FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-10287
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LIFSCHULTZ INDUSTRIES, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE No. 87-0448118
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 West 59th Street, New York, NY 10019
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(Address of principal executive offices)
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(212) 397-7788
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year, if
changed since last report.)
Check whether the issuer (1) 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
---- -----
The number of shares of the issuer's common stock outstanding as of
March 15, 1999 is 1,117,519 shares.
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PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
January 31, 1999 and July 31, 1998
ASSETS
31-Jan-99 31-Jul-98
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 962,000 $ 989,000
Marketable securities 826,000 805,000
Trade accounts receivable, net 2,342,000 2,468,000
Related party receivable 62,000 79,000
Deferred income taxes 234,000 234,000
Inventories 2,710,000 2,386,000
Other current assets 296,000 136,000
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Total current assets 7,432,000 7,097,000
PROPERTY HELD FOR LEASE, NET 1,811,000 2,066,000
PROPERTY AND EQUIPMENT, NET 1,244,000 972,000
LAND 100,000 100,000
DEFERRED INCOME TAXES 550,000 550,000
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$11,137,000 $10,785,000
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The accompanying notes are an integral part of these statements.
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LIABILITIES AND SHAREHOLDERS' EQUITY
31-Jan-99 31-Jul-98
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CURRENT LIABILITIES
Notes payable to banks $ 350,000 $ 154,000
Trade accounts payable 613,000 519,000
Income taxes payable 61,000 34,000
Accrued liabilities 750,000 1,318,000
Note payable to shareholder 3,000 3,000
Current maturities of capital lease
obligations 25,000 32,000
Current maturities of long-term obligation 2,000 2,000
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Total current liabilities 1,804,000 2,062,000
LONG-TERM OBLIGATION, less current maturities 6,000 7,000
CAPITAL LEASE OBLIGATIONS, less current
maturities 99,000 110,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Convertible preferred stock, par value $0.01;
authorized 100,000 shares
Series A; issued and outstanding 5,200
shares at January 31, 1999
and July 31, 1998 - -
Series E; issued and outstanding 21,231
shares at January 31, 1999
and July 31, 1998 - -
Common stock, par value $0.001; authorized
1,650,000 shares; issued and outstanding,
1,117,519 shares issued at January 31, 1999
and July 31, 1998 1,000 1,000
Additional paid-in capital 11,060,000 11,060,000
Treasury stock, at cost (22,560 common
shares) (157,000) (157,000)
Accumulated deficit (1,676,000) (2,298,000)
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Total shareholders' equity 9,228,000 8,606,000
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$11,137,000 $10,785,000
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
For the three months and six months ended January 31,
(Three months ended) (Six months ended)
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1999 1998 1999 1998
----------- ----------- ----------- -----------
Net Revenues $ 3,920,000 $ 3,867,000 $ 7,418,000 $ 7,526,000
Cost and expenses:
Cost of products
sold 1,905,000 1,912,000 3,620,000 3,676,000
Selling, general
and administrative 1,328,000 1,188,000 2,372,000 2,519,000
Research and
development 312,000 208,000 725,000 461,000
Interest expense 10,000 15,000 17,000 28,000
----------- ----------- ----------- -----------
$ 3,555,000 $ 3,323,000 $ 6,734,000 $ 6,684,000
Earnings before
income taxes 365,000 544,000 684,000 842,000
Income tax expense 30,000 65,000 62,000 106,000
----------- ----------- ----------- -----------
NET EARNINGS $ 335,000 $ 479,000 $ 622,000 $ 763,000
=========== =========== =========== ==========
Net earnings per
common share -
basic 0.25 0.45 0.51 0.69
=========== =========== =========== ===========
Net earnings per
share - assuming
dilution 0.21 0.43 0.45 0.66
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended January 31,
1999 1998
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Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net Earnings $ 622,000 $ 736,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 107,000 71,000
Amortization of leasehold interest 255,000 250,000
Changes in assets and liabilities:
Accounts receivable 126,000 (687,000)
Related party receivable 17,000
Inventories (324,000) (328,000)
Deferred Tax - 145,000
Other current assets (160,000) (171,000)
Accounts payable 94,000 263,000
Accrued liabilities (568,000) (349,000)
Income taxes payable 27,000 2,000
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Total Adjustments (426,000) (804,000)
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Net cash provided (used) by
operating activities 196,000 (68,000)
Cash flows from investing activities
Purchase of property and equipment (379,000) (116,000)
Purchase of marketable securities (375,000) (320,000)
Proceeds from maturities of marketable
securities 354,000 101,000
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Net cash used in
investing activities (400,000) (335,000)
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Cash flows from financing activities
Principal payments on long-term obligations (1,000) (2,000)
Principal payments on capital lease
obligations (18,000) -
Principal payments on note payable
to shareholder - (25,000)
Cash received from issuance of long-term debt - -
Net change in line of credit 196,000 197,000
Cash received from issuance of common stock - -
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Net cash provided by
financing activities 177,000 170,000
Net decrease in cash and cash
equivalents (27,000) (233,000)
Cash and cash equivalents at beginning
of quarter 989,000 901,000
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Cash and cash equivalents at end of quarter $ 962,000 $ 668,000
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Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the quarter for
Interest $ 10,000 $ 15,000
Income Taxes $ 27,000 $ 38,000
The accompanying notes are an integral part of these statements.
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Notes to Financial Statements
(unaudited)
Note 1
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The consolidated financial statements have been prepared by
Company without audit, in accordance with generally accepted
accounting principles. Pursuant to the rules and regulations of the
Securities and Exchange Commission, certain disclosures normally
included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted or
condensed. It is management's belief that the disclosures made are
adequate to make the information presented not misleading and reflect
all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of financial position and results
of operations for the periods presented. The results of operations
for the periods presented should not be considered as necessarily
indicative of operations for the full year. It is recommended that
these consolidated financial statements be read in conjunction with
the consolidated financial statements for the year ended July 31, 1998
and the notes thereto included in the Company's Form 10-KSB.
Note 2
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Certain items from fiscal year 1998 were reclassified to be consistent with
the 1999 statement of earnings presentation with no effect on net income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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General
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The Company designs, manufactures, and markets scientific and
industrial instrumentation and instrument calibration equipment.
Historically, the Company's growth has come from an expanding base of
new customers and from increasing sales to existing customers. The
Company's current and future growth is largely dependent upon its
ability to continue increasing instrument sales to new and existing
customers and its ability to successfully introduce and market new or
enhanced products. The Company anticipates that over the next 12
months, its primary business strategy and emphasis will be on
expanding domestic and international instrument sales.
Results of Operations:
- ----------------------
Total revenues for Lifschultz Industries and its subsidiaries for the current
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six month period (ended January 31, 1999) decreased 1.4% to $7,418,000
versus $7,526,000 for the same period last fiscal year. Total revenues for
the current three month period (ended January 31, 1999) increased 1.4% to
$3,920,000 versus $3,867,000 for the same period last fiscal year.
Total revenues for Lifschultz Industries' subsidiary, Hart Scientific
(including Hart Scientific's subsidiary, Calorimetry Sciences), during
the current six month period were $7,413,000 versus $7,455,000 for the
same period last fiscal year, a 0.6% decrease. Hart Scientific revenues
for the current three month period were $3,918,000 versus $3,974,000 for
the same period last fiscal year, a 1.4% decrease.
Hart Scientific's gross margins were 51% for the current six month period
versus 47% for the same period last year. Management believes that
differences in product mix is the main reason for the higher margins
during that period.
Hart Scientific's general and administrative costs for the current six month
period were $1,718,000 versus $1,825,000 for the same period last year.
General and administrative costs during the current three month period for
Hart Scientific were $889,000 versus $885,000 for the same period last year.
Research and Development costs for the current six month period increased
by 57% from the same period last year. Research and development costs in
the same period were $461,000 versus $725,000 during the current six month
period. Research and development costs for the current three month period
increased to $312,000 from $208,000 in the same period last year.
Hart Scientific reduced its marketing expenses during the current three
month period to $311,000 versus $394,000 for the same period last year.
Its marketing and sales expenses for the current six month period were
$646,000 versus $720,000 for the same period last year.
Net consolidated earnings for the current three month period were $335,000
versus $479,000 for the same period last year, a 30% decrease. Net
consolidated earnings for the current six month period was $622,000 versus
$736,000 for the same period last fiscal year, a 15% decrease. Hart
Scientific had net earnings of $462,000 for the current three month period
versus $498,000 for the same period last year, a 7% decrease. Hart
Scientific had net income for the current six month period of $827,000
versus $852,000 for the same period last year, a 3% decrease.
While there were significant revenue increases in many geographical
markets, management believes that such gains were off set by revenue
reductions in the Far East market, which is still struggling with
economic difficulties. Research and development costs increased by 57%
during the period and management believes that this was the primary cause of
the decrease in net income. Hart Scientific has put a strong emphasis on
bringing new products to the market during the coming
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year and these higher research and development expenditures reflect this
commitment. If the new products do well in the market, management believes
that its research and development costs will result in a return on this
investment with new growth in sales.
Financial Condition and Liquidity
- ---------------------------------
The Company's current ratio at January 31, 1999 is 4.12 to 1 versus
3.44 to 1 at July 31, 1998. Management expects that internal operating
cash flow from Hart Scientific will be sufficient to meet the cash needs
of the Company during the 1999 fiscal year.
Total current assets increased by $335,000 during the current six month
period while current liabilities decreased by $258,000 during the same
period. Cash and cash equivalents decreased by $27,000 in the current six
month period to $962,000.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the
Private Securities Litigation Reform Act of 1995.
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When used in this report, the words "believe," "plan" "expects" and
similar expressions are intended to identify forward-looking state-
ments within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Such statements are subject to certain risks and uncertainties,
including those discussed below, that could cause actual results
to differ materially from those projected. These forward-looking
statements speak only as of the date hereof. All of these forward-
looking statements are based on estimates and assumptions made by
management of the Company, which although believed to be reasonable,
are inherently uncertain and difficult to predict. There can be no
assurance that the benefits anticipated in these forward-looking
statements will be achieved. The following important factors, among
others, could cause the Company not to achieve the benefits contem-
plated herein, or otherwise cause the Company's results of opera-
tions to be adversely affected in future periods: (i) continued or
increased competitive pressures from existing competitors and new
entrants; (ii) unanticipated costs related to the Company's growth
and operating strategies; (iii) loss or retirement of key members of
management; (iv) deterioration in general of international economic
conditions; and (v) loss of customers. Many such factors are
beyond the control of the Company. Please refer to the Company's
SEC Form 10-KSB for its fiscal year ended July 31, 1998, for
additional cautionary statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
As previously reported in the Company's 1998 Form 10-KSB, Lifschultz
Fast Freight was the plaintiff/appellant in the matter of Lifschultz
Fast Freight, Inc. v. Haynsworth, Mariod, McKay & Gueard, William
P. Simpson, Jr., William M. Grant, Jr., Julius McKay and John B.
Mcleod, Case No. 93-CP-40-4260, originally filed November 5, 1993.
On February 6, 1999, the Supreme Court of South Carolina effectively
affirmed a lower court's ruling against the Company's claims.
Lifschultz Fast Freight had filed claims against the defendants (a law
firm and certain of its attorneys) for professional malpractice, breach
of fiduciary duty, breach of contract and promissory estoppel following the
withdrawal of the law firm and attorneys as Lifschultz Fast Freight's counsel
in an earlier antitrust action. Lifschultz had sought $3 million in
damages. The Company has no plans to pursue the matter further.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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At the Company's 1998 annual meeting, held December 14, 1998,
the current directors of the Company, Sidney B. Lifschultz, David
K. Lifschultz, Dennis R. Hunter, Joseph C. Fatony, and James E.
Solomon were re-elected for an additional term of one year with
the following vote:
FOR WITHHELD ABSTAIN
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Sidney B. Lifschultz 781,365 208 3,060
David K. Lifschultz 781,378 195 3,060
Dennis R. Hunter 781,378 195 3,060
Joseph C. Fatony 781,338 235 3,060
James E. Solomon 781,358 215 3,060
Additionally, Grant Thornton LLP was affirmed at the meeting as the
Company's independent certified public accountants for the 1999 fiscal
year with the following vote: 783,736 for, 145 against, and 752
abstain. There were no broker non-votes.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
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27.1 Financial Data Schedule
(b) Reports on Form 8-K
-----------------------
No reports on Form 8-K were filed by the Company during the
quarter ended January 31, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LIFSCHULTZ INDUSTRIES, INC.
Date March 16, 1999 By: DENNIS R. HUNTER
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Dennis R. Hunter
President and Chief
Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JAN-31-1999
<CASH> $962,000
<SECURITIES> $826,000
<RECEIVABLES> $2,404,000
<ALLOWANCES> 0
<INVENTORY> $2,710,000
<CURRENT-ASSETS> $7,432,000
<PP&E> $3,155,000
<DEPRECIATION> 0
<TOTAL-ASSETS> $11,137,000
<CURRENT-LIABILITIES> $1,804,000
<BONDS> 0
0
0
<COMMON> $1,000
<OTHER-SE> $9,227,000
<TOTAL-LIABILITY-AND-EQUITY> 11,137,000
<SALES> $3,920,000
<TOTAL-REVENUES> $3,920,000
<CGS> $1,905,000
<TOTAL-COSTS> $1,905,000
<OTHER-EXPENSES> $1,650,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $10,000
<INCOME-PRETAX> $365,000
<INCOME-TAX> $30,000
<INCOME-CONTINUING> $335,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $335,000
<EPS-PRIMARY> $0.25
<EPS-DILUTED> $0.21
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