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, 2001
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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
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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,
2001 is 1,121,655 shares.
1
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
January 31, 2001 and July 31, 2000
ASSETS
31-Jan-01 31-Jul-00
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CURRENT ASSETS
Cash and cash equivalents $ 799,000 $ 888,000
Marketable securities 1,372,000 1,143,000
Trade accounts receivable, net 2,840,000 3,213,000
Related party receivable 71,000 89,000
Deferred income taxes 168,000 168,000
Inventories 5,513,000 4,558,000
Other current assets 40,000 182,000
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Total current assets 10,803,000 10,241,000
PROPERTY HELD FOR LEASE, NET 799,000 1,076,000
PROPERTY AND EQUIPMENT, NET 3,612,000 3,442,000
LAND 560,000 560,000
OTHER ASSETS, NET 483,000 483,000
DEFERRED INCOME TAXES 1,481,000 1,815,000
$ 17,738,000 $ 17,617,000
============ =============
The accompanying notes are an integral part of these statements.
2
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
January 31, 2001 and July 31, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
31-Jan-01 31-Jul-00
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CURRENT LIABILITIES
Notes payable to banks $ 30,000 $ 150,000
Trade accounts payable 791,000 431,000
Income taxes payable 73,000 38,000
Accrued liabilities 1,301,000 1,969,000
Current maturities of capital lease obligations 57,000 55,000
Current maturities of long-term obligation 48,000 48,000
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Total current liabilities 2,300,000 2,691,000
LONG-TERM OBLIGATION, less current maturities 2,219,000 2,245,000
CAPITAL LEASE OBLIGATIONS, less current maturities 83,000 105,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Convertible preferred stock, par value $0.01;
authorized 100,000 shares
Series A; issued and outstanding 5,200 - -
Series E; issued and outstanding 552 - -
Common stock, par value $0.001; authorized
1,650,000 shares: issued 1,121,655 shares 1,000 1,000
Additional paid-in capital 11,060,000 11,060,000
Treasury stock, at cost (22,560 common shares) (157,000) (157,000)
Retained earnings 2,232,000 1,672,000
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Total shareholders' equity 13,136,000 12,567,000
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$ 17,738,000 $ 17,617,000
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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)
2001 2000 2001 2000
-------------- -------------- -------------- --------------
Net Revenues $ 5,324,000 $ 4,620,000 $ 9,953,000 $ 8,491,000
Cost and expenses:
Cost of products sold 2,829,000 2,533,000 5,518,000 4,801,000
Selling, general and 1,486,000 1,506,000 2,858,000 2,661,000
administrative
Research and development 292,000 235,000 486,000 430,000
Interest expense 66,000 14,000 135,000 24,000
----------- ----------- ----------- -----------
4,673,000 4,288,000 8,997,000 7,916,000
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Earnings before income taxes 651,000 332,000 956,000 575,000
Income tax expense 275,000 28,000 396,000 57,000
NET EARNINGS $ 376,000 $ 304,000 $ 560,000 $ 518,000
=========== =========== =========== ===========
Net earnings per common
share - basic $ 0.34 $ 0.27 $ 0.50 $ 0.46
=========== =========== =========== ===========
Net earnings per common
share - diluted $ 0.29 $ 0.23 $ 0.43 $ 0.40
=========== =========== =========== ===========
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,
2001 2000
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Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net Earnings $ 560,000 $ 518,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 260,000 71,000
Amortization of leasehold interest 277,000 259,000
Changes in assets and liabilities:
Trade accounts receivable 373,000 536,000
Related party receivables 18,000 (4,000)
Inventories (955,000) (947,000)
Deferred income taxes 334,000 -
Other current assets 142,000 105,000
Trade accounts payable 360,000 121,000
Accrued liabilities (668,000) (410,000)
Income taxes payable 35,000 (37,000)
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Total Adjustments 176,000 (306,000)
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Net cash provided by
operating activities 736,000 212,000
Cash flows from investing activities
Purchase of property and equipment (430,000) (987,000)
Purchase of marketable securities (679,000) (126,000)
Proceeds from maturities of marketable
securities 450,000 200,000
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Net cash used in investing activities (659,000) (913,000)
Cash flows from financing activities
Principal payments on long-term obligations (26,000) -
Principal payments on capital lease
obligations (20,000) (20,000)
Proceeds from Capital Lease - 72,000
Net change in note payable to bank (120,000) 470,000
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Net cash provided by (used in) financing activities (166,000) 522,000
5
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
(Unaudited)
For the six months ended January 31,
2001 2000
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Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period (89,000) (179,000)
Cash and cash equivalents at end of period 888,000 1,175,000
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$ 799,000 $ 996,000
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Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the quarter for
Interest $ 135,000 $ 10,000
Income Taxes 95,000 $ 128,000
The accompanying notes are an integral part of these statements.
6
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, 2000 and the notes thereto included in
the Company's Form 10-KSB.
Note 2
- ------
Certain items from fiscal year 2000 were reclassified to be consistent with the
2001 statement of earnings presentation with no effect on net income.
Note 3
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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 periods presented in the consolidated statement of earnings, the
weighted-average number of shares are as follows:
2001 2000
---- ----
Three Month Period
Weighted Average Outstanding Shares 1,121,655 1,121,655
Weighted Average Outstanding Dilutive Shares 1,292,543 1,292,543
Six Month Period
Weighted Average Outstanding Shares 1,121,655 1,117,519
Weighted Average Outstanding Dilutive Shares 1,292,543 1,290,606
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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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, 2000.
Results of Operations:
- ---------------------
Total revenues for the Company for the current six month period ended January
31, 2001, increased 17% to $9,953,000 versus $8,491,000 for the same period last
fiscal year. Total revenues for the current three month period ended January 31,
2001, increased 15% to $5,324,000 versus $4,620,000 for the same period last
fiscal year. Total revenues for Hart Scientific (including CSC revenues) during
the current six month period were $9,949,000 versus $8,490,000 for the same
period last fiscal year, a 17% increase. Hart Scientific revenues for the
current three month period were $5,324,000 versus $4,623,000 for the last fiscal
year, a 15% increase. The Company attributes these increases primarily to
continued growth in product sales.
Hart Scientific's gross margins were 45% for the current six month period versus
43% for the same period last year. Management believes the effects of a recent
price increase and favorable product mix account for the improved margins.
Hart Scientific's general and administrative costs for the current six month
period were $1,699,000 versus $1,470,000 for the same period last year. General
and administrative costs during the current three month period for Hart
Scientific were $885,000 versus $909,000 for the same period last year.
Research and development costs for the current six month period increased to
$486,000 from $430,000. Research and development costs for the current three
month period increased to $292,000 from $235,000 in the same period last year.
Hart Scientific decreased its marketing expenses during the current three month
period to $473,000 versus $476,000 for the same period last year. Its marketing
and sales expenses for the current six month period were $906,000 versus
$965,000 for the same period last year.
8
Net consolidated earnings for the current three month period were $376,000
versus $304,000 for the same period last year, a 24% increase. Net consolidated
earnings for the current six month period were $560,000 versus $518,000 for the
same period last fiscal year, an 8% increase. Hart Scientific had net earnings
of $498,000 for the current three month period versus $424,000 for the same
period last year, a 17% increase. Hart Scientific had net earnings for the
current six month period of $804,000 versus $741,000 for the same period last
year, a 9% increase.
Financial Condition and Liquidity
- ---------------------------------
The Company's current ratio at January 31, 2001 is 4.70 to 1 versus 3.81 at July
31, 2000. Management expects that internal operating cash flow from Hart
Scientific will be sufficient to meet the cash needs of the Company during the
2001 fiscal year.
Total current assets increased by $562,000 during the current six month period
while current liabilities decreased by $391,000 during the same period. Cash and
cash equivalents decreased by $89,000 in the current six month period to
$799,000. As of January 31, 2001, Hart Scientific also had approximately
$650,000 available under its bank line of credit if such funds are required.
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
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, 2000, for
additional cautionary statements.
9
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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At the Company's last annual meeting, held December 14, 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 832,785 50 294
David K. Lifschultz 780,315 52,520 294
Dennis R. Hunter 832,815 20 294
Joseph C. Fatony 831,295 1,440 294
James E. Solomon 832,815 50 294
Additionally, Grant Thornton LLP was affirmed at the meeting as the Company's
independent certified public accountants for the 2000-01 fiscal year with the
following vote: 832,721 for, 192 against, and 216 abstain.
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, 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
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
January 31, 2001.
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, 2001 By: /s/DENNIS R. HUNTER
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Dennis R. Hunter
President and Chief
11