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, 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
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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 8, 2000
is 1,128,476 shares.
1
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
April 30, 2001 and July 31, 2000
ASSETS
30-Apr-01 31-Jul-00
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CURRENT ASSETS
Cash and cash equivalents $ 873,000 $ 888,000
Marketable securities 1,488,000 1,143,000
Trade accounts receivable, net 3,219,000 3,213,000
Related party receivables 49,000 89,000
Deferred income taxes 166,000 168,000
Inventories 5,833,000 4,558,000
Other current assets 101,000 182,000
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Total current assets 11,729,000 10,241,000
PROPERTY HELD FOR LEASE, NET 664,000 1,076,000
PROPERTY AND EQUIPMENT, NET 3,791,000 3,442,000
LAND 560,000 560,000
OTHER ASSETS, NET 382,000 483,000
DEFERRED INCOME TAXES 1,290,000 1,815,000
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$ 18,416,000 $ 17,617,000
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The accompanying notes are an integral part of these statements
2
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
April 30, 2001 and July 31, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
31-Apr-01 31-Jul-00
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CURRENT LIABILITIES
Notes payable to banks $ 350,000 $ 150,000
Trade accounts payable 763,000 431,000
Income taxes payable 80,000 38,000
Accrued liabilities 1,300,000 1,969,000
Current maturities of capital lease obligations 61,000 55,000
Current maturities of long-term obligation 49,000 48,000
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Total current liabilities 2,603,000 2,691,000
LONG-TERM OBLIGATION, less current maturities 2,212,000 2,245,000
CAPITAL LEASE OBLIGATIONS, less current maturities 84,000 105,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Convertible preferred stock, par value $0.01;
authorized 100,000 shares:
Series A; issued and outstanding 5,200 shares - -
Series E; issued and outstanding 552 shares - -
Common stock, par value $0.001; authorized 1,650,000
shares: issued and outstanding 1,121,655 shares 1,000 1,000
Additional paid-in capital 11,060,000 11,060,000
Treasury stock, at cost (20,481 common shares) (157,000) (157,000)
Retained earnings 2,613,000 1,672,000
Total shareholders' equity 13,517,000 12,576,000
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$ 18,416,000 $ 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 nine months ended April 30,
(Three months ended) (Nine months ended)
2001 2000 2001 2000
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Net revenues $ 5,495,000 $ 5,356,000 $ 15,447,000 $ 13,846,000
Costs and expenses:
Cost of products sold 2,924,000 2,923,000 8,442,000 7,724,000
Selling, general and
administrative 1,734,000 1,443,000 4,591,000 4,103,000
Research and development 171,000 201,000 657,000 631,000
Interest expense 61,000 34,000 196,000 58,000
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4,890,000 4,601,000 13,886,000 12,516,000
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Earnings before income taxes 605,000 755,000 1,561,000 1,330,000
Income tax expense 224,000 17,000 620,000 74,000
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NET EARNINGS $ 381,000 $ 738,000 $ 941,000 $ 1,256,000
============ ============ ============ ============
Net earnings per
common share - basic $ 0.34 $ 0.66 $ 0.84 $ 1.12
============ ============ ============ ============
Net earnings per
common share - diluted $ 0.30 $ 0.57 $ 0.73 $ 0.97
============ ============ ============ ============
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,
2001 2000
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Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 941,000 $ 1,256,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 121,000 173,000
Amortization of leasehold interest 412,000 391,000
Changes in assets and liabilities:
Trade accounts receivable (6,000) (199,000)
Related party receivables 40,000 (36,000)
Inventories (1,275,000) (765,000)
Deferred income taxes 527,000 -
Other current assets 182,000 92,000
Trade accounts payable 332,000 (197,000)
Accrued liabilities (669,000) (554,000)
Income taxes payable 42,000 17,000
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Total adjustments (294,000) (1,078,000)
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Net cash provided by operating activities 647,000 178,000
Cash flows from investing activities
Purchase of property and equipment (470,000) (3,409,000)
Purchase of marketable securities (1,095,000) (136,000)
Proceeds from maturities of marketable securities 750,000 200,000
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Net cash used in investing activities (815,000) (3,345,000)
Cash flows from financing activities
Principal payments on long-term obligations (33,000) (5,000)
Principal payments on capital lease obligations (36,000) (31,000)
Proceeds from capital lease 22,000 72,000
Net change in line of credit 200,000 200,000
Cash received from issuance of long-term debt - 2,300,000
Cash received from issuance of common stock - -
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Net cash provided by (used in) financing activities 153,000 2,536,000
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the nine months ended April 30,
Net decrease in cash and cash equivalents (15,000) (631,000)
Cash and cash equivalents at beginning of period 888,000 1,175,000
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Cash and cash equivalents at end of period $ 873,000 $ 544,000
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Supplemental disclosures of cash flow information
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Cash paid during the quarter ended April 30, 2000 for
Interest $ 61,000 $ 34,000
Income taxes 40,000 -
The accompanying notes are an integral part of these statements
6
Lifschultz Industries, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
(unaudited)
Note 1
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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
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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
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Three Month Period
Weighted Average Outstanding Shares 1,127,326 1,127,655
Weighted Average Outstanding Dilutive Shares 1,289,360 1,292,543
Nine Month Period
Weighted Average Outstanding Shares 1,123,545 1,120,274
Weighted Average Outstanding Dilutive Shares 1,291,482 1,292,543
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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"). 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. See also Item 5 below.
Results of Operations:
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Total revenues for the nine months ended April 30, 2001 were
$15,447,000 versus $13,846,000 for the same period last year, a 12% increase.
Total revenues for the three months ended April 30, 2001 were $5,495,000 versus
$5,356,000 for the same period last year, a 3% increase.
Revenues for Hart Scientific for the current nine-month period were
$15,440,000 versus $13,843,000 for the same period last year, a 12% increase.
(Figures given for Hart Scientific include CSC). Hart Scientific revenues for
the current three-month period were $5,492,000 versus $5,353,000 for the same
period last year, a 3% increase.
Domestic product sales for the current three-month period were
$3,697,000 versus $3,680,000 for the same period last year. Sales to the Far
East grew from $509,000 in the third quarter of fiscal year 2000 to $712,000 in
the current third quarter. European sales grew from $590,000 in the third
quarter of fiscal year 2000 to $744,000 in the current third quarter.
General and administrative costs for the current nine-month period were
$3,174,000 versus $2,691,000 for the same period last year. The expenses for the
current period included depreciation by Fast Freight of its New York leasehold
($412,000 in the current nine-month period). Administrative costs at Lifschultz
Fast Freight and Lifschultz Industries reduced consolidated operating profits
during the current period.
Marketing and sales expenses were $1,402,000 for the current nine-month
period and $496,000 for the current three-month period. Last year such expenses
were $1,400,000 for the nine-month period and $436,000 for the three-month
period. For the current nine months ended April 30, 2001, marketing and sales
expenses were 9% of Hart revenues, versus 10% for the same period last year.
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Consolidated earnings before taxes for the nine months ended April 30,
2001, was $1,561,000 versus $1,330,000 for the same period in the previous year,
a 17% increase. Consolidated net earnings for the nine months ended April 30,
2001 was $941,000 versus $1,256,000 for the same period last year, a 25%
decrease. Net earnings for the current nine- month period at Hart Scientific was
$1,314,000 versus $1,649,000 for the same period last fiscal year, a 20%
decrease.
Consolidated earnings before income taxes for the current three month
period was $605,000 versus $755,000 for the same period last year a 20%
decrease. Consolidated net earnings for the current three-month period was
$381,000 compared to $738,000 during the same three-month period last year, a
48% decrease. Net earnings for the current three-month period at Hart Scientific
was $510,000 versus $908,000 for the same period last fiscal year, a 44%
decrease.
The increase in period pre-tax earnings versus a decrease in after tax
(net) earnings is in part due to the Company's accounting treatment of its loss
carryforwards. In previous reporting periods, the Company maintained a valuation
allowance against its deferred tax asset resulting from net operating loss carry
forwards. During the year ended July 31, 2000, the Company determined that the
ultimate utilization of its net operating loss carry forwards was "more likely
than not" and removed the valuation allowance, thus recognizing a deferred tax
asset. In future periods, as the Company utilizes its net operating loss carry
forwards to reduce its current tax liability for income tax purposes, the asset
will be reduced with no related further benefit recorded as a reduction of its
income tax provision on current earnings. Income tax expense for the current
period, therefore, reflects the estimated income tax provision on current
earnings for financial reporting purposes with no further reduction for net
operating loss carry forwards.
The Company's decrease in net income occurred also due its accounting
treatment of certain compensation expenses. This year the Company began accruing
certain variable compensation expenses on a monthly basis, which expenses were
accrued at the end of the fiscal year in prior years. As a result, there are
$401,000 in expenses accrued to date this fiscal year that were not so accrued
last fiscal year. If such expenses were handled as they were last year, the
pretax income for the current quarter would be $1,006,000, and the pretax income
for the nine month period would be $1,962,000.
Financial Condition and Liquidity
- ---------------------------------
The company's current ratio at April 30, 2001 is 4.51 versus 3.81 at
July 31, 2000. The Company anticipates that cash generated from operations and
available borrowings will be sufficient to fund operations through the next
fiscal year.
As of April 30, 2001, Hart Scientific had approximately $300,000
available under its bank line of credit if such funds are required. CSC had
approximately $350,000 available under its bank line of credit if such funds are
required.
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Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
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Securities Litigation Reform Act of 1995.
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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. 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.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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On May 15, 2001, the Company entered into an Agreement and Plan of
Merger with Saltwater Acquisition Corp. and Danaher Corporation, contemplating a
transaction in which the Company will be merged with Saltwater Acquisition Corp.
and become an indirect, wholly- owned subsidiary of Danaher Corporation. The
terms and conditions of the acquisition and the related tender offer have been
described in the Company's Schedule 14D-9, and Danaher Corporation's and
Saltwater Acquisition Corp.'s Schedule TO, filed with the Securities and
Exchange Commission on May 22, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
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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, 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
* 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, 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 June 13, 2001 By: /s/DENNIS R. HUNTER
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Dennis R. Hunter
President and Chief Financial
Officer
11