FORM 10-KSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended July 31, 1996
-----------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ---------------- to ----------------
Commission File Number 33-17286
LIFSCHULTZ INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0448118
- --------------------------------- -----------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
641 WEST 59TH STREET, NEW YORK, NY 10019
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
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Registrant's telephone number, including area code: (212) 397-7788
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
COMMON STOCK, NASDAQ
PAR VALUE $.001 PER SHARE
Exhibit Index is located on pages 7-8 of this document.
Securities registered pursuant to Section 12(g) of the Act:
NOT APPLICABLE
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
YES X NO X
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.
[ ]
State the issuer's revenues for its most recent fiscal year: $11,292,000.
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days (See definition of affiliate in Rule 12b-2 of the
Exchange Act): $5,331,587 as of October 24, 1996 (assumes full conversion of
all preferred shares into common shares).
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: 55,569,495 shares of Common
Stock, 5,200 shares of Series A Convertible Preferred Stock (convertible into
52,000 shares of common stock), and 21,231 shares of Series E Convertible
Preferred Stock (convertible into 212,310 shares of common stock), all as of
October 24, 1996.
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc)
into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities
Act"):
1. The Annual Report to Shareholders for fiscal year ended July 31,
1996, is incorporated into Parts I and II.
2. The Proxy Statement provided to shareholders in conjunction with
election of directors and approval of appointment of independent
certified public accountants at the Company's 1996 Annual Meeting
of Shareholders to be held December 10, 1996, is incorporated into
Part III.
[THE INFORMATION CALLED FOR IN PARTS I AND II IS INCORPORATED BY REFERENCE
FROM THE REGISTRANT'S 1996 ANNUAL REPORT TO SHAREHOLDERS FURNISHED TO THE
COMMISSION PURSUANT TO RULE 14A-3(B).]
PART I
Item 1. Description of Business; see 1996 Annual Report section
entitled "Description of Business".
Item 2. Description of Properties; see 1996 Annual Report subsections
entitled "Hart Scientific, Inc. - Manufacturing and Operations",
Lifschultz Fast Freight, Inc. - Real Estate Assets", and
"Office Space".
Item 3. Legal Proceedings; see 1996 Annual Report Section entitled "Legal
Proceedings".
Item 4. Submission of Matters to a Vote of Security Holders (not
applicable).
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters; see 1996 Annual Report section "Market for Registrant's
Common Stock and "Related Stockholder Matters".
Item 6. Management's Discussion and Analysis or Plan of Operation; see
1996 Annual Report section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Item 7. Financial Statements; see attachment to 1996 Annual Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure (not applicable).
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[THE INFORMATION CALLED FOR IN PART III IS INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S PROXY STATEMENT, TO BE FILED IN ACCORDANCE WITH SCHEDULE 14A IN
CONNECTION WITH THE ELECTION OF DIRECTORS AND APPOINTMENT OF AUDITORS AT THE
COMPANY'S 1996 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 10, 1996.]
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act; see Proxy
Statement sections entitled "Directors and Executive Officers of
the Company", "Significant Employees", and "Section 16(a)
Beneficial Ownership Reporting Compliance".
Item 10. Executive Compensation; see Proxy Statement sections entitled
"Executive Compensation", "Director Compensation", and "Employment
Agreements".
Item 11. Security Ownership of Certain Beneficial Owners and
Management; see Proxy Statement sections entitled "Security
Ownership of Certain Beneficial Owners and Management" and
"Certain Control Arrangements".
Item 12. Certain Relationships and Related Transactions; see Proxy
Statement section entitled "Certain Relationships and Related
Transactions".
Item 13. Exhibits and Reports on Form 8-K.
(a) The following Exhibits are attached hereto or incorporated
herein by reference as indicated in the table below:
Exhibit Location or
No. Title of Document Filing
- ------- ------------------ ----------
3.01* Certificate of Incorporation Form 10-K (1991)
(amended and restated)
3.02* Bylaws (amended) Form 10-K (1991)
4.01* Certificate of Designations, Series A Form 10-K (1991)
Convertible Preferred Stock (as amended)
4.02* Certificate of Designations, Series B Form 10-K (1991)
Convertible Preferred Stock (as amended)
4.03* Certificate of Designations, Series C 10% Form 10-K (1991)
Cumulative Non-Voting Preferred Stock
4.04* Certificate of Designations, Series D 8% Form 10-K (1991)
Cumulative Non-Voting Preferred Stock
4.05* Certificate of Designations, Series E Form 10-KSB (1994)
Convertible Preferred Stock
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4.06* Certificate of Increase to Certificate of Form 10-KSB (1995)
Designations, Series E Convertible Preferred
Stock
10.01* Class C Warrant Agreement Form 10-K (1991)
10.02* Shareholder Voting Agreement Form 8-K (1/21/91)
(Hart/Lifschultz)
10.03* Grant of Right of First Refusal to Purchase Form 8-K (1/21/91)
Hart Scientific, Inc.
10.04*# Employment Agreements for Dennis Hunter, Form 10-KSB (1995)
James Triplett and Randy Owen
10.05* Stock Purchase Agreement (with Lease Form 10-K (1991)
Amendment attached as Exhibit A)
(Lifschultz/Penn Yards)
10.06* Shareholder Voting Agreement Form 10-K (1991)
(Lifschultz/Penn Yards)
10.07*# Employee Stock Option Agreement; Form 10-KSB (1995)
Standard Form
10.08*# 1989 Stock Option Agreement for Form 10-KSB (1995)
Dennis Hunter
10.09* Lease of Premises for Calorimetry Form 10-KSB (1995)
Sciences Corporation
10.10* Lease of Premises for Hart Scientific, Inc. Form 10-KSB (1995)
10.11 Amendment to Lease of Premises for Hart Form 10-KSB (current)
Scientific, Inc.
10.12*# Hart Scientific, Inc. Executive Bonus Plan Form 10-KSB (1995)
10.13*# Hart Scientific, Inc. 401(k) Plan Form 10-KSB (1995)
11.01 Statement Re Computation of Per Share Form 10-KSB (current)
Earnings
13.01 1996 Annual Report to Shareholders Form 10-KSB (current)
22.01 List of Subsidiaries of the Registrant Form 10-KSB (current)
- -----------------
* Denotes exhibits specifically incorporated in this Annual Report on Form
10-KSB by reference to other filings pursuant to the provisions of Rule
12b-32 under the Securities Exchange Act of 1934.
# Identifies management or compensatory plans, contracts, or arrangements.
(b) Reports on Form 8-K.
None.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LIFSCHULTZ INDUSTRIES, INC.
Date October 29, 1996
---------------------- By DAVID K. LIFSCHULTZ
-----------------------------------
David K. Lifschultz
Chief Executive Officer
POWER OF ATTORNEY
-----------------
Know all men by these presents, that each person whose signature
appears below constitutes and appoints each of David K. Lifschultz and
Dennis R. Hunter, jointly and severally, his true and lawful attorney in fact
and agent, with full power of substitution for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this
report on Form 10-KSB and to file the same, with all exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorney
in fact or his substitute or substitutes may do or cause to be done by virtue
hereof.
SIGNATURE TITLE DATE
--------- ----- ----
DAVID K. LIFSCHULTZ Chairman, Chief October 29, 1996
- -------------------------- Executive Officer
David K. Lifschultz
DENNIS R. HUNTER President, Director and October 29, 1996
- --------------------------- Chief Financial Officer
Dennis R. Hunter
SYDNEY B. LIFSCHULTZ Director October 29, 1996
- ---------------------------
Sidney B. Lifschultz
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EXHIBIT INDEX
Exhibit Location or
No. Title of Document Page No. Filing
- ------- ----------------- -------- -----------
3.01* Certificate of Incorporation 61 Form 10-K (1991)
(amended and restated)
3.02* Bylaws (amended) 74 Form 10-K (1991)
4.01* Certificate of Designations, Series A 94 Form 10-K (1991)
Convertible Preferred Stock (as amended)
4.02* Certificate of Designations, Series B 103 Form 10-K (1991)
Convertible Preferred Stock (as amended)
4.03* Certificate of Designations, Series C 10% 110 Form 10-K (1991)
Cumulative Non-Voting Preferred Stock
4.04* Certificate of Designations, Series D 8% 116 Form 10-K (1991)
Cumulative Non-Voting Preferred Stock
4.05* Certificate of Designations, Series E 9 Form 10-KSB (1994)
Convertible Preferred Stock
4.06* Certificate of Increase to Certificate of 9 Form 10-KSB (1995)
Designations, Series E Convertible Preferred
Stock
10.01* Class C Warrant Agreement 122 Form 10-K (1991)
10.02* Shareholder Voting Agreement --- Form 8-K (1/21/91)
(Hart/Lifschultz)
10.03* Grant of Right of First Refusal to --- Form 8-K (1/21/91)
Purchase Hart Scientific, Inc.
10.04*# Employment Agreements for Dennis Hunter, 11 Form 10-KSB (1995)
James Triplett and Randy Owen
10.05* Stock Purchase Agreement (with Lease 143 Form 10-K (1991)
Amendment attached as Exhibit A)
(Lifschultz/Penn Yards)
10.06* Shareholder Voting Agreement 180 Form 10-K (1991)
(Lifschultz/Penn Yards)
10.07*# Employee Stock Option Agreement; 42 Form 10-KSB (1995)
Standard Form
10.08*# 1989 Stock Option Agreement for 47 Form 10-KSB (1995)
Dennis Hunter
10.09* Lease of Premises for Calorimetry 53 Form 10-KSB (1995)
Sciences, Inc.
10.10* Lease of Premises for Hart Scientific, 62 Form 10-KSB (1995)
Inc.
10.11* Amendment to Lease of Premises for Hart 78 Form 10-KSB (current)
Scientific, Inc.
10.12*# Hart Scientific, Inc. Executive Bonus 89 Form 10-KSB (1995)
Plan
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10.13*# Hart Scientific, Inc. 401(k) Plan 90 Form 10-KSB (1995)
11.01 Statement Re Computation of Per Share
Earnings 10 Form 10-KSB (current)
13.01 1996 Annual Report to Shareholders 11 Form 10-KSB (current)
22.01 List of Subsidiaries of the Registrant 48 Form 10-KSB (current)
- -----------------
* Denotes exhibits specifically incorporated in this Annual Report on Form
10-KSB by reference to other filings pursuant to the provisions of Rule 12b-32
under the Securities Exchange Act of 1934.
# Identifies management or compensatory plans, contracts or arrangements.
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EXHIBIT 10.11
AMENDMENT TO LEASE FOR PREMISES OF
HART SCIENTIFIC, INC.
HART SCIENTIFIC
- ----------
December 8, 1995
Mr. Steven A. Barnes
P.O. Box 245
West Jordan, Utah 84084
Dear Steve:
Our original lease rate on the new building per our lease dated August
23, 1995 is $11,333 per month. Based upon the fact that you have made some
changes to the building including about $35,000 in heating and cooling
equipment for the lab, we agree to a final rent on the new building of
$13,000 per month.
All other terms and conditions of the lease will remain the same. We do
not agree to cover any additional costs except those covered by $13,000 per
month rent.
This letter shall serve as an addendum to the lease. If you accept
these terms and conditions, please sign this letter as owner and landlord.
Please return a copy to me.
Sincerely,
HART SCIENTIFIC STEVEN A. BARNES
By /s/ JAMES TRIPLETT By /S/ STEVEN BARNES
- ---------------------------- ------------------------------
Chief Executive Officer Owner and Landlord
Date: December 8, 1995 Date: December 8, 1995
---------------------- -------------------------
-----------------------------------
220 North 1300 West P.O. Box 435
Pleasant Grove, Utah 84062-0435
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EXHIBIT 11.01
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
Earnings Before Extraordinary* 719.000 = .01
-----------
Weighted average shares 59,114,000
-----------
Extraordinary item (less applicable
incomes taxes of $65,000)* 1,296,000 = .02
------------
Weighted average shares 59,114,000
------------
Net Earnings* 2,015,000 = .03
------------
Weighted average shares 59,114,000
------------
*No dividends were declared or paid in fiscal 1996
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LIFSCHULTZ INDUSTRIES, INC.
ANNUAL REPORT
1996
LIFSCHULTZ INDUSTRIES, INC.
641 West 59th Street
New York, NY 10019
October 29, 1996
Dear Shareholders:
Lifschultz Industries, Inc. and its subsidiaries face significant
challenges in the year ahead. The subsidiaries will need to continue to spend
substantial sums on research and development (they spent almost $700,000 in
fiscal 1996) to remain competitive in the marketplace. The subsidiaries
likely will need to increase spending in marketing to expand sales and reach
new customers, particularly in the international markets. Competition is
increasing in the subsidiaries' traditional instrumentation markets and they
will face established competitors as they expand their product lines into new
niche markets. General administrative expenses continue to grow for
operations in Utah due to the need for additional personnel and increases in
the compensation rates for qualified personnel in the Utah market.
The Company has also been informed by the National Association of
Securities Dealers ("NASD") that it is considering a new policy under which
companies whose stock trades on the NASDAQ system below $1 can no longer be
listed. If adopted, to remain listed on the NASDAQ system, the Company would
need to undertake a reverse stock split to raise its trading price above $1
per share. According to NASD sources, NASD will probably make a final
determination on the proposed new policy by the end of calendar 1996.
Regardless of such challenges, the Company's current status and outlook
are stronger than ever. Total revenues for the Company increased 21.5% to
$11,292,000, with over 95% of that revenue coming from its subsidiaries Hart
Scientific, Inc. and Calorimetry Sciences Corporation. Much of this growth was
from new product lines and increased revenues from international markets. Net
revenues from Hart Scientific and Calorimetry Sciences collectively rose 22%.
Earnings before extraordinary items at the Company level rose 50% to $719,000.
Additionally, the Company's current ratio continues to improve, moving to
2.06 as of July 31, 1996 versus 1.11 on July 31, 1995. The Company increased
its current assets by $1,300,000 to a total of $5,381,000, while reducing
current liabilities by over $1,000,000. While not currently shown as an asset
on the balance sheet, a tax loss carryforward of $9,859,000 should have a
substantial positive future impact if the Company continues to be profitable.
Overall, net worth of the Company jumped dramatically from $4,180,000 at the
end of fiscal 1995 to $6,236,000 at the end of fiscal 1996.
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In August 1996, Hart finally moved into its new office and manufacturing
facility, doubling its available space. The move should help Hart's
manufacturing productivity and give it room to expand without the concern of
relocating.
The Company's non-operating subsidiary, Lifschultz Fast Freight, Inc.
continues to improve its situation. The sole major asset held by Fast
Freight, subleases of a New York property, continues to produce a steady
revenue stream ($467,000 in fiscal 1996). Additionally, the level of external
(non-intercompany) debt carried by Fast Freight has been reduced further
through settlements and the issuance of stock in the Company. Such debt now
stands at $444,000, compared to $2,979,000 as of July 31, 1994 and $6,324,000
as of July 31, 1992. Fast Freight's current revenue stream will be used to
continue to reduce its external debt until such time as it can be used more
productively by assisting the growth of Hart and Calorimetry Sciences.
Measures of net worth per share and capital structure have also improved
for the Company. As of October 24, 1996, all of the holders of Series B
Preferred Common Stock and most Series E Preferred Stock holders have
converted their stock to common stock. Now only three holders of preferred
stock (one holding Series A and two holding Series E) remain outstanding.
With this simplified structure, the Company may be more attractive to new
investors. Additionally, the conversion of Series E Preferred Stock
eliminated over $5,600,000 in liquidation preference. Such elimination
improved the Company's common stock per share net worth when calculated to
reflect liquidation value. Using the Company's year-end figures, elimination
of the preference raises the common stock per share net worth from $0.020 per
share to $0.109 per share.
Overall, the Company has taken great steps forward in growing its
operations and revenues. Soon, we expect the Company to be able to focus all
of its efforts on growth, having finally eliminated its long-standing debt
burdens in Fast Freight. Management feels confident about the Company's
future.
Sincerely,
LIFSCHULTZ INDUSTRIES, INC.
David K. Lifschultz
Chairman and Chief Executive Officer
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LIFSCHULTZ INDUSTRIES, INC.
DESCRIPTION OF BUSINESS
OVERVIEW
Lifschultz Industries, Inc. (the "Company") is a public company engaged,
through its wholly-owned subsidiary, Hart Scientific, Inc. ("Hart"), and
Hart's wholly-owned subsidiary, Calorimetry Sciences Corporation ("CSC"), in
the development, manufacturing and marketing of scientific and industrial
instrumentation and instrument calibration equipment. The Company is also
involved in managing the activities of a nonoperating wholly-owned subsidiary,
Lifschultz Fast Freight, Inc. ("LFF"), which has as its principal remaining
asset a lease on certain real property in New York City. Hart was acquired by
the Company on June 3, 1988, while LFF was acquired by the Company on January
22, 1991. The Company's management anticipates that the Company's future sales
growth will come from growth in sales of present Hart and CSC product lines
and new products which they will introduce in the future. Long-term, the
Company's management anticipates that the proceeds from the subleasing of
LFF's New York City real estate asset will be used to reduce LFF obligations
and finance the growth of the Hart and CSC subsidiaries.
HISTORY
The Company was originally organized under another name pursuant to the
laws of Delaware on July 27, 1987 for the primary purpose of entering into a
business combination with a then-unknown entity. In February 1988, the
Company closed a public offering.
In June 1988, the Company acquired Hart, a Utah corporation formed on
August 6, 1984, as a wholly-owned subsidiary, and changed its own name to
Hart Technologies, Inc. At that time, the management of Hart assumed control
of the Company.
In January 1991, the Company acquired Lifschultz Fast Freight, Inc., a
Delaware corporation, which was originally founded as a Chicago
freight-hauling business in 1899. The Lifschultz family members who owned LFF
obtained approximately 70 percent of the voting stock of the Company as part
of the reorganization, in which LFF became a wholly-owned subsidiary of the
Company. At that time, Lifschultz family members David K. Lifschultz and
Sydney B. Lifschultz assumed two of the three seats on the Company's Board of
Directors and appointed David K. Lifschultz as Chairman and Chief Executive
Officer of the Company.
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During the Company's 1994 fiscal year, the management of Hart elected to
separate Hart's calorimetry division from its instrumentation business by
incorporating CSC, a Utah corporation, which is now a wholly-owned subsidiary
of Hart. Dennis R. Hunter, formerly Chairman of Hart, now serves as President
of CSC, and Edwin A. Lewis, formerly a Vice President of Hart, now serves as
Vice President and Secretary of CSC. Except as otherwise noted, the
discussion of Hart in the following paragraphs includes the business of CSC.
DEVELOPMENTS IN FISCAL 1996
Total revenues for the Company rose from $9,293,000 in fiscal 1995 to
$11,292,000 in fiscal 1996, an increase of 21.5%. While the Company suffered
a consolidated net loss of ($938,000) in fiscal 1994, it enjoyed consolidated
net earnings of $620,000 in fiscal 1995 and consolidated net earnings of
$2,015,000 in fiscal 1996. Most of the increase in net earnings was due to an
extraordinary gain of $1,296,000 from extinguishment of debt at LFF.
Nonetheless, earnings before extraordinary items at the Company level rose
50% to $719,000. The Company's Hart subsidiary has continued to expand sales
of its existing product lines and grew 22% during fiscal 1996. The Company's
LFF subsidiary continued to improve its overall financial position by
successfully negotiated additional reductions of its debt burden through
exchange of debt for the Company's Series E Preferred Stock and other
settlements.
The Company's subsidiaries are described in greater detail below.
HART SCIENTIFIC, INC. AND SUBSIDIARY
PRODUCTS AND MARKETS. Hart's instruments business strategy is to target
narrow market niches in temperature calibration equipment, build a
solution-oriented product for those niches, and capture a significant part of
the market for each such product category. Products for many different
markets are developed from similar base technologies that are
proprietary to Hart. Hart has products which are marketed to the battery
industry, calibration laboratories, the plastic container industry, the
automotive plastics industry, the medical research industry, pharmaceutical
companies, and the biotechnology industry. The management of Hart believes
that this strategy reduces risk and results in higher margins, lower
development costs, and substantially greater growth potential for Hart.
Products manufactured and marketed by Hart include biological scanning
calorimeters, heat conduction calorimeters, several specialty calorimeters,
ultra-stable constant temperature baths, microprocessor-based thermometers,
parison calorimeters, a plastics testing device, and various custom
instruments.
In fiscal 1995, CSC signed a strategic products agreement with Applied
Thermodynamics, which added two new calorimeter products to CSC's line. These
included a Nano Differential Scanning calorimeter, which began shipments in
fiscal year 1996, and a Jet Titration calorimeter, which is expected to begin
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shipping in fiscal year 1997. CSC also developed and introduced a Nano
Isothermal calorimeter during fiscal year 1996 to complement its existing
IMC line of calorimeter products.
CUSTOMER SERVICE AND SUPPORT. Most of Hart's products carry a standard
one year warranty and factory service guarantee. Customer service is
structured around an "800 number" toll-free line and in-factory service, with
on-site repair when necessary.
PRODUCT DEVELOPMENT. Research and product development expenditures as a
percentage of revenues have historically been relatively high at Hart. During
the fiscal year ended July 31, 1996, Hart spent approximately $694,000 on
Company-sponsored research and development activities, compared to $818,000 in
fiscal 1995.
MANUFACTURING AND OPERATIONS. Hart leases a manufacturing and office
facility in American Fork, Utah, while CSC leases a manufacturing and office
facility in Provo, Utah. Currently, Hart manufactures most of its own
instruments, but does sell some instruments manufactured by other companies,
sometimes under the Hart label.
INSURANCE. Hart presently carries property and casualty insurance on the
equipment used in its business. Some potential losses cannot be insured
against or cannot be insured against at reasonable premium rates. The Company
could be materially adversely affected if it or Hart were to incur an
uninsured or an underinsured loss.
SUPPLIERS. With the exception of proprietary software, some machined
parts, and product housing units, most of the products sold by Hart are
assembled from standard off-the-shelf items which are readily available from
suppliers. To date, Hart has not experienced any significant difficulty in
obtaining components. Hart employs a purchase order system for purchasing
supplies and components and has not found it necessary to enter into any
written supplier contracts.
CUSTOMERS. Hart's customers include research departments of
universities, governmental agencies, and industrial corporations. No customer
of Hart accounted for more than 10 percent of total revenues during fiscal
1996, and the loss of any single customer would not likely cause a material
adverse effect on either Hart or the Company.
PATENTS, COPYRIGHTS, AND TRADEMARKS. Hart does not currently have any
patents, copyrights, or trademarks for its products. CSC licenses some
patented product designs from Applied Thermodynamics and the John Hopkins
University.
SALES, DISTRIBUTION, AND MARKETING. Hart sells its specialized
instruments directly to customers through direct mailings, including a
catalog, ads in technical publications, and participation in trade shows.
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Hart is also exploring other distribution channels for its products,
particularly for the European market. CSC utilizes an exclusive distributer
in Japan for some of its calorimeter products.
COMPETITION. Hart's temperature instrumentation products compete with
similar products from companies such as Techne, Scientific Electronics, and
other bath/thermometer manufacturers. In general, Hart's equipment has much
higher performance specifications than most of the products in these
categories and therefore tends to compete less directly with lower performance
products. CSC primarily competes with MicroCal and Thermometrics in the
calorimetry market.
LIFSCHULTZ FAST FREIGHT, INC.
Lifschultz Fast Freight, Inc. was founded in 1899 in Chicago, Illinois to
"cart" local freight by horse and wagon. Until it became a wholly-owned
subsidiary of the Company in January 1991, LFF was owned by descendants of the
original founder, David Lifschultz. LFF began inter-city freight transport in
1928 and, under the management of the Lifschultz family, survived the
turbulent period from 1929 to 1960, becoming an important factor in several
markets. Subsequently, however, LFF's business began to decline until, in
March 1990, LFF sold off the last of its interstate trucking operations to a
group of former employees who did business under the name "Lifschultz Fast
Freight Corp.", but later went out of business.
REAL ESTATE ASSETS. LFF has an operating lease, expiring October 1, 2002
on its former New York trucking terminal. The operating lease provides for a
nominal rental during such time as LFF occupies the current premises. On
October 18, 1991, LFF and the Company completed a transaction in which the
Company issued stock and a stock option to the landlord, Penn Yards
Associates, effectively giving it ownership on a fully diluted basis of 10
percent of the voting equity securities of the Company, together with demand
registration rights, in exchange for an amendment to the lease covering the
New York Terminal (the "Lease Amendment"). The Lease Amendment grants to LFF
the right, under certain conditions, to sublet or assign its interest in the
New York Terminal. During the Company's 1994 fiscal year, LFF entered into
two subleases covering portions of the New York Terminal for eight years at a
base rental of $450,000 per year (plus adjustments tied to the Consumer Price
Index). These subleases produced an annual rent to LFF of $467,000 in fiscal
1996. Subsequent to the Lease Amendment, Penn Yard Associates transferred its
interests to the present landlord, Hudson Waterfront Associates.
EMPLOYEES
As of September 30, 1996, Hart employed 47 full-time and three part-time
employees, all of whom are employed in Hart's office/manufacturing facility in
American Fork, Utah. Also as of September 30, 1996, CSC employed 12 full-time
employees in its office/manufacturing facility in Provo, Utah. LFF employs
one full-time employee and one part-time employee in its New York City office.
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OFFICE SPACE
In August, 1996, Hart moved to a new 28,000 square foot building in
American Fork, Utah, to house its office, research and manufacturing
facilities. Hart is obligated under its lease for the new building for a
10-year term with a monthly rent starting at $13,000 per month with three
percent annual increases imposed at the discretion of the landlord.
CSC occupies a separate office/manufacturing space totalling 5,200 square
feet, located in Provo, Utah, which it is leasing until the year 1999 at a
monthly cost of approximately $3,100. The premises occupied by CSC are of new
construction and are in very good condition.
The Company and LFF are presently housed in offices totalling
approximately 5,000 square feet in a warehouse building adjacent to the LFF
New York terminal property. The right to occupy these offices is included as
part of the lease of the New York terminal property, but LFF is required to
share the cost of utilities and maintenance with a co-tenant in the building.
The properties are in adequate condition for the Company's needs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1996 VERSUS 1995
Total revenues for the Company increased 21.5% in fiscal 1996 to
$11,292,000 versus $9,293,000 in fiscal 1995. Hart revenues for fiscal 1996
were $10,744,000 versus $8,808,000 in fiscal 1995, a 22% increase for the
current fiscal year. (The financial figures given in this discussion for
Hart include the financial figures for its wholly owned subsidiary CSC, unless
specifically stated otherwise.) Revenue growth at Hart continues to be
healthy as new products are introduced. Hart has also seen particularly
strong growth in export revenues. Exports made up 34% of total revenues in
fiscal 1996 compared to 27% in fiscal 1995. Export revenues grew 64% in the
1996 fiscal year, about 3 times the rate of overall growth. Improved
distribution and acceptance of Hart's products in export markets is cited for
this growth. Future growth is expected to come from increased sales to
existing customers with new products, expanded international marketing
efforts, and new marketing efforts to reach new customers.
LFF had $506,000 in revenues during the 1996 fiscal year compared to
$485,000 in fiscal year 1995. These revenues were generated primarily from
its New York subleases. This revenue will increase annually to 2002 with
modest adjustments for inflation tied to the Consumer Price Index.
Page 17
<PAGE>
<PAGE>
Gross profit margins for Hart were 65% in fiscal 1996 compared to 61.4%
in fiscal 1995. These margins vary primarily due to shifts in the products
mix shipped and the sales channels used. Products sold through Hart's own
direct sales force have higher margins than products sold through
distributors and representatives of Hart (primarily exports). Products
manufactured by Hart tend to have better profit margins than products
redistributed by Hart.
General and administrative (G&A) expenses at Hart were 28% of total
revenues in fiscal 1996 versus 21% during fiscal 1995. This
increase is attributed to adding personnel to catch up with the significant
growth of Hart in the past several years and to increases in employee
compensation during the period to maintain a competitive employee compensation
structure. G&A expenses at LFF were $548,000 in fiscal 1996 versus $495,000
in fiscal 1995.
Marketing expenses at Hart were 10.4% of revenues in fiscal 1996 versus
11.2% for fiscal 1995. The market environment for Hart's products is becoming
increasingly competitive as other companies recognize market potential in
Hart's market niches and as Hart expands into other market niches with
competitors already in place. In the future, marketing costs as a percentage
of revenue could reasonably be expected to increase in this market environment
and management expects this will be the case.
Research and development expenditures at Hart were $694,000 in fiscal
1996 versus $818,000 in fiscal 1995. Hart continues to develop new products,
but reduced the pace of its research and development expenditures slightly in
fiscal 1996 because limited resources were needed elsewhere to stabilize and
improve Company support areas which were stretched by recent strong growth.
R&D spending is likely to resume at a stronger pace in the future.
Net earnings for the Company were $2,015,000 in fiscal 1996 versus
$620,000 for fiscal 1995, a 225% increase. The Company's net earnings
included an extraordinary gain of $1,296,000 from extinguishment of debt at
LFF. Among other things LFF eliminated an accounts payable of $1,231,000 in
exchange for a promissory note of $200,000, payable at $10,000 per month plus
interest. This note had an outstanding balance of $120,000 as of July 31,
1996.
Earnings before extraordinary gain for fiscal 1996 were $719,000 versus
$477,000 for fiscal 1995, a 50% increase. Hart Scientific had net income of
$988,000 for the current fiscal year versus a net income of $778,000 for
fiscal 1995, a 27% increase.
Future net earnings should be positively impacted by usage of the
existing tax loss carryforwards which total approximately $9,859,000 as of
July 31, 1996, and expire from 2003 through the year 2007. Because the
Company has the continuing tax loss carryforward, taxes for fiscal 1996 were
due primarily to the impact of the alternative minimum income tax.
Page 18
<PAGE>
<PAGE>
Lease revenues from the LFF New York subleases are used to pay for
expenses of the LFF New York office and the continuing reduction of debt at
the LFF subsidiary. As these LFF debts are extinguished, the cash flow from
the subleases will be directed to other areas of the Company. Management
expects that significant portions of these remaining LFF debts will be paid
off in fiscal 1997.
Notably, the LFF subleases are carried on the balance sheet as an asset
equal in value to the cash expected to be generated by the subleases over
their life. As the sublease revenues are received the sublease asset is
amortized by a like amount. The net effect is that, while these revenues
generate substantial cash flow for use by LFF for expenses ($467,000 in fiscal
1996), they have no impact upon the statement of earning of the Company. LFF
expenses, such as salaries, are actually covered by the cash flow from the
subleases, but these expenses reduce the overall operating profit of the
Company because the revenues from the subleases is offset, on an accounting
basis, by the amortization of the leasehold asset.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio as of July 31, 1996 was 2.06 to 1 versus 1.11
to 1 on July 31, 1995. The ratio of total debt to total assets at July 31,
1996 was .29 versus .47 on July 31, 1995. Significant reduction of debt at
the LFF subsidiary and strong profitability strengthened the Company's overall
balance sheet at July 31, 1996.
As previously mentioned, revenues from the LFF New York subleases are
used to pay for expenses at the New York office and continuing reduction of
debt at the LFF subsidiary. The external debt of LFF at the end of fiscal
1996 was $444,000, and management anticipates a substantial portion of that
debt will be paid in fiscal 1997. As the debts are extinguished, the cash
flow from the subleases will be directed to other areas of the Company.
Primarily, management currently plans to shift cash flow from the LFF
subleases to cover the Company expenses, which are currently paid by Hart.
Such shift will free up more internal cash for operations and growth at Hart.
Hart maintains a secured operating line of credit with a maximum
borrowing capacity of $650,000. As of July 31, 1996, $494,000 of the credit
line was available for use. Use of this credit line varies with product
shipments and other factors. Management believes that its line of credit will
be sufficient for Company purposes in the near future.
The Company made an effort in fiscal 1996 to simplify the equity portion
of its balance sheet. At one time the Company had outstanding preferred stock
in Series A, B, C, D and E. Management felt that the several classes of
preferred stock were confusing to existing shareholders and potential
investors. Series C and D preferred shareholders had exchanged their
preferred stock in fiscal 1995 for Series E preferred stock. Subsequently,
substantial amounts of the Series B and Series E convertible preferred stock
Page 19
<PAGE>
<PAGE>
were converted to common stock during the 1996 fiscal year. Subsequent to
year end, in October 1996, all of the remaining Series B convertible preferred
stock was converted into common stock. The Company will continue to encourage
the three remaining preferred shareholders to convert their Series A and
E convertible preferred stock, with the goal of having only common stock
remaining.
The continuing growth of Hart has been funded by internally generated
cash flow with minimal use of its available credit line. Hart has also been
paying the expenses of the Company. Internal cash flow has been adequate to
handle Hart's growth and the Company expenses. Management believes that this
will continue to be the case. However, as mentioned above, as LFF completes
payment of its remaining debts, cash flow from the LFF New York subleases can
be redirected to Company expenses and Hart's cash available for operations
should increase.
Management believes that substantial fundamental progress continues to be
made in strengthening the finances of the Company. The balance sheets of the
two operating companies, Hart and CSC, are strong, reflecting their growth in
revenues and income. The balance sheet of LFF is substantially improved over
prior years. Overall, in fiscal 1996, current assets increased by $1,300,000
to $5,381,000, including cash and cash equivalents exceeding $1,424,000.
Total current liabilities were reduced in the same year by over $1,000,000. The
Company does not have any long term debt. While not currently shown as an
asset on the balance sheet, the tax loss carryforward of $9,859,000 should
have a substantial positive future impact as long as the Company continues to
be profitable.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning directors
and executive officers of the Company:
Began Service as an
Name Age Positions Held Officer or Director
David K. Lifschultz 50 Chairman, Director, and January 1991
(employed as Chief Executive Officer
President of LFF)
Dennis R. Hunter 45 President, Director, and June 1988
(employed as Chief Financial Officer
President of CSC)
Sidney B. Lifschultz 84 Director January 1991
(retired)
Page 20
<PAGE>
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Effective March 7, 1990, the Company's securities were listed on the
NASDAQ System under the symbol HTII. Since changing the name of the Company
to Lifschultz Industries in January 1991, the Company's stock now trades on
the NASDAQ System under the symbol LIFF. The National Association of
Securities Dealers ("NASD") has informed the Company that it is considering a
change in its policy toward listing companies whose stock trades on the
NASDAQ System below $1. If this change is implemented, it will require the
Company to reverse split its stock in order to raise its average trading
price above $1 per share and remain available to trade on the NASDAQ System.
NASD will probably make a final determination on this new rule by the end of
calendar 1996.
The prices below are for the high and low closing bids for the common
stock of the Company through January 1996 and high and low closing sales
prices during the remaining half of 1996. The change in the figures reported
is due to a change in the reports provided by the NASDAQ System, and are
drawn from NASDAQ reports rounded to the nearest cent. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down, or
commissions, and may not represent actual transactions.
Fiscal 1995 Fiscal 1996
Price Range High Low High Low
1st Quarter $.25 $.13 $.09 $.06
2nd Quarter $.13 $.09 $.13 $.06
3rd Quarter $.13 $.06 $.56 $.09
4th Quarter $.16 $.06 $.56 $.16
As of October 24, 1996, there were approximately 397 record holders of
common stock (which includes brokerage firms and their affiliates holding
certificates in "street name" for a larger number of beneficial owners) and 3
holders of Company preferred stock.
No cash dividends have been paid on any class of the Company's capital
stock since inception and the Company does not presently intend to pay any
dividends in the foreseeable future.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to (or has
property which is the subject of) any material pending legal proceeding except
for those set forth in the following paragraphs. There are no material legal
proceedings known by the Company to be contemplated by governmental
authorities.
Page 21
<PAGE>
<PAGE>
LFF is the plaintiff/appellant in a legal action before the Supreme Court
of South Carolina styled Lifschultz Fast Freight, Inc. v. Haynsworth, Marion,
McKay & Gueard, William P. Simpson, Jr., William M. Grant, Jr., Julius McKay
and John B. McLeod, Case No. 93-CP-40-4260. The case is an appeal from
summary judgment entered against LFF on its claims for professional
malpractice, breach of fiduciary duty, breach of contract and promissory
estoppel against the law firm of Haynsworth, Marion, McKay & Gueard, as well
as certain individual attorneys of such firm. The facts of the case relate
primarily to the withdrawal by the Haynsworth firm of its representation of
LFF in an antitrust action in which LFF was the plaintiff. LFF maintains that
the Haynsworth firm had agreed to represent LFF on a contingency fee basis,
but later withdrew as LFF's legal counsel over the objection of LFF and to
LFF's detriment. Fast Freight's original complaint was filed on
November 5, 1993 and asked for $3,000,000 in damages. The ultimate outcome of
the case on appeal is uncertain and cannot reasonably be predicted by the
Company.
In Genpro, Inc. v. Lifschultz Fast Freight, Inc., et al., Index No.
unassigned (filed June 24, 1992), in the Supreme Court of the State of New
York, County of New York, there has been no significant developments since the
Company's 1993 Annual Report and none are anticipated in the foreseeable
future, as neither litigant in the case is actively pursuing the lawsuit.
FINANCIAL STATEMENTS
The consolidated financial statements of Lifschultz Industries, Inc. at
July 31, 1996 and 1995 and for each of the two years ended July 31, 1996 and
1995 appearing at the end of this Annual Report to Shareholders have been
examined by the Company's independent auditors, as and to the extent set forth
in their reports appearing therein.
Page 22
<PAGE>
<PAGE>
LIFSCHULTZ INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
JULY 31, 1996 AND 1995
Lifschultz Industries, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Page
Report of Independent Certified Public Accountants 24
Consolidated financial statements
Balance Sheets 25-6
Statements of Earnings 27
Statements of Shareholders' Equity 28-9
Statements of Cash Flows 30-1
Notes to Consolidated Financial Statements 33-47
Page 23
<PAGE>
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Lifschultz Industries, Inc.
We have audited the accompanying consolidated balance sheets of Lifschultz
Industries, Inc. and Subsidiaries as of July 31, 1996 and 1995, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lifschultz
Industries, Inc. and Subsidiaries as of July 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Provo, Utah
September 23, 1996 except for
Note O as to which the date is
October 24, 1996
Page 24
<PAGE>
<PAGE>
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS
1996 1995
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $1,424,000 $1,139,000
Marketable securities 601,000 -
Trade accounts receivable, net 1,774,000 1,669,000
Related party receivable 34,000 37,000
Income tax refund receivable - 43,000
Inventories 1,488,000 1,085,000
Other current assets 60,000 44,000
---------- ----------
Total current assets 5,381,000 4,017,000
PROPERTY HELD FOR LEASE, NET 2,973,000 3,319,000
PROPERTY AND EQUIPMENT, NET 489,000 496,000
---------- ----------
$8,843,000 $7,832,000
========== ==========
The accompanying notes are an integral part of these statements.
Page 25
<PAGE>
<PAGE>
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
July 31,
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
------------ ------------
CURRENT LIABILITIES
Notes payable to banks $ 182,000 $ 150,000
Trade accounts payable 311,000 312,000
Income taxes payable 122,000 2,000
Accrued liabilities 1,501,000 992,000
Note payable to shareholder 50,000 50,000
Note payable to creditor 120,000 -
Accounts payable and accrued liabilities past due 321,000 2,088,000
Current maturities of long-term obligations - 32,000
------------ ------------
Total current liabilities 2,607,000 3,626,000
LONG-TERM OBLIGATIONS, less current maturities - 26,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Convertible preferred stock, par value $0.01;
authorized 4,900,000 shares
Series A; issued and outstanding 5,200
shares - -
Series B; issued and outstanding 776,641
shares in 1996 and 1,004,215 shares in 1995 8,000 10,000
Series E; issued and outstanding 120,878
shares in 1996 and 563,379 shares in 1995 1,000 6,000
Common stock, par value $0.001; authorized
80,000,000 shares; issued 43,644,445 shares
in 1996 and 35,996,249 shares in 1995 44,000 36,000
Additional paid-in capital 10,978,000 10,938,000
Common stock subscriptions receivable from
related parties (15,000) (15,000)
Treasury stock, at cost (1,128,000 common shares) (157,000) (157,000)
Accumulated deficit (4,623,000) (6,638,000)
----------- ------------
Total shareholders' equity 6,236,000 4,180,000
----------- ------------
$ 8,843,000 $ 7,832,000
============ ============
The accompanying notes are an interal part of these statements.
Page 26
<PAGE>
<PAGE>
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended July 31,
1996 1995
----------- -----------
Net revenues $11,292,000 $ 9,293,000
Costs and expenses
Cost of products sold 4,880,000 4,314,000
Selling, general, and administrative 4,831,000 3,583,000
Research and development 694,000 818,000
Interest expense 42,000 35,000
----------- -----------
10,447,000 8,750,000
Earnings before income taxes and extraordinary
item 845,000 543,000
Income taxes 126,000 66,000
----------- -----------
Earnings before extraordinary item 719,000 477,000
Extraordinary item - gain on extinguishment of
debt (less applicable income taxes of $65,000
in 1996 and $1,000 in 1995) 1,296,000 143,000
----------- -----------
Net earnings $ 2,015,000 $ 620,000
=========== ===========
Net earnings per common and common
equivalent share:
Earnings before extraordinary item $ .01 $ .01
Extraordinary item .02 -
----------- -----------
Net earnings $ .03 $ .01
=========== ===========
Weighted average number of shares
outstanding 59,114,000 57,240,000
The accompanying notes are an integral part of these statements.
Page 27
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<PAGE>
<TABLE>
<CAPTION>
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended July 31, 1996 and 1995
Preferred Stock
------------------------------------------------
Common Series Series Series Series Series
Stock A B C D E
<S> ------- ------- -------- ---------- ---------- --------
Balance, August 1, <C> <C> <C> <C> <C> <C>
1994 $33,000 $ - $11,000 $ 976,000 $ 223,000 $ 5,000
Stock issued to
satisfy certain
obligations - - - - - 1,000
Preferred stock
series transfers 3,000 - (1,000) (976,000) (223,000) -
Net earnings - - - - - -
------- ------- -------- ---------- ---------- --------
Balance, July 31,
1995 36,000 - 10,000 - - 6,000
Stock issued to
satisfy certain
obligations - - - - - -
Preferred stock
series transfers 8,000 - (2,000) - - (5,000)
Net earnings - - - - - -
------- ------- -------- ---------- ---------- --------
Balance, July 31,
1996 $44,000 $ - $ 8,000 $ - $ - $ 1,000
======= ======= ======== ========== ========== ========
</TABLE>
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<PAGE>
<TABLE>
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--Continued
For the years ended July 31, 1996 and 1995
Additional Common Stock
Paid-in Subscriptions Treasury Accumulated
Capital Receivable Stock Deficit Total
<S> ----------- --------- ---------- ------------ ----------
Balance, August 1, <C> <C> <C> <C> <C>
1994 $ 8,946,000 $(15,000) $(157,000) $(7,258,000) $2,764,000
Stock issued to
satisfy certain
obligations 795,000 - - - 796,000
Preferred stock
series transfers 1,197,000 - - - -
Net earnings - - - 620,000 620,000
----------- --------- ---------- ------------ ----------
Balance, July 31,
1995 10,938,000 (15,000) (157,000) (6,638,000) 4,180,000
Stock issued to
satisfy certain
obligations 40,000 - - - 40,000
Preferred stock
series transfers - - - - 1,000
Net earnings - - - 2,015,000 2,015,000
----------- --------- ---------- ------------ ----------
Balance, July 31,
1996 $10,978,000 $(15,000) $(157,000) $(4,623,000) $6,236,000
=========== ========= ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 29
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<PAGE>
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended July 31,
1996 1995
----------- ---------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 2,015,000 $ 620,000
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 220,000 511,000
Amortization of leasehold interest 346,000 55,000
Write off of freight accounts receivable - 12,000
Extraordinary gain (1,361,000) (144,000)
(Gain) loss on sale of property and equipment (16,000) 1,000
Changes in assets and liabilities
Trade accounts receivable (105,000) (731,000)
Related party receivable 3,000 -
Income tax refund receivable 43,000 (43,000)
Inventories (403,000) (187,000)
Other current assets (16,000) (55,000)
Trade accounts payable (1,000) 26,000
Accrued liabilities 509,000 396,000
Accounts payable and accrued liabilities
past due (165,000) -
Income taxes payable 120,000 2,000
----------- ---------
Total adjustments (826,000) (157,000)
----------- ---------
Net cash provided by
operating activities 1,189,000 463,000
----------- ---------
Cash flows from investing activities
Purchase of property and equipment (235,000) (235,000)
Proceeds from sale of property and equipment 38,000 45,000
Purchase of marketable securities (601,000) -
----------- ---------
Net cash used in investing activities (798,000) (190,000)
----------- ---------
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<PAGE>
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended July 31,
1996 1995
--------- ---------
Cash flows from financing activities
Proceeds from notes payable 450,000 -
Principal payments on note payable to shareholder - (65,000)
Principal payments on notes payable and long-
term obligations (556,000) -
--------- --------
Net cash used in
financing activities (106,000) (65,000)
--------- --------
Net increase in cash and cash
equivalents 285,000 208,000
Cash and cash equivalents at beginning of year 1,139,000 931,000
---------- ----------
Cash and cash equivalents at end of year $1,424,000 $1,139,000
========== ==========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the year for
Interest $ 37,000 $ 38,000
Income taxes 77,000 40,000
Noncash investing and financing activities
- ------------------------------------------
As described in Notes F and M, during 1996 the Company was relieved of
$1,231,000 in accounts payable and accrued liabilities past due in exchange
for signing a $200,000 note payable.
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<PAGE>
<PAGE>
As described in Note I, during 1996 and 1995, holders of the various series
of the Company's preferred stock converted part of those respective shares
for common stock approximating 7,648,000 and 2,600,000 shares respectively.
During 1995, shares of various series of preferred stock were exchanged for
5,700 shares of Series E preferred stock.
During 1996 as described in Note M, the Company was relieved of $330,000 in
accounts payable and accrued liabilities past due.
During 1996, the Company issued 3,715 shares of Series E preferred stock in
exchange for relief of $40,000 of accounts payable and accrued liabilities
past due.
During 1995, the Company issued 73,000 shares of Series E preferred stock
in exchange for relief of $796,000 of debt and accrued interest.
The accompanying notes are an integral part of these statements.
Page 32
<PAGE>
<PAGE>
Lifschultz Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows.
1. Organization
------------
Lifschultz Industries, Inc. and subsidiaries (the Company), was
incorporated under the laws of the State of Delaware. The consolidated
financial statements include the accounts of Lifschultz Industries, Inc. a
non-operating holding company, and its wholly owned subsidiaries, Hart
Scientific, Inc. (Hart), Lifschultz Fast Freight, Inc. (Fast Freight), and
Calorimetry Sciences Corporation (Calorimetry), which is a wholly owned
subsidiary of Hart. All significant intercompany transactions and balances
have been eliminated. No segment information is provided because the Company
currently only has one line of business from which it derives revenues.
Hart is engaged in the design, manufacturing, and marketing of high
precision calibration instruments and sensors for use in laboratories and
industry. Hart is also engaged in related research and development projects.
During 1994, Hart separated a division into a wholly owned subsidiary,
Calorimetry, which is engaged in the design, manufacturing, and marketing of
scientific instruments.
Fast Freight is currently a non-operating freight-hauling company.
2. Cash and cash equivalents
-------------------------
For purposes of the financial statements, the Company considers all
short-term debt securities with an original maturity of three months or less
when purchased to be cash equivalents.
3. Marketable securities
---------------------
Investments are comprised of government securities, are classified as
available-for-sale and mature in one year or less. Available-for-sale
securities are measured at fair value with net unrealized gains and losses
reported in equity. There were no net unrealized holding gains or losses
during 1996 and 1995.
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<PAGE>
4. Inventories
-----------
Inventories are valued at the lower of cost or market, with cost being
determined using the first-in, first-out method.
5. Property and equipment
----------------------
Property and equipment is stated at cost. Expenditures for maintenance and
repairs are charged to operations as incurred, whereas major replacements and
improvements are capitalized and subsequently depreciated. Depreciation is
provided on a straight-line basis over the estimated useful lives of the
assets of 3 to 10 years.
6. Property held for lease
-----------------------
Property held for lease represents a non-operating trucking terminal under
a lease and is carried at the undiscounted cash flows which result from the
underlying sublease. The property held for lease is being amortized through
the year 2002, which is the life of the sublease.
7. Research and development
------------------------
Research and development costs have been charged to expense as incurred.
8. Net earnings per common and common equivalent share
----------------------------------------------------
Net earnings per common and common equivalent share are based on the
weighted average number of shares outstanding during each year, the assumed
exercise of dilutive employees' stock options less the number of treasury
shares assumed to be purchased from the proceeds using the average market
price of the Company's common stock, and common shares assumed to be issued on
conversion of preferred shares. The calculation of earnings per common share,
assuming full dilution, is the same as primary earnings per common share and,
therefore not presented separately.
9. Income taxes
------------
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. An allowance against deferred tax assets
is recorded when it is more likely than not that such tax benefits will not be
realized.
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<PAGE>
<PAGE>
10. Use of estimates
----------------
In preparing the Company's financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
11. Fair value of financial instruments
-----------------------------------
The carrying value of the Company's cash and cash equivalents, marketable
securities, trade receivables, notes payable and trade payables approximate
their fair values.
12. Recently issued accounting statements not yet adopted
-----------------------------------------------------
In March of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 (SFAS No. 121) - "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable.
In October of 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting
for Stock-Based Compensation". SFAS No. 123 recommends changes to the
recognition of expense in connection with the grant of stock options. The
standard encourages, but does not require, companies to recognize compensation
expense (equal to the fair value of the options at the grant dates) ratably
over the vesting periods. Additionally, if the fair market value method is not
adopted, the standard sets forth new minimum disclosures to reflect the
proforma adjusted net income calculated by applying the fair value
requirement. The Company intends to continue complying with Accounting
Principles Board Opinion No. 25 "Compensation to Employees: Stock Purchase
and Option Plans" and to adopt the additional disclosure requirements set
forth in SFAS No. 123.
SFAS No. 121 and SFAS No. 123 are effective for the fiscal year beginning
August 1, 1996. The Company does not believe that the adoption of SFAS No.
121 or SFAS No. 123 will have a material effect on the Company's consolidated
financial statements.
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13. Reclassifications - not material
--------------------------------
Certain reclassifications have been made to the 1995 financial
statements to conform with the 1996 presentation.
NOTE B - CREDIT CONCENTRATION, MAJOR CUSTOMER, AND EXPORT SALES
1. Credit concentration
---------------------
The Company maintains cash balances at several financial institutions
located in the United States. Accounts at each institution are secured by the
Federal Deposit Insurance Corporation up to $100,000. Uninsured balances
aggregate to approximately $1,009,000 at July 31, 1996.
Financial instruments which potentially subject the Company to credit risk
concentration consist primarily of trade accounts receivable. The
Company sells to customers utilizing scientific and industrial instrumentation
and instrument calibration equipment located throughout the United States.
The Company sells substantially to recurring customers wherein the customer's
ability to pay has previously been evaluated. The Company generally does not
require collateral. The majority of its trade receivables are unsecured.
Allowances are maintained for potential credit losses, and such losses have
been within management's expectations. At July 31, 1996 and 1995, this
allowance was $13,000.
2. Major customer
--------------
At July 31, 1996, the Company had accounts receivable due from its largest
customer approximating $185,000. Remaining accounts receivable at July 31,
1996, were due from a variety of other customers under normal credit terms.
Revenue in fiscal 1995 from the largest customer represented approximately
11% of total net revenues (none exceeded 10% in 1996).
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3. Export sales
------------
Export sales consist of the following:
1996 1995
---------- ----------
Europe $1,319,000 $1,104,000
Far East 1,993,000 900,000
Middle East 147,000 64,000
North America 224,000 165,000
South America 203,000 132,000
---------- ----------
$3,886,000 $2,365,000
========== ==========
NOTE C - INVENTORIES
Inventories consist of the following:
1996 1995
----------- ----------
Raw materials $ 642,000 $ 487,000
Work-in-process 789,000 551,000
Finished goods - 6,000
Demonstration units 57,000 41,000
---------- ----------
$1,488,000 $1,085,000
========== ==========
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NOTE D - PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives consist of the
following:
Years 1996 1995
----- ---------- ----------
Furniture and fixtures 3-5 $ 571,000 $ 510,000
Machinery and equipment 5-10 346,000 584,000
Leasehold improvements 9 130,000 20,000
---------- ----------
1,047,000 1,114,000
Less accumulated depreciation
and amortization 558,000 618,000
---------- ----------
$ 489,000 $ 496,000
========== ==========
NOTE E - PROPERTY HELD FOR LEASE
Property held for lease consists of the following:
1996 1995
---------- ----------
Leasehold interest $7,500,000 $7,500,000
Less
Accumulated amortization 2,901,000 2,555,000
Valuation allowance to adjust to undiscounted
cash flows 1,626,000 1,626,000
---------- ----------
4,527,000 4,181,000
---------- ----------
$2,973,000 $3,319,000
========== ==========
The Company leases a warehouse for nominal rent through September 2002.
This leasehold interest is carried on the Company's balance sheet at the
undiscounted cash flows expected from the property through subleases over the
life of the related lease. The leasehold interest and related improvements
are being amortized over the life of the related lease, which expires in
September 2002. Noncancelable subleases related to this property, presently
in place, provide for the Company to receive monthly payments totaling
$474,000 per year, subject to annual Consumer Price Index increases, through
September 2002.
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NOTE F - CREDIT ARRANGEMENTS
1. Notes payable to banks
----------------------
The notes payable to banks consist of a line of credit issued to Hart with
interest at 1.5% over prime (9.75% at July 31, 1996). The line, which is
scheduled for renewal in December 1996, is collateralized by Hart stock, trade
accounts receivable, inventories, and equipment. Available borrowings under
this line of credit are limited to 85% of eligible trade accounts receivable
and 30% of eligible inventories, not to exceed $650,000. As of July 31, 1996,
$494,000 was available under the line.
Also included in notes payable to banks at July 31, 1996 is a $26,000
amount due during 1997. The average interest rate on this note is 9.95% in
1996. The note is collateralized by trade accounts receivable and property.
2. Note payable to creditor
------------------------
During 1996, the Company entered into an agreement with a creditor
whereby the Company's past due account payable, which approximated $1,231,000,
was relieved in exchange for a note payable of $200,000 (Note M). The note
requires monthly payments of $10,000 plus interest at prime plus 2% (10.25%
at July 31, 1996). The note is secured by the Company's leasehold (Note E)
and monthly payments are limited to the first $10,000 of rental income
received. The balance of the note was $120,000 at July 31, 1996.
3. Note payable to shareholder
---------------------------
Note payable to shareholder represents an unsecured demand note with
interest at approximately 7.5%.
NOTE G - OPERATING LEASES
The Company leases laboratory and office space under operating leases
expiring in various years through 2005.
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Minimum future rental payments under noncancelable operating leases
having remaining terms in excess of one year are as follows:
Year ending
July 31,
1997 $ 193,000
1998 193,000
1999 193,000
2000 161,000
2001 166,000
Thereafter 905,000
----------
$1,811,000
==========
Rent expense totaled $76,000 and $64,000 for the year ended July 31,
1996 and 1995, respectively.
NOTE H - INCOME TAXES
Components of income taxes (benefit) included in the consolidated
statements of earnings are as follows:
1996 1995
----------- ----------
Current
Federal $1,071,000 $ 308,000
State 132,000 49,000
Less benefit of net operating loss
carryforward (1,012,000) (290,000)
----------- ---------
191,000 67,000
Allocated to extraordinary item
Federal (27,000) (1,000)
State (38,000) -
----------- ---------
$ 126,000 $ 66,000
=========== =========
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The provision for income taxes differs from the statutory Federal income
tax rate due to the following:
1996 1995
--------- ---------
Income taxes computed at
federal statutory rate $ 750,000 $ 211,000
State taxes, net of federal benefit 198,000 49,000
Net operating loss carryforward utilized (892,000) (211,000)
Deferred tax assets not recorded 135,000 18,000
--------- --------
Total income taxes 191,000 67,000
Income taxes allocated to extraordinary
item (65,000) (1,000)
--------- ----------
$ 126,000 $ 66,000
========= ==========
The tax effects of temporary differences which give rise to deferred
tax assets and liabilities are as follows:
1996 1995
--------- --------
Current deferred tax assets
Deferred compensation $ 152,000 $ 18,000
Allowance for doubtful accounts 5,000 5,000
Accrued expenses 95,000 37,000
Other 15,000 (8,000)
Less valuation allowance (267,000) (52,000)
---------- ---------
Net current tax assets $ - $ -
========== =========
Long-term deferred tax assets
Net operating loss carryforwards $3,677,000 $4,842,000
Excess book depreciation and amortization 7,000 632,000
Alternative minimum tax credit carryforward 125,000 65,000
Less valuation allowance (3,809,000) (5,539,000)
----------- -----------
Net long term deferred tax assets $ - $ -
=========== ===========
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<PAGE>
There were no deferred tax assets or income tax benefits recorded in the
financial statements for net deductible temporary differences, alternative
minimum tax credit carryforwards, or net operating loss carryforwards due to
the fact that the likelihood of realization of the related tax benefits
cannot be established. The net change in the valuation allowance in the
amount of $1,515,000 from 1995 to 1996 is primarily due to the increase in
deferred tax assets and the utilization of applicable net operating loss
carryforwards.
At July 31, 1996, the Company has net operating loss carryforwards for tax
reporting purposes of approximately $9,859,000 which expire from 2003 through
the year 2007.
NOTE I - CAPITAL STOCK
1. Convertible preferred stock
---------------------------
The Series A preferred stock is convertible at the option of the holder
into 10 shares of common stock, has voting rights equal to one vote for each
share of common stock as if converted, participates in all dividends declared
by the Board of Directors, as if converted, and has a liquidation preference
over all other series of preferred and common stock of $0.01 per share of
Series A preferred stock. During 1995, 5,200 shares of Series A preferred
stock were converted into 52,000 shares of common stock.
The Series B preferred stock is convertible at the option of the holder
into 14 shares of common stock. The Series B preferred stock has voting
rights equal to one vote for each share of common stock, as if converted, as
to the election of the Company's directors. For all other matters the Series
B preferred stock votes as a class. The Series B preferred stock participates
in all dividends declared by the Board of Directors, as if converted. The
Series B preferred stock has liquidation preferences over the Company's Series
E preferred stock and common stock of $0.01 per share of Series B preferred
stock. During 1996 and 1995, 227,574 and 103,449 shares, respectively, of
Series B preferred stock were converted to 3,186,036 and 1,448,286 shares,
respectively, of common stock.
The Series E preferred stock is convertible at the option of the holder
into 10 shares of common stock. The Series E preferred stock has voting
rights equal to one vote for each share of common stock, as if converted, and
participates in all dividends declared by the Board of Directors, as if
converted. The Series E preferred stock has liquidation rights after the
Series A, B, C, and D preferred stock but over common stock. The liquidation
preference is $10.87 per share of Series E preferred stock. During 1996,
certain creditors of the Company exchanged $40,000 of accounts payable and
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accrued liabilities past due for 3,715 shares of Series E preferred stock.
During 1995, certain creditors of the Company exchanged $796,000 of their debt
holdings and accrued interest for 73,000 shares of Series E preferred stock.
Also during 1996 and 1995, 446,216 and 4,876 shares, respectively, of Series E
preferred stock were converted to 4,462,160 and 48,760 shares of common stock,
respectively.
2. Cumulative nonvoting preferred shares
-------------------------------------
All cumulative, nonvoting preferred stock has a par value of $100 and
100,000 shares are authorized for issuance.
The Series C preferred stock, which cumulates dividends at 10 percent
annually of the par value of Series C preferred stock, has no voting rights
and has liquidation rights over Series B, D, and E preferred stock and common
stock. The liquidation preference is $100 per share of Series C preferred
stock. There was no Series C preferred stock issued and outstanding at July
31, 1996 and 1995.
The Series D preferred stock, which cumulates dividends at 8 percent
annually of the par value of Series D preferred stock, has no voting rights
and has liquidation rights over the Company's Series B and E preferred stock
and common stock. The liquidation preference is $100 per share of Series D
preferred stock. During 1995, holders of Series D preferred stock exchanged
their shares for 5,700 shares of Series E preferred stock. There was no
Series D preferred stock issued and outstanding at July 31, 1996 and 1995.
Also during 1995, holders of 9,760 shares of Series C preferred stock and
1,665 shares of Series D preferred stock exchanged their shares for 1,050,841
shares of common stock.
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NOTE J - STOCK OPTIONS, WARRANTS, AND STOCK PUT OPTION
1. Stock options
-------------
The Company's board of directors has the authority to grant options for the
purchase of common stock. Stock options granted, exercised, forfeited, and
outstanding are as follows:
1996 1995
--------- ---------
Stock options outstanding at beginning of year 5,862,000 5,112,000
Granted 50,000 750,000
Exercised - -
Forfeited - -
--------- ---------
Outstanding at end of year 5,912,000 5,862,000
========= =========
Exercisable at end of year 5,429,000 5,379,000
========= =========
Per share option price range $0.001 to $0.001 to
$ 0.28 $ 0.28
========= =========
In July of 1996 and May of 1995, the Company granted 50,000 and 750,000
options, respectively. The exercise price of these options is $.25 and
$0.0625 per share, respectively, which price represented the quoted fair
market value of the Company's common stock at the grant date.
Options to purchase 125,000 shares at $0.0313 per share become exercisable
upon the occurrence of certain events specified by the board of directors.
Options issued in connection with the Company's leasehold interest (Note E)
vest ratably at a rate of one option for every nine common shares issued as a
result of 1) the exercise of employee stock options outstanding at the date of
the agreement, 2) the exercise of warrants for common stock outstanding at the
date of the agreement, and 3) the conversion of Series A preferred stock.
These options are exercisable at the then existing par value of the common
stock. At July 31, 1996, such options to purchase 14,666 shares were
exercisable.
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2. Warrants
--------
At July 31, 1996 and 1995, the Company had issued 2,610,000 units
consisting of one share of the Company's $0.001 par value common stock and one
Class C warrant to purchase one share of common stock at an exercise price of
$0.49 per share. Class C warrants carry no redemption rights and expire
December 31, 1996. As of July 31, 1996, no Class C warrants have been
exercised.
3. Put option
----------
Pursuant to an employee agreement (Note L), an officer of the Company has a
put option which may be exercised during a six year period following
termination from Calorimetry or expiration of the agreement. Under the
option, the officer may require Calorimetry to repurchase up to 1,158,214
shares of Company stock and stock options owned by the officer at prices from
$0.1187 per share to $0.15 per share at a maximum rate of 200,000 shares or
options per year.
Approximately 20,656,000 shares of authorized, but unissued, common stock
are subject to issuance based upon the conversion or exercise of the Company's
convertible preferred stock, stock options, and Class C warrants outstanding
at July 31, 1996.
NOTE K - COMMON STOCK SUBSCRIPTIONS RECEIVABLE
The common stock subscriptions receivable from related parties consist of
notes receivable from three officers and directors to be repaid with interest
at 11.5%. These receivables were originally due in June 1993; however,
subsequent to July 31, 1993, the Company extended the due date of these
receivables to July 31, 1998.
NOTE L - COMMITMENTS AND CONTINGENCIES
The Company has employment and severance agreements with certain officers
and managers of the Company. Salaries covered by these agreements range from
$82,000 to $157,000 annually. Contracts, with three individuals, provide for
annual salaries of $90,000, $100,000 and $133,000 (plus a 5% annual increase)
and are for terms of two to five years providing for severance of up to two
year's salary should the employee be terminated without cause. The other two
contracts with annual salaries of $82,000 and $157,000 (plus a 5% annual
increase) have longer terms of seven to eight years and larger severance,
which could be as much as 50% of the remaining base salary (or one year's
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salary whichever is greater) if the individual is terminated without cause.
All the executive managers covered by contracts have been with the Company for
six or more years and some have been employed more than ten years. One
individual has a put option under the agreement (Note J). Additionally,
provisions exist in the contracts to provide for immediate payment of
remaining compensation plus additional amounts totaling $725,000 if a
successor of the Company fails to honor the respective contracts. No
provision for any severance payments under these employment contracts has been
made as of July 31, 1996.
Fast Freight has sold substantially all of its interstate trucking
operations, including fixed assets and intangible assets relating to these
operations. The terms of the sale included an assumption by the buyer of
certain liabilities relating to the trucking operation, including all
obligations arising out of, or in connection with, the transferred assets and
any liabilities for accrued vacation time earned by employees prior to the
date of sale. Subsequent to the disposal of its operations, Fast Freight has
incurred and recorded certain costs related to the "winding down" of its
disposed trucking operations. While the possibility exists that additional
costs related to these disposed operations will be claimed in the future, the
amount or likelihood of any such contingency arising is not currently
determinable.
The Company is engaged in various lawsuits as plaintiff or defendant
arising in the normal course of business. In the opinion of management,
the ultimate outcome of these lawsuits will not have a material impact on
the Company's financial position.
NOTE M - EXTRAORDINARY ITEM
During 1996, Fast Freight entered into an agreement with creditors, whereby
it was relieved of its obligation to pay approximately $1,231,000 of accounts
payable and accrued liabilities past due in exchange for a $200,000 note
payable (Note F). In addition, Fast Freight was also relieved of $330,000 in
accounts payable and accrued liabilities past due as a result of the statute
of limitations expiring on the respective outstanding balances. These
transactions resulted in a $1,296,000 gain, after income taxes of $65,000,
which is recorded in the accompanying financial statements as an extraordinary
item.
During 1995, Fast Freight entered into an agreement with a lender, whereby
Fast Freight was relieved of its obligation to pay $161,000 of debt, and
accrued interest for 25% of the amount due. This transaction resulted in a
$143,000 gain after income taxes of $1,000, which is recorded in the
accompanying financial statements as an extraordinary item.
NOTE N - EMPLOYEE BENEFIT PLAN
The Company established an employee savings plan under Section 401(k) of
the Internal Revenue Code. This plan covers employees who are at least 21
years of age and work at least 1,000 hours per year. The Company matches at
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its discretion up to 50% of employee contributions up to 6% of the employee's
salary. The Company's matching contributions vest at a rate of 20% per year.
The Company contributed approximately $81,000 to the plan during the fiscal
year ended July 31, 1996 and $22,000 during the fiscal year ended July 31,
1995.
NOTE O - SUBSEQUENT EVENT
In October of 1996, 776,641 shares of Series B preferred stock were
converted to 10,828,580 shares of common stock. Also during August and
October of 1996, 99,647 shares of Series E preferred stock were converted to
996,470 shares of common stock. In addition, 100,000 shares of common stock
was issued upon the exercise of certain options.
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Exhibit 22.01
LIST OF SUBSIDIARIES OF REGISTRANT
LIFSCHULTZ INDUSTRIES, INC.
1. Lifschultz Fast Freight, Inc. a Delaware corporation (a wholly owned
subsidiary of registrant)
2. Hart Scientific, Inc., a Utah corporation ( a wholly owned subsidiary
of registrant)
3. Calorimetry Sciences Corporation, a Utah corporation (a wholly owned
subsidiary of Hart Scientific, Inc.)
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