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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Shareholders have been examined by the Company's independent auditors, as and
to the extent set forth in their reports appearing therein.
















































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                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




























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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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<PAGE>
<PAGE>
                 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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<PAGE>
<PAGE>
                    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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<PAGE>
<PAGE>
             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.
Page 55
<PAGE>
<PAGE>
             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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<PAGE>
<PAGE>
                  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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<PAGE>
<PAGE>
             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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<PAGE>
<PAGE>
            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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<PAGE>
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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<PAGE>
              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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<PAGE>
<PAGE>
   4.  Inventories
       -----------

Inventories are valued at the lower of cost or market, with cost being
determined using the first-in, first-out method.

   5.  Property and equipment
       ----------------------

   Property and equipment 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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          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.


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   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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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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   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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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



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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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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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   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.










































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