note 12)                   --                 --          (  171,000)        (171,000)
Comprehensive income:
   Loss on Foreign Currency Translation          (133,000)                 --                  --               --
    Net loss                                            --        (15,671,000)                 --               --
Total comprehensive income                              --                 --                  --      (15,804,000)
                                                 ---------        -----------         ------------     ------------
BALANCE, JANUARY 31, 2001                           88,000             50,000         ( 1,352,000)       40,278,000
  Purchase of treasury shares (Note 12)                 --                 --          (  250,000)      (  250,000)
Comprehensive income:
    Loss on Foreign Currency Translation         (244,000)                 --                  --                --
    Net loss                                            --        (18,325,000)                 --                --
Total comprehensive income                              --                 --                  --       (18,569,000)
                                                 ---------        -----------         ------------     ------------
BALANCE, JANUARY 31, 2002                       $(156,000)      $ (18,275,000)        $(1,602,000)      $21,459,000
Comprehensive income:
    Loss on Foreign Currency Translation          156,000                  --                  --                --
    Net loss                                           --          (5,550,000)                 --                --
Total comprehensive income                             --                  --                  --        (5,394,000)
                                                 ---------        -----------         ------------     ------------
BALANCE, JANUARY 31, 2003                             $--       $ (23,825,000)        $(1,602,000)      $16,065,000
                                                 =========        ===========         ============     ============
</TABLE>

     See notes to consolidated financial statements.


<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JANUARY 31,
-----------------------------------------------------------------------------------------------------------------------------------


                                                                2003           2002             2001
                                                                ----           ----             ----

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                       <C>             <C>             <C>
 Net  loss                                                $ (5,550,000)   $(18,325,000)   $(15,671,000)
 Adjustments to reconcile net loss to net cash provided
   by (used in) operating activities:
  Depreciation and amortization                                809,000       2,186,000       3,425,000
  Recognized gain on sale of assets                           (119,000)       (170,000)              0
  Provisions for reserves                                      410,000       3,275,000         436,000
  Deferred income taxes                                       (130,000)              0         130,000
  Minority interest                                            196,000               0         108,000
  Write-off of goodwill                                              0       3,477,000       7,640,000

  Changes in assets and liabilities:
   Accounts receivable                                       4,680,000       1,461,000       5,836,000
   Net investments in sales-type leases                      5,365,000      (2,897,000)      2,104,000
   Inventories                                               2,910,000        (466,000)     11,738,000
   Other current assets and other assets                    (1,431,000)        160,000         197,000
   Trade acceptances payable                                (1,216,000)     (1,790,000)     (2,225,000)
   Accounts payable and accrued expenses                    (3,718,000)     10,634,000      (4,879,000)
   Prepaid income taxes and income taxes payable             3,742,000      (5,124,000)      1,781,000
                                                          ------------    ------------    ------------
       Net cash provided by (used in) operating
        activities                                           5,948,000      (7,579,000)     10,620,000
                                                          ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                                         (547,000)       (533,000)       (848,000)
 Proceeds from sale of assets                                     --         4,236,000            --
 Proceeds from sale of subsidiary                              530,000            --              --
                                                          ------------    ------------    ------------

      Net cash provided by (used in) investing
       activities                                              (17,000)      3,703,000        (848,000)
                                                          ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Restricted Cash                                              (900,000)           --              --

 Repayments of long-term debt                                  (83,000)        (53,000)     (3,214,000)
 Payment of Deferred Financing Costs                          (518,000)           --              --
 Purchase of treasury shares                                      --          (250,000)       (171,000)
                                                          ------------    ------------    ------------
Net cash used in financing activities                       (1,501,000)       (303,000)     (3,385,000)
                                                          ------------    ------------    ------------


EFFECT OF EXCHANGE RATE CHANGES ON CASH                        156,000        (244,000)       (133,000)
                                                          ------------    ------------    ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             4,586,000      (4,423,000)      6,254,000

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                 3,121,000       7,544,000       1,290,000
                                                          ------------    ------------    ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                    $  7,707,000    $  3,121,000    $  7,544,000
                                                          ============    ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest and bank fees paid                             $    259,000    $    419,000    $    389,000
                                                          ============    ============    ============
  Income taxes paid                                       $      9,000    $      7,000    $    400,000
                                                          ============    ============    ============
</TABLE>


Supplemental  Disclosure of non-cash investing activity: On October 31, 2002 the
Company  received  a note in the amount of  $500,000  from the sale of its Pulse
subsidiary. See notes to consolidated financial statements.



HIRSCH INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2003, 2002 AND 2001
-------------------------------------------------------------------------------

1. BUSINESS ORGANIZATION AND BASIS OF PRESENTATION

     The accompanying  consolidated financial statements include the accounts of
     Hirsch  International Corp.  ("Hirsch"),  HAPL Leasing Co., Inc. ("HAPL" or
     "HAPL Leasing"), Pulse Microsystems, Ltd. through October 31, 2002 (Pulse),
     Sewing Machine Exchange,  Inc. ("SMX"),  Sedeco,  Inc.  ("Sedeco"),  Hirsch
     Equipment Connection,  Inc. ("HECI"), Hirsch Business Concepts LLC ("HBC"),
     Hometown   Threads  LLC   ("Hometown"),   and  Tajima  USA,  Inc.   ("TUI")
     (collectively, the "Company").

     On January 6, 1998, Tokai Industrial Sewing Machine Company  ("Tokai"),  an
     affiliate of Tajima,  the Company's major supplier,  purchased a 45 percent
     interest in TUI for $900,000. For financial reporting purposes, the assets,
     liabilities and earnings of TUI are consolidated in the Company's financial
     statements.  Tokai's  45  percent  interest  in TUI has  been  reported  as
     minority interest in the Company's  Consolidated Balance Sheets and Tokai's
     share of the  earnings  has  been  reported  as  minority  interest  in the
     Company's Consolidated Statements of Operations.

     The Company is a single  source  provider of  sophisticated  equipment  and
     value  added  products  and  services  to  the  embroidery  industry.   The
     embroidery  equipment  and value  added  products  sold by the  Company are
     widely  used by contract  embroiderers,  large and small  manufacturers  of
     apparel and fashion accessories, retail stores and embroidery entrepreneurs
     servicing specialized niche markets.

     Due to the discontinuation of the leasing services subsidiary,  the Company
     only operates in a single reportable segment.

     See  Note 7 to  the  Consolidated  Financial  Statements  for  discontinued
     operations of the leasing subsidiary as of January 31, 2002.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Principles of  Consolidation - The consolidated  financial  statements
          include the accounts of the Company and its wholly-owned subsidiaries,
          and the  majority  interest in the  operations  of TUI.  All  material
          inter-company  balances  and  transactions  have  been  eliminated  in
          consolidation.

     b.   Revenue  Recognition - The Company distributes  embroidery  equipment.
          Where  installation and customer  acceptance are a substantive part of
          the sale, by its terms,  the Company has deferred  recognition  of the
          revenue until such customer  acceptance of installation  has occurred.
          In fiscal year 2003,  2002 and 2001,  most sales of new  equipment did
          not require installation within the terms of the sales contract; these
          sales were  recorded at the time of  shipment,  at which time title is
          transferred to the customer.

          Service  revenues and costs are recognized when services are provided.
          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.

     c.   Cash Equivalents - Cash  equivalents  consist of money market accounts
          with initial  maturities  of three  months or less.  As of January 31,
          2003 the  Company had $.9  million in  restricted  cash which is being
          used to collateralize letters of credit outstanding.

     d.   Allowance for Possible Losses - The Company maintains an allowance for
          estimated losses resulting from the inability of its customers to make
          required  payments.  An estimate of  uncollectable  amounts is made by
          management   based  upon  historical  bad  debts,   current   customer
          receivable  balances,   age  of  customer  receivable  balances,   the
          customer's  financial  condition and current economic  trends.  If the
          actual  uncollected   amounts   significantly   exceed  the  estimated
          allowance, then the Company's operating results would be significantly
          adversely affected.

     e.   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  salable or the market  value is less
          than  cost  (see  Note  4).  Used  equipment  is  valued  based  on an
          assessment of age, condition,  model type,  accessories,  capabilities
          and demand in the used machine market.

     f.   Foreign  Currency   Transactions  -  Trade  acceptances   payable  are
          denominated  in  Japanese  yen  and are  related  to the  purchase  of
          equipment  from the Company's  major  supplier.  Gains and losses from
          foreign  currency  transactions  are  included in net loss and are not
          significant.

     g.   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:


                Furniture and fixtures            3-7
                Machinery and equipment           3-7
                Software                           3
                Automobiles                       3-5
                Leasehold improvements            3-20


     h.   Impairment  of  Long-Lived  Assets - In  August  2001,  the  Financial
          Accounting  Standards Board issued  Statement of Financial  Accounting
          Standards  No.  144,  "Accounting  for the  Impairment  or Disposal of
          Long-Lived  Assets"  (SFAS  144"),   which  supersedes   Statement  of
          Financial Accounting Standards No. 121, "Accounting for the Impairment
          of Long-Lived Assets to be disposed of, and was adopted by the Company
          on February 1, 2002. The Company  reviewed certain  long-lived  assets
          and identifiable intangibles for impairment. The adoption SFAS 144 did
          not have a material  effect on the  Company's  consolidated  financial
          statements.  Whenever events or changes in circumstances indicate that
          the carrying value of any of these assets may not be recoverable,  the
          Company  will  assess the  recoverability  of such  assets  based upon
          estimated undiscounted cash flow forecasts.  During the fourth quarter
          of Fiscal  2002,  the  remaining  balance of  $3,477,000  of  goodwill
          associated  with  the  acquisitions  of  SMX  Corporation  and  Sedeco
          Corporation was written off. (See Note 18).

     i.   Warranty - The Company  instituted a five-year limited warranty policy
          for its  embroidery  machines.  The Company's  policy is to accrue the
          estimated  cost of satisfying  future  warranty  claims on a quarterly
          basis.  In estimating  its future  warranty  obligations,  the Company
          considers  various  relevant  factors,  including the Company's stated
          warranty policies and practices,  the historical  frequency of claims,
          and the cost to replace or repair its products under warranty.  If the
          number of actual  warranty  claims or the cost of satisfying  warranty
          claims  significantly  exceeds the  estimated  warranty  reserve,  the
          Company's  cost  of  sales,   gross  profit  and  net  loss  would  be
          significantly adversely affected.

     j.   Leases - Leases  (in which  the  Company  is  lessee)  which  transfer
          substantially   all  of  the  risks  and  benefits  of  ownership  are
          classified as capital leases,  and assets and liabilities are recorded
          at amounts  equal to the lesser of the  present  value of the  minimum
          lease  payments  or the fair  value of the  leased  properties  at the
          beginning of the respective lease terms.  Interest expense relating to
          the lease liabilities is recorded to effect constant rates of interest
          over the terms of the leases.  Leases which do not meet such  criteria
          are classified as operating leases and the related rentals are charged
          to expense as incurred.

     k.   Income Taxes - The Company records deferred tax assets and liabilities
          for the  expected  future tax  consequences  of events  that have been
          included in the  Company's  consolidated  financial  statements or tax
          returns.  Under this method,  deferred tax assets and  liabilities are
          determined based on the differences  between the financial  accounting
          and tax bases of assets and  liabilities  using  enacted  tax rates in
          effect for the year in which the  differences are expected to reverse.
          Valuation allowances are established when the Company cannot determine
          the future  utilization  of some  portion or all of the  deferred  tax
          asset.

     l.   Income  (Loss) Per Share - Basic  earnings  per share are based on the
          weighted average number of shares of common stock  outstanding  during
          the  period.  Diluted  earnings  per share  are based on the  weighted
          average number of shares of common stock and common stock  equivalents
          (options  and  warrants)  outstanding  during the period,  computed in
          accordance  with the treasury  stock method.  Outstanding  options and
          warrants  were  anti-dilutive  for the fiscal years ended  January 31,
          2003, 2002 and 2001.

     m.   Stock-Based Compensation - The Company accounts for stock-based awards
          to employees using the intrinsic value method.

          The Company follows  Statement of Financial  Accounting  Standards No.
          123,  "Accounting  for Stock-Based  compensation,"  ("SFAS 123") which
          requires  the  disclosure  of pro forma net  income and  earnings  per
          share.  Under  SFAS  123,  the fair  value of  stock-based  awards  to
          employees is calculated through the use of option pricing models, even
          though such models were developed to estimate the fair value of freely
          tradable,  fully  transferable  options without vesting  restrictions,
          which  significantly  differ from the Company's  stock option  awards.
          These models also require  subjective  assumptions,  including  future
          stock price  volatility  and expected time to exercise,  which greatly
          affect the calculated values. The Company's  calculations were made at
          the date of the grant using the  Black-Scholes  option  pricing  model
          with the following  weighted  average  assumptions  for 2003, 2002 and
          2001:  expected life,  3.6 years;  stock  volatility,  79.0 percent in
          2003,  79.0  percent  in 2002 and 69.4  percent  in  2001;  risk  free
          interest rate of 3.97 percent in 2002,  risk free interest rate of 6.7
          percent in 2001 and 6.0 percent in 2000,  and no dividends  during the
          expected  term.  The  Company's  calculations  are based on a multiple
          option  valuation  approach and  forfeitures  are  recognized  as they
          occur.  The weighted  average fair value of the options granted during
          2003, 2002 and 2001was $0.16, $0.53 and $0.38, respectively.

          If  compensation  cost  for  the  Company's  stock  options  had  been
          determined consistent with Statement of Financial Accounting Standards
          No. 123, "Accounting for Stock-Based Compensation to Employees" ("SFAS
          No. 123"),  the  Company's  net (loss) income and (loss)  earnings per
          share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>

                                                    Year Ended January 31,
                                         2003                 2002               2001
                                         ----                 ----               ----

Net (loss):
<S>                                  <C>                <C>                   <C>
  Net Loss as reported               $(5,550,000)       $(18,325,000)         $(15,671,000)
Deduct Total stock-based
employee compensation expense
determined under fair value
method                                     82,000             182,000              424,000
                                           ------             -------              -------
  Pro forma net loss                 $(5,632,000)       $(18,507,000)         $(16,095,000)
                                     ============      ==============        =============
Basic and diluted loss per share:
  As reported                             $(0.63)            $ (2.06)             $ (1.72)
  Pro forma                               $(0.64)            $ (2.08)             $ (1.77)
</TABLE>

     n.   Comprehensive Income - Statement of Financial Accounting Standards No.
          130.  "Reporting  Comprehensive  Income" ("SFAS 130").  This statement
          established   rules  for  reporting   comprehensive   income  and  its
          components.  Comprehensive  income  consists of net loss,  and foreign
          exchange translation  adjustments and is presented in the consolidated
          statements of stockholders' equity.

     o.   Use  of  Estimates  -  The  preparation  of  financial  statements  in
          conformity  with accounting  principles  generally  accepted  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.

     p.   Fair Value of Financial  Instruments - Financial  instruments  consist
          primarily of  investments  in cash,  cash  equivalents,  trade account
          receivables,  accounts  payable  and debt  obligations.  Where  quoted
          market prices are not  available,  fair values are estimated  based on
          assumptions  concerning the amount and timing of estimated future cash
          flow and assumed discount rates  reflecting  varying degrees of credit
          risk,  at January 31, 2003 and 2002,  the fair value of the  Company's
          financial instruments approximated the carrying value.

     q.   Recent Accounting  Pronouncements - The Financial Accounting Standards
          Board ("FASB") has issued the following:

          June 2002 - SFAS No. 146 - "Accounting for Costs  Associated with Exit
          or Disposal Activities." This Statement addresses financial accounting
          and reporting for costs  associated  with exit or disposal  activities
          and  nullifies  Emerging  Issues  Task Force  (EITF)  Issue No.  94-3,
          "Liability  Recognition for Certain Employee  Termination Benefits and
          Other Costs to Exit an Activity (including Certain Costs Incurred in a
          Restructuring)."  The principal  difference between this Statement and
          EITF 94-3 relates to its  requirements  for recognition of a liability
          for a  cost  associated  with  an  exit  or  disposal  activity.  This
          Statement requires that a liability for a cost associated with an exit
          or disposal  activity be  recognized  when the  liability is incurred.
          Under EITF 94-3, a liability was recognized at the date of an entity's
          commitment  to an exit plan.  This  Statement is effective for exit or
          disposal  activities  that are initiated  after December 31, 2002. The
          Company  does  not  expect  the  adoption  of SFAS  No.  146 to have a
          material impact on its financial position or results of operations.

          In  November  2002,  the  FASB  issued  FASB  Interpretation  No.  45,
          "Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,
          Including  Indirect  Guarantees of Indebtedness of  Others",("FIN45").
          FIN 45  addresses  the  disclosures  to be made by a guarantor  in its
          interim and annual financial  statements  about its obligations  under
          guarantees.  The disclosure  requirements in this  Interpretation  are
          effective for financial statements of interim or annual periods ending
          after December 15, 2002. We do not expect this  Interpretation to have
          an effect on the consolidated financial statements.

          December  2002 -  SFAS  No.  148,  "Accounting  for  the  Stock  Based
          Compensation-Transition  and Disclosure." This statement was issued to
          provide  alternative  methods of transition for a voluntary  change to
          the fair value based method of  accounting  for  stock-based  employee
          compensation.  In  addition,  this  Statement  amends  the  disclosure
          requirements of Statement 123 to require prominent disclosures in both
          annual and interim financial  statement about the method of accounting
          for  stock-based  employee  compensation  and the effect of the method
          used on reported  results.  This  statement is effective for financial
          statements  for fiscal  years ending  after  December  15, 2002.  This
          statement does not have any impact on the Company  because the Company
          does not plan to implement the fair value method.

          In January 2003, the FASB issued Interpretation No. 46, "Consolidation
          of Variable  Interest  Entities."  This  interpretation  clarifies the
          application  of  Accounting  Research  Bulletin No. 51,  "Consolidated
          Financial  Statements," to certain  entities in which equity investors
          do not have the characteristics of a controlling financial interest or
          do not have  sufficient  equity at risk for the entity to finance  its
          activities  without  additional  subordinated  financial  support from
          other parties.  FIN No. 46 is effective  February 1, 2003 for variable
          interest entities created after January 31, 2003, and July 1, 2003 for
          variable  interest  entities  created  prior to February 1, 2003.  The
          Company  does not expect the adoption of Fin No. 46 to have a material
          impact on its financial position, results of operations or cash flows.

     r.   Reclassifications  - As a result of discontinued  operations,  certain
          reclassifications  have been  applied to prior year amounts to conform
          to current year presentation.

     s.   Shipping  and  handling  expenses - The Company  records  shipping and
          handling   expenses  in  operating   expenses  on  the   statement  of
          operations.  These expenses were approximately $1,012,000,  $1,194,000
          and $1,297,000 during the years ended January 31, 2003, 2002 and 2001,
          respectively. Amounts billed to customers are immaterial.

3.       INVENTORIES
<TABLE>
<CAPTION>

                                                                  January 31,
                                                        2003                       2002
                                              -------------------------- -------------------------
<S>                                                   <C>                      <C>
New machines                                          $8,061,000               $11,398,000
Used machines                                            796,000                   935,000
Parts and accessories                                  2,587,000                 2,470,000
Less reserve for slow-moving inventory               (1,946,000)               (2,185,000)
                                              -------------------------- -------------------------
Total                                                 $9,498,000               $12,618,000
                                              -------------------------- -------------------------
</TABLE>


4. CHANGES IN RESERVES
<TABLE>
<CAPTION>

Allowance for Possible Losses:
------------------------------

                                 Opening                                    Ending
                                 Balance      Additions     Write Offs      Balance
                                 -------      ---------     ----------      -------
<S>                <C> <C>    <C>           <C>           <C>            <C>
Year ended January 31, 2003   $ 2,893,000   $   151,000   $(1,593,000)   $ 1,451,000

Year ended January 31, 2002   $ 2,570,000   $   870,000   $  (547,000)   $ 2,893,000

Year ended January 31, 2001   $ 5,632,000   $   274,000   $(3,336,000)   $ 2,570,000



Inventory Reserve:
------------------

                                 Opening                                    Ending
                                 Balance      Additions     Write Offs      Balance
                                 -------      ---------     ----------      -------

Year ended January 31, 2003   $ 2,185,000   $   259,000   $  (498,000)   $ 1,946,000

Year ended January 31, 2002   $ 2,450,000   $ 2,405,000   $(2,670,000)   $ 2,185,000

Year ended January 31, 2001   $ 3,631,000   $   162,000   $(1,343,000)   $ 2,450,000
</TABLE>


Warranty Liability

     The Company  offers to its customers  limited  warranties  against  product
defects for periods  ranging from 30 days to 5 years,  depending on the specific
product and terms of the customer  purchase  agreement.  The  Company's  typical
warranties  require it to repair or replace the  defective  products  during the
warranty  period at no cost to the customer for parts or labor.  At the time the
product  revenue is  recognized,  the Company  records a liability for estimated
costs under its  warranty.  The costs are based on  historical  experience.  The
Company  periodically  assesses the adequacy of its recorded warranty  liability
and adjusts the amount necessary.  While the Company believes that its estimated
liability for product  warranties is adequate and that the judgement  applied is
appropriate,  the estimated  liability for the product  warranties  could differ
materially from future actual  warranty  costs.  Taking into account the reduced
sales of new machines and the increase in the warranty period for those machines
the Company's  estimated warranty liability remained at $543,000 for January 31,
2003 and January 31, 2002.

5. NET INVESTMENT IN SALES-TYPE LEASES
<TABLE>
<CAPTION>

                                                                                 January 31,
                                                                             2003            2002
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
     Total minimum lease payments receivable                            $  2,331,000    $  9,033,000
     Estimated residual value of leased property (unguaranteed) (A)        3,920,000       5,648,000
     Reserve for estimated uncollectible lease payments                   (1,165,000)     (1,165,000)
Less: Unearned income                                                       (413,000)     (1,997,000)
                                                                        ------------    ------------

     Net investment - Amount in Net Assets of Discontinued Operations   $  4,673,000    $ 11,519,000
                                                                        ============    ============
</TABLE>



(A)  The estimated  residual value of leased  property will  fluctuate  based on
     volume of transactions,  financial structure of the transactions,  sales of
     residuals to third party financing  organizations and periodic  recognition
     of the increased net present value of the residuals over time.


6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
                                                                    January 31,
                                                              2003                 2002
                                                      --------------------- -------------------
<S>                                                       <C>                 <C>
Property Under Capital Lease Obligation                   $1,786,000          $1,786,000
Software                                                     458,000                   0
Machinery and equipment                                    5,642,000           5,863,000
Furniture and fixtures                                     1,968,000           1,968,000
Automobiles                                                  294,000             294,000
Leasehold improvements                                      504,000              485,000
                                                             -----              --------
Total                                                     10,652,000          10,396,000
Less: Accumulated depreciation and amortization          (7,784,000)         (7,190,000)
                                                         -----------         -----------
Property, plant and equipment, net                      $ 2,868,000         $ 3,206,000
                                                        ============        ===========
</TABLE>

7. 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 APB 30. 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
sell the net assets by January 2004.

Summary  operating  results of the  discontinued  operations of HAPL Leasing (in
thousands) are as follows:
<TABLE>
<CAPTION>

                                                     For the year ended January 31,
                                                 2003              2002            2001
                                                 ----              ----            ----
<S>                                           <C>               <C>             <C>
Revenue ...........................           $ 1,554           $3,488          $4,590
Gross profit ......................               128            1,575           1,653
Loss from discontinued
  Operations ......................            (4,000)          (7,686)            (70)
</TABLE>


The  operating  loss in fiscal  2003  includes  a reserve  of $4  million  as an
additional  provision for the liquidation of the lease portfolio.  The operating
loss in fiscal 2002  includes $4.6 million  provision for the CIT/UNL  liability
and the  sale of the  residual  receivables  associated  with it;  $2.6  million
increase in the MLPR provision;  $0.6 million employee severance costs; and $0.5
million in asset write off and provision  for future  losses until  termination.
The  UNL  (Ultimate  Net  Loss)  represents  the  Company's  liability  of up to
approximately  10% of all  contracts  purchased by CIT. The increase in the MLPR
(Minimum Lease Payments Receivable)  provision was to reserve against a probable
loss on the sale of the remaining portfolio.

Effective October 31, 2002, Hirsch International Corp.  ("Hirsch") completed the
sale of all of the outstanding equity interests in its wholly-owned  subsidiary,
Pulse  Microsystems  Ltd.  ("Pulse"),  pursuant  to the  terms  of the  purchase
agreement by and between Hirsch and 2017146 Ontario Limited  ("Purchaser") dated
as of October 31, 2002 (the "Agreement").

Pursuant to the Agreement,  Hirsch sold all of its equity  interests in Pulse to
the  Purchaser  for an  aggregate  consideration  of $5.0  million to be paid as
follows:  (a) $0.5 million cash, (b) a $0.5 million note payable in 11 quarterly
installments  beginning  April 30, 2003 and including  interest  accruing on the
principal  balance at the rate of US Prime +1% per annum, and (c) the assumption
of $4.0 million of Hirsch obligations.  The sale price was at Pulse's book value
so there was no gain or loss recorded on the sale.  All periods  presented  have
been restated to reflect the discontinued operations of Pulse.

     Summary  operating   results  of  the  discontinued   operations  of  Pulse
Microsystems, Ltd are as follows:

<TABLE>
<CAPTION>

                                                               For the year ended January 31,
                                                        2003               2002               2001
                                                        ----               ----               ----
<S>                                                    <C>                <C>                <C>
Revenue . . . . . . . . . . . . . . . . . .            $3,731             $4,547             $4,500
Gross profit . . . . . . . . . . . .. . . .            2,510              2,906               2,779
(Loss)Income from discontinued Operations .             $184              $(440)             ($813)
</TABLE>


Assets and Liabilities of discontinued operations (in thousands) are as follows:

                                  For the year ended January 31,
                                           2003      2002
                                           ----      ----
Assets:
      Accounts Receivable ...........   $    16   $   432
     MLPR and residuals .............     4,673    11,519
      Property, Plant & Equipment ...        33       569
      Inventory .....................       113       260
      Prepaid Taxes .................        79     1,006
                                        -------   -------

Total Assets ........................   $ 4,914   $13,786
                                        =======   =======

Liabilities:
      Accounts Payable & Accruals ...   $ 6,758   $ 8,717
      Customer Deposits Payable .....       -         312
      Long Term Debt ................        14        55
      Income Taxes Payable ..........        87        87
                                        -------   -------

Total Liabilities ...................    $6,859   $ 9,171
                                         ======   =======



8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                     January 31,
                                                 2003          2002
                                                 ----          ----
Accounts payable                              $3,244,000   $4,342,000
Accrued restructuring costs (A)                1,368,000    2,464,000
Accrued commissions payable                      108,000      158,000
Accrued payroll costs                            460,000      543,000
Accrued warranty and installation costs          543,000      543,000
Customer deposits payable                              0       64,000
Deferred revenue                                 179,000       97,000
Other accrued expenses                         1,022,000    1,319,000
                                              ----------   ----------
Total accounts payable and accrued expenses   $6,924,000    $9530,000
                                              ==========   ==========

(A)  In the fourth  quarter of the year ended  January  31,  2002,  the  Company
     initiated  a   restructuring   plan  in  connection   with  its  continuing
     operations.  The  plan  was  designed  to meet  the  changing  needs of the
     Company's   customers  and  to  reduce  its  cost   structure  and  improve
     efficiency.  The restructuring initiatives involve the consolidation of the
     parts  and  supplies  operations  with  existing  Hirsch  operations,   the
     provision  for the  downsizing  of three of its existing  sales offices and
     reduction  in  the  overall  administrative  personnel.  The  reduction  in
     personnel  represents  25% of its work  force or 56 people.  The  severance
     payable at year-end is expected to be paid by June 30, 2003.

     The following table summarizes the restructuring costs and activities:
<TABLE>
<CAPTION>

                                            Balance at                             Discontinued       Balance at
                                         January 31, 2002       Cash Payments       Operations     January 31, 2003
                                         ----------------       -------------       ----------     ----------------

<S>                                       <C>                    <C>                  <C>            <C>
Severance and Benefits ...........        $  479,000             $  379,000           $-             $  100,000

Excess facilities including future
lease obligations and property and
equipment ........................         1,975,000                501,000          207,000          1,267,000

Other restructuring-related
costs ............................            10,000                  9,000            --                 1,000
                                          ----------             ----------       ----------          ----------
                                          $2,464,000             $  889,000       $  207,000          $1,368,000
                                          ==========             ==========       ==========          ==========
</TABLE>


9. LONG TERM OBLIGATIONS


                                                 January 31,
                                             2003          2002
                                        -----------    -----------
Obligation Under Capital Lease (A)      $ 1,642,000    $ 1,724,000
Deferred Gain on Sale of Building (B)       967,000      1,086,000
Other                                        18,000           --
                                        -----------    -----------
Total                                     2,627,000      2,810,000
Less: Current maturities                   (239,000)      (202,000)
                                        -----------    -----------
Long-term maturities                    $ 2,388,000    $ 2,608,000
                                        ===========    ===========


(A)  Obligation  Under  Capital Lease of the Company at January 31, 2003 matures
     as follows:

     Fiscal Year
       Ending
     January 31,
     -----------
       2004                                            $289,000
       2005                                             297,000
       2006                                             306,000
       2007                                             316,000
       2008                                             325,000
       2009 and thereafter                            1,065,000
                                                      ---------
Total Minimum Lease Payments                        $ 2,598,000

Less:  Amount representing interest                    (956,000)
                                                       ---------

Present value of net minimum lease payments           1,642,000

Less current portion                                    101,000
                                                        -------

Long term lease obligations                          $1,541,000
                                                     ==========

(B)  On March 8,  2001,  the  corporate  headquarters  facility  located  at 200
     Wireless Boulevard, Hauppauge, New York, was sold and partially leased back
     from Brandywine Realty Trust in a concurrent transaction.

     Concurrent  sale and leaseback  transactions  are subject to specific rules
regarding the timing of the recognition of the gain. This transaction results in
a  non-recurring  gain of $1.2 million  deferred  over the life of the lease,  a
period of ten years.  The related  lease  obligation  meets the rules  requiring
classification as a capital lease. The operating  expense is therefore  reported
as  interest  and  depreciation  on a  straight-line  basis over the life of the
lease, with both current and long-term portions,  rather than rent expense.  The
capitalized  lease  obligation and the related asset were booked at an aggregate
value of $1.8 million,  and the term of the lease is ten years. Cash proceeds of
approximately $4.0 million were provided by the sale.

10. INCOME TAXES

     The  provision  (benefit) for income taxes is based on income (loss) before
taxes  on  income,   minority   interest  in  net  earnings  of  subsidiary  and
discontinued operations as follows:
<TABLE>
<CAPTION>

                                                        Years ended
                             ------------------------------------------------------------------
                               January 31, 2003       January 31, 2002      January 31, 2001

<S>                              <C>                   <C>                  <C>
Domestic .....................   $(2,113,000)          $(16,080,000)        $(14,517,000)
Foreign - included in
discontinued
operations(see note 7)........        536,000              (306,000)          (1,199,000)
                                      -------             ----------         -----------

    Total ....................   $(1,577,000)          $(16,386,000)        $(15,716,000)
                                 ============          =============        =============
</TABLE>


The income tax (benefit)  provision for each of the periods  presented herein is
as follows:

                                                      January 31,
                                            2003          2002            2001
                                            ----          ----            ----
Current:
  Federal                              $  (356,000)   $(6,000,000)   $    23,000
  State                                     55,000        119,000          9,000
                                       -----------    -----------    -----------
Total current                             (301,000)    (5,881,000)        32,000
                                       -----------    -----------    -----------

Deferred:
  Federal                                 (100,000)          --          100,000

  State and foreign                        (30,000)          --           30,000
                                       -----------    -----------    -----------

Total deferred:                           (130,000)          --          130,000
                                       -----------    -----------    -----------

Total income tax (benefit) provision   $  (431,000)   $(5,881,000)   $   162,000
                                       ===========    ===========    ===========

Of the tax expense (benefit) above 308,000, $0 and $262,000, for the years ended
January  31,  2003,  2002  and  2001,  respectively,  has been  reclassified  to
discontinued operations.

The tax effects of temporary  differences  that give rise to deferred income tax
liabilities  at January 31, 2002 and  deferred  income tax assets at January 31,
2001 are as follows:

<TABLE>
<CAPTION>

                                                   January 31, 2003                        January 31, 2002
                                            Net Current         Net Long-            Net Current         Long-Term
                                            Deferred Tax      Term Deferred          Deferred Tax      Deferred Tax
                                               Assets          Tax Assets               Assets            Assets
                                          ----------------- ------------------    ------------------- ----------------
<S>                                           <C>           <C>                       <C>                  <C>
Accounts receivable                           $579,000      $           -             $1,056,000           $    -
Inventories                                    849,000                  -              1,141,000                -
Accrued warranty costs                         217,000                  -                217,000                -
Other accrued expenses                         578,000                  -                925,000                -
Purchased technologies and goodwill                  -          2,559,000                               1,386,000
Net operating loss                                   -          5,545,000                      -                -
Reserves for discontinued operations         3,393,000                  -              3,494,000                -

Gain on sale of building                                          386,000                      -         434,000
                                           -----------        -----------             ------------    -----------
                                             5,616,000          8,490,000              6,833,000        1,820,000
Less valuation allowance                   (5,616,000)        (8,490,000)             (6,833,000)     (1,820,000)
                                           -----------        -----------             ------------    -----------
                                              $     0             $    0                $     0           $    0
                                              ========            =======               ========          ======
</TABLE>

A valuation  allowance  for such  deferred  tax assets has been  established  at
January 31, 2003 and January 31, 2002,  since the Company  cannot  determine the
future utilization of those assets.

A reconciliation of the differences between the federal statutory tax rate of 34
percent and the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>

                                               Year Ended January 31,
                                               2003     2002     2001
                                               ----     ----     ----
<S>                                           <C>      <C>      <C>
Federal statutory income tax rate             (34.0)%  (34.0)%  (34.0)%
State income taxes, net of Federal benefit      5.0      5.0      5.0
Permanent differences                          55.1       --       --
Valuation Allowance                           (46.5)    (7.8)    30.1
                                               ----     ----     ----
Effective income tax rate                     (20.4)%  (36.8)%  (1.1)%
                                               ====     ====     ====
</TABLE>


11. STOCKHOLDERS' EQUITY

a.   Common and  Preferred  Stock - The Class A Common  Stock and Class B Common
     Stock has authorizations of 20,000,000 and 3,000,000 shares,  respectively.
     The  Class A Common  Stock  and  Class B  Common  Stock  are  substantially
     identical in all respects,  except that the holders of Class B Common Stock
     elect two-thirds of the Company's Board of Directors (as long as the number
     of shares of Class B Common Stock  outstanding  equals or exceeds 400,000),
     while the holders of Class A Common Stock elect  one-third of the Company's
     Board of  Directors.  Each  share of  Class B  Common  Stock  automatically
     converts  into  one  share  of  Class A Common  Stock  upon  transfer  to a
     non-Class B common stockholder. The 1,000,000 shares of preferred stock are
     authorized  and may be issued  from time to time,  in such  series and with
     such designations, rights and preferences as the Board may determine.

b.   Stock Option Plans - The Company  maintains two stock option plans pursuant
     to which an aggregate of approximately 1,984,000 shares of Common Stock may
     be granted.

     The 1993 Stock Option Plan (the "1993 Plan") has 1,750,000 shares of Common
     Stock  reserved for issuance  upon the  exercise of options  designated  as
     either (i) incentive stock options ("ISOs") under the Internal Revenue Code
     of 1986, as amended (the "Code"), or (ii) non-qualified  options.  ISOs may
     be granted  under the Stock  Option Plan to  employees  and officers of the
     Company.  Non-qualified  options may be granted to  consultants,  directors
     (whether or not they are employees), employees or officers of the Company.

     Stock option transactions during the years ended January 31, 2003, 2002 and
     2001 for the 1993 Plan are summarized below:

<TABLE>
<CAPTION>

                                                                          Exercise           Weighted Average
                                                         Shares           Price Range          Exercise Price
                                                         ------           -----------          --------------
<S>                                                      <C>            <C>     <C>                  <C>
Options outstanding - January 31, 2000                   711,000        $1.75 - $24.20               $ 9.91

  Options canceled                                       (49,000)       $1.75 - $24.20               $ 9.91
  Options issued                                          20,000        $0.91 -   3.00               $ 1.86
                                                         -------       ---------------               ------
Options outstanding - January 31, 2001                   682,000        $0.91 - $24.20               $ 9.45

  Options canceled                                      (594,000)       $0.95 - $17.00              $ 12.19
  Options issued                                         190,000        $0.95 -   1.00               $ 0.97
                                                        --------       ---------------               ------
Options outstanding - January 31, 2002                   278,000        $0.95 - $17.00               $ 1.71

Options canceled                                         (98,000)       $1.00 - $17.00               $ 3.99
  Options issued                                         878,000         $0.27 - $0.52               $ 0.29
                                                         -------         -------------                -----
Options outstanding - January 31, 2003                 1,058,000         $0.27 - $1.00               $ 0.50

Options exerciseable at January 31, 2003                 205,000         $0.52 - $5.25               $ 1.32
                                                         =======         =============               ======
</TABLE>
<TABLE>
<CAPTION>

                                              Options Outstanding                  Options Exercisable
                                        Weighted Avg.        Weighted                             Weighted
                                          Remaining           Average                              Average
    Range of            Number          Contractual          Exercise           Number            Exercise
  Exercise Price      Outstanding        Life (yrs)           Price          Exerciseable          Price
  --------------      -----------        ----------           -----          ------------          -----
<S>       <C>            <C>                 <C>              <C>                <C>                <C>
  $0.91 - $5.25          50,000              2.0              $2.99              45,000             $3.12
  $0.95 - $1.00         130,000              4.0              $0.96             110,000             $0.95
  $0.27 - $.052         878,000              5.0              $0.29              50,000             $0.52
                      ---------                                                 -------
                      1,058,000                                                 205,000
</TABLE>


All options issued vest in three annual  installments  of 33-1/3 percent each on
the first,  second, and third anniversary of the date of grant except for 50,000
issued in 2003 which vested immediately.  There are approximately 361,000 shares
available for future grants under the 1993 Plan.

The 1994  Non-Employee  Director  Stock Option Plan (the  "Directors  Plan") has
approximately 234,000 shares of Common Stock reserved for issuance.  Pursuant to
the terms of the Directors Plan, each  independent  unaffiliated  Director shall
automatically be granted, subject to availability, without any further action by
the Board of Directors or the Stock Option Committee: (i) a non-qualified option
to purchase  10,000  shares of Common Stock upon their  election to the Board of
Directors;  and (ii) a non-qualified  option to purchase 10,000 shares of Common
Stock  on the  date of each  annual  meeting  of  stockholders  following  their
election to the Board of Directors.  The exercise price under each option is the
fair  market  value of the  Company's  Common  Stock on the date of grant.  Each
option has a five-year  term and vests in three  annual  installments  of 33-1/3
percent each on the first,  second,  and third anniversary of the date of grant.
Options granted under the Directors Plan are generally not  transferable  during
an optionee's  lifetime but are  transferable at death by will or by the laws of
descent and distribution.  In the event an optionee ceases to be a member of the
Board of  Directors  (other  than by  reason of death or  disability),  then the
non-vested portion of the option immediately terminates and becomes void and any
vested but  unexercised  portion of the option may be exercised  for a period of
180 days  from  the date the  optionee  ceased  to be a member  of the  Board of
Directors.  In the event of death or permanent  disability  of an optionee,  all
options  accelerate  and  become  immediately  exercisable  until the  scheduled
expiration date of the option.

Stock option transactions during the years ended January 31, 2003, 2002 and 2001
for the Directors' Plan are summarized below:

<TABLE>
<CAPTION>
                                                                 Exercise         Weighted Average
                                                   Shares      Price Range         Exercise Price
                                                   ------      -----------         --------------
<S>                                               <C>       <C>     <C>              <C>
Options outstanding - January 31, 2000             44,000    $2.25 - $22.00           $ 12.44

  Options cancelled                              (12,000)        $ 9.12                 $9.12
                                                ---------        ------                 -----
Options outstanding - January 31, 2001            32,000     $2.25 - $22.00           $ 12.16

  Options cancelled                              (32,000)    $2.25 - $22.00           $ 12.16
Options issued                                     20,000         $0.96                 $0.96
Warrants issued                                   100,000         $0.50                 $0.50
                                                  -------         -----                 -----
Options outstanding - January 31, 2002            120,000       $0.50-0.96              $0.58
Options issued                                     40,000      $0.27-$0.89              $0.43
                                                   ------      -----------              -----
Options outstanding - January 31, 2003            160,000     $0.27 - $0.96             $0.54
                                                  -------     -------------             -----

Warrants exerciseable - January 31, 2003          100,000         $0.50                 $0.50
                                                  =======         =====                 =====
</TABLE>


There are  approximately  182,000  shares  available for future grants under the
Directors' Plan.

c.   Additional  Stock Plan  Information  - As  discussed in Note 2, the Company
     continues to account for its  stock-based  awards using the intrinsic value
     method  in  accordance  with  APB  25  and  its  related   interpretations.
     Accordingly,  no compensation  expense has been recognized in the financial
     statements for employee stock arrangements.


12. TREASURY STOCK

Treasury  stock at January 31, 2003 and 2002 consists of 695,000 shares of Class
A  common  stock  purchased  in open  market  transactions  for a total  cost of
approximately  $1,602,000  pursuant to a stock repurchase  program authorized by
the Board of Directors in fiscal year 1999. As of September  2001,  the Board of
Directors rescinded its stock repurchase program.

13. PROFIT SHARING PLAN

Profit  Sharing Plan - The Company has a voluntary  contribution  profit sharing
plan (the "Plan"),  which complies with Section  401(k) of the Internal  Revenue
Code.  Employees who have attained the age of 21 and have one year of continuous
service are eligible to participate  in the Plan. The Plan permits  employees to
make a voluntary  contribution  of pre-tax  dollars to a pension  trust,  with a
discretionary  matching  contribution  by the  Company  up to a  maximum  of two
percent of an eligible employee's annual  compensation.  The Company elected not
to make matching contributions for fiscal years ended January 31, 2003, 2002 and
2001. The Company funds all amounts when due.

14. 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:

               Fiscal Year
                Ending
              January 31,

                 2004                             $959,000
                 2005                              778,000
                 2006                              698,000
                 2007                              667,000
                 2008                              494,000
                 2009 and after                    803,000
                                                   -------
                                                $4,399,000

Rent expense was approximately $503,587, $1,215,000 and $1,191,000 for the years
ended January 31, 2003, 2002 and 2001,  respectively.  The decline from previous
years is the result of termination of various facility leases.

b.   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 consolidated financial position or
     results of operations.

c.   The Company had a Revolving Credit and Security Agreement (the "Agreement")
     with PNC Bank which expired in September 2002. The Agreement provided for a
     commitment of $20 million for Hirsch and all  subsidiaries,  collateralized
     by assets,  primarily accounts receivable and inventory.  The Agreement was
     used for working  capital  loans,  letters of credit and  deferred  payment
     letters  of credit  and bears  interest  as  scheduled  and  defined in the
     Agreement.  The terms of the  Agreement,  as amended,  restrict  additional
     borrowings  by the  Company and require the Company to maintain an interest
     coverage  ratio,  as defined  therein.  There were no  outstanding  working
     capital  borrowings  against  the  Agreement  as of January 31,  2002.  The
     Agreement was also used to support letters of credit of approximately  $0.3
     million as of that date.  The Company was in compliance  with all financial
     covenants  at fiscal  2002  year-end . On  November  26,  2002 the  Company
     satisfied  all of its  obligations  and  exited  its  Revolving  Credit and
     Security  Facility  with PNC Bank and  replaced it with 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, April 28, 2003, provides for a credit facility of $12
     million for Hirsch and all subsidiaries and is  collateralized  by eligible
     accounts  receivable  and inventory as defined in the  agreement.  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 all  financial  covenants  at fiscal  2003  year-end.  The
     Agreement  was  also  used  to  support   letters  of  credit  and  bankers
     acceptances of approximately $3.8 million as of that date.

d.   Dependency  Upon Major Supplier - During the fiscal years ended January 31,
     2003,   2002,  and  2001,  the  Company  made  purchases  of  approximately
     $21,115,000,   $27,789,000,   and  $33,383,00  respectively,   from  Tajima
     Industries Ltd. ("Tajima"), the manufacturer of the embroidery machines the
     Company sells. This amounted to approximately 74, 85, and 86 percent of the
     Company's total  purchases for the years ended January 31, 2003,  2002, and
     2001, respectively.

     The Company has several  separate  distributorship  agreements  with Tajima
     which, collectively,  provide the Company the exclusive right to distribute
     Tajima's  complete  line of  embroidery  machines  in 39  states.  The main
     agreement  (the "East  Coast/Midwest  Agreement")  which  covers 33 states,
     including the original Hirsch territory and the additional  states acquired
     in the SMX territory,  became effective on February 21, 1991 and has a term
     of 20 years.  The East  Coast/Midwest  Agreement  is  terminable  by Tajima
     and/or the Company on not less than two years' prior notice.

     The second  agreement  (the  "Southwest  Agreement")  covers the six states
     acquired in the Sedeco territory, became effective on February 21, 1997 and
     has a term of five years.  This  agreement was renewed  until  February 22,
     2004.

     In the states of  Arizona,  California,  Hawaii,  Idaho,  Montana,  Nevada,
     Oregon,  Utah,  Washington  and  Wyoming,  the  Company  is  the  exclusive
     distributor of Tajima's single, two, four, and six-head machines as well as
     chenille or chenille/standard embroidery machines with less than four heads
     or two stations, respectively (the "West Coast Agreement").

     The West Coast  Agreement  has a term of five  years.  This  agreement  was
     renewed.  Tajima may terminate the West Coast  Agreement or its exclusivity
     on 30 days' written notice or upon a material change in the current Class B
     shareholders  in which case,  the West Coast  Agreement  can be  terminated
     earlier.  The Company has  satisfied  its  obligations  to Tajima under the
     agreement for the fiscal year 2003.


e.   Purchase  Commitments  - The  Company  entered  into a three  year  minimum
     purchase  commitment  with Pulse under which the  Company is  obligated  to
     purchase  $100,000 of software  each month.  The  commitment  was effective
     November 1, 2002 and runs until October 31, 2005.

15. GOODWILL IMPAIRMENT

     During the fourth  quarter of fiscal 2002 in view of the  overall  industry
     decline  in demand for  embroidery  equipment  and  related  products,  the
     resulting   decline  in  Company  revenue   delivered  in  the  territories
     associated with the  acquisition of SMX Corporation and Sedeco  Corporation
     and the Company's impairment evaluation,  the Company wrote-off the balance
     of $3,477,000 of Goodwill as an impairment charge to operations.