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 March 31, 1996. 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 (I.R.S. Employer incorporation or organization) Identification No.) 140 Ethel Road West Piscataway, N.J. 08854 (Address of principal offices) (Zip Code) (908) 819-8800 (Registrant's telephone number, including area code) Not applicable (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 periods 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $.01 par value: 2,136,000 as of May 08, 1996. EDISON CONTROL CORPORATION BALANCE SHEETS March 31, 1996 and December 31, 1995 1996 1995 ASSETS ---------- ---------- (Unaudited) Current Assets: Cash and cash equivalents $ 2,738,315 $ 2,020,996 Investments 284,000 284,000 Trading securities 8,126,343 9,838,998 Accounts receivable-trade 145,113 55,398 Inventories 244,742 230,318 Prepaid expenses and deposits 35,888 47,739 ---------- ---------- Total current assets 11,574,401 12,477,449 Equipment and leasehold improvements at cost, net 58,297 65,687 Deferred tax asset 10,350 10,350 ---------- ---------- $11,643,048 $12,553,486 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 52,793 $ 924 Accrued liabilities 43,607 51,701 Income taxes payable 594,099 518,728 Deferred income taxes 840,450 1,606,221 ---------- ---------- Total current liabilities 1,530,949 2,177,574 Stockholders' equity: Preferred Stock, $.01 par value: 1,000,000 authorized, none issued Common Stock, $.01 par value: 10,000,000 shares authorized, 2,136,000 shares issued and outstanding 21,360 21,360 Additional paid-in capital 6,143,334 6,143,334 Retained earnings 3,947,405 4,211,218 ---------- ---------- Total stockholders' equity 10,112,099 10,375,912 ---------- ---------- $11,643,048 $12,553,486 ========== ========== See Accompanying Notes. EDISON CONTROL CORPORATION STATEMENT OF OPERATIONS (Unaudited) Three months ended March 31, 1996 1995 --------- --------- Net sales $ 237,850 $ 270,188 Cost and expenses: Cost of sales 179,367 201,919 Selling, general and administrative 208,322 194,084 --------- --------- 387,689 396,003 --------- --------- Operating loss ( 149,839) ( 125,815) Interest and dividends 28,601 26,153 Security fees and commissions ( 45,319) ( 23,113) Realized gains on trading securities 1,641,296 1,008,597 Unrealized gains (losses) on trading securities (1,914,427) 187,228 --------- --------- Income (loss) before income tax ( 439,688) 1,073,050 Provision for income taxes: Deferred benefit 765,771 0 Current expense ( 589,896) ( 429,220) --------- --------- Net income (loss) $( 263,813) $ 643,830 ========= ========= Earnings per common share: Net Income (loss) $( .12) $ .30 ========= ========= Average common shares and common shares equivalents 2,136,000 2,165,368 ========= ========= See Accompanying Notes. EDISON CONTROL CORPORATION STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 --------- --------- Cash flows from operating activities: Cash received from customers $ 154,543 $ 257,380 Cash paid to suppliers and employees ( 444,424) ( 392,746) Income taxes paid ( 514,525) ( 214,543) Interest received ( 1,007) 4,395 Dividends received 23,330 20,485 Interest and premium paid on investments 59,878 ( 4,556) Purchases of trading securities (6,305,256) (3,931,625) Proceeds from the sale of trading securities 7,744,780 4,540,350 --------- --------- Net cash provided by operating activities 717,319 279,140 --------- --------- Cash flows (used in) investing activities: Capital expenditures 0 ( 15,411) --------- --------- Net cash (used in) investing activities 0 ( 15,411) --------- --------- Net increase in cash and cash equivalents 717,319 263,729 Cash and cash equivalents, beginning of period 2,020,996 821,901 --------- --------- Cash and cash equivalents, end of period $ 2,738,315 $ 1,085,630 ========= ========= See Accompanying Notes. EDISON CONTROL CORPORATION RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) 1996 1995 --------- --------- Net income (loss) $( 263,813) $ 643,830 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,390 10,189 Realized (gain) on sales of trading securities (1,641,296) (1,008,597) Unrealized (gain) loss on trading securities 1,914,427 ( 187,228) Purchases of trading securities (6,305,256) (3,931,625) Proceeds from the sale of trading securities 7,744,780 4,540,350 Changes in assets and liabilities: Accounts receivable ( 89,715) 5,126 Prepaid income tax 0 ( 46,868) Inventories ( 14,424) ( 21,622) Prepaid expenses and deposits 11,851 1,472 Accounts payable 51,869 11,626 Accrued liabilities ( 8,094) 941 Deferred income taxes ( 765,771) 0 Income taxes payable 75,371 261,546 --------- --------- Total adjustments 981,132 ( 364,690) --------- --------- Net cash provided by operating activities $ 717,319 $ 279,140 ========= ========= See Accompanying Notes. EDISON CONTROL CORPORATION NOTES TO 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, they 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 March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company's annual report on Form 10-K for the year ended December 31, 1995. Note 2 - Trading Securities In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", debt and equity securities that are bought and held principally for the purpose of selling them 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 securities sold is based on the first in, first out method. Item 2. Management's Discussion and Analysis of Operations and Financial Condition. Results of Operations. Net sales for the first quarter of fiscal year 1996 decreased $32,338, or 12.0%, compared with the comparable period of the prior year as a result of a decrease in unit volume. Unit volume sales are moderately seasonal in nature with sales traditionally stronger in the second and third quarters. Current booking levels indicate that this should pertain to fiscal year 1996. The business climate in the electric utility industry is unfavorable generally with some of the utilities cutting both personnel and operating budgets. However, the Company's outlook for the second quarter indicates at least a 25% increase in sales versus second quarter of 1995. This anticipated increase is due in part to a large order received from Mexico. Testing on the new Fast Fault Finder appears to be progressing satisfactorily to the final stage. The gross profit margin for the first quarter ended March 31, 1996 decreased to 24.6% from 25.3% for the comparable period of the prior year. The decrease is primarily attributable to a decline in operating efficiency, due in part to higher absorption of manufacturing overhead caused by lower unit volume. Selling, general and administrative expenses for the first quarter were $208,322 compared to $194,084 for the comparable period of the prior year. The increase is primarily due to the hiring of the new President and Chief Executive Officer and the opening of an executive office in New York City during February 1995. Based on current operations, management believes selling, general and administrative expenses can be maintained at or near the present level. The operating loss was $149,839 for the first quarter of 1996 compared to an operating loss of $125,815 for the comparable period of 1995. This increase in loss is due primarily to increased selling, general and administrative expenses as well as a reduction of the Company's margins. The Company achieved a $1,641,296 realized gain in trading securities for the quarter ended March 31, 1996. Compared to the prior period gain of $1,008,597, the difference of $632,699 is primarily due to an increase in sales of securities. Unrealized losses for the quarter ended March 31, 1996 were $1,914,427 compared to an unrealized gain of $187,228 in the comparable period of the prior year. The unrealized loss for the quarter ended March 31, 1996 is primarily attributable to a decrease in the market value of Glenayre Technologies, Inc. stock. The Company recorded a current tax expense and a deferred tax benefit for the quarter ended March 31, 1996 of $589,896 and $765,771, respectively, which was determined based upon the estimated effective tax rate of 40% for 1996. Net loss of $263,813, or $.12 per share, for the first quarter of 1996 reflecting a decrease of $907,643 from the prior year's first quarter net income of $643,830, or $.30 per share. The Company generated cash from operating activities of $717,319 during the first three months of 1996 compared to $279,140 during the first three months of 1995 a difference of $438,179 which is primarily attributable to increased proceeds from sales of trading securities. The Company's cash usage from investing activities was $0 during the first three months of 1996 compared to $15,411 during the first three months of 1995, for a net increase in cash and cash equivalents of $717,319 in 1996 compared to $263,729 in 1995. Management continues to analyze the possible discontinuance of the manufacture and sale of electronic fault indicators in light of the Company's operating losses. However, development activities are continuing on a new line of fault indicators. No decision regarding said discontinuance has been made. If the Company discontinued the manufacture and sale of electronic fault indicators, the Company would be left with assets consisting principally of cash and cash equivalents, investments and trading securities. Management is actively seeking opportunities for the investment of its cash, investments and securities in areas which may not be related to its present operations. LIQUIDITY AND CAPITAL RESOURCES The Company believes that it can fund its proposed capital expenditures and its operational requirements from its currently available cash, cash equivalents and investments. Proposed capital expenditures for the remainder of fiscal year 1996 are expected to total approximately $35,000. The Company has no long-term debt and does not anticipate a long-term need for capital to fund its present business. The Company may, however, need additional long-term capital to fund an acquisition in the event such acquisition required funding greater than the Company's cash, cash equivalents, investments and trading securities. The Company has not sought to obtain such capital and will do so only in the event it is required to fund an acquisition. The source and terms of such funding, if any, is unknown at this time. At March 31, 1996, the working capital ratio (i.e., the ratio of total current assets to total current liabilities) was 7.6:1. At December 31, 1995, the working capital ratio was 5.7:1. Part 11 Other Information Item 5: Other Information None. Item 6: Exhibits and Reports on Form 8K None. 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 /s/ Mary E. McCormack May 8, 1996 By: President and Chief Executive Officer /s/ Jack V. Miller May 8, 1996 By: Treasurer and Chief Financial Officer