UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 001-10287
LIFSCHULTZ INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE No. 87-0448118
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 West 59th Street, New York, NY 10019
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(Address of principal executive offices)
(212) 397-7788
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(Issuer's telephone number)
Not Applicable
--------------
(Former name, former address and former
fiscal year, if changed since last
report.)
The number of shares of the issuer's common stock outstanding as of March 15, is
1,121,655 shares.
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
January 31, 2000 and July 31, 1999
ASSETS
31-Jan-00 31-Jul-99
--------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 996,000 $ 1,175,000
Marketable securities 919,000 993,000
Trade accounts receivable, net 2,523,000 3,059,000
Related party receivable 55,000 51,000
Deferred income taxes 323,000 323,000
Inventories 4,137,000 3,190,000
Other current assets 54,000 159,000
----------- ------------
Total current assets 9,007,000 8,950,000
PROPERTY HELD FOR LEASE, NET 1,339,000 1,598,000
PROPERTY AND EQUIPMENT, NET 2,097,000 1,181,000
LAND 170,000 170,000
DEFERRED INCOME TAXES 1,222,000 1,222,000
$13,835,000 $ 13,121,000
=========== ============
The accompanying notes are an integral part of these statements.
2
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
January 31, 2000 and July 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
31-Jan-00 31-Jul-99
--------- ---------
CURRENT LIABILITIES
Notes payable to banks $ 620,000 $ 150,000
Trade accounts payable 809,000 688,000
Income taxes payable 112,000 149,000
Accrued liabilities 1,118,000 1,528,000
Current maturities of capital lease 50,000 39,000
obligations
Current maturities of long-term obligation 2,000 2,000
----------- ------------
Total current liabilities 2,711,000 2,556,000
LONG-TERM OBLIGATION, less current maturities 5,000 5,000
CAPITAL LEASE OBLIGATIONS, less current maturities 133,000 92,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Convertible preferred stock, par value $0.01;
authorized 100,000 shares
Series A; issued and outstanding 5,200 - -
shares at January 31, 2000 and July 31, 1999
Series E; issued and outstanding 552 - -
shares at January 31, 2000 and July 31, 1999
Common stock, par value $0.001; authorized
1,650,000 shares: issued 1,121,655 shares at
January 31, 2000 and 1,117,519 at July 31, 1999 1,000 1,000
Additional paid-in capital 11,060,000 11,060,000
Treasury stock, at cost (22,560 common shares) (157,000) (157,000)
Accumulated earnings (deficit) 82,000 (436,000)
Total shareholders' equity 10,986,000 10,468,000
----------- ------------
$13,835,000 $ 13,121,000
=========== ============
The accompanying notes are an integral part of these statements.
3
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
For the three months and six months ended January 31,
(Three months ended) (Six months ended)
2000 1999 2000 1999
---- ---- ---- ----
Net Revenues $ 4,620,000 $ 3,920,000 $ 8,491,000 $ 7,418,000
Cost and expenses:
Cost of products sold 2,533,000 2,014,000 4,801,000 4,014,000
Selling, general and 1,506,000 1,328,000 2,661,000 2,372,000
administrative
Research and development 235,000 203,000 430,000 331,000
Interest expense 14,000 10,000 24,000 17,000
----------- ----------- ----------- -----------
4,288,000 3,555,000 7,916,000 6,734,000
----------- ----------- ----------- -----------
Earnings before income taxes 332,000 365,000 575,000 684,000
Income tax expense 28,000 30,000 57,000 62,000
NET EARNINGS $ 304,000 $ 335,000 $ 518,000 $ 622,000
=========== =========== =========== ===========
Net earnings per common
share - basic
(based on 1,121,655 common shares
outstanding) $ 0.27 $ 0.30 $ 0.46 $ 0.49
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
4
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended January 31,
2000 1999
---- ----
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net Earnings $ 518,000 $ 622,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 71,000 107,000
Amortization of leasehold interest 259,000 255,000
Changes in assets and liabilities:
Accounts receivable 536,000 126,000
Related party receivable (4,000) 17,000
Inventories (947,000) (324,000)
Deferred Tax - -
Other current assets 105,000 (160,000)
Accounts payable 121,000 94,000
Accrued liabilities (410,000) (568,000)
Income taxes payable (37,000) 27,000
------------ -----------
Total Adjustments (306,000) (426,000)
------------ -----------
Net cash provided (used) by
operating activities 212,000 196,000
Cash flows from investing activities
Purchase of property and equipment (987,000) (379,000)
Purchase of marketable securities (126,000) (375,000)
Proceeds from maturities of marketable
securities 200,000 354,000
------------ -----------
Net cash used in investing activities (913,000) (400,000)
Cash flows from financing activities
Principal payments on long-term obligations - (1,000)
Principal payments on capital lease
obligations (20,000) (18,000)
Proceeds from Capital Lease 72,000 -
Net change in line of credit 470,000 196,000
Cash received from issuance of common stock - -
------------ -----------
Net cash provided by financing activities 522,000 177,000
5
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
(Unaudited)
For the six months ended January 31,
2000 1999
---- ----
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of quarter (179,000) (27,000)
Cash and cash equivalents at end of quarter 1,175,000 989,000
------------ -----------
$ 996,000 $ 962,000
============ ===========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the quarter for
Interest $ 10,000 $ 10,000
Income Taxes 128,000 $ 27,000
The accompanying notes are an integral part of these statements.
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Notes to Financial Statements
(unaudited)
Note 1
- ------
The consolidated financial statements have been prepared by Lifschultz
Industries Inc. (the "Company") without audit, in accordance with generally
accepted accounting principles. Pursuant to the rules and regulations of the
Securities and Exchange Commission, certain disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been omitted or condensed. It is management's belief
that the disclosures made are adequate to make the information presented not
misleading and reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of financial position and results
of operations for the periods presented. The results of operations for the
periods presented should not be considered as necessarily indicative of
operations for the full year. It is recommended that these consolidated
financial statements be read in conjunction with the consolidated financial
statements for the year ended July 31, 1999 and the notes thereto included in
the Company's Form 10-KSB.
Note 2
- ------
Certain items from fiscal year 1999 were reclassified to be consistent with the
2000 statement of earnings presentation with no effect on net income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-------------------------
General
- -------
The Company designs, manufactures, and markets scientific and industrial
instrumentation and instrument calibration equipment. Most of the Company's
revenues are from its operating subsidiary Hart Scientific, Inc. ("Hart
Scientific") and Hart Scientific's subsidiary, Calorimetry Sciences Corporation
("CSC"). The Company realizes a small amount of revenue from a real property
lease held by its non-operating subsidiary, Lifschultz Fast Freight, Inc. ("Fast
Freight"). Company management believes that its future growth is dependent upon
the ability of Hart Scientific and CSC to continue increasing instrument sales
to new and existing customers and successfully introduce and market new or
enhanced products. The following discussion should be read in conjunction with
the text of Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company's Form 10-KSB for fiscal year
ended July 31, 1999.
Results of Operations:
- ----------------------
Total revenues for the Company for the current six month period ended January
31, 2000, increased 14% to $8,491,000 versus $7,418,000 for the same period last
fiscal year. Total revenues for the current three month period ended January 31,
2000, increased 18% to $4,620,000 versus $3,920,000 for the same period last
fiscal year.
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Total revenues for Hart Scientific (including Hart Scientific's subsidiary,
CSC), during the current six month period were $8,490,000 versus $7,413,000 for
the same period last fiscal year, a 15% increase. Hart Scientific revenues for
the current three month period were $4,623,000 versus $3,918,000 for the same
period last fiscal year, an 18% increase. This growth trend appears to be
continuing with the Company experiencing record revenues in February 2000.
A substantial portion of the Company's revenue growth resulted from increased
product demand in export markets. Export sales by Hart Scientific grew to
$1,920, 000 in the current three month period from $1,377,000 in the same period
last year, a 39% increase. Much of this grown in exports was generated in the
Far East market, where export sales rose to $722,000 in the current three month
period from $325,000 in the same period last year, a 122% increase. In
comparison, domestic sales in the current three month period grew 11.7% over the
prior year's second quarter, from $2,686,000 to $2,801,000.
Company management believes that the Company's growth in revenues is largely
attributable to improved economic conditions in certain export markets, and
increased demand generally for the Company's products resulting from the
Company's increased marketing efforts and the introduction of new products
resulting from the Company's research and development efforts.
Hart Scientific's gross margins were 43% for the current six month period versus
46% for the same period last year. Management believes that differences in
product mix, higher research and development costs, higher marketing costs, and
generally higher labor and material costs are the main reasons for the lower
margins during the current period.
Hart Scientific's general and administrative costs for the current six month
period were $1,470,000 versus $1,718,000 for the same period last year. General
and administrative costs during the current three month period for Hart
Scientific were $909,000 versus $889,000 for the same period last year.
Research and development costs for the current six month period increased to
$430,000 from $331,000. Research and development costs for the current three
month period increased to $235,000 from $203,000 in the same period last year.
Hart Scientific increased its marketing expenses during the current three month
period to $476,000 versus $311,000 for the same period last year. Its marketing
and sales expenses for the current six month period were $965,000 versus
$646,000 for the same period last year.
Net consolidated earnings for the current three month period were $304,000
versus $335,000 for the same period last year, a 9% decrease. Net consolidated
earnings for the current six month period were $518,000 versus $622,000 for the
same period last fiscal year, a 17% decrease. Hart Scientific had net earnings
of $424,000 for the current three month period versus $462,000 for the same
period last year, an 8% decrease. Hart Scientific had net income for the current
six month period of $741,000 versus $827,000 for the same period last year, a
10% decrease.
8
Revenue growth for the current period was strong, but the Company has
experienced labor and material cost increases compared to the same period last
year. A price increase intended to offset some of these higher costs went into
effect late in the second quarter, but the effect of this price increase has not
yet been realized. Increase marketing expenditures, research and development
costs, and changes in product mix also contributed to lower earnings.
Earnings for the second quarter where also negatively affected by costs incurred
with the Company's intentional increase in inventory during that quarter. To
reduce the impact of potential product and supplies shortages resulting from
possible "Y2K" problems, the Company increased its inventory from $3,190,000 as
of July 31, 1999 to $4,137,000 as of January 31, 2000. This resulted in the
Company increasing inventory related costs, such as freight charges, in the
first half of the fiscal year and should be reflected in reduced costs in the
second half as inventory levels decline.
Overall, while there is no assurance that the trend in growth will continue,
particularly the strong growth recently experienced by the Company in the Far
East market, Company management believes that, based on the results to date and
the price increases recently implemented by the Company, the Company will
generate overall sales and profit growth for the current fiscal year.
Financial Condition and Liquidity
- ---------------------------------
The Company's current ratio at January 31, 2000 is 3.31 to 1 versus 3.50 at July
31, 1999. Management expects that internal operating cash flow from Hart
Scientific will be sufficient to meet the cash needs of the Company during the
2000 fiscal year.
Total current assets increased by $57,000 during the current six month period
while current liabilities increased by $155,000 during the same period. Cash and
cash equivalents decreased by $179,000 in the current six month period to
$996,000. As of January 31, 2000, Hart Scientific also had approximately
$200,000 available under its bank line of credit if such funds are required.
Hart Scientific currently anticipates purchasing its facilities in American
Fork, Utah, which facilities are currently leased and in the process of being
expanded. The anticipated purchase price is approximately $2,430,000. The
Company currently does not anticipate that the purchase will have a material
adverse effect on the cash flows of the Company.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995.
When used in this report, the words "believe," "plan" "expects" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from those projected. These forward-looking statements
speak only as of the date hereof. All of these forward-looking statements are
based on estimates and assumptions made by management of the Company, which
9
although believed to be reasonable, are inherently uncertain and difficult to
predict. There can be no assurance that the benefits anticipated in these
forward-looking statements will be achieved. The following important factors,
among others, could cause the Company not to achieve the benefits contemplated
herein, or otherwise cause the Company's results of operations to be adversely
affected in future periods: (i) continued or increased competitive pressures
from existing competitors and new entrants; (ii) unanticipated costs related to
the Company's growth and operating strategies; (iii) loss or retirement of key
members of management; (iv) prolonged labor disruption; (v) deterioration in
general of international economic conditions; and (vi) loss of customers. Many
such factors are beyond the control of the Company. Please refer to the
Company's SEC Form 10-KSB for its fiscal year ended July 31, 1999, for
additional cautionary statements.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Company's last annual meeting, held January 6, 2000, the current
directors of the Company, Sidney B. Lifschultz, David K. Lifschultz, Dennis R.
Hunter, Joseph C. Fatony, and James E. Solomon were re-elected for an additional
term of one year with the following vote:
FOR WITHHELD ABSTAIN
------- -------- -------
Sidney B. Lifschultz 767,301 191 5,284
David K. Lifschultz 767,311 181 5,284
Dennis R. Hunter 767,331 161 5,284
Joseph C. Fatony 767,291 201 5,284
James E. Solomon 767,331 161 5,284
Additionally, Grant Thornton LLP was affirmed at the meeting as the Company's
independent certified public accountants for the 2000 fiscal year with the
following vote: 771,618 for, 609 against, and 549 abstain. There were no broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
The following exhibits are attached hereto or are incorporated
herein by reference as indicated in the table below:
10
Exhibit Location if other
No. Title of Document than attached hereto
------- ----------------- --------------------
3.01* Certificate of Incorporation 1998 Form 10-KSB
(as amended to date) Exhibit 3.01
3.02* Bylaws 1991 Form 10-K
Page 74
4.01* Certificate of Designation, Series A 1991 Form 10-K
Convertible Preferred Stock (as amended) Page 94
4.01* Certificate of Designation, Series E 1994 Form 10-K
Convertible Preferred Stock Exhibit 4.05
27.1 Financial Data Schedule
* Denotes exhibits specifically incorporated in this Form 10-QSB by reference to
other filings of the Company pursuant to the provisions of Securities and
Exchange Commission rule 12b- 32 and Regulation S-B, Item 10(f)(2). These
documents are located under File No. 001-10287 at, among other locations, the
Securities and Exchange Commission, Public Reference Branch, 450 5th St., N.W.,
Washington, D.C. 20549.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the quarter ended
January 31, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LIFSCHULTZ INDUSTRIES, INC.
Date March 16, 2000 By: /s/DENNIS R. HUNTER
-------------- -----------------------
Dennis R. Hunter
President and Chief
Financial Officer
11