<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 31, 1998
Commission File Number 1-4124
JETRONIC INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1364981
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 Mitchell Street, Philadelphia, PA 19128
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 482-7660
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Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes X No .
--- ---
At July 31, 1998, 3,664,499 shares of common stock were outstanding.
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PART I
ITEM 1
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CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT AND ITS SUBSIDIARIES
The following Consolidated Balance Sheets, Consolidated Statements of
Operations, Consolidated Statements of Changes in Shareholders' Equity and
Consolidated Statements of Cash Flows are unaudited. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of results for the interim periods have been
included. Results of operations for interim periods are not necessarily
indicative of a full year's operations. The aforementioned statements should be
read in conjunction with the annual report on Form 10-K for the fiscal year
ended January 31, 1998.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain forward looking statements contained herein are based on current
expectations. Actual results may differ materially from the results described in
such forward looking statements due to, but not limited to, the following
factors: the effect of general business conditions, the impact of competitive
products and pricing, product development and technological difficulties.
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ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations:
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In the following commentary, "operating profit" is total revenue less operating
expenses. In computing operating profit, none of the following items has been
added or deducted: general corporate expenses, corporate interest expense,
corporate interest income and income taxes.
The Company reported revenues of $12,536,000 and an operating profit of
$1,768,000 for the six months ended July 31, 1998 (1999) compared to revenues of
$11,628,000 and an operating profit of $1,507,000 for the six months ended July
31, 1997 (1998). Revenues and operating profit for the quarter ended July 31,
1998 were $6,392,000 and $937,000, respectively, compared to revenues and
operating profit for the quarter ended July 31, 1997 of $5,921,000 and $757,000,
respectively. The increase in revenues from year to year and quarter to quarter
was experienced across the board for all elements of the energy conversion
products group, while revenues for the electronic communications equipment
business was down due to the timing of the placement of a new order against an
existing U.S. Government contract. The new order is expected to ship in the
third and fourth quarters of this fiscal year. The profitability increase was
primarily attributable to a better mix of product at the switchgear operations
and the overall increase in revenues.
Net corporate expenses, comprised of interest expense and general corporate
items, were $1,287,000 for the six months ended July 31, 1998 compared to
$1,124,000 for the six months ended July 31, 1997. The increase in corporate
expenses, year to year, is primarily associated with the Company's refinancing
of its revolving credit arrangement and long-term bank debt.
Liquidity and Capital Resources:
- --------------------------------
During FY 1999 and FY 1998 the operations of the Company and its subsidiary were
financed by lending institutions under various formulae which provide operating
funds as required. Such borrowings are primarily in the form of short-term
loans, secured by assignment of accounts receivable and inventories. Under the
various formulae, borrowings are limited to varying percentages and maximum
dollar amounts of accounts receivable and inventories with a maximum limitation
of $6,500,000. As of July 31, 1998, such borrowings amounted to $2,418,000 with
an additional availability based on the various formulae of $896,000. The
Company's line of credit agreement and term loans with its current lender
expires in May 2001.
At this time, there are no material commitments for capital expenditures
although the Company is pursuing several acquisitions which, if successful, will
require the outlay of additional cash. Cash requirements for the current fiscal
year should increase by ten percent due to the anticipated increase in business
activity. Based upon the availability of funds under its existing financing
arrangements, the Company deems its liquidity to be adequate.
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JETRONIC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(000's Omitted)
July 31, 1998 January 31, 1998
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ASSETS
Current assets:
Cash $ 711 $ 513
Accounts receivable 4,432 3,956
Inventories 6,891 6,700
Prepaid and other assets 888 932
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Total current assets 12,922 12,101
Property, plant and equipment, net 383 418
Goodwill 285 291
Other assets 1,402 676
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Total assets $14,992 $13,486
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to lenders $ 2,418 $ 3,323
Current portion of long-term debt 829 335
Accounts payable 1,835 2,328
Other accrued liabilities 759 883
Deferred interest 1,379
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Total current liabilities 5,841 8,248
Deferred interest 1,405
Long-term debt 6,273 4,282
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Total liabilities 13,519 12,530
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Shareholders' equity:
Common stock 367 361
Capital in excess of par value 12,623 12,569
Retained earnings (deficit) (11,517) (11,974)
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Total shareholders' equity 1,473 956
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$14,992 $13,486
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See notes to consolidated financial statements.
<PAGE>
JETRONIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000's omitted)
Six Months Ended July 31,
-------------------------
1998 1997
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Net sales $ 12,536 $ 11,628
Cost and expenses:
Cost of goods sold 10,081 9,555
Selling and administrative expenses 1,381 1,212
Interest and debt expenses 593 478
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Total costs and expenses 12,055 11,245
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Income before income taxes 481 383
Income tax provision 24 1
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Net income $ 457 $ 382
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Net income per share (A):
Basic $ .13 $ .10
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Diluted $ .11 $ .10
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Notes:
(A) Weighted average number of shares for the six months ended July 31, 1998 and
1997 was 3,634,000 and 3,604,000, respectively for basic and 4,036,000 and
3,721,000, respectively for diluted.
See notes to consolidated financial statements.
<PAGE>
JETRONIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000's omitted)
Three Months Ended July 31,
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1998 1997
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Net sales $ 6,392 $ 5,921
Cost and expenses:
Cost of goods sold 5,114 4,858
Selling and administrative expenses 718 648
Interest and debt expenses 339 249
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Total costs and expenses 6,171 5,755
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Income before income taxes 221 166
Income tax provision 15 --
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Net income $ 206 $ 166
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Net income per share (A):
Basic $ .06 $ .04
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Diluted $ .05 $ .04
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Notes:
(A) Weighted average number of shares for the three months ended July 31, 1998
and 1997 was 3,634,000 and 3,604,000, respectively for basic and 4,036,000
and 3,721,000, respectively for diluted.
See notes to consolidated financial statements.
<PAGE>
JETRONIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(000's Omitted)
<TABLE>
<CAPTION>
Common Stock Capital in Retained
-------------------- excess of earnings
Shares Amount par value (deficit) Total
------ ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1997 3,604,499 $361 $12,569 ($13,247) ($ 317)
Net income, year ended 1,273 1,273
January 31, 1998 --------- ---- ------- -------- -----
Balance, January 31, 1998 3,604,499 $361 12,569 (11,974) 956
Exercise of warrants 60,000 6 54 60
Net income, six months
ended July 31, 1998 457 457
--------- ---- ------- -------- -----
Balance, July 31, 1998 3,664,499 $367 $12,623 ($11,517) $1,473
========= ==== ======= ======== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
JETRONIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's Omitted)
Six Months Ended July 31,
-----------------------------
1998 1997
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Cash flows from operating activities:
Net income $ 457 $ 382
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation and amortization 56 53
Reduction of goodwill 6 5
Changes in assets and liabilities:
Accounts receivable (476) (664)
Inventories (191) (504)
Prepaid and other assets 44 (156)
Other assets (726) 10
Accounts payable (493) 10
Other liabilities (98) (155)
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Total adjustments (1,878) (1,401)
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Net cash provided (used) by
operating activities (1,421) (1,019)
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Cash flows from investing activities:
Capital expenditures (21) (56)
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Cash flows from financing activities:
Proceeds from long-term debt 2,930 515
Net borrowings from lenders (905) 496
Principal payments on long-term debt (323) (43)
Proceeds from exercise of warrants 60
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Net cash provided (used) by
financing activities 1,762 968
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Net increase (decrease) in cash 320 (107)
Cash beginning of period 391 498
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Cash end of period $ 711 $ 391
======= ======
Supplemental disclosures of cash flow
information:
Interest paid during the period $ 432 $ 388
======= ======
Income taxes paid during the period $ 25 -0-
======= ======
See notes to consolidated financial statements.
<PAGE>
JETRONIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(000's omitted)
Note 1 - INVENTORIES
Inventories, which are stated at the lower of last-in first-out (LIFO) cost
or market for electronic communication equipment and a portion of energy
conversion products (18% of inventory) and at the lower of first-in
first-out (FIFO) cost or market for the remaining portion of energy
conversion products, are summarized as follows:
July 31, 1998 January 31, 1998
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Raw materials $ 4,110 $ 4,224
Work in process 2,781 2,476
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Total $ 6,891 $ 6,700
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Note 2 - STATEMENT OF OPERATIONS
Effective February 1, 1993, the Company changed its method of accounting
for income taxes by adopting Statement of Financial Accounting Standards
No. 109 (SFAS No. 109). Under SFAS No. 109 the deferred tax provision is
determined under the liability method. Deferred tax assets of $2,625,
arising principally from net operating loss carryforwards, were partially
offset by deferred tax liabilities and valuation allowance of $2,453 in
accordance with guidelines established under SFAS No. 109. The Company will
periodically review and adjust the valuation allowance as needed.
Differences between the statutory federal income tax rate and the effective
tax rate are accounted for as follows:
Six months Ended July 31,
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1998 1997
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Federal income tax rate 34.0% 34.0%
State income taxes, net of
federal tax benefit .2 .2
Tax effect of non-deductible
expenses 1.4 1.6
Difference in tax bases of assets 9.7
NOL utilization under SFAS No. 109 (40.2) (35.6)
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Effective income tax rate 5.1% 0.2%
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<PAGE>
PART II
Items 1 thru 6(a) are not applicable.
Item 6(b) - There were no reports on Form 8-K filed for the quarter ended
July 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JETRONIC INDUSTRIES, INC.
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Registrant
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Leonard W. Pietrzak
Vice President - Finance
September 21, 1998
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<NAME> JETRONIC INDUSTRIES, INC.
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<PERIOD-START> FEB-01-1998
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