U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1997
-----------------------------------
[ ] 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 33-17286
LIFSCHULTZ INDUSTRIES, INC.
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(Name of small business issuer in its charter)
DELAWARE 87-0448118
---------------------------------- --------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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641 WEST 59TH STREET, NEW YORK, NY 10019
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number: (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
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
------- -------
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: $12,244,000.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such common equity, as
of a specified date within the past 60 days (See definition of affiliate in
Rule 12b-2 of the Exchange Act): $2,886,310 as of October 14, 1997
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(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 14, 1997.
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,
1997, 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 1997 Annual Meeting
of Shareholders to be held December 15, 1997, is incorporated into
Part III.
Transitional Small Business Disclosure Format (check one):
YES NO X
------ -------
[THE INFORMATION CALLED FOR IN PARTS I AND II IS INCORPORATED BY REFERENCE
FROM THE REGISTRANT'S 1997 ANNUAL REPORT TO SHAREHOLDERS FURNISHED TO THE
COMMISSION PURSUANT TO RULE 14A-3(B).]
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PART I
Item 1. Description of Business; see 1997 Annual Report section
entitled "Description of Business".
Item 2. Description of Property; see 1997 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 1997 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 Common Equity and Related Stockholder Matters; see 1997
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
1997 Annual Report section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Item 7. Financial Statements; see attachment to 1997 Annual Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure (not applicable).
[CERTAIN 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 1997 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 15,
1997.]
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".
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Item 11. Security Ownership of Certain Beneficial Owners and
Management; see Proxy Statement sections entitled "Security
Ownership of Certain Beneficial Owners and Management".
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
4.06* Certificate of Increase to Certificate Form 10-KSB (1995)
of Designations, Series E Convertible
Preferred Stock
10.01*# Employment Agreement for Dennis Hunter Form 10-KSB (1995)
10.02# Employment Agreement for Form 10-KSB (current)
James Triplett
10.03# Employment Agreement for Form 10-KSB (current)
J. Randall Owen
10.04# Employment Agreement Form 10-KSB (current)
Michael Hirst
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
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10.09* Lease of Premises for Calorimetry Form 10-KSB (1995)
Sciences Corporation
10.10* Lease of Premises for Hart Scientific, Form 10-KSB (1995)
Inc.
10.11* Amendment to Lease of Premises for Hart Form 10-KSB (1996)
Scientific, Inc.
10.12*# Hart Scientific, Inc. Executive Bonus Form 10-KSB (1995)
Plan
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 1997 Annual Report to Shareholders Form 10-KSB (current)
21.01 List of Subsidiaries of the Registrant Form 10-KSB (current)
23.01 Consent of Grant Thornton LLP Form 10-KSB (current)
27.01 Financial Data Schedule Form 10-KSB (current)
- ------------------
* Denotes exhibits specifically incorporated in this 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.
+ Denotes exhibits specifically incorporated in this Form 10-KSB by reference
pursuant to Regulation S-B, Item 10(f)(2). These documents are located under
File No. 33-17286 at the Securities and Exchange Commission, Public Reference
Branch, 450 5th St., N.W., Washington, D.C. 20549.
(b) Reports on Form 8-K during last quarter of fiscal year 1997.
None.
SIGNATURES
In accordance with Section 13 or 15(d) 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 October 27, 1997 By DAVID K. LIFSCHULTZ
- --------------------- --------------------------------------
David K. Lifschultz
Chief Executive Officer
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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.
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
DAVID K. LIFSCHULTZ Chairman, Chief October 27, 1997
- -------------------------- Executive Officer
David K. Lifschultz
DENNIS R. HUNTER President, Director and October 27, 1997
- -------------------------- Chief Financial Officer
Dennis R. Hunter
SYDNEY B. LIFSCHULTZ Director October 27, 1997
- --------------------------
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, 94 Form 10-K (1991)
Series A Convertible Preferred Stock
as amended
4.02*+ Certificate of Designations, 103 Form 10-K (1991)
Series B Convertible Preferred Stock
(as amended)
4.03*+ Certificate of Designations, 110 Form 10-K (1991)
Series C 10% Cumulative Non-Voting
Preferred Stock
4.04*+ Certificate of Designations, 116 Form 10-K (1991)
Series D 8% Cumulative Non-Voting
Preferred Stock
4.05* Certificate of Designations, 9 Form 10-KSB (1994)
Series E Convertible Preferred Stock
4.06* Certificate of Increase to Certificate 9 Form 10-KSB (1995)
of Designations, Series E Convertible
Preferred Stock
10.01*# Employment Agreement for Dennis 11 Form 10-KSB (1995)
Hunter
10.02# Employment Agreement 11 Form 10-KSB
James Triplett (current)
10.03# Employment Agreement 22 Form 10-KSB
J. Randall Owen (current)
10.04# Employment Agreement 28 Form 10-KSB
Michael Hirst (current)
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 78 Form 10-KSB (1996)
Hart Scientific, Inc.
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10.12*# Hart Scientific, Inc. Executive Bonus 89 Form 10-KSB (1995)
Plan
10.13*# Hart Scientific, Inc. 401(k) Plan 90 Form 10-KSB (1995)
11.01 Statement Re Computation of Per Share 35 Form 10-KSB
Earnings (current)
13.01 1997 Annual Report to Shareholders 36 Form 10-KSB
(current)
21.01 List of Subsidiaries of the Registrant 79 Form 10-KSB
(current)
23.01 Consent of Grant Thornton LLP 80 Form 10-KSB
(current)
27.01 Financial Data Schedule 81 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.
+ Denotes exhibits specifically incorporated in this Form 10-KSB by reference
pursuant to Regulation S-B, Item 10(f)(2). These documents are located under
File No. 33-17286 at the Securities and Exchange Commission, Public Reference
Branch, 450 5th St., N.W., Washington, D.C. 20549.
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EXHIBIT 10.02
EMPLOYMENT AGREEMENT FOR
JAMES C. TRIPLETT
EMPLOYMENT AGREEMENT
This Agreement made effective as of the 25th day of August, 1997, between Hart
Scientific, Inc. of American Fork Utah (hereinafter referred to as "Hart")
and James C. Triplett, (hereinafter referred to as the "Jim").
W I T N E S E T H:
In consideration of the mutual covenants and conditions hereinafter set forth,
and other good and valuable consideration, the receipt and adequacy of which
is hereby acknowledged, Hart and Jim agree as follows:
1. Employment.
----------
Hart hereby employs Jim, and he hereby accepts such employment, to perform
the Services as hereinafter defined.
2. Term of Employment.
------------------
The term of this Agreement shall begin on the date first above written,
and shall end ten years thereafter.
3. Services:
--------
(1) Jim shall devote substantial time and attention to the affairs of
Hart as necessary to perform such duties as may be assigned to him as
Chairman and Chief Executive Officer of Hart Scientific, Inc., from time to
time, by the Board of Directors. As CEO his duties shall include the
supervision of the construction and operation of the plant or plants of Hart,
the purchase and installation of equipment, the employment and fixing of
compensation and discharge of employees, the selection and purchase of capital
equipment and operating supplies and other duties usually incident to those of
the CEO. All duties set out in this Section 3 shall be known as "Services" for
purposes of this Agreement. If Jim's title or duties should change during the
term of this Agreement, such change shall not impact any terms of this
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Agreement including the base compensation, additional compensation, or
benefits.
(2) From time to time Jim may work on additional academic degrees or
teach classes at local universities. Hart recognizes that this pursuit will
put certain demands on the time of Jim which is not within his control. Should
these time demands conflict with his duties, he shall use his best efforts to
resolve the conflicts; however, he shall not be penalized for any conflicts,
time demands, travel or other such duties, including teaching, provided it is
not more than one class per semester ( four hours or less), that may be
required to meet the Ph.D. degree requirements and which can not be resolved
to the satisfaction of Hart.
4. Base Compensation:
-----------------
For all Services rendered by Jim under this Agreement, basic compensation
shall be paid to him as follows:
(1) As basic compensation Jim shall be paid a base salary of $285,000
per year the first year of this agreement, and such base compensation will
rise a minimum of 5% per year for each year of this Agreement. However, based
upon the performance of the company and Jim, the Board may set his salary
higher than provided for under this section if the Board so chooses. However,
during the term of this Agreement if Hart Scientific (only Hart) has a year
in which it does not earn a profit, the Board can reduce Jim's salary by no
more than $100,000 annually, and the Board shall fully restore Jim's salary
when the company achieves a before tax profit equal to 3% of gross revenues of
Hart only. . All base salaries shall be payable in equal installments not less
than monthly. Hart shall deduct and withhold all necessary Social Security and
withholding taxes and any other similar sums required by law from Jim's
salary.
(2) Hart will reimburse certain business expenses of Jim as the Board of
Directors, or other designated party, from time to time shall specify. Normal
business expenses do not require Board approval for reimbursement.
(3) He shall be included in Hart's major medical and hospitalization plan
and other benefit plans including profit sharing, incentive compensation,
executive bonus plan, pension plan, group term life insurance and dental
plans. In addition, at the end of the term of this Agreement, or if this
Agreement is terminated With Cause, Without Cause, or at Jim's request, Hart
agrees to provide Jim with major medical and hospitalization insurance until
Jim is eligible to receive medicare. Such insurance shall not provide benefits
less than those provided for other employees through Hart's group health
insurance plan. The coverage that Hart provides Jim shall be valid regardless
of where Jim lives.
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(4) Hart shall pay premiums for up to $1,000,000 of life insurance on
Jim each year provided such premiums do not cost more than $2000 per year. Jim
must pay the annual premium and submit a receipt for reimbursement by the
company. Failure to pay the annual premium on the part of Jim shall release
Hart from any obligation to provide life insurance to him. In addition, Hart
is not obligated to provide life insurance for him should he become
uninsurable.
(5) Jim shall receive 5 weeks of vacation per year. He can carry over one
week of vacation each year for a total of 6 weeks in any given year; however,
he shall not be entitled to be reimbursed for unused vacation.
(6) In the event of accident or term illness which prohibits Jim from
performing his normal job for Hart, Hart agrees to continue Jim's salary and
benefits for a period of 180 days, even if he is unable to return to work for
Hart. If Jim does not have disability insurance paid for by him, either in a
group plan or individual policy, Hart, at its expense, agrees to provide Jim
with long term disability insurance to cover any long term disabilities beyond
the 180 day period covered by Hart. Such insurance shall provide, at the time
of disability, salary replacement of up to 60% of his salary including Social
Security payments, per year through age 65, and not require him to accept jobs
outside of his own occupation through age 65. Hart does not have to provide
Jim with disability insurance if either he or the company, as a whole, becomes
uninsurable. If Jim is disabled during the term of this Agreement and is
required to stop performing his duties for a period of time in excess of 180
days, this Agreement shall continue in force; however, if Jim is unable to
perform his duties and is on disability, Hart may suspend payments of his base
salary and bonus until he is fit to return to work, or Hart can terminate this
contract if his disability lasts more than 4 years. When he is fit to perform
his duties, Hart shall allow him to return to work and resume payment of his
compensation as defined in this Agreement.
(7) During the term of this Agreement, if any member of Jim's family
needs major medical care due to accident, injury or illness, Jim will be
allowed to take up to 4 weeks off with pay in any given year. The Board can
require Jim to provide reasonable details of the family medical problem he
must attend to. Anytime off beyond the 4 weeks specified herein must be
approved by the Board on a case by case basis.
5. Change in CEO Position
----------------------
(1) At the end of year five of this Agreement, the Board can appoint a
new CEO if the Board determines that it is in the best interest of Hart. In
such case, Jim shall remain as Chairman of the Board of Hart for the remainder
of his contract. At the time of the change, the Board may reduce Jim's base
salary as they see fit, but in no case can they reduce it to less than 50% of
the base salary he was receiving at the time of the change in position. If
there is a reduction in Jim's base salary, there shall also be a corresponding
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reduction in Jim's duties and the time he is expected to devote to Hart. Such
a change of duties shall be negotiated by Jim and the Board at the time of
the reduction in base salary. As Chairman of the Board, Jim shall participate
in all other forms of compensation he would have been eligible for as CEO
including his bonus and incentive compensation. The Board will not reduce
those in any larger percentage than the reduction in his base salary.
(2) At the end of year five of this Agreement, Jim can voluntarily
relinquish the CEO title and retain his position as Chairman of the Board. In
such circumstances the Board will negotiate with Jim a reduction in duties and
the time Jim is expected to devote to Hart. In addition, the Board can reduce
Jim's salary to an amount not less than 50% of the base salary he is receiving
at the time he relinquished the CEO title. As Chairman of the Board, Jim shall
participate in all other forms of compensation he would have been eligible for
as CEO including his bonus and incentive compensation. The Board will not
reduce those in any larger percentage than the reduction in his base salary.
(3) At anytime during the term of this Agreement, the Board may negotiate
with Jim to effect a change in the CEO position. If such a change comes before
the end of year 5 of this Agreement, Jim shall remain as Chairman of the Board
for the duration of his contract at the base salary he was earning at the time
of the change, except that at the end of year 5 of this Agreement the Board
may act according to paragraph (1) above. As Chairman of the Board, Jim shall
participate in all other forms of compensation he would have been eligible for
as CEO including his bonus and incentive compensation. The Board will not
reduce those in any larger percentage than the reduction in his base salary.
6. Best Efforts:
------------
Jim agrees that he will at all times, faithfully, industriously, and to the
best of his abilities, experience, and talents perform all duties that may be
required of and from him by the Board.. If he fails to perform his duties in a
competent manner as determined by a vote of 75% of the Board, Hart shall warn
Jim in writing identifying the specific deficiencies to be corrected, except
those deficiencies may not be the result of illness or disability. If Jim does
not correct such deficiencies to the extent an arbiter would require of him in
a reasonable time period after being warned, then Jim may be discharged With
Cause after three such warnings in one year and failure on Jim's part to
correct such deficiencies to the satisfaction of an arbiter.
7. Termination by Hart.
-------------------
Hart may terminate this Agreement for the following reasons:
(1) If i) there is substantial and irrefutable evidence Jim embezzled
significant assets of Hart, or (ii) Jim is convicted of any felony involving a
crime of moral turpitude the result of which causes substantial embarrassment
or hindrance to Hart, or (iii) if he willfully violates the trade secrets
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provisions contained in Section (9) of this Agreement, or (iv) if he is in
breach of Section 6, Best Efforts.. In the event of termination upon a
conviction described above, prior to the completion of the term of employment
specified herein, Jim shall be entitled to all compensation due him as
provided for in this Agreement, and said compensation shall be paid by Hart
within thirty (30) days of the termination date. A termination under this
paragraph shall be considered With Cause.
(2) If Jim should be disabled for a period of more than 180 days in any
year, then Hart may suspend this Agreement with 30 days written notice if the
Hart meets the criteria as set out in Section 4, Base Compensation Paragraph
6. If Hart is not in compliance with Section 4, Base Compensation, Paragraph
6, and does not insure Jim or have proof that Jim purchased his own insurance
at his expense, Hart shall be responsible for Jim's disability payments during
his time of disability. If this Agreement is suspended because of disability,
Jim shall be entitled to all compensation due him as provided for in this
Agreement, and any remaining base compensation shall be paid by Hart within
thirty (30) days of the termination date. When Jim recovers from his
disability he will be allowed to return to work as described in Section 2,
Base Compensation, paragraph 6.
(3) If Jim should die during the term of this Agreement, Hart may
terminate this Agreement immediately upon his death. Jim's heirs or estate
shall be entitled to all compensation due him as provided for in this
Agreement, and any remaining base compensation shall be paid by Hart to
Jim's estate within thirty (30) days of the termination date.
(4) If Hart terminates this Agreement Without Cause anytime before the
end of the employment term defined in this Agreement,, Jim shall be entitled
to severance pay of 50% of the base compensation remaining to be paid over
the life of the contract, or one year's salary, whichever is greater. In
addition, to severance Jim shall receive all other compensation due him
under this Agreement.
8. Termination by Jim.
-------------------
Jim may terminate this Agreement for the following reasons:
(1) For Good Reason which shall mean for purposes of this Agreement (i) a
change in control of Hart as defined below, (ii) a failure of Hart to comply
with any material provision of this Agreement which has not been cured within
30 days after notice of noncompliance has been given by Jim to Hart, (iii) any
attempted termination by Hart which is not in compliance with the terms and
conditions of this Agreement, or (iv) Jim is required to move or be based
anywhere other than the location at which he is based at the time of the
Change in Control. A Change in Control of Hart shall mean a change in the
basic ownership of Hart shares where 45 % or more of the voting shares are
acquired or accumulated in one or several transactions by another entity. In
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addition, if the individuals who constitute the Board at date of this
Agreement and any additions within 90 days after the date of this Agreement
(the "Incumbent Board") cease to constitute at least a majority of the Board
at any time during the term of this Agreement, a Change in Control will be
considered to have taken place. Not withstanding anything to the contrary, no
Change in Control shall be deemed to have occurred for purposes of this
Agreement by virtue of any transaction which results in Jim, or a group of
persons which includes Jim, acquiring, directly or indirectly, 45 % or more of
the combined voting power of Hart's securities. If Jim terminates this
Agreement for Good Reason, Jim is due the same compensation as described in
Section 7 Termination by Hart, paragraph 4, which is termination Without
Cause.
(2) Jim may terminate this Agreement at any time if the termination is
due to health problems which impair Jim's performance to an extent that
makes his continued efforts to do his duties as defined by this Agreement
hazardous to his physical or mental well-being , or his life, provided that he
furnishes to Hart a written statement from a qualified doctor to this effect.
If Jim terminates this Agreement for Health Reasons, Jim shall be entitled to
three months of his base salary at the time of the termination plus the
continuation of his health insurance benefits as previously stated in
paragraph (3) of Section 4 Base Compensation..
(3) Jim may terminate this Agreement at any time by delivering written
notice of such termination to Hart ninety days prior to such termination. If
Jim voluntarily terminates this Agreement for any reason other than with Good
Reason or for Health Reasons, he is due no severance other than continuation
of his health insurance benefits defined in paragraph (3) of Section 4 Base
Compensation.. Loss of the compensation described herein is the only penalty
of voluntary early termination by Jim.
9. Trade Secrets:
-------------
(1) Jim recognizes that during his employment he will receive, develop,
or otherwise acquire information which is of a secret or confidential nature.
Except as authorized in writing by Hart, any information of Hart he obtained
during the course of his employment relating to inventions, procedures,
machinery, apparatus, ideas, technical data, or other information which is of
a secret or confidential nature, whether or not acquired or developed by Jim,
he shall use his best efforts to keep confidential during the term of his
employment.
(2) Jim will communicate to Hart promptly and fully all discoveries,
improvements, and inventions (hereinafter called "Inventions") made or
conceived by him, either solely or jointly with others, during his employment
and for six months thereafter, which are similar to actual or anticipated
business, work, or investigations of Hart or which result from or are
suggested by any work Jim may do for Hart; and such Inventions, except as
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provided below, shall be and remain the sole and exclusive property of Hart or
its nominees. Any product, substance or process for which a United States
patent has been granted and which product, substance or process is developed
directly by Jim during the term of this Agreement, shall be owned one-half by
Hart and one-half by him. Hart shall have an exclusive worldwide license to
make, use and sell products, substances and processes covered by patents
obtained. Hart shall have sole authority to determine when an application for
a patent shall be pursued for any product, substance or process. If Hart
elects to apply for a patent, all expenses incurred in pursuing any patent
shall be borne entirely by Hart. If Hart elects not to apply for a patent,
the person who should become vested with an interest in the patent, may pursue
a patent application at his sole expense.
(3) Jim will keep and maintain adequate and current written records of
all such Inventions, in the form of notes, sketches, drawings, and reports
relating thereto, which records shall be the property of and available to Hart
at all times. All such records shall remain on the premises of Hart at all
times and shall be deemed to be secret and confidential.
(4) Jim will, during and after his employment, at Hart's expense, assist
Hart and its nominees in every proper way to obtain and vest in it or them
title to patents on such inventions in all countries by executing all
necessary documents, including applications for patents and assignments
thereof.
10. Covenant Not To Compete:
-----------------------
After termination of this Agreement Jim will not divert or attempt to divert
away business from Hart by influencing or attempting to influence any
customers of Hart with whom he may have been dealing; provided, however, that
the restrictions contained in this sentence shall apply only for a maximum
period of two years and to such capacities, functions, operations and areas as
shall be reasonably necessary for the protection of Hart and shall be
construed to be thus divisible and enforceable provided that Hart has paid Jim
all compensation due under the terms and conditions of this Agreement. If Hart
has not paid the compensation defined herein to him for any reason, this
covenant not to compete shall be null and void.
11. Computer Equipment:
------------------
During the term of employment, Hart will furnish Jim with computer equipment
and software generally consisting of one desk top computer, printer and
software, and at least one portable computer and software. Upon termination
of this agreement he shall have the right to purchase from Hart the computers,
printers and software in regular use by him anytime within the prior six
months from the date of termination. The purchase price shall be no more than
the depreciated value of the equipment, whichever is less.
Page 17
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<PAGE>
12. Successors:
----------
Hart will require any successor ( whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business or assets of Hart, by agreement in form and substance reasonably
satisfactory to Jim, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Hart would be required to
perform it if no such succession had taken place. Failure of Hart to obtain
this agreement prior to the effectiveness of any succession shall be a breach
of this Agreement and shall entitle Jim to receive immediate payment in full
of all as yet to be paid compensation and benefits available during the term
of this Agreement and after. During the close of any sale, merger,
consolidation or other form of transfer of the majority of Hart's assets, Jim
shall be given a new contract prior to the actual close taking place. Such a
contract shall be with the surviving company under the same terms and
conditions as described in this Agreement. If such an Agreement is not forth
coming from the acquiring entity before or at the time of the closing of
the transaction, this shall be considered termination Without Cause. In such
case, any and all monies owed Jim shall be paid to him prior to close in the
form of a cashier's check for the compensation due him as calculated under
termination Without Cause.
13. Indemnification:
---------------
Hart shall indemnify Jim to the full extent of any expenses, penalties,
damages or other pecuniary loss which he may suffer as a result of his
responsibilities, obligations or duties in connection with carrying out the
employment functions defined in this Agreement and in managing the business of
Hart and Hart only, and specifically as a Director and/or Officer of Hart.
Such indemnification shall be paid by Hart to Jim to the extent that
fiduciary liability or directors and officers insurance is not available to
cover the payment of such items. Expenses incurred by Jim in defending a claim
against him in a Proceeding shall be paid by Hart as incurred and in advance
of the final disposition of such Proceeding. The indemnification under this
Agreement shall continue as to him even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and
personal representatives of Jim. The indemnification under this Agreement
shall cover Jim's service as a Director and/or Officer and all of his acts in
such capacity, whether prior to, or on or after the date of the Agreement.
This indemnification does not apply to illegal acts.
14. Governing Law:
-------------
This Agreement shall be subject to and governed by the laws of the State of
Utah.
15. Binding Effect:
--------------
This Agreement shall be binding upon and inure to the benefit of Hart and
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<PAGE>
Jim and their respective heirs, legal representatives, personal
representatives, successors, and assigns. If he should die while any amounts
would still be payable if he had continued to live, all such amounts, unless
otherwise provided, shall be paid in accordance with the terms of this
Agreement to his designee or, if there is no such designee, to his estate.
16. Entire Agreement:
----------------
This writing contains the entire agreement concerning the employment
arrangements between the parties and shall, as of the date hereof, supersede
all other arrangements between the parties. No waiver or modification of this
Agreement nor of any of the conditions contained herein shall be valid unless
in writing and duly signed by the party to be charged therewith.
17. Illegal Provisions:
------------------
If any provision of this Agreement is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, each provision shall be deemed
amended to conform to applicable laws so as to be valid and enforceable or if
it cannot be so amended without materially altering the intention of the
parties, it shall be stricken and the remainder of this Agreement shall remain
in full force and effect.
18. Section Headings:
----------------
Section headings contained in this Agreement are included for
convenience only and form no part of the agreement between the parties.
19. Written Consent:
---------------
Neither the Agreement nor any right or obligation arising hereunder may be
assigned by Jim without the prior written consent of Hart.
20. Warranties:
----------
All representations, warranties, indemnifications, obligations of
confidentiality, rights of confidentiality, proprietary rights and
indemnifications shall survive the termination of this Agreement.
21. Arbitration.
-----------
Should any dispute arise between the parties concerning the performance of
this Agreement, the parties agree to mediation and, if not resolved through
such mediation within 30 days, final and binding arbitration in Salt Lake
City, Utah in accordance with the rules of the American Arbitration
Association subject Article XII in the case of alleged breach of Articles X
or XI. The decision rendered in any arbitration proceedings shall be in
writing and shall be set forth the basis therefor. The parties shall abide by
Page 19
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<PAGE>
the award rendered in the arbitration proceedings, and such award may be
entered as a final, non appealable judgment, and be enforced and executed
upon, in any court having jurisdiction over the party against whom
enforcement of such award is sought. Each of the parties agrees ( in
connection with any action brought to enforce the arbitration provisions of
this section) not to assert in any such action, any claim that it is not
subject to the personal jurisdiction of such court, that the action is brought
in an inconvenient forum, that the venue of the action is improper, or that
such mediation or arbitration may not be enforced by such courts. Each party
agrees that service of process may be made upon it by any method authorized by
the laws of the State of Utah.
22. Costs and Attorneys' Fees.
-------------------------
If Jim shall incur any costs resulting from enforcement of this Agreement,
whether by institution of suit or otherwise, Hart shall be liable to the
prevailing party of such costs, including reasonable attorneys' fees.
23. Waiver.
------
Any failure by either party to insist upon strict performance of this
Agreement or any terms hereof shall not be deemed to be a waiver of any of the
terms and provisions hereof.
24. Duty to Mitigate.
----------------
Jim shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise and Hart will
not be entitled to set off against amounts payable to him pursuant to this
Agreement any amounts earned by him from other employment during the remaining
term of this Agreement.
25. Board Resolution.
----------------
This Agreement has been authorized on behalf of Hart at a special meeting of
it Board of Directors by a resolution adopted by a majority of the other
directors of Hart.
26. Breaches and Remedies.
---------------------
In the event Jim breaches any portion of this Agreement, all remedies and
liabilities have been defined herein. No other remedies or liabilities exist
Page 20
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<PAGE>
outside of those defined in this Agreement.
Hart Scientific, Inc. James C. Triplett
By:DENNIS HUNTER JAMES C. TRIPLETT
-------------------- ------------------
Dennis Hunter, Director
Hart Scientific, Inc.
By:DAVID LIFSCHULTZ
--------------------
David Lifschultz, Director
Page 21
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EXHIBIT 10.03
EMPLOYMENT AGREEMENT FOR
J. RANDALL OWEN
EMPLOYMENT AGREEMENT
This Agreement made effective as of the 25th day of August, 1997, between
Hart Scientific, Inc. of American Fork, Utah (hereinafter referred to as the
("Hart") and J. Randall Owen, (hereinafter referred to as the "Randy").
W I T N E S E T H:
In consideration of the mutual covenants and conditions hereinafter set
forth, and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Hart and Randy agree as follows:
1. Employment.
----------
Hart hereby employs Randy, and Randy hereby accepts such employment, to
perform the Services (as hereinafter defined).
2. Term of Employment:
------------------
(a) The Initial Term of this Agreement shall begin on the date first
above written, and shall end two years thereafter. This Agreement may be
renewed, if mutually agreed upon by both parties, for three successive one
year periods.
(b) Hart may terminate this Agreement at any time for Cause (as
hereinafter defined) with sixty days written notice. Randy may terminate this
Agreement at any time after two years by delivering written notice of such
termination to Hart 180 days prior to such termination.
(c) If Randy terminates this Agreement pursuant to paragraph (b) of
this Section, Hart may, at its sole option and discretion waive the 180 day
notice period required in Section 2(b) above and allow Randy to terminate this
employment with a notice period less than 180 days. Randy shall provide the
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<PAGE>
Services required under Section 3 during each notice period for the
compensation provided in Section 4, during which time the provision of this
Agreement shall remain in full force and effect.
(d) Should Hart terminate this Agreement for one or more of the
following reasons, such termination shall be deemed for purposes of this
Agreement to be "With Cause":
(i) embezzlement or conversion by Randy of significant assets
of Hart.
(ii) indictment or conviction of Randy of any felony or any
misdemeanor involving a crime of moral turpitude the result of which causes
substantial embarrassment or hindrance to Hart.
(iii) violation of any term of this Agreement, including, but
not limited to, violation of the trade secrets provisions contained in Section
(6) of this Agreement.
3. Services.
--------
Randy, as President of Hart Scientific, shall devote essentially his full
time, attention, and energies to the affairs of Hart and shall perform such
duties as may be assigned to him, from time to time, by the Board of
Directors. All duties set out in this Section 3 shall be known as "Services"
for purposes of this Agreement. Hart shall have the power to determine not
only the specific duties which shall be performed by Randy, but also the power
to determine, within reason, the means and the manner by which those duties
shall be performed.
4. Compensation:
------------
For all Services rendered by Randy under this Agreement, base compensation
shall be paid to Randy as follows:
(1) Randy shall be paid a minimum salary of $226,000 per
year, payable in equal installments not less than monthly. Hart shall deduct
and withhold all necessary Social Security and withholding taxes and any other
similar sums required by law from Randy's salary. However, during the term of
this Agreement if Hart has a year in which it does not earn a profit, the
Board can reduce Randy's salary by no more than $50,000 annually, and the
Board shall fully restore Randy's salary when the company achieves a before
tax profit equal to 3% of the gross revenue of Hart Scientific only. The Board
of Directors can also set a higher salary for Randy without causing a change
in the minimum.
(2) Hart will reimburse certain business expenses of Randy
as the Board of Directors or Chief Executive Officer from time to time shall
specify.
Page 23
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<PAGE>
(3) Randy shall be included in Hart's hospitalization plan
and other benefit plans including profit sharing and incentive compensation.
(4) Hart shall pay premiums for up to $300,000 of life
insurance on Randy each year provided such premiums do not cost more than
$1000 per year. Randy must pay the annual premium and submit a receipt for
reimbursement by the Hart. Failure to pay the annual premium on the part of
Randy shall release Hart from any obligation to provide life insurance to him.
In addition, Hart is not obligated to provide life insurance for Randy should
he become uninsurable.
(5) Randy shall receive 5 weeks of vacation per year. Randy
can transfer, or carry over one week of vacation, for a total of 6 weeks in
any given year, from one year to the next. He shall not be entitled to be
reimbursed for unused vacation.
(7) In the event Hart terminates this agreement for cause,
Randy shall receive three months severance pay based on his base salary at the
time of termination. If Randy terminates this Agreement for any reason, he is
not entitled to any severance pay. If this Agreement is terminated by Hart
anytime before the end of its term, severance is 50% of the base compensation
left to be paid during its term.
(8) During the term of this Agreement if any member of
Randy's immediate family needs major medical care due to accident, injury, or
illness, Randy will be allowed to take up to 4 weeks off with pay in any given
year. The Board can require Randy to provide reasonable details of the family
medical problem he must attend to. Any time off beyond the 4 weeks specified
herein must be approved by the Board on a case-by-case basis.
5. Best Efforts Of Randy:
---------------------
Randy agrees that he will at all times, faithfully, industriously, and to the
best of his ability, experience, and talents perform all duties that may be
required of and from him pursuant to the express and implicit terms hereof, to
the reasonable satisfaction of Hart.
6. Trade Secrets:
-------------
(a) Randy recognizes that during his employment he will receive,
develop, or otherwise acquire information which is of a secret or confidential
nature. Except as authorized in writing by Hart, any information of Hart he
obtained during the course of his employment relating to inventions,
procedures, machinery, apparatus, ideas, technical data, marketing
information, customer lists or other business or technical information which
is of a secret or confidential nature, whether or not acquired or developed by
Randy, he shall use his best efforts to keep confidential during the term of
his employment and for ten years thereafter.
Page 24
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<PAGE>
(b) Randy will communicate to Hart promptly and fully all
discoveries, improvements, and inventions (hereinafter called ("Inventions")
made or conceived by Randy, either solely or jointly with others, during his
employment and for six months thereafter, which are specifically related to
actual or anticipated business, work, or investigations of Hart in the field
of metrology and calibration science; and such Inventions, except as provided
below, shall be and remain the sole and exclusive property of Hart or its
nominees. Any product, substance or process for which a United States patent
has been granted and which product, substance or process is developed directly
by Randy during the term of this Agreement, shall be owned one-half by Hart
and one-half by such Randy. Hart shall have an exclusive worldwide license to
make, use and sell products, substances and processes covered by patents
obtained. Hart shall have sole authority to determine when an application for
a patent shall be pursued for any product, substance or process. If Hart
elects to apply for a patent, all expenses incurred in pursuing any patent
shall be borne entirely by Hart. If Hart elects not to apply for a patent,
the person who should become vested with an interest in the patent, may pursue
a patent application at his sole expense.
(c) Randy will keep and maintain adequate and current written
records of all such Inventions, in the form of notes, sketches, drawings, and
reports relating thereto, which records shall be the property of and available
to Hart at all times. All such records shall remain on the premises of Hart
at all times and shall be deemed to be secret and confidential.
(d) Randy will, during and after his employment, without charge to
Hart, but at his request and expense, assist Hart and its nominees in every
proper way to obtain and vest in it or them title to patents on such
inventions in all countries by executing all necessary documents, including
applications for patents and assignments thereof.
7. Covenant Not To Compete:
-----------------------
After termination of this Agreement Randy will not divert or attempt to divert
away business from Hart by influencing or attempting to influence any
customers of Hart with whom he may have been dealing; provided, however, that
the restrictions contained in this sentence shall apply only for a maximum
period of two years and to such capacities, functions, operations and areas as
shall be reasonably necessary for the protection of Hart and shall be
construed to be thus divisible and enforceable provided that Hart has paid
Randy all compensation due under the terms and conditions of this Agreement.
If Hart has not paid the compensation defined herein to him for any reason,
this covenant not to compete shall be null and void.
8. Successors:
----------
Hart will require any successor ( whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
Page 25
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<PAGE>
business or assets of Hart, by agreement in form and substance reasonably
satisfactory to Randy, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Hart would be required to
perform it if no such succession had taken place. Failure of Hart to obtain
agreement prior to the effectiveness of any succession shall be a breach of
this Agreement and shall entitle Randy to receive immediate payment in full of
all as yet to be paid compensation. It is an additional severance and does not
replace any other type of compensation Randy would be entitled to under the
terms and conditions of this Agreement.
9. Governing Law:
-------------
This Agreement shall be subject to and governed by the laws of the State of
Utah.
10. Binding Effect:
--------------
This Agreement shall be binding upon and inure to the benefit of Hart and
Randy and their respective heirs, legal representatives, personal
representatives, successors, and assigns.
11. Entire Agreement:
----------------
This writing contains the entire agreement concerning the employment
arrangements between the parties and shall, as of the date hereof, supersede
all other arrangements between the parties. No waiver or modification of this
Agreement nor of any of the conditions contained herein shall be valid unless
in writing and duly signed by the party to be charged therewith.
12. Illegal Provisions:
------------------
If any provision of this Agreement is or becomes or is deemed invalid, illegal
or unenforceable in any jurisdiction, each provision shall be deemed amended
to conform to applicable laws so as to be valid and enforceable or if it
cannot be so amended without materially altering the intention of the parties,
it shall be stricken and the remainder of this Agreement shall remain in full
force and effect.
13. Section Headings:
----------------
Section headings contained in this Agreement are included for convenience only
and form no part of the agreement between the parties.
14. Written Consent:
---------------
Neither the Agreement nor any right or obligation arising hereunder may be
assigned by Randy without the prior written consent of Hart.
Page 26
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<PAGE>
15. Warranties:
----------
All representations, warranties, indemnifications, obligations of
confidentiality, rights of confidentiality, proprietary rights and
indemnifications shall survive the termination of this Agreement.
Hart Scientific, Inc. J. Randall Owen
By:JAMES C. TRIPLETT J. RANDALL OWEN
--------------------- -------------------
Page 27
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<PAGE>
EXHIBIT 10.04
EMPLOYMENT AGREEMENT FOR
MICHAEL HIRST
EMPLOYMENT AGREEMENT
This Agreement made effective as of the 1st day of August, 1993,
between Hart Scientific, Inc. of Pleasant Grove, Utah (hereinafter referred to
as the "Hart") and Michael W. Hirst, (hereinafter referred to as the "Mike").
W I T N E S S E T H:
- - - - - - - - - -
In consideration of the mutual covenants and conditions hereinafter set
forth, and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, Hart and Mike agree as follows:
1. Employment:
----------
Hart hereby employs Mike, and Mike hereby accepts such employment, to perform
the Services (as hereinafter defined).
2. Term of Employment:
------------------
a. The Initial Term of this Agreement shall begin on the date
first above written, and shall end ten years thereafter.
b. Hart may terminate this Agreement at any time for Cause (as
hereinafter defined) with sixty days written notice. Mike may terminate this
Agreement at any time after five years by delivering written notice of such
termination to Hart ninety days prior to such termination. If Hart terminates
this Agreement for any reason other than Cause, Mike shall receive severance
of 50% of the remaining amount he would have received under the contract but
in no case shall that amount be less than one year's salary.
c. If Mike terminates this Agreement pursuant to paragraph (b) of
this Section, Hart may, at its sole option and discretion waive the 90 day
notice period required in Section 2(b) above and allow Mike to terminate this
employment with a notice period less than 90 days. Mike shall provide the
Services required under Section 3 during each notice period for the
compensation provided in Section 4, during which time the provision of this
Agreement shall remain in full force and effect.
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<PAGE>
d. Should Hart terminate this Agreement for one or more of the
following reasons, such termination shall be deemed for purposes of this
Agreement to be "With Cause":
(1) embezzlement or conversion by Mike of significant assets of
Hart.
(2) indictment or conviction of Mike of any felony or any
misdemeanor involving a crime of moral turpitude the result of which causes
substantial embarrassment or hindrance to Hart.
(3) violation of any term of this Agreement, including, but not
limited to, violation of the trade secrets provisions contained in Section (6)
of this Agreement.
(4) violation of Section 5, Best Efforts.
3. Services:
--------
Mike, as Vice President of Engineering, shall devote essentially his full time
attention and energies to the affairs of Hart and shall perform such duties as
may be assigned to him, from time to time, by the Board of Directors. All
duties set out in this Section 3 shall be known as "Services" for purposes of
this Agreement. Hart shall have the power to determine not only the specific
duties which shall be performed by Mike, but also the power to determine,
within reason, the means and the manner by which those duties shall be
performed.
4. Compensation:
------------
a. For all Services rendered by Mike under this agreement, base
compensation shall be paid to Mike as follows:
(1) Mike shall be paid a minimum salary of $82,000 per year,
payable in equal installments not less than monthly. Hart shall deduct and
withhold all necessary Social Security and withholding taxes and any other
similar sums required by law from Mike's salary. The minimum salary can be
increased but not lowered by the Board of Directors at anytime during the term
of this agreement, unless an across the board reduction in all employees'
salaries shall be deemed necessary for the financial well being and health of
Hart. Should such a reduction occur, Mike's base salary shall be restored at
such a time as all of the employee's return to their previous base salaries.
The Board of Directors can also set a higher salary for Mike without causing a
change in the minimum.
(2) Hart will reimburse certain business expenses of Mike as
the Board of Directors or Chief Executive Officer from time to time shall
specify.
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<PAGE>
(3) Mike shall be included in Hart's hospitalization plan and
other benefit plans including profit sharing and incentive compensation.
(4) Hart shall pay premiums for up to $300,000 of life
insurance on Mike each year provided such premiums do not cost more than $1000
per year. Mike must pay the annual premium and submit a receipt of
reimbursement by the Hart. Failure to pay the annual premium on the part of
Mike shall release Hart from any obligation to provide life insurance to him.
In addition, Hart is not obligated to provide life insurance for mike should
he become uninsurable.
(5) Mike shall receive 4 weeks of vacation per year. Mike can
transfer, or carry over one week of vacation, for a total of 5 weeks in any
given year, from one year to the next. Mike shall not be entitled to be
reimbursed for unused vacation.
(6) In the event of accident or term illness which prohibits
Mike from performing his normal job for Hart, Hart agrees to continue Mike's
salary and benefits for a period of 180 days, even if he is unable to return
to work for Hart In addition, Hart, at its expense, agrees to provide Mike
with long term disability insurance to cover any long term disabilities beyond
the 180 day period covered by Hart. Such insurance shall provide, at the time
of disability, salary replacement of up to 50% of his salary including Social
Security payments per year through age 65, and not require him to accept jobs
outside of his own occupation through age 65.
b. In addition to the base compensation, Mike shall receive an
advisory and consulting salary as follows:
After ten years and upon the cessation of full-time employment,
hart agrees to retain Mike as a consultant and advisor to Hart on an as needed
basis for a period of five years at a base compensation of 25% of his annual
base salary in the sixth year of this Agreement. For such compensation, he
agrees to make up to 500 hours per year of his time available to Hart. This
time may be provided on premises, at locations away from Hart while Mike is
working on Hart business, by mail and over the phone. In addition, to the
compensation provided for in this section, Hart agrees to reimburse him during
the consulting period any incidental expenses Mike may incur including travel,
phone charges, document preparation and other services necessary for
performance of Mike's duties while consulting or advising. Such compensation
shall be paid on the 6th day of each month regardless of when or how the
services are rendered. At anytime during the five year consulting Agreement,
Hart may buy out the balance of the contract for a total price of 50% of the
sum of the amounts left to be paid over the remaining years of the contract.
All monthly payments will be made as scheduled until the buyout amount is paid
in full. The consulting contract shall terminate immediately after the five
year term, or upon payment of the buyout, whichever is sooner.
Page 30
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<PAGE>
5. Best Efforts of Mike:
--------------------
Mike agrees that he will at all times, faithfully, industriously, and to the
best of his ability, experience, and talents perform all duties that may be
required of and from him pursuant to the express and implicit terms hereof, to
the reasonable satisfaction of Hart. If he fails to perform his duties in a
competent manner, Hart shall warn Mike in writing identifying the specific
deficiencies to be corrected, except those deficiencies may not be the result
of illness or disability. If Mike does not correct such deficiencies to the
extent an arbiter would require of him in a reasonable time period after being
warned, then Mike may be discharged With Cause after three such warnings in
one year and failure on Mike's part to correct such deficiencies to the
satisfaction of an arbiter.
6. Trade Secrets:
-------------
a. Mike recognizes that during his employment he will receive,
develop, or otherwise acquire information which is of a secret of confidential
nature. Except as authorized in writing by Hart, any information of Hart he
obtained during the course of his employment relating to inventions,
procedures, machinery, apparatus, ideas, technical data, or other information
which is of a secret or confidential nature, whether or not acquired or
developed by Mike, he shall use his best efforts to keep confidential during
the term of his employment.
b. Mike will communicate to Hart promptly and full all
discoveries, improvements, and inventions (hereinafter called ("Inventions")
made or conceived by Mike, either solely or jointly with others, during his
employment and for six months thereafter, which are specifically related to
actual or anticipated business, work, or investigations of Hart or which
result from or are suggested by any work Mike may do for Hart; and such
Inventions, except as provided below, shall be and remain the sole and
exclusive property of Hart or its nominees. Any product, substance or process
for which a United States patent has been granted and which product, substance
or process is developed directly by Mike during the term of this Agreement,
shall be owned one-half by Hart and one-half by him. Hart shall have an
exclusive worldwide license to make, use and sell products, substances and
processes covered by patents obtained. Hart shall have sole authority to
determine when an application for a patent shall be pursued for any product,
substance or process. If Hart elects to apply for a patent, all expenses
incurred in pursuing any patent shall be borne entirely by Hart. If Hart
elects not to apply for a patent, the person who should become vested with an
interest in the patent, may pursue a patent application at his sole expense.
c. Mike will keep and maintain adequate and current written
records of all such Inventions, in the form of notes, sketches, drawings, and
reports relating thereto, which records shall be the property of and available
to Hart at all times. All such records shall remain on the premises of Hart
Page 31
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<PAGE>
at all times and shall be deemed to be secret and confidential.
d. Mike will, during and after his employment, without charge to
Hart, but at his request and expense, assist Hart and its nominees in every
proper way to obtain and vest in it or their title to patents on such
inventions in all countries by executing all necessary documents, including
applications for patents and assignments thereof.
7. Covenant Not to Compete:
-----------------------
After termination of this Agreement, Mike will not divert or attempt to divert
away business from Hart by influencing or attempting to influence any
customers of Hart with whom he may have been dealing, provided, however, that
the restrictions contained in this sentence shall apply only for a maximum
period of two years and to such capacities, functions, operations, and areas
as shall be reasonably necessary for the protection of Hart and shall be
construed to be thus divisible and enforceable provided that Hart has paid
Mike all compensation due under the terms and conditions of this Agreement.
If Hart has not paid the compensation defined herein to him for any reason,
this covenant not to compete shall be null and void.
8. Successors:
----------
Hart will require any successor (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) to all or substantially all of the
business or assets of Hart, by agreement in form and substance reasonably
satisfactory to Mike, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Hart would be required to
perform it if no such succession had taken place. Failure of Hart to obtain
agreement prior to the effectiveness of any succession shall be a breach of
this Agreement and shall entitle Mike to receive immediate payment in full of
all as yet to be paid compensation available during the term of this
Agreement, and the additional sum of $200,000 payable immediately and in full
by Hart. This $200,000 represents Mike's compensation for the Successor
company not agreeing to accept his contract in full upon the succession. It
is an additional severance and does not replace any other type of compensation
Mike would be entitled to under the terms and conditions of this Agreement.
9. Governing Law:
-------------
This Agreement shall be subject to and governed by the laws of the State of
Utah.
10. Binding Effect:
--------------
This Agreement shall be binding upon and inure to the benefit of Hart and Mike
and their respective heirs, legal representatives, personal representatives,
successors, and assigns.
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<PAGE>
11. Entire Agreement:
----------------
This writing contains the entire agreement concerning the employment
arrangements between the parties and shall, as of the date hereof, supersede
all other arrangements between the parties. No waiver or modification of this
Agreement nor of any of the conditions contained herein shall be valid unless
in writing and duly signed by the party to be charged therewith.
12. Illegal Provisions:
------------------
If any provision of this Agreement is or becomes or is deemed invalid, illegal
or unenforceable in any jurisdiction, each provision shall be deemed amended
to conform to applicable laws so as to be valid and enforceable or if it
cannot be so amended without materially altering the intention of the parties,
it shall be stricken and the remainder of this Agreement shall remain in full
force and effect.
13. Section Headings:
----------------
Section headings contained in this Agreement are included for convenience only
and form no part of the agreement between the parties.
14. Written Consent:
---------------
Neither the Agreement nor any right or obligation arising hereunder may be
assigned by Mike without the prior written consent of Hart.
15. Warranties:
----------
All representations, warranties, indemnifications, obligations of
confidentiality, rights of confidentiality, proprietary rights and
indemnifications shall survive the termination of this Agreement.
16. Indemnification:
---------------
Hart shall indemnify Mike to the full extent of any expenses, penalties,
damages or other pecuniary loss which he may suffer as a result of his
responsibilities, obligations or duties in connection with carrying out the
employment functions defined in this Agreement and in managing the business of
Hart and Hart only, and specifically as a Director and/or Officer of Hart.
Such indemnification shall be paid by Hart to Mike to the extent that
fiduciary liability or directors and officers insurance is not available to
cover the payment of such items. Expenses incurred by Mike in defending a
claim against him in a proceeding shall be paid by Hart as incurred and in
advance of the final disposition of such proceeding. The indemnification
under this Agreement shall continue as to him even though he may have ceased
to be a Director and/or Officer and shall inure to the benefit of the heirs
and personal representatives of Mike, The indemnification under this
Agreement shall cover Mike's service as a Director and/or Officer and all of
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his acts in such capacity, whether prior to, or on or after the date of the
Agreement. This indemnification does not apply to illegal acts.
17. Arbitration:
-----------
Should any dispute arise between the parties concerning the performance of
this Agreement, the parties agree to mediation and, if not resolved through
such mediation within 30 days, final and binding arbitration in Salt Lake
City, Utah in accordance with the rules of the American Arbitration
Association subject to Article XII in the case of alleged breach of Articles X
or XI. The decision rendered in any arbitration proceedings shall be in
writing and shall set forth the basis therefor. The parties shall abide by
the award rendered in the arbitration proceedings, and such award may be
entered as final, non-appealable judgment, and may be enforced and executed
upon, in any court having jurisdiction over the party against whom enforcement
of such award is sought. Each of the parties agrees (in connection with any
action brought to enforce the arbitration provisions of this section) not to
assert in any such action, any claim that it is not subject to the personal
jurisdiction of such court, that the action is brought in an inconvenient
forum, that the venue of the action is improper, or that such mediation or
arbitration may not be enforced by such courts. Each party agrees that
service of process may be made upon it by any method authorized by the laws of
the State of Utah.
18. Costs and Attorneys' Fees:
-------------------------
If Mike shall incur any costs resulting from enforcement of this Agreement,
whether by institution of suit or otherwise, Hart shall be liable to the
prevailing party of such costs, including reasonable attorneys' fees.
HART SCIENTIFIC, INC.
By:JAMES C. TRIPLETT
-----------------------------------
MICHAEL W. HIRST
--------------------------------------
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EXHIBIT 11.01
STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS
Earnings Before Extraordinary* $978,000 = .02
--------------
Weighted average shares 58,210,000
----------
Extraordinary items (less applicable
income taxes of $7,000)* $314,000 = -
-------------
Weighted average shares 58,210,000
----------
Net Earnings* $1,292,000 = .02
----------------
Weighted average shares 58,210,000
----------
*No dividends were declared or paid in fiscal 1997
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EXHIBIT 13.01
1997 ANNUAL REPORT TO SHAREHOLDERS
LIFSCHULTZ INDUSTRIES, INC.
ANNUAL REPORT
1997
LIFSCHULTZ INDUSTRIES, INC.
641 West 59th Street
New York, NY 10019
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LIFSCHULTZ INDUSTRIES, INC.
641 West 59th Street
New York, NY 10019
October 27, 1997
Dear Shareholders:
Lifschultz Industries, Inc. and its subsidiaries (the "Company") continue
to face significant challenges in growing the Company. Although consolidated
revenues for fiscal 1997 grew 8.2%, earnings before income taxes and
extraordinary items declined 72%. This decline is attributable to a number of
factors adversely affecting the Company's sales of high margin products.
Specifically, certain competitors implemented pricing discount programs,
causing the Company to respond with similar discounts on certain products.
Sales into certain export markets also declined, particularly in situations
where currency fluctuations adversely affected the Company's competitive
position. Moreover, temporary technical manufacturing difficulties slowed
shipments for certain products during fiscal 1997.
The Company is vigorously responding to these challenges. It
successfully resolved its manufacturing difficulties and has reduced its
backlog for the delayed products. It also is attempting to strengthen its
marketing capabilities in certain export markets. The Company has and will
continue to spend substantial sums on research and development ($866,000 in
fiscal 1997) to remain competitive in the marketplace by developing new
products and product enhancements.
The Company has also been informed by the Nasdaq Stock Market
("Nasdaq") that it has implemented several new policies affecting the
Company's listing on the Nasdaq SmallCap Market. To maintain its listing, the
Company will be required to maintain a minimum bid price for its common stock
above one dollar per share, appoint two independent directors, establish an
audit committee of the board of directors, and implement other corporate
governance changes. While the Company has already followed many of these new
requirements for many years (annual meetings, annual reports, and proxy
solicitations, for example), the Company will have to incur additionally
expense to meet all of these requirements. Additionally, the Company will
need to undertake a stock combination (reverse stock split) to increase its
minimum bid price above one dollar per share. Company management presently
intends to comply with all of these requirements by February 1998 in order to
maintain its Nasdaq SmallCap Listing.
Despite these changes and challenges, the Company's current status
and outlook remain strong. Sales have rebounded in the first quarter of
fiscal 1998 from the last quarter of fiscal 1997, particularly in the sales
of high-margin products. The Company's current ratio continues to improve,
moving to 2.87 as of July 31, 1997 versus 2.06 on July 31, 1996. The Company
increased current assets by $232,000 to a total of $5,613,000, while reducing
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current liabilities by over $651,000. A tax loss carryforward of $9,143,000
should continue to have a positive future impact if the Company continues to
be profitable. The Company's non-operating subsidiary, Lifschultz Fast
Freight, Inc., continued to improve its situation by reducing its level of
external (non-intercompany) debt from $444,000 to $87,000. Net worth of the
Company improved from $6,236,000 at the end of fiscal 1996 to $7,540,000 at
the end of fiscal 1997. Net worth per share (based on outstanding shares of
common stock and preferred stock as if converted to common stock) improved
from $0.11 per share at the end of fiscal 1996 to $0.13 per share at the end
of fiscal 1997.
Overall, the Company continues to move forward in growing its
revenues. The Company is seeking to meet its challenges by increasing its
efforts with marketing and new product development. Management remains
optimistic about the ability of the Company to improve its overall performance
in 1998.
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. 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 the Board of Directors appointed David K. Lifschultz as
Chairman and Chief Executive Officer of the Company.
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
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and Chief Executive Officer of CSC, and Edwin A. Lewis, formerly a Vice
President of Hart, now serves as Vice President, Chief Scientist, and
Secretary of CSC. Except as otherwise noted, the discussion of Hart in the
following paragraphs includes the business of CSC.
DEVELOPMENTS IN FISCAL 1997
Total revenues for the Company rose from $11,292,000 in fiscal 1996 to
$12,214,000 in fiscal 1997, an increase of 8.2%. The Company's consolidated
net earnings of $2,015,000 in fiscal 1996 declined to $1,292,000 in fiscal
1997. Net earnings in both years contained extraordinary gains due to
extinguishment of debt at the Company's Fast Freight subsidiary, and net
earnings in fiscal 1997 contained a substantial tax benefit item. Earnings
before income tax and extraordinary items decreased from $845,000 in fiscal
year 1996 to $235,000 in fiscal year 1997, a 72% decrease. The Company's Hart
subsidiary has continued to expand sales of its existing product lines and
grew 9% during fiscal 1997. Hart's pretax net earnings decreased by 45%,
however, from $988,000 in fiscal 1996 to $546,000 for fiscal 1997. Company
management attributes the decline in earnings primarily to three factors
adversely affecting sales and shipments of certain of Hart's high-margin
products: discounting of similar products by competitors; reduction of
shipments to certain export markets (particularly where currency fluctuations
were adverse); and temporary technical manufacturing difficulties. The
Company's LFF subsidiary continued to improve its overall financial position
by substantially reducing its external debt burden from $444,000 at the end of
fiscal year 1996 to $87,000 at the end of fiscal year 1997.
SUBSEQUENT DEVELOPMENTS
The Nasdaq Stock Market announced in August 1997 that it was implementing
additional qualitative and quantitative requirements applicable to companies
listing on the Nasdaq SmallCap Market. The Company, which has listed on the
Nasdaq SmallCap Market since the early 1990s, will have to comply with the new
requirements in order to maintain that listing. While the Company has for
years followed many of the procedures specified in the new requirements
(annual meetings, proxy solicitations, and annual reports, for example), three
requirements in particular will require action by the Company prior to the
Nasdaq deadline in February 1998.
First, the Company must maintain a minimum bid price of one dollar. As
the Company's stock has been trading below one dollar over the last few years
(typically ranging from $.09 to $.25), the Company will need to undertake a
stock combination in order to raise the trading price significantly above one
dollar. Second, the Company must recruit and appoint a minimum of two
independent directors. Third, the Company must establish an "audit" committee
of at least two independent directors to assist the Company in its independent
audits. Although complying with such new requirements will entail initial
and ongoing expense for the Company, the Company presently intends to comply
with the requirements in order to continue its listing on the Nasdaq SmallCap
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Market and realize the benefits associated with having independent directors.
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.
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, 1997, Hart spent approximately $866,000 on
Company-sponsored research and development activities, compared to $694,000 in
fiscal 1996. Such expenditures are necessary for Hart to develop competitive
new products and enhancements for its current product line.
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
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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
accounted for more than 10 percent of total revenues during fiscal 1997,
and the loss of any single customer would not likely cause a material
adverse effect on Hart and 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, advertisements in technical publications, and participation in trade
shows. 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.
LFF has an operating lease, expiring at the end of September, 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 at that time ownership on a fully diluted basis of 10 percent of the
voting equity securities of the Company, together with demand registration
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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 $486,000 in fiscal
1997. Subsequent to the Lease Amendment, Penn Yard Associates transferred its
interests to the present landlord, Hudson Waterfront Associates.
EMPLOYEES
As of September 30, 1997, Hart employed 58 full-time and four part-time
employees, all of whom are employed in Hart's office/manufacturing facility in
American Fork, Utah. Also as of September 30, 1997, CSC employed 15 full-time
employees and two part 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.
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 7,500 square
feet, located in Provo, Utah, which it is leasing until the year 1999 at a
monthly cost of approximately $5,300. 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1997 VERSUS 1996
Total revenues for the Company increased 8.2% in fiscal 1997 to
$12,214,000 versus $11,292,000 in fiscal 1996. Hart revenues for fiscal 1997
were $11,725,000 versus $10,744,000 in fiscal 1996, a 9% 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
positive despite a decrease in sales of certain high-margin products due to
reduced export shipments to certain Far East markets, temporary technical
problems in manufacturing, and discounting by competitors of similar products.
Exports made up 35% of total revenues in fiscal 1997 compared to 34% in fiscal
1996. Future growth is expected to come primarily from increased sales to
existing customers, expanded international marketing efforts, and new
marketing efforts to reach new customers.
LFF had $486,000 in revenues during the 1997 fiscal year compared to
$506,000 in fiscal year 1996. 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.
Gross profit margins for Hart were 48% in fiscal 1997 compared to 54%
in fiscal 1996. 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. Margins were negatively impacted this fiscal year due
to substantial discounting by several competitors. To maintain market share
Hart was forced to discount in these special products areas also.
General and administrative (G&A) expenses at Hart were 26% of total
revenues in fiscal 1997 versus 28% during fiscal 1996. G&A expenses at LFF
were $545,000 in fiscal 1997 versus $548,000 in fiscal 1996.
Marketing expenses at Hart were unchanged at 10.4% of revenues in fiscal
1997 and fiscal 1996. 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 $866,000 in fiscal
1997 versus $694,000 in fiscal 1996. Hart continues to develop new products
and R&D spending is likely to increase in the future.
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Net earnings for the Company were $1,292,000 in fiscal 1997 versus
$2,015,000 for fiscal 1996. The Company's net earnings in 1997 included an
income tax benefit of $743,000 and an extraordinary gain of $314,000 for
extinguishment of debt. Similarly, the Company's net earnings in 1996
included an extraordinary gain of $1,296,000 from extinguishment of debt at
LFF. The $743,000 income tax benefit boosted 1997 fiscal year earnings
before extraordinary items to $978,000 versus $719,000 in fiscal 1996.
However, earnings of the Company before income tax and extraordinary gain
for fiscal 1997 were $235,000 versus $845,000 for fiscal 1996, a 72% decrease.
Hart Scientific had net pretax income of $546,000 for the current fiscal year
versus a net pretax income of $988,000 for fiscal 1996, a 45% decrease.
Management believes that this decrease resulted primarily from overall lower
margins and shipments on certain high-margin products which were adversely
affected primarily by three factors. First, competitors initiated price
discounts on similar products, causing the Company to respond with discounts
to remain competitive. Second, sales to certain Far East markets declined,
particularly where currency fluctuations adversely affected the pricing of
certain high-margin products. Third, the Company experienced manufacturing
problems of a technical nature which resulted in delayed shipments. Those
particular manufacturing difficulties have been resolved and Company
management presently intends to address the other adverse factors through
increased marketing efforts and the development of new and enhanced products.
The tax benefit in 1997 is due to accounting standards which require
that if a tax loss carryforward is more likely than not to be utilized in
future years then this benefit should be recognized as an asset and a current
income item. The Company has a tax loss carryforward of $9,143,000. Because
of the current trend of profitability of the Company it was determined that a
portion of that tax loss carryforward should be recognized as an asset and
income in the 1997 fiscal year. This had the effect of raising net earnings
by $780,000 in fiscal 1997. As that asset of $780,000 is amortized, the
effect will be a reduction of net earnings in future years. Furthermore, if
it was determined in the future that the remaining tax loss carryforward is
more likely than not to be utilized, similar treatment of the remaining
unrecorded tax loss carryforward in such future years could have the result of
initially increasing assets and net earnings with later reductions in assets
and net earnings upon subsequent amortization.
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 cash flow for use by LFF for expenses ($486,000 in fiscal 1997), they
have no impact upon the statement of earnings 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.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio as of July 31, 1997 was 2.87 to 1 versus 2.06
to 1 on July 31, 1996. The ratio of total debt to total assets at July 31,
1997 was .21 versus .29 on July 31, 1996. Significant reduction of debt at
the LFF subsidiary strengthened the Company's overall balance sheet at July
31, 1997.
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
1997 was $87,000, this is down from $444,000 at the end of fiscal 1996. 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 use
cash flow from the LFF subleases to help cover the Company expenses, which are
currently paid by Hart. Such shift should free up more internal cash for
operations and growth at Hart.
As of July 31, 1997, Hart maintained a secured operating line of credit
with a maximum borrowing capacity of $775,000. At that time, $622,000 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 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. The balance sheet of LFF
is substantially improved over prior years. Overall, in fiscal 1997, current
assets increased by $232,000 to $5,613,000, including cash and cash
equivalents of $901,000. Total current liabilities were reduced in the same
year by $651,000.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning directors
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and executive officers of the Company:
BEGAN SERVICE AS AN
NAME AGE POSITIONS HELD OFFICER OR DIRECTOR
- ---- --- -------------- -------------------
David K. Lifschultz 51 Chairman and 1991
CEO of the Company
(also President and
Director of LFF)
Dennis R. Hunter 46 President, Director, and 1988
CFO of the Company (also CEO,
President and Chairman of
CSC and Director of Hart)
Sidney B. Lifschultz 85 Director of the Company 1991
(retired)
James C. Triplett 47 Chairman and CEO of Hart 1988
J. Randall Owen 39 President and COO of Hart 1994
Michael Hirst 48 Vice President and 1988
Director of Hart
James Soloman 47 Director of Hart 1995
James Solomon is principally employed as the President and CEO of
Paragraphics, a manufacturer of engraving equipment with annual sales of
approximately $4 million. All other directors and executive officers listed
above are principally employed in the positions noted.
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 SmallCap Market under the symbol LIFF. The Nasdaq Stock Market
("Nasdaq") has informed the Company that it has changed its policy toward
listing companies whose stock trades on the Nasdaq SmallCap Market below one
dollar per share. The Company anticipates it will undertake a stock
combination prior to February 1998 in order to raise its average
trading price above one dollar per share and remain available for trading on
the Nasdaq SmallCap Market.
The prices below are for the high and low closing sales prices of the
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Company's common stock, and are drawn from Nasdaq reports rounded to the
nearest cent.
Fiscal 1996 Fiscal 1997
Price Range High Low High Low
1st Quarter $.09 $.06 $.25 $.16
2nd Quarter $.13 $.06 $.25 $.13
3rd Quarter $.56 $.09 $.22 $.09
4th Quarter $.56 $.16 $.16 $.06
As of October 20, 1997, there were approximately 382 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 the following:
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.
FINANCIAL STATEMENTS
The consolidated financial statements of Lifschultz Industries, Inc. and
subsidiaries at July 31, 1997 and 1996 and for each of the two years ended
July 31, 1997 and 1996 appearing at the end of this Annual Report to
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<PAGE>
Shareholders have been examined by the Company's independent auditors, as and
to the extent set forth in their reports appearing therein.
Page 49
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<PAGE>
LIFSCHULTZ INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
JULY 31, 1997 AND 1996
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Lifschultz Industries, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Page
Report of Independent Certified Public Accountants 52
Consolidated financial statements
Balance sheets 53
Statements of earnings 55
Statements of shareholders' equity 56
Statements of cash flows 58
Notes to consolidated financial statements 61
Page 51
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<PAGE>
Grant Thornton LLP
Suite 200
3507 N. University Avenue
Provo, UT 84604
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, 1997 and 1996, 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, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Provo, Utah
October 3, 1997
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
July 31,
ASSETS
1997 1996
----------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 901,000 $1,424,000
Marketable securities 576,000 601,000
Trade accounts receivable, net 1,838,000 1,774,000
Related party receivable 30,000 34,000
Deferred income taxes 238,000 -
Inventories 1,888,000 1,488,000
Other current assets 142,000 60,000
--------- ---------
Total current assets 5,613,000 5,381,000
PROPERTY HELD FOR LEASE, NET 2,566,000 2,973,000
PROPERTY AND EQUIPMENT, NET 876,000 489,000
DEFERRED INCOME TAXES 542,000 -
---------- ----------
$9,597,000 $8,843,000
========== ==========
The accompanying notes are an integral part of these statements.
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LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
----------- ----------
CURRENT LIABILITIES
Notes payable to banks $ 153,000 $ 182,000
Trade accounts payable 473,000 311,000
Income taxes payable 101,000 122,000
Accrued liabilities 1,157,000 1,501,000
Note payable to shareholder 50,000 50,000
Note payable to creditor - 120,000
Accounts payable and accrued liabilities past due - 321,000
Current maturities of long-term obligation 22,000 -
---------- ----------
Total current liabilities 1,956,000 2,607,000
LONG-TERM OBLIGATION, less current maturities 101,000 -
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; no shares issued and outstanding
in 1997 and 776,641 shares in 1996 - 8,000
Series E; issued and outstanding 21,231
shares in 1997 and 120,878 shares in 1996 - 1,000
Common stock, par value $0.001; authorized
80,000,000 shares; 55,569,495 shares issued
in 1997 and 43,644,445 shares in 1996 56,000 44,000
Additional paid-in capital 10,987,000 10,978,000
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 (3,331,000) (4,623,000)
--------- ---------
Total shareholders' equity 7,540,000 6,236,000
--------- ---------
$9,597,000 $8,843,000
========= =========
The accompanying notes are an integral part of these statements.
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended July 31,
1997 1996
---------- -----------
Net revenues $12,214,000 $11,292,000
Costs and expenses
Cost of products sold 6,013,000 4,880,000
Selling, general, and administrative 5,056,000 4,831,000
Research and development 866,000 694,000
Interest 44,000 42,000
---------- -----------
11,979,000 10,447,000
---------- -----------
Earnings before income taxes and
extraordinary item 235,000 845,000
Income tax expense (benefit) (743,000) 126,000
---------- ----------
Earnings before extraordinary item 978,000 719,000
Extraordinary item - gain on extinguishment
of debt (less applicable income taxes
of $7,000 in 1997 and $65,000 in 1996) 314,000 1,296,000
---------- ----------
NET EARNINGS $1,292,000 $2,015,000
========== ==========
Net earnings per common and common
equivalent share:
Earnings before extraordinary item $ 0.02 $ 0.01
Extraordinary item - 0.02
---------- ----------
Net earnings $ 0.02 $ 0.03
========== ==========
Weighted average number of shares
outstanding 58,210,000 59,114,000
The accompanying notes are an integral part of these statements.
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended July 31, 1997 and 1996
Preferred Stock
----------------------------- Additional
Common Series Series Series Paid-in
Stock A B E Capital
[S] ------- ------- ------- -------- -----------
Balance, [C] [C] [C] [C] [C]
August 1,
1995 $36,000 $ - $10,000 $ 6,000 $10,938,000
Stock issued
to satisfy
certain
obligations - - - - $40,000
Preferred stock
series
transfers $8,000 - (2,000) (5,000) 1,000
Net earnings - - - - -
------- ------- ------- ------- -------
Balance,
July 31
1996 $44,000 - $8,000 1,000 10,978,000
Stock issued
upon
exercise of
options - - - - 4,000
Tax effect of
stock
options
exercised - - - - 8,000
Preferred stock
series
transfers $12,000 - (8,000) (1,000) (3,000)
Net earnings - - - - -
------- ------- ------- ------- --------
Balance,
July 31
1997 $56,000 $ - $ - $ - $10,987,000
======= ======= ======= ======= ==========
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
For the years ended July 31, 1997 and 1996
Common stock
subscriptions Treasury Accumulated
receivable stock deficit Total
[S] ---------- ---------- ----------- ----------
Balance,
August 1,
1995 $(15,000) $(157,000) $(6,638,000) $4,180,000
Stock issued to
satisfy certain
obligations - - - $40,000
Preferred stock
series transfers - - - 1,000
Net earnings - - $2,015,000 $2,015,000
---------- ---------- ----------- ----------
Balance,
July 31,
1996 (15,000) (157,000) (4,623,000) 6,236,000
Stock issued
upon exercise
of options - - - 4,000
Tax effect of
stock options
exercised - - - 8,000
Preferred stock
series
transfers - - - -
Net earnings - - 1,292,000 1,292,000
-------- --------- ----------- ----------
Balance, July 31,
1997 $(15,000) $(157,000) $(3,331,000) $7,540,000
======== ========= =========== ==========
The accompanying notes are an integral part of these statements.
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended July 31,
1997 1996
----------- -----------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 1,292,000 $ 2,015,000
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 277,000 220,000
Amortization of leasehold interest 407,000 346,000
Deferred income taxes (780,000) -
Extraordinary gain (321,000) (1,361,000)
(Gain) loss on sale of property and equipment 6,000 (16,000)
Changes in assets and liabilities - -
Trade accounts receivable (64,000) (105,000)
Related party receivable 4,000 3,000
Inventories (400,000) (403,000)
Other current assets (82,000) 27,000
Trade accounts payable 162,000 (1,000)
Accrued liabilities (344,000) 509,000
Accounts payable and accrued liabilities
past due - (165,000)
Income taxes payable (13,000) 120,000
----------- ---------
Total adjustments (1,148,000) (826,000)
----------- ---------
Net cash provided by
operating activities 144,000 1,189,000
----------- ---------
Cash flows from investing activities
Purchase of property and equipment (540,000) (235,000)
Proceeds from sale of property and equipment - 38,000
Purchase of marketable securities (805,000) (601,000)
Proceeds from maturities of marketable
securities 830,000 -
----------- ---------
Net cash used in investing activities (515,000) (798,000)
----------- ---------
(continued)
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended July 31,
1997 1996
--------- ---------
Cash flows from financing activities
Net change in notes payable to banks (29,000) 32,000
Principal payments on long-term obligation (7,000) (138,000)
Principal payments on note payable to creditor (120,000) -
Issue of common stock 4,000 -
--------- ---------
Net cash used in financing activities (152,000) (106,000)
--------- ---------
Net increase (decrease) in cash
and cash equivalents (523,000) 285,000
Cash and cash equivalents at beginning of year 1,424,000 1,139,000
--------- ---------
Cash and cash equivalents at end of year $ 901,000 $1,424,000
========= ==========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the year for
Interest $ 45,000 $ 37,000
Income taxes 166,000 77,000
Noncash investing and financing activities
- ------------------------------------------
During 1997, the Company entered into a capital lease for $130,000 of
equipment. In addition, a $8,000 adjustment to additional paid-in-capital
occurred due to the tax effect of exercising stock options.
As described in Note K, during 1997 and 1996, holders of the various series of
the Company's preferred stock converted part of those respective shares for
common stock approximating 11,825,000 and 7,648,000 shares, respectively.
During 1997 and 1996, as described in Note O, the Company was relieved of
$321,000 and $330,000, respectively, in past due accounts payable and accrued
liabilities.
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During 1996, as described in Notes F and O, the Company was relieved of
$1,231,000 in past due accounts payable and accrued liabilities in exchange
for signing a $200,000 note payable.
During 1996, the Company issued 3,715 shares of Series E preferred stock in
exchange for relief of $40,000 of past due accounts payable and accrued
liabilities.
The accompanying notes are an integral part of these statements.
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Lifschultz Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31,
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
------------
The consolidated financial statements of Lifschultz Industries, Inc. and
subsidiaries (the Company) 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. 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.
Calorimetry 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, which mature in one
year or less and are classified as available-for-sale. Available-for-sale
securities are measured at fair value with net unrealized gains and losses
reported in equity. There were no significant net unrealized holding gains or
losses during 1997 and 1996.
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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 are stated at cost. Expenditures for maintenance
and repairs are charged to operations as incurred, whereas major replacements
and improvements are capitalized and subsequently depreciated or amortized.
For financial reporting purposes, depreciation and amortization is provided on
a straight-line basis over the lessor of the estimated useful lives of the
assets or the life of the term lease, if applicable. Accelerated methods of
depreciation are used for tax purposes.
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
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differences are expected to reverse. An allowance against deferred tax assets
is recorded in whole or in part when it is more likely than not that such tax
benefits will not be realized.
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.
A significant estimate included in the financial statements is the valuation
allowance against deferred tax assets.
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
-----------------------------------------------------
Earnings per share
------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share." SFAS 128 eliminates the presentation of primary earnings per share
(EPS) and requires the presentation of basic EPS, which includes no common
stock equivalents and thus no dilution. The statement also eliminates the
modified treasury stock method of computing potential common shares. This
statement is effective for financial statements issued for periods ending
after December 15, 1997.
Capital Structure
- -----------------
Also in February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 (SFAS 129), "Disclosure of Information about Capital
Structure." SFAS 129 consolidates in one statement disclosures about the
rights of outstanding securities and changes in the number of equity
securities during the period, disclosures about liquidation preferences and
preferred stock, and disclosures about redemption requirements of certain
redeemable stock. Disclosures were previously included in Accounting
Principles Board (APB) Opinion 15, APB Opinion 10 and SFAS 47. The statement
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does not change the required disclosures about capital structure for entities
currently subject to the requirements of APB Opinions 10 and 15 and SFAS 47.
SFAS 129 is effective for financial statements for interim and annual periods
ending after December 15, 1997.
12. Recently issued accounting statements not yet adopted (continued)
-----------------------------------------------------------------
Comprehensive income
--------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 requires
entities presenting a complete set of financial statements to include details
of comprehensive income that arise in the reporting period. Comprehensive
income consists of net earnings or loss for the current period and other
comprehensive income, which consists of revenue, expenses, gains, and losses
that bypass the statement of earnings and are reported directly in a separate
component of equity. Other comprehensive income includes, for example,
foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investment securities. SFAS 130 requires that
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements. This
statement is effective for fiscal years beginning after December 15, 1997, and
requires restatement of prior period financial statements presented for
comparative purposes.
Disclosure of segments
----------------------
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and
Related Information." This statement requires an entity to report financial
and descriptive information about their reportable operating segments. An
operating segment is a component of an entity for which financial information
is developed and evaluated by the entity,s chief operating decision maker to
assess performance and to make decisions about resource allocation. Entities
are required to report segment profit or loss, certain specific revenue and
expense items and segment assets based on financial information used
internally for evaluating performance and allocating resources. This
statement is effective for fiscal years beginning after December 15, 1997 and
requires restatement of prior period financial statements presented for
comparative purposes.
Management does not believe that the adoption of SFAS 128, SFAS 129, SFAS
130 and SFAS 131 will have a material effect on the Company's consolidated
financial statements.
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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 $587,000 at July 31, 1997.
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 world. 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, 1997 and 1996, this allowance was
$13,000.
2. Major customer
--------------
At July 31, 1997, the Company had accounts receivable due from its largest
customer approximating $274,000. Remaining accounts receivable at July 31,
1997, were due from a variety of other customers under normal credit terms.
Revenue in fiscal 1997 from the largest customer represented approximately
10% of consolidated net revenues (11% in 1996).
3. Export sales
------------
Export sales consist of the following:
1997 1996
---------- ----------
Europe $1,565,000 $1,319,000
Far East 2,040,000 1,993,000
Middle East 77,000 147,000
North America 287,000 224,000
South America 314,000 203,000
---------- ----------
$4,283,000 $3,886,000
========== ==========
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NOTE C - INVENTORIES
Inventories consist of the following:
1997 1996
---------- ----------
Raw materials $1,003,000 $ 642,000
Work-in-process 792,000 789,000
Finished goods 17,000 -
Demonstration units 76,000 57,000
---------- ----------
$1,888,000 $1,488,000
========== ==========
NOTE D - PROPERTY HELD FOR LEASE
Property held for lease consists of the following:
1997 1996
---------- ----------
Leasehold interest $7,500,000 $7,500,000
Less
Accumulated amortization 3,308,000 2,901,000
Valuation allowance to adjust to
undiscounted cash flows 1,626,000 1,626,000
---------- ----------
4,934,000 4,527,000
---------- ----------
$2,566,000 $2,973,000
========== ==========
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
$486,000 per year, subject to annual Consumer Price Index increases, through
September 2002.
NOTE E - PROPERTY AND EQUIPMENT
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Property and equipment and estimated useful lives consist of the following:
Years 1997 1996
----- ---------- ----------
Furniture and fixtures 3-5 $ 822,000 $ 571,000
Machinery and equipment 5-10 489,000 346,000
Equipment under capital lease 5 130,000 -
Leasehold improvements 5-8 271,000 130,000
---------- ----------
1,712,000 1,047,000
Less accumulated depreciation
and amortization 836,000 558,000
---------- ----------
$ 876,000 $ 489,000
========== ==========
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 (10% at July 31, 1997). The line, which is
scheduled for renewal in December 1997, is collateralized by Hart common
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, 1997, $497,000 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.
The note was paid in full during 1997.
In addition, Calorimetry has an available line of credit of $125,000 with a
bank. The line, which is scheduled for renewal in December 1997 is
collateralized by accounts receivable and equipment. Amounts outstanding
incur interest at 1.5% over prime (10% at July 31, 1997). No amounts were
outstanding on the line at July 31, 1997 or 1996.
2. Note payable to creditor
------------------------
During 1996, Fast Freight entered into an agreement with a creditor whereby
Fast Freight,s past due account payable, which approximated $1,231,000, was
relieved in exchange for a note payable of $200,000 (Note O). The note
required monthly payments of $10,000 plus interest at prime plus 2% (10.25% at
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July 31, 1996). The note was secured by the Company,s leasehold (Note D) and
monthly payments were limited to the first $10,000 of rental income received.
The note was paid in full during 1997.
3. Note payable to shareholder
---------------------------
Note payable to shareholder represents an unsecured demand note with
interest at approximately 7.5%.
NOTE G - LONG-TERM OBLIGATION
During 1997, the Company entered into a capital lease obligation with a
corporation. The balance at July 31, 1997, totals $ 123,000 and bears
interest at 9.03% per year. Payments of approximately $3,000 are due monthly
and the obligation is due in full in March of 2002. The obligation is
collateralized by the leased equipment.
The following is a schedule of the capital lease obligation at July 31,
1997:
Year ending
July 31
-----------
1998 $ 32,000
1999 32,000
2000 32,000
2001 33,000
2002 22,000
Thereafter -
--------
Total minimum lease payments 151,000
Less amount representing
interest 28,000
--------
Present value of minimum
lease payments 123,000
Less current maturities 22,000
--------
Long-term obligation $101,000
========
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NOTE H - OPERATING LEASES
The Company leases laboratory and office space under operating leases
expiring in various years through 2005.
Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year are as follows:
Year ending
July 31
-----------
1998 $ 193,000
1999 193,000
2000 161,000
2001 166,000
2002 170,000
Thereafter 735,000
----------
$1,618,000
==========
Rent expense totaled $196,000 and $76,000 for the years ended July 31, 1997
and 1996, respectively.
NOTE I - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
1997 1996
---------- ----------
Payroll, payroll taxes and benefits $ 351,000 $ 372,000
Bonuses 405,000 553,000
Warranties 132,000 138,000
Other 269,000 438,000
---------- ----------
$1,157,000 $1,501,000
========== ==========
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NOTE J - INCOME TAXES
Components of income taxes (benefit) included in the consolidated
statements of earnings are as follows:
1997 1996
--------- -----------
Current
Federal $ 308,000 $1,071,000
State 34,000 132,000
Less benefit of net operating loss
carryforward (298,000) (1,012,000)
--------- -----------
44,000 191,000
Deferred
Federal (675,000) -
State (105,000) -
--------- -----------
(780,000) -
--------- -----------
Total taxes before extraordinary item (736,000) 191,000
Allocated to extraordinary item
Federal (6,000) (27,000)
State (1,000) (38,000)
----------- ----------
$(743,000) $126,000
=========== ==========
The provision for income taxes differs from the statutory Federal income
tax rate due to the following:
1997 1996
---------- ----------
Income taxes computed at
federal statutory rate of 34% $ 189,000 $ 750,000
State taxes, net of federal benefit 19,000 198,000
Net operating loss carryforward utilized (174,000) (892,000)
Decrease in valuation allowance (780,000) -
Deferred tax assets not recorded - 135,000
Non-deductible expenses 10,000 -
--------- ---------
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<PAGE>
<PAGE>
Total income taxes (benefit) (736,000) 191,000
Income taxes allocated to extraordinary
item (7,000) (65,000)
---------- ---------
$(743,000) $ 126,000
========== =========
The tax effects of temporary differences which give rise to deferred tax
assets and liabilities are as follows:
1997 1996
---------- ---------
Current deferred tax assets
Deferred compensation $ 131,000 $ 152,000
Allowance for doubtful accounts 5,000 5,000
Accrued expenses 62,000 95,000
Contributions carryforward 18,000 -
Uniform inventory capitalization 24,000 -
Other (2,000) 15,000
Less valuation allowance - (267,000)
---------- ---------
Net current tax assets $ 238,000 $ -
========== ==========
Long-term deferred tax assets
Net operating loss carryforwards $3,108,000 $3,677,000
Excess book depreciation and amortization 31,000 7,000
Alternative minimum tax credit carryforward 131,000 125,000
Less valuation allowance (2,728,000) (3,809,000)
---------- -----------
Net long-term deferred tax assets $ 542,000 $ -
========== ===========
There were no deferred tax assets or income tax benefits recorded in the
financial statements for 1996 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 could not be established. During 1997, management
reevaluated the prospects for future profitable operations of the Company.
Because the Company has generated operating profits for the last several years
and current budget forecasts show profits will continue into the future,
management concludes it is more likely than not that a portion of the deferred
tax asset will be realized in the future. The valuation allowance on deferred
taxes has been decreased by $780,000 during 1997 to adjust for this change in
judgment on the realizability of the deferred tax asset. Also, the remaining
change in the valuation allowance during 1997 is due to utilization of a
portion of the net operating loss and the net change in the other deferred tax
assets and liabilities.
Page 71
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<PAGE>
At July 31, 1997, the Company has net operating loss carryforwards for tax
reporting purposes of approximately $9,143,000 which expire from 2003 through
the year 2007.
NOTE K - 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 1996, 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 1997 and 1996, 776,641 and 227,574 shares, respectively, of
Series B preferred stock were converted into 10,828,580 and 3,186,036 shares,
respectively, of common stock. At July 31, 1997, no series B preferred stock
was issued or outstanding.
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 before 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 past due accounts
payable and accrued liabilities due for 3,715 shares of Series E preferred
stock. Also during 1997 and 1996, 99,647 and 446,216 shares, respectively, of
Series E preferred stock were converted to 996,470 and 4,462,160 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
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<PAGE>
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, 1997 and 1996.
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 1996, 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, 1997 and 1996.
NOTE L - STOCK OPTIONS, WARRANTS, AND PUT OPTION
1. Stock options
-------------
The Company's board of directors has the authority to grant stock options
to employees, officers and non-employees. The stock options are considered
non-qualified for income tax purposes. As of July 31, 1997, the Company had
granted stock options to various officers, directors, employees and other non
employees of the Company covering the aggregate number of 5,573,000 shares of
the Company,s common stock (5,763,000 shares at July 31, 1996). Options
generally vest immediately upon grant date.
Options issued in connection with the Company,s leasehold interest (Note D)
vest ratably at a rate of one option for every nine common shares issued as a
result of a) the exercise of employee stock options outstanding at the date
of the agreement (approximately 1,800,000 such options outstanding at July 31,
1997 and 100,000 options exercised during fiscal 1997), b) the conversion of
Series A preferred stock (5,200 shares convertible into 52,000 at July 31,
1997). These options are exercisable at the then existing par value of the
common stock ($0.001). At July 31, 1997, such options to purchase 25,777
shares were exercisable. Vesting of the options is complete upon
exercisability and Company notification to option-holders of such
exercisability.
2. Warrants
--------
Prior to 1996, the Company issued 2,610,000 units, each comprised of one
share of the Company's $0.001 par value common stock and one Class C Warrant
which allowed the holder to purchase one share of common stock at an exercise
price of $0.49 per share. The Class C Warrants prior expired prior to
exercise on December 31, 1996.
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<PAGE>
3. Fair market value of options granted
------------------------------------
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
123). Therefore, the Company accounts for stock based compensation under
Accounting Principles Board Opinion No. 25, under which no significant
compensation cost has been recognized. Had the compensation cost for the
stock based compensation been determined based upon the fair value of the
options at the grant date consistent with the methodology prescribed by FAS
123, the Company's net earnings and earnings per share would have been reduced
to the following pro forma amounts:
1997 1996
--------- ---------
Pro forma earnings before
extraordinary item As reported $ 978,000 $ 719,000
Pro forma 972,000 707,000
Pro forma net earnings As reported 1,292,000 2,015,000
Pro forma 1,286,000 2,003,000
Pro forma net earnings
per common and common
equivalent share:
Earnings before extraordinary
item As reported $0.02 $0.01
Pro forma 0.02 0.01
Extraordinary item As reported - 0.02
Pro forma - 0.02
Net earnings As reported 0.02 0.03
Pro forma 0.02 0.03
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before fiscal 1996. The fair value of these options was estimated
at the date of grant using the Black-Scholes American option-pricing model
with the following weighted average assumptions for 1997 and 1996: expected
volatility of 188%; risk-free interest rate of 6.10%; and expected life of
7.9 years. The weighted average fair value of options granted was $0.062 and
$0.250 in 1997 and 1996, respectively.
Option pricing models require the input of highly sensitive assumptions,
including the expected stock price volatility. Also, the Company's stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate. Management believes the best input assumptions
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<PAGE>
available were used to value the options and that the resulting option values
are reasonable.
Information with respect to the Company's stock options at July 31, 1997:
Stock Exercise Weighted avg
options price exercise price
---------- --------------- ---------------
Outstanding at August 1,
1995 $5,863,000 $0.001 to 0.281 $0.042
Granted 50,000 0.25 0.25
Exercised - - -
Canceled/expired (150,000) 0.28 0.28
---------- --------------- -------
Outstanding at July 31,
1996 $5,763,000 0.001 to 0.28 0.038
Granted 100,000 0.063 0.063
Exercised (100,000) 0.031 0.031
Canceled/expired (190,000) 0.031 to 0.281 0.141
---------- -------------- ------
Outstanding at July 31,
1997 5,573,000 $0.001 to 0.063 $0.035
========== =============== =======
Exercisable at July 31,
1997 5,101,000 $0.001 to 0.063 $0.037
========== =============== =======
Information with respect to the Company's warrants at July 31, 1997:
Exercise Weighted avg
Warrants price exercise price
---------- ---------- ----------------
Outstanding at July 31,
1996 $2,610,000 $0.49 $0.49
Canceled/expired (2,610,000) 0.49 0.49
Outstanding at July 31,
1997 - - -
$========= $==== $====
Additional information about stock options outstanding and exercisable at
Page 75
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<PAGE>
July 31, 1997:
Options outstanding
-------------------
Exercise Number Weighted avg Years remaining
price outstanding exercise price contractual life
------------ ------------ --------------- ----------------
$0.001 373,000 $0.001 10.1
0.031 4,200,000 0.031 0.9 to 10.1
0.063 1,000,000 0.063 7.4 to 12.9
---------
5,573,000
=========
Options exercisable
-------------------
Number Weighted avg
Exercise prices exercisable exercise price
--------------- ----------- --------------
$0.001 26,000 $0.001
0.031 4,075,000 0.031
0.063 1,000,000 0.063
---------
5,101,000
=========
4. Put option
----------
Pursuant to an employee agreement (Note N), 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.
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.
The Company has employment and severance agreements with certain officers
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<PAGE>
and managers of the Company, some of which were updated subsequent to year
end. Salaries covered by these agreements range from $82,000 to $285,000
annually. Contracts, with three individuals, provide for annual salaries of
$90,000, $133,000 (plus a 5% annual increase) and $226,000 and are for terms
of two to four years providing for severance, which could be as much as 50% of
the remaining base salary (or one year's salary whichever is greater) if the
individual is terminated without cause. The other two contracts with annual
salaries of $82,000 and $285,000 (plus a 5% annual increase) have longer terms
of six to ten years and severance, which could be as much as 50% of the
remaining base salary (or one year's salary whichever is greater) if the
individual is terminated without cause. All the officers and 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 L). Additionally, provisions exist in the contracts to
provide for immediate payment of remaining compensation plus additional
amounts totaling $425,000 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, 1997.
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 or results of operations.
During 1997, Fast Freight was relieved of $321,000 in past due accrued
liabilities as a result of the statute of limitations expiring on the
respective outstanding balances. This resulted in a $314,000 gain, after
income taxes of $7,000, which is recorded in the accompanying financial
statements as an extraordinary gain.
During 1996, Fast Freight entered into an agreement with creditors, whereby
it was relieved of its obligation to pay approximately $1,231,000 of past due
accounts payable and accrued liabilities in exchange for a $200,000 note
payable (Note F). In addition, Fast Freight was also relieved of $330,000 in
past due accounts payable and accrued liabilities 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.
The Company has 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
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 $103,000 and $81,000 to the plan during
the fiscal years ended July 31, 1997 and 1996, respectively.
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<PAGE>
During 1997, the Company purchased $88,000 of inventory from an entity
owned by the spouse of an officer of the Company.
NOTE R - EFFECT OF YEAR END ADJUSTMENT
As explained in Note J, the Company recorded $780,000 of deferred tax
assets through the partial reversal of the valuation allowance. This
adjustment occurred during the fourth quarter of the 1997 fiscal year.
Page 78
<PAGE>
<PAGE>
Exhibit 21.01
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.)
Page 79
<PAGE>
<PAGE>
Exhibit 23.01
CONSENT OF GRANT THORNTON LLP
CONSENT
-------
We have issued our report dated October 3, 1997, accompanying the
consolidated financial statements included in the Annual Report of
Lifschultz Industries, Inc. on Form 10-KSB for the year ended July 31, 1997.
We hereby consent to the incorporation by reference of said report in the
Registration Statement of Lifschultz Industries, Inc. on Form S-8 (File No.
333-05487, effective June 26, 1996).
GRANT THORNTON LLP
Provo, Utah
October 3, 1997
Page 80
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> $901,000
<SECURITIES> $576,000
<RECEIVABLES> $1,868,000
<ALLOWANCES> 0
<INVENTORY> $1,888,000
<CURRENT-ASSETS> $5,613,000
<PP&E> $7,586,000
<DEPRECIATION> $4,144,000
<TOTAL-ASSETS> $9,597,000
<CURRENT-LIABILITIES> $1,956,000
<BONDS> 0
0
0
<COMMON> $56,000
<OTHER-SE> $7,484,000
<TOTAL-LIABILITY-AND-EQUITY> $9,597,000
<SALES> $12,214,000
<TOTAL-REVENUES> $12,214,000
<CGS> $6,013,000
<TOTAL-COSTS> $11,979,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $44,000
<INCOME-PRETAX> $235,000
<INCOME-TAX> ($743,000)
<INCOME-CONTINUING> $978,000
<DISCONTINUED> 0
<EXTRAORDINARY> $1,292,000
<CHANGES> 0
<NET-INCOME> $1,292,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
