10-Q 1 0001.txt EDISON CONTROL CORPORATION FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended April 30, 2000 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to __________________ Commission file number 0-14812 ------- EDISON CONTROL CORPORATION -------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2716367 ---------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 777 Maritime Drive PO Box 308 Port Washington, WI 53074-0308 ------------------------------ (Address of principal executive offices) (Zip Code) (262) 268-6800 -------------- (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark 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 filing requirements for the past 90 days. Yes __X__ No_____ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value: 2,351,308 as of April 30, 2000 ------------------------------------------------------------ EDISON CONTROL CORPORATION AND SUBSIDIARIES INDEX Form 10-Q Page Number ----------- Part I Financial Information Item 1 Financial Statements --------------------------- Consolidated Balance Sheets Pages 2 & 3 April 30, 2000 (Unaudited) and January 31, 2000 Consolidated Statements of Income Page 4 Three months ended April 30, 2000 and 1999 (Unaudited) Consolidated Statements of Cash Flows Pages 5 & 6 Three months ended April 30, 2000 and 1999 (Unaudited) Notes to Consolidated Financial Statements Pages 7 - 8 (Unaudited) Item 2 Management's Discussion and Analysis of Pages 9 - 11 ---------------------------------------------- Operations and Financial Condition ---------------------------------- Item 3 Quantitative and Qualitative Disclosures ----------------------------------------------- About Risk Pages 11-12 ---------- Part II Other Information ------------------------- Item 6 Exhibits Page 12 and --------------- Exhibit Index 1 PART I. Item 1 Financial Statements EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 2000 and January 31, 2000 April 30, January 31, 2000 2000 ---- ---- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $795,189 $539,586 Investments 95,000 95,000 Trading securities 1,150,863 1,405,650 Trade accounts receivable, net 4,281,527 3,522,867 Receivable from affiliate 68,017 61,606 Inventories, net 6,822,322 7,110,888 Prepaid expenses and other assets 113,581 193,886 Deferred income taxes 180,000 190,000 ------- ------- Total current assets 13,506,499 13,119,483 Investment in and advances to affiliate 494,359 478,108 Other Assets: Prepaid pension 0 25,193 Deferred income taxes 535,000 535,000 ------- ------- Total other assets 535,000 560,193 Property, plant and equipment, net 7,795,983 7,968,785 Goodwill (net of amortization) 8,399,994 8,458,059 Organizational/finance costs (net of amortization) 44,998 46,036 ------ ------ TOTAL ASSETS $30,776,833 $30,630,664 =========== =========== (Continued) See Accompanying Notes. 2 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 2000 and January 31, 2000 (Continued) April 30, January 31, 2000 2000 ---- ---- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 1,416,649 $ 989,595 Accrued compensation 469,074 791,528 Taxes other than income taxes 40,622 24,780 Other accrued expenses 765,477 653,077 Income taxes payable 450,565 151,104 Deferred compensation 754,250 754,250 Current maturities on long-term debt 933,784 933,784 ------- ------- Total current liabilities 4,830,421 4,298,118 Accrued pension expenses 10,801 0 Long-term debt, less current maturities 7,051,469 8,029,358 --------- ---------- Total Liabilities 11,892,691 12,327,476 Shareholders' Equity: Preferred stock, $.01 par value: 1,000,000 shares authorized, none issued 0 0 Common stock, $.01 par value: 20,000,000 shares authorized, 2,351,308 shares issued and outstanding 23,513 23,513 Additional paid-in capital 10,344,868 10,344,868 Retained earnings 8,569,205 7,917,695 Accumulated other comprehensive (loss) income (53,444) 17,112 -------- ------ Total Shareholders' Equity 18,884,142 18,303,188 ---------- ---------- TOTAL LIABILITIES AND EQUITY $30,776,833 $30,630,664 =========== =========== See Accompanying Notes. 3 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED APRIL 30, 2000 AND 1999 (Unaudited) 2000 1999 ---- ---- NET SALES $6,954,152 $6,117,533 COST OF GOODS SOLD 4,278,216 3,997,597 --------- --------- GROSS PROFIT 2,675,936 2,119,936 OTHER OPERATING EXPENSES: Selling, engineering and administrative expenses 1,500,456 1,204,640 Goodwill and organizational/ finance cost amortization 59,103 79,650 ------ ------ Total other operating expenses 1,559,559 1,284,290 --------- --------- OPERATING INCOME 1,116,377 835,646 OTHER EXPENSE (INCOME): Interest expense 176,682 251,409 Realized gains on trading securities (124,522) (260,953) Unrealized (gains) losses on trading securities (19,986) 192,817 Stock warrant amortization 0 389,236 Miscellaneous income (21,332) (28,886) -------- -------- Total other expense 10,842 543,623 ------ ------- INCOME BEFORE INCOME TAXES 1,105,535 292,023 INCOME TAXES 454,025 131,176 ------- ------- NET INCOME 651,510 160,847 OTHER COMPREHENSIVE LOSS - Foreign currency translation adjustment (70,556) (22,914) -------- -------- COMPREHENSIVE INCOME $580,954 $137,933 ======== ======== Net income per share - basic $.28 $.07 Net income per share - diluted $.22 $.06 See Accompanying Notes. 4 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, 2000 AND 1999 (Unaudited) 2000 1999 ---- ---- OPERATING ACTIVITIES: Net income $ 651,510 $ 160,847 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 308,071 693,589 Provision for doubtful accounts 78,091 66,044 Realized gain on sales of trading securities (124,522) (260,953) Unrealized (gain) loss on trading securities (19,986) 192,817 Purchases of trading securities (80,783) 0 Proceeds from the sale of trading securities 480,078 2,631,337 Equity in earnings of affiliate (16,251) (15,000) Changes in assets and liabilities: Accounts receivable (836,751) (117,719) Receivable from affiliate (6,411) 18,992 Inventories 288,566 126,356 Prepaid expenses and other assets 105,498 (27,412) Trade accounts payable 427,054 (928,128) Accrued compensation (322,454) (279,262) Taxes other than income taxes 15,842 19,628 Other accrued expenses 123,201 (13,923) Deferred income taxes 10,000 (148,000) Income taxes payable 299,461 279,785 ------- ------- Total adjustments 728,704 2,238,151 ------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,380,214 2,398,998 --------- --------- INVESTING ACTIVITIES: Additions to plant and equipment (76,166) (75,607) Maturity of certificate of deposit 0 95,000 - ------ NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (76,166) 19,393 ------- ------ (Continued) See Accompanying Notes. 5 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, 2000 AND 1999 (Unaudited) (Continued) 2000 1999 ---- ---- FINANCING ACTIVITIES: Proceeds from issuance of long-term debt $ 600,000 $ 5,157,183 Payments on long-term debt (1,577,889) (7,106,756) NET CASH USED IN FINANCING ACTIVITIES (977,889) (1,949,573) -------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (70,556) (22,914) ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 255,603 445,904 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 539,586 468,072 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 795,189 $ 913,976 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 144,564 $ 0 Cash paid during the period for interest 183,937 257,374 See Accompanying Notes. 6 EDISON CONTROL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation ------------------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ending April 30, 2000 are not necessarily indicative of the results that may be expected for other interim periods or the year ended January 31, 2001. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended January 31, 2000. Note 2 - Nature of Business and Accounting Policies ---------------------------------------------------- Principles of Consolidation - The consolidated financial statements include the accounts of Edison Control Corporation ("Edison") and subsidiaries, all of which subsidiaries are wholly owned by Edison (collectively, the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. Nature of Operations - The Company is currently comprised of the following operations. Construction Forms ("ConForms") is a leading manufacturer and distributor of systems of pipes, couplings and hoses and other equipment used for the pumping of concrete. ConForms manufactures a wide variety of finished products which are used to create appropriate configurations of systems for various concrete pumps. Ultra Tech manufactures abrasion resistant piping systems for use in industries such as mining, pulp and paper, power and waste treatment. Gilco produces a line of concrete and plaster/mortar mixers. JABCO primarily leases property and equipment to the Company. Trading Securities - Debt and equity securities purchased and held principally for the purpose of sale in the near term are classified as "trading securities" and reported at fair value with unrealized gains and losses included in earnings. The cost of individual securities sold is based on the first-in, first-out method. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. 7 Translation of Foreign Currencies - Assets and liabilities of foreign operations are translated into United States dollars at current exchange rates. Income and expense accounts are translated into United States dollars at average rates of exchange prevailing during the year. Adjustments resulting from the translation of financial statements of the foreign operations are included as foreign currency translation adjustments in other comprehensive income. Net income per share - Reconciliation of the numerator and denominator of the basic and diluted per share computations for the three months ended April 30, 2000 and 1999 are summarized as follows: 2000 1999 ---- ---- Net income per share - basic: Net income (numerator) $651,510 $160,847 Weighted average shares outstanding (denominator) 2,351,308 2,346,933 Net income per share - basic $.28 $ .07 Net income per share - diluted: Net income (numerator) $651,510 $160,847 Weighted average shares outstanding 2,351,308 2,346,933 Effect of dilutive securities: Stock options 184,755 177,949 Stock warrants 378,749 392,025 ------- ------- Weighted average shares outstanding (denominator) 2,914,812 2,916,907 Net income per share - diluted $.22 $ .06 Note 3 - Segment Information ---------------------------- The Company's operating segments are organized based on the nature of products and services provided. A description of the nature of the segment's operations and their accounting policies is contained in Note 2. Segment information for the quarters ended April 30, 2000 and 1999 follows: 2000 1999 ---- ---- Net Operating Net Operating Sales Income (Loss) Sales Income (Loss) ----- ------------ ----- ------------ ConForms $5,801,838 $1,455,796 $5,082,901 $953,762 Ultra Tech 667,105 76,201 466,689 91,999 Gilco 485,209 (60,153) 567,943 (115,789) Edison (355,467) (94,326) ------- --------- --------- -------- Total $6,954,152 $1,116,377 $6,117,533 $835,646 8 Item 2. Management's Discussion and Analysis of Operations and Financial Condition -------------------------------------------------------------------------- Certain matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes", "anticipates", "expects", or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties, including, but not limited to, new product advancements by competition, significant changes in industry technology, economic or political conditions in the countries in which the Company does business, the continued availability of sources of supply, the availability and consummation of favorable acquisition opportunities, increasing competitive pressures on pricing and other contract terms, economic factors affecting the Company's customers and stock price variations affecting the Company's securities trading portfolio. These factors could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Net sales for the quarter ended April 30, 2000 increased $836,619 (13.7%) to $6,954,152 when compared with the same period of the prior year. The principal reasons for the change were increases in ConForms' foreign and domestic sales and Ultra Tech project sales. Ultra Tech's sales volume will continue to fluctuate based on its ability to attain large project sales in the industries it serves. As a percentage of net sales, gross margin for the quarter increased to 38.5% from 34.7% due to improved ConForms domestic and foreign results and fewer lower margin Gilco sales. Selling, engineering and administrative expenses increased by $295,816 (24.6%) due largely to increased legal and professional expenses related to the possible acquisition of all of Edison's common stock. Interest expense decreased to $176,682 for the quarter ended April 30, 2000 compared to $251,409 for the quarter ended April 30, 1999 due to lower debt balances. 9 The Company had a net gain on trading securities of $144,508 for the quarter ended April 30, 2000 compared to a net gain of $68,136 for the quarter ended April 30, 1999. Trading securities at April 30, 2000 consisted of the following: Number of Market Name of Issuer/Title of Issue Shares Value ----------------------------- ------ ----- Common Stocks: Allied Capital Corp., New. 3,000 $ 56,063 Compaq Computers Corp. 5,000 145,938 Creative Biomolecules, Inc. 3,000 23,156 Entremed Inc. 1,500 78,656 Glenayre Technologies, Inc. 40,000 527,500 Intel Corp. 2,000 253,625 Liberty Digital, Inc. 2,000 64,000 Sun International Hotels 100 1,925 Total $ 1,150,863 =========== Although the Company has no established formal investment policies or practices for its trading securities portfolio, the Company generally pursues an aggressive trading strategy, focusing primarily on generating near-term capital appreciation from its investments in common equity securities. Securities held in the Company's portfolio at the end of each period are reported at fair value, with unrealized gains and losses included in earnings for that period. These factors, combined with the relative size of the Company's trading portfolio, has led, and will likely continue to lead, to significant period-to-period earnings volatility depending upon the capital appreciation or depreciation of the Company's trading securities portfolio as of the end of each reporting period. The Company does not use or buy derivative securities. The amortization of goodwill, financing costs and stock warrants created a total non-cash charge of $59,103 for the first quarter compared to $468,886 for the prior year first quarter. The amortization decrease was due to the expensing in the quarter ended April 30, 1999 of all remaining deferred financing costs that related to the warrant issued to the principal shareholder. The total amortization of all these non-cash charges for the year ended January 31, 2001 is expected to approximate $237,000. The Company recorded tax expense of $454,025 for the three months ended April 30, 2000, which represents the estimated annual effective rate of 41.1% applied to pre-tax book income. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement reporting purposes and the amounts used for income tax purposes. Net income of $651,510, or $.28 and $.22 per share, basic and diluted, respectively, for the first quarter of 2000 was an increase of $490,663 (305.0%), from net income of $160,847, or $.07 and $.06 per share, basic and diluted, for the comparable period of the prior year. This change was principally due to improved sales and margins and the decrease in amortization of the non-cash charges described above. 10 Liquidity and Capital Resources ------------------------------- The Company generated $1,380,214 in cash from operations during the first three months of 2000, compared to cash generated from operations of $2,398,998 for the same period last year. This decrease was due largely to the net proceeds of $2,631,337 received from sales of trading securities during the first three months of 1999. The Company used $76,166 in cash to acquire capital equipment and used $977,889 for net payments on long-term debt. The result was a net increase in cash and cash equivalents of $255,603 for the first quarter of fiscal 2000 compared to a net increase of $445,904 in the prior year first quarter. The Company believes that it can fund proposed capital expenditures and operational requirements from operations and currently available cash and cash equivalents, investments, trading securities and existing bank credit lines. Proposed capital expenditures for the fiscal year ending January 31, 2001 are expected to total approximately $1,000,000, compared to $675,245 for fiscal 1999. The expected increase is due principally to the expected installation of a heat-treating facility in Germany. The Company intends to continue to expand its businesses, both internally and through potential acquisitions. The Company currently anticipates that any potential acquisitions would be financed primarily by internally generated funds or additional borrowings or the issuance of the Company's stock. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The Company is exposed to interest rate risk, foreign currency risk and equity price risk. These risks include changes in U.S interest rates, changes in foreign currency exchange rates as measured against the U.S. dollar and changes in the prices of stocks traded on the U.S. markets. Interest Rate Risk ------------------ The Company's revolving credit borrowings and variable rate term loans, which total $7,985,253 as of April 30, 2000, are subject to interest rate risk. Most of the borrowings float at either the prime rate or LIBOR plus a certain amount of basis points. Based on the April 30, 2000 balance, an increase of one percent in the interest rate on the Company's loans would cause interest expense to increase by approximately $80,000 or $.02 per diluted share, net of taxes, on an annual basis. The Company currently does not use derivatives to fix variable rate interest obligations. Foreign Currency Risk --------------------- The Company has foreign operations in the United Kingdom and Malaysia. Sales and purchases are typically denominated in the British pound, Malaysian ringgit, German mark, Singapore dollar or U.S. dollar, thereby creating exposures to changes in exchange rates. The changes in exchange rates may positively or negatively affect the Company's sales, gross margins and retained earnings. The Company does not enter into foreign exchange contracts but attempts to minimize currency exposure risk through working capital management. There can be no assurance that such an approach 11 will be successful, especially in the event of a significant and sudden decline in the value of a currency. Equity Price Risk ----------------- Approximately 4% of the Company's total assets as of April 30, 2000 are invested in trading securities of various domestic companies. The market value of these investments is subject to fluctuation. This factor, combined with the relative size of the Company's trading portfolio ($1,150,863 at April 30, 2000), has led and will likely continue to lead, to significant period-to-period earnings volatility depending upon the capital appreciation or depreciation of the Company's trading securities portfolio. A 10% decrease in the quoted market price of these trading securities would decrease the fair market value of these securities by approximately $115,000, or $0.02 per diluted share, net of taxes. PART II. Item 6. Exhibits -------- The Exhibits filed or incorporated by reference herein are as specified in the Exhibit Index. Reports on Form 8-K ------------------- The Company filed no reports on Form 8-K during the quarter to which the report relates. 12 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. EDISON CONTROL CORPORATION -------------------------- (Registrant) Date: June 1, 2000 /s/ Jay R. Hanamann ----------------------- Jay R. Hanamann (Chief Financial Officer) 13 Edison Control Corporation Exhibit Index ------------- Exhibit No. Description ----------- ----------- 27. Financial Data Schedule. 14