<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 October 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 October 31, 1998, 3,664,499 shares of common stock were outstanding.
<PAGE>
PART I
ITEM I
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.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of operations:
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 $18,085,000 and an operating profit of
$2,979,000 for the nine months ended October 31, 1998 (1999) compared to
revenues of $19,401,000 and an operating profit of $2,833,000 for the nine
months ended October 31, 1997 (1998). Revenues and operating profit for the
quarter ended October 31, 1998 were $5,549,000 and $1,211,000, respectively,
compared to revenues and operating profit for the quarter ended October 31, 1997
of $7,773,000 and $1,326,000, respectively. The decrease in revenues from year
to year and quarter to quarter was primarily associated with the switchgear
portion of the business which experienced an unusual amount of custom business
in the third quarter of fiscal 1998. In addition, shipments to its largest
customer were down on a year to year and quarter to quarter basis. The lack of
similar shipments in fiscal 1999 and the reduced sales to its largest customer
was reflected in reduced revenues and profitability for the quarter and the year
to date results. Conversely, revenues and operating profits for the computer
subsystem enclosure and power supply businesses increased quarter to quarter and
year to year. Revenues and profitability relative to the electronic
communication equipment business increased for the quarter to quarter results
but were suppressed for the year to year comparisons because of timing of
shipments under an existing U.S. Government contract. Overall operating profits
increased on the year to year comparison as a result of improved profit margins.
Net corporate expenses, comprised of interest expense and general corporate
items, were $2,036,000 for the nine months ended October 31, 1998 compared to
$1,734,000 for the nine months ended October 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 October 31, 1998, such borrowings amounted to $2,506,000
with an additional availability based on the various formulae of $510,000. The
Company's line of credit agreement and term loans with its current lender
expires in May 2001.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -(continued):
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.
<PAGE>
JETRONIC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(000's Omitted)
October 31, 1998 January 31, 1998
---------------- ----------------
ASSETS
Current assets:
Cash $ 417 $ 513
Accounts receivable 4,016 3,956
Inventories 7,196 6,700
Prepaid and other assets 969 932
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Total current assets 12,598 12,101
Property, plant and equipment, net 377 418
Goodwill 283 291
Other assets 1,353 676
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Total assets $ 14,611 $ 13,486
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to lenders $ 2,506 $ 3,323
Current portion of long-term debt 789 335
Accounts payable 1,063 2,328
Other accrued liabilities 783 883
Deferred interest 1,379
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Total current liabilities 5,141 8,248
Deferred interest 1,405
Long-term debt 6,152 4,282
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Total liabilities 12,698 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) (11,077) (11,974)
-------- --------
Total shareholders'
equity 1,913 956
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$ 14,611 $ 13,486
======== ========
See notes to consolidated financial statements.
<PAGE>
JETRONIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000's Omitted)
Nine months Ended October 31,
-----------------------------
1998 1997
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Net sales $18,085 $19,401
Cost and expenses:
Cost of goods sold 14,081 15,622
Selling and administrative expenses 2,099 1,936
Interest and debt expenses 962 744
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Total costs and expenses 17,142 18,302
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Income before income taxes 943 1,099
income tax provision 46 8
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Net income $ 897 $ 1,091
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Net income per share (A):
Basic $ .25 $ .30
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Diluted $ .22 $ .29
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Notes:
(A) Weighted average number of shares for the nine months ended October 31,
1998 and 1997 was 3,634,000 and 3,604,000, respectively for basic and
3,986,000 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 October 31,
------------------------------
1998 1997
---- ----
Net sales $5,549 $7,773
Cost and expenses:
Cost of goods sold 4,000 6,067
Selling and administrative expenses 718 724
Interest and debt expenses 369 266
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Total costs and expenses 5,087 7,057
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Income before income taxes 462 716
Income tax provision 22 7
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Net income $ 440 $ 709
====== ======
Net income per share (A):
Basic $ .12 $ .20
====== ======
Diluted $ .11 $ .19
====== ======
Notes:
(A) Weighted average number of shares for the three months ended October 31,
1998 and 1997 was 3,634,000 and 3,604,000, respectively for basic and
3,986,000 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
January 31, 1998 1,273 1,273
--------- ---- --------- --------- ---------
Balance, January 31, 1998 3,604,499 361 12,569 ( 11,974) 956
Exercise of warrants 60,000 6 54 60
Net income, nine months
ended October 31, 1998 897 897
--------- ---- --------- --------- ---------
Balance, October 31, 1998 3,664,499 $367 $ 12,623 ($ 11,077) $ 1,913
========= ==== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
JETRONIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's Omitted)
Nine Months Ended October 31,
-----------------------------
1998 1997
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Cash flows from operating activities:
Net income $ 897 $ 1,091
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation and amortization 87 82
Reduction of goodwill 8 8
Changes in assets and liabilities:
Accounts receivable ( 60) (2,694)
Inventories ( 496) ( 883)
Prepaid and other assets ( 37) ( 95)
Other assets ( 677) 16
Accounts payable (1,265) 252
Other liabilities ( 100) ( 18)
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Total adjustments (2,540) (3,332)
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Net cash provided (used) by
operating activities (1,643) (2,241)
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Cash flows from investing activities:
Capital expenditures ( 46) ( 75)
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Cash flows from financing activities:
Proceeds from long-term debt 2,930 515
Net borrowings from lenders ( 817) 1,846
Principal payments on long-term debt ( 580) ( 59)
Proceeds from exercise of warrants 60
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Net cash provided (used) by
financing activities 1,593 2,302
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Net increase (decrease) in cash ( 96) ( 14)
Cash beginning of period 513 498
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Cash end of period $ 417 $ 484
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Supplemental disclosures of cash flow information:
Interest paid during the period $ 682 $ 578
======= =======
Income taxes paid during the period $ 30 $ 8
======= =======
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:
October 31, 1998 January 31, 1998
---------------- ----------------
Raw materials $ 4,285 $ 4,224
Work in process 2,911 2,476
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Total $ 7,196 $ 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 $2,482,
arising principally from net operating loss carryforwards, were partially
offset by deferred tax liabilities and valuation allowance of $2,310 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:
Nine Months Ended October 31,
-----------------------------
1998 1997
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Federal income tax rate 34.0% 34.0%
State income taxes, net of
federal tax benefit 0.9 0.2
Tax effect of non-deductible
expenses 1.0 0.8
Difference in tax bases of assets 0.7
NOL utilization under SFAS No. 109 (31.8) (34.7)
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Effective income tax rate 4.8% 0.3%
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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
October 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
December 15, 1998
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<NAME> JETRONIC INDUSTRIES, INC.
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