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 October 31, 1999
------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-10287
LIFSCHULTZ INDUSTRIES, INC.
---------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE No. 87-0448118
------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
641 West 59th Street, New York, NY 10019
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(Address of principal executive offices)
(212) 397-7788
------------------------
(Issuer's telephone number)
Not Applicable
------------------------------
(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 December 13,
1999 is 1,121,655 shares.
1
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 31, 1999 and July 31, 1999
ASSETS
<TABLE>
<CAPTION>
31-Oct-99 31-Jul-99
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 994,000 $ 1,175,000
Marketable securities 1,105,000 993,000
Trade accounts receivable, net 2,535,000 3,059,000
Related party receivable 29,000 51,000
Deferred income taxes 323,000 323,000
Inventories 3,466,000 3,190,000
Other current assets 82,000 159,000
------------ --------------
Total current assets 8,534,000 8,950,000
PROPERTY HELD FOR LEASE, NET 1,469,000 1,598,000
PROPERTY AND EQUIPMENT, NET 1,413,000 1,181,000
LAND 170,000 170,000
DEFERRED INCOME TAXES 1,222,000 1,222,000
------------ ---------------
$ 12,808,000 $ 13,121,000
============ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Lifschultz Industries, Inc. and Subsidiaries
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
October 31, 1999 and July 31, 1999
<TABLE>
<CAPTION>
31-Oct-99 31-Jul-99
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to banks $ 250,000 $ 150,000
Trade accounts payable 754,000 688,000
Income taxes payable 169,000 149,000
Accrued liabilities 824,000 1,528,000
Current maturities of capital lease obligations 37,000 39,000
Current maturities of long-term obligation 2,000 2,000
------------ --------------
Total current liabilities 2,036,000 2,556,000
LONG-TERM OBLIGATION, less current maturities 5,000 5,000
CAPITAL LEASE OBLIGATIONS, less current maturities 85,000 92,000
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 October 31 and July 31, 1999 - -
Series E; issued and outstanding 21,231
shares at October 31 and July 31, 1999 - -
Common stock, par value $0.001; authorized
1,650,000 shares; issued and outstanding,
1,117,519 shares issued at October 31 and
July 31 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 (222,000) (436,000)
Total shareholders' equity 10,682,000 10,468,000
------------ ---------------
$ 12,808,000 $ 13,121,000
============ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
For the three months ended October 31,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Revenues $ 3,871,000 $ 3,626,000
Cost and expenses:
Cost of products sold 2,268,000 2,001,000
Selling, general and administrative 1,153,000 1,172,000
Research and development 196,000 127,000
Interest expense 10,000 7,000
------------ --------------
$ 3,627,000 $ 3,307,000
------------ --------------
Earnings before income taxes 244,000 319,000
Income tax expense 29,000 32,000
------------ --------------
NET EARNINGS $ 215,000 $ 287,000
============ ==============
Net earnings per common - basic 0.19 0.26
============ ==============
Net earnings per common share-
assuming dilution 0.17 0.24
============ ==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
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Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended October 31,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net Earnings $ 215,000 $ 287,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 57,000 42,000
Amortization of leasehold interest 129,000 129,000
Changes in assets and liabilities:
Accounts receivable 524,000 350,000
Related party receivable 22,000 11,000
Inventories (276,000) (256,000)
Deferred Tax - -
Other current assets 77,000 (177,000)
Accounts payable 66,000 283,000
Accrued liabilities (704,000) (456,000)
Income taxes payable 20,000 59,000
------------ ---------------
Total Adjustments (85,000) (15,000)
------------ ---------------
Net cash provided (used) by
operating activities 130,000 272,000
Cash flows from investing activities
Purchase of property and equipment (289,000) (223,000)
Purchase of marketable securities (112,000) (375,000)
Proceeds from maturities of marketable
securities - 163,000
------------ ---------------
Net cash used in
investing activities (401,000) (435,000)
</TABLE>
5
<PAGE>
Lifschultz Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended October 31,
(Continued)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from financing activities
Principal payments on long-term obligations (1,000) (1,000)
Principal payments on capital lease
obligations (9,000) (3,000)
Net change in line of credit 100,000 96,000
Cash received from issuance of common stock - -
------------- ---------------
Net cash provided by
financing activities 90,000 92,000
Net decrease in cash and cash
equivalents (181,000) (71,000)
Cash and cash equivalents at beginning
of quarter 1,175,000 989,000
------------- ---------------
Cash and cash equivalents at end of quarter $ 994,000 $ 918,000
============= ===============
Supplemental disclosures of cash flow information
- -------------------------------------------------
Cash paid during the quarter for
Interest $ 10,000 $ 7,000
Income Taxes $ 128,000 $ 3,000
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Notes to Financial Statements
(unaudited)
Note 1
- ------
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, 1999 and
the notes thereto included in the Company's Form 10-KSB.
Note 2
- ------
Certain reclassifications have been made to the October 31, 1998 three month
period financial statements to conform with the October 31, 1999 presentation
without effect on income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
- -------
The Company designs, manufactures, and markets scientific and industrial
instrumentation and instrument calibration equipment. Most of the Company's
revenues are from its operating subsidiary Hart Scientific, Inc. ("Hart") and
Hart's subsidiary, Calorimetry Sciences Corporation ("CSC"). The Company
realizes a small amount of revenue from a real property lease held by its
non-operating subsidiary, Lifschultz Fast Freight, Inc. ("Fast Freight").
Company management believes that its future growth is dependent upon the ability
of Hart and CSC to continue increasing instrument sales to new and existing
customers and successfully introduce and market new or enhanced products.
Results of Operations
- ---------------------
The Company's consolidated net revenues rose 7% to $3,871,000 for its first
quarter ended October 31, 1999 from $3,626,000 for the first quarter ended
October 31, 1998.
7
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Consolidated net revenues for Hart (including CSC revenues), were $3,868,000 for
the first quarter this year versus $3,495,000 for the same period last year.
Consolidated net earnings decreased 25% from $287,000 for first quarter of last
year to $215,000 in the first quarter this year. Hart Scientific's net profit
for the first quarter of this year was $316,000 versus $366,000 for the same
period last year. The company attributes the decline primarily to a change in
product mix, with a higher proportion of lower margined products being sold this
year, and increases in expenses associated with expanded research and
development and marketing efforts.
Historically, quarterly profitability of the company has widely fluctuated due
to a variety of factors, including the timing of expenses, timing of orders, and
changes in the profitability of the product mix during a quarter. One quarter's
performance has never been determinative of a trend. The Company's historical
growth is reflected by 1990 gross revenues of $2,066,000 and net earnings before
income taxes and extraordinary items of ($1,000) and 1999 gross revenues of
$16,254,000 and net earnings before income taxes and extraordinary items of
$1,231,000. The historical variation in the company's quarterly profitability is
demonstrated by the quarterly consolidated net earnings before income taxes and
extraordinary items for the last two fiscal years:
Fiscal 1997-98 Fiscal 1998-99
First Quarter $ 299,000 319,000
Second Quarter 544,000 365,000
Third Quarter 119,000 315,000
Fourth Quarter 175,000 232,000
------------ ------------
July 31 Year End $ 1,137,000 $ 1,231,000
The comparison shows that pre-tax, year-end earnings rose 8% from fiscal 1997-98
to fiscal 1998-99 despite a 30% drop in profitability between the second quarter
of those two years. Notably, the aggregate dollar decline between pre-tax
earnings in the first quarter of fiscal 1999-2000 and fiscal 1998-99 ($75,000)
is significantly less than the aggregate dollar decline between pre-tax earnings
in the second quarter of fiscal 1997-99 and fiscal 1998-99 ($179,000).
Research and development expenses increased in the first quarter of this year
25% to $195,000 from $127,000 in the first quarter of last year. This year Hart
Scientific developed a new bath model 7380 for a specific customer that we
currently estimate will represent from $300,000 to $750,000 in new business
during its first year. Last year's audited financial statements showed research
and development expenditures of $1,077,000 in fiscal 1997-98 and $786,000 in
fiscal 1998-99, although classification of certain costs consistent with our
1998-99 presentation would have brought the 1997-98 amount to $642,000, showing
significant growth between years.
8
<PAGE>
The company is continuing its substantial efforts to market new products and
expand market share. Marketing expenses rose in this quarter from $335,000 in
the first quarter last year to $489,000 in the first quarter this year.
The company's exports grew by 13% from $940,000 in first quarter of last year to
$1,070,000 in the first quarter of this year. Notably, the company experienced a
33% increase in sales to the Far East from $240,000 in the first quarter of last
year to $360,000 in the first quarter this year. Exports had declined from
representing 35% of annual sales in fiscal 1996- 97 to 25% of sales in fiscal
1998-99, as described in the company's last annual report.
Hart's gross margins were 41% for the first quarter in the current year versus
43% for the same period last year. Company management believes that product mix
accounts for the lower margins in 1999. General and Administrative costs for the
first quarter of this year were $560,000 for Hart versus $626,000 for the same
period last year, and $205,000 for the first quarter of this year for Fast
Freight versus $178,000 for the same period last year.
In a continuing effort to improve margins, Calorimetry Sciences recently
acquired important designs for certain hardware and software used in several of
the company's products. For many years, the company has paid royalties to use
the designs. The company made the purchase to reduce long-term costs and assure
continued use of the technology. Calorimetry Sciences also moved their
manufacturing operations to larger facilities in November to house their entire
operation under one roof for greater efficiency.
Financial Condition and Liquidity
- ---------------------------------
The Company's current ratio at October 31, 1999 is 4.19 to 1 versus 3.5 to 1 at
July 31, 1999. The current ratio improved to 4.19 to 1 at the end of the current
first quarter versus 2.93 on October 31, 1998.
Management expects that internal operating cash flow from Hart Scientific and
from certain subleases held by Lifschultz Fast Freight will be sufficient to
meet the cash needs of the Company during this fiscal year. Hart Scientific
currently has approximately $400,000 remaining on its bank line of credit if
such funds are required.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995.
When used in this report, the words "believe," "plan" "expects" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from those projected. These forward-looking statements
9
<PAGE>
speak only as of the date hereof. All of these forward-looking statements are
based on estimates and assumptions made by management of the Company, which
although believed to be reasonable, are inherently uncertain and difficult to
predict. There can be no assurance that the benefits anticipated in these
forward-looking statements will be achieved. The following important factors,
among others, could cause the Company not to achieve the benefits contemplated
herein, or otherwise cause the Company's results of operations to be adversely
affected in future periods: (i) continued or increased competitive pressures
from existing competitors and new entrants; (ii) unanticipated costs related to
the Company's growth and operating strategies; (iii) loss or retirement of key
members of management; (iv) prolonged labor disruption; (v) deterioration in
general of international economic conditions; and (vi) loss of customers. Many
such factors are beyond the control of the Company. Please refer to the
Company's SEC Form 10-KSB for its fiscal year ended July 31, 1999, for
additional cautionary statements.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
The following exhibits are attached hereto or are incorporated
herein by reference as indicated in the table below:
<TABLE>
<CAPTION>
Exhibit Location if other
No. Title of Document than attached hereto
------- ----------------- --------------------
<S> <C> <C>
3.01* Certificate of Incorporation 1998 Form 10-KSB
(as amended to date) Exhibit 3.01
3.02* Bylaws 1991 Form 10-K
Page 74
4.01* Certificate of Designation, Series A 1991 Form 10-K
Convertible Preferred Stock (as amended) Page 94
4.01* Certificate of Designation, Series E 1994 Form 10-K
Convertible Preferred Stock Exhibit 4.05
27.1 Financial Data Schedule
</TABLE>
10
<PAGE>
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the
quarter ended October 31, 1999.
* Denotes exhibits specifically incorporated in this Form 10-QSB by reference to
other filings of the Company pursuant to the provisions of Securities and
Exchange Commission rule 12b- 32 and Regulation S-B, Item 10(f)(2). These
documents are located under File No. 001-10287 at, among other locations, the
Securities and Exchange Commission, Public Reference Branch, 450 5th St., N.W.,
Washington, D.C. 20549.
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 December 17, 1999 By: DENNIS R. HUNTER
----------------- ---------------------------
Dennis R. Hunter
President and Chief
Financial Officer
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LIFSCHULTZ
INDUSTRIES, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 994,000
<SECURITIES> 1,105,000
<RECEIVABLES> 2,535,000
<ALLOWANCES> 0
<INVENTORY> 3,466,000
<CURRENT-ASSETS> 8,534,000
<PP&E> 3,052,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,808,000
<CURRENT-LIABILITIES> 2,036,000
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 10,681,000
<TOTAL-LIABILITY-AND-EQUITY> 12,808,000
<SALES> 3,871,000
<TOTAL-REVENUES> 3,871,000
<CGS> 2,268,000
<TOTAL-COSTS> 3,627,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> 244,000
<INCOME-TAX> 29,000
<INCOME-CONTINUING> 215,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215,000
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.16
</TABLE>
