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 April 30, 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
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(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 June 12,
2000 is 1,121,655 shares.
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
April 30, 2000 July 31, 1999
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(unaudited) (unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 544,000 $ 1,175,000
Marketable securities 929,000 993,000
Trade accounts receivable, net 3,258,000 3,059,000
Related party receivable 87,000 51,000
Deferred income taxes 323,000 323,000
Inventories 3,955,000 3,190,000
Other current assets 67,000 159,000
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Total current assets 9,163,000 8,950,000
PROPERTY HELD FOR LEASE, NET 1,207,000 1,598,000
PROPERTY AND EQUIPMENT, NET 4,417,000 1,181,000
LAND 170,000 170,000
DEFERRED INCOME TAXES 1,222,000 1,222,000
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$ 16,179,000 $ 13,121,000
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The accompanying notes are an integral part of these statements
2
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
April 30, 2000 July 31, 1999
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(unaudited) (unaudited)
CURRENT LIABILITIES
Notes payable to banks $ 350,000 $ 150,000
Trade accounts payable 491,000 688,000
Income taxes payable 166,000 149,000
Accrued liabilities 974,000 1,528,000
Current maturities of capital lease obligations 53,000 39,000
Current maturities of long-term obligation 41,000 2,000
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Total current liabilities 2,075,000 2,556,000
LONG-TERM OBLIGATION, less current maturities 2,256,000 5,000
CAPITAL LEASE OBLIGATIONS, less current maturities 124,000 92,000
SHAREHOLDERS' EQUITY
Convertible preferred stock, par value $0.01;
authorized 100,000 shares
Series A; issued and outstanding 5,200 shares at - -
April 30, 2000 and July 31, 1999
Series E; issued and outstanding 552 shares at - -
April 30, 2000 and 21,231 at July 31, 1999
Common stock, par value $0.001; authorized
1,650,000 shares: issued 1,121,655 shares at
April 30, 2000 and 1,117,519 at July 31, 1999 1,000 1,000
Additional paid-in capital 11,060,000 11,060,000
Treasury stock, at cost (22,560 common shares) (157,000) (157,000)
Accumulated earnings (deficit) 820,000 (436,000)
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Total shareholders' equity 11,724,000 10,468,000
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$ 16,179,000 $ 13,121,000
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The accompanying notes are an integral part of these statements
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
For the three months and nine months ended April 30,
(Three months ended) (Nine months ended)
2000 1999 2000 1999
----------- ----------- ------------ ------------
Net revenues $ 5,356,000 $ 4,068,000 $ 13,846,000 $ 11,487,000
Costs and expenses:
Cost of products sold 2,923,000 2,218,000 7,724,000 6,233,000
Selling, general and
administrative 1,443,000 1,315,000 4,103,000 3,688,000
Research and development 201,000 199,000 631,000 530,000
Interest expense 34,000 21,000 58,000 37,000
----------- ----------- ------------ ------------
4,601,000 3,753,000 12,516,000 10,488,000
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Earnings before income tax
expense 755,000 315,000 1,330,000 999,000
Income tax expense 17,000 12,000 74,000 74,000
NET EARNINGS $ 738,000 $ 303,000 $ 1,256,000 $ 925,000
=========== =========== ============ ============
Earnings per common share - basic $ 0.66 $ 0.32 $ 1.12 $ 0.83
=========== =========== ============ ============
Earnings per common share -
assuming dilution $ 0.57 $ 0.27 $ 0.97 $ 0.72
=========== =========== ============ ============
The accompanying notes are an integral part of these statements
4
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended April 30,
2000 1999
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Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 1,256,000 $ 925,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 173,000 179,000
Amortization of leasehold interest 391,000 382,000
Changes in assets and liabilities:
Accounts receivable (199,000) (296,000)
Related party receivable (36,000) 41,000
Inventories (765,000) (601,000)
Other current assets 92,000 23,000
Accounts payable (197,000) 153,000
Accrued liabilities (554,000) (586,000)
Income taxes payable 17,000 70,000
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Total adjustments (1,078,000) (635,000)
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Net cash provided by
operating activities 178,000 290,000
Cash flows from investing activities
Purchase of property and equipment (3,409,000) (541,000)
Purchase of marketable securities (136,000) (9,000)
Proceeds from maturities of marketable securities 200,000 128,000
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Net cash used in investing activities (3,345,000) (422,000)
Cash flows from financing activities
Principal payments on long-term obligations (5,000) (2,000)
Principal payments on capital lease obligations (31,000) (5,000)
Principal payments on note payable to shareholder - (3,000)
Proceeds from capital lease 72,000 -
Net change in line of credit 200,000 (4,000)
Cash received from issuance of long-term debt 2,300,000 6,000
Cash received from issuance of common stock - -
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Net cash provided by (used in) financing activities 2,536,000 (8,000)
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(Continued)
Net decrease in cash and cash equivalents (631,000) (140,000)
Cash and cash equivalents at beginning of period 1,175,000 989,000
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Cash and cash equivalents at end of period $ 544,000 $ 849,000
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Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the quarter ended April 30, 2000 for
Interest $ 34,000 $ 21,000
Income taxes $ - $ 31,000
The accompanying notes are an integral part of these statements
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Lifschultz Industries, Inc. and Subsidiaries
Notes to Interim Consolidated 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. The consolidated balance sheet at July 31, 1999, was
extracted from the Company's audited consolidated financial statements contained
in the Company's 1999 Form 10-KSB, and does not include all disclosures required
by generally accepted accounting principles for annual consolidated financial
statements.
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.
Note 3
- ------
Basic earnings per common share are based on the weighted-average
number of shares outstanding during each period. Diluted earnings per common
share are based on shares outstanding (computed as under basic) and potentially
dilutive common shares. Potential common shares included in the dilutive
earnings per share calculation included stock options granted and convertible
preferred stock. For the three and nine month periods presented in the
consolidated statement of earnings, the weighted-average number of shares are as
follows:
Basic Assuming Dilution
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Three months ended April 30, 1999 1,117,519 1,282,586
Nine months ended April 30, 1999 1,117,519 1,282,586
Three months ended April 30, 2000 1,121,655 1,292,543
Nine Months ended April 30, 2000 1,120,273 1,292,543
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
General
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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 nine months ended April 30, 2000 were
$13,846,000 versus $11,487,000 for the same period last year, a 20% increase.
Total revenues for the three months ended April 30, 2000 were $5,356,000 versus
$4,068,000 for the same period last year, a 32% increase. 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.
Revenues for Hart Scientific for the current nine-month period were
$13,843,000 versus $11,482,000 for the same period last year, a 20% increase.
(Figures given for Hart Scientific include CSC). Hart Scientific revenues for
the current three-month period were $5,353,000 versus $4,068,000 for the same
period last year, a 32% increase.
Domestic product sales for the current three-month period were
$3,680,000 versus $2,978,000 for the same period last year. Sales to the Far
East grew from $341,000 in the third quarter of fiscal year 1999 to $509,000 in
the current third quarter. European sales grew from $408,000 in the third
quarter of fiscal year 1999 to $590,000 in the current third quarter.
General and administrative costs for the current nine-month period were
$2,691,000 versus $2,707,000 for the same period last year. The expenses for the
current period included depreciation by Fast Freight of its New York leasehold
($390,000 in the current nine-month period). Administrative costs at Lifschultz
Fast Freight and Lifschultz Industries reduced consolidated operating profits
during the current period.
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Marketing and sales expenses were $1,400,000 for the current nine-month
period and $436,000 for the current three-month period. Last year such expenses
were $974,000 for the nine-month period and $328,000 for the three-month period.
For the current nine months ended April 30, 2000, marketing and sales expenses
were 10% of Hart revenues, versus 8.5% for the same period last year.
Consolidated net income for the nine months ended April 30, 2000 was
$1,256,000 versus $925,000 for the same period last year, a 36% increase. Net
income for the current nine-month period at Hart Scientific was $1,649,000
versus $1,253,000 for the same period last fiscal year, a 32% increase.
Consolidated net income for the current three-month period was $738,000
compared to $303,000 during the same three-month period last year, a 143%
increase. Net income for the current three-month period at Hart Scientific was
$908,000 versus $425,000 for the same period last fiscal year, a 114% increase.
Management believes that the increase in net income for the current period was a
result of the increase in revenues, changes in product mix, and positive
management of costs during the period.
As discussed previously by the Company, its quarterly results
fluctuate. However, the long-term historical growth in sales and profits for the
Company is demonstrated by comparing this year's sales and profits to the 1990
revenues of $1,904,000 and profit of $11,000.
Financial Condition and Liquidity
- ---------------------------------
The company's current ratio at April 30, 2000 is 4.42 versus 3.50 at
July 31, 1999. The current ratio has improved from .49 on July 31, 1993 to 4.42
on April 30, 2000. As of April 30, 2000, Hart Scientific had approximately
$300,000 available under its bank line of credit if such funds are required.
Hart Scientific recently completed the purchase of its facilities in
American Fork, Utah. The purchase price was approximately $2,430,000, of which
$2,300,000 was financed with a 20-year mortgage.
The Company anticipates that cash generated from operations and
available borrowings will be sufficient to fund operations through the next
fiscal year.
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
9
risks and uncertainties, including those discussed below, that could cause
actual results to differ materially from those projected. All of these
forward-looking statements are based on estimates and assumptions made by
management of the Company, which 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 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:
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, 1991 Form 10-K
Series A Convertible Preferred Page 94
Stock (as amended)
4.02* Certificate of Designation, 1994 Form 10-K
Series E Convertible Preferred Exhibit 4.05
Stock
27.1 Financial Data Schedule
10
* 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
April 30, 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 June 13, 2000 By: /s/DENNIS R. HUNTER
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Dennis R. Hunter
President and Chief Financial Officer
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