MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Fiscal 1996 was a year of change for Edison Control Corporation (the
"Company"). On June 21, 1996, the Company acquired Construction Forms, Inc.,
a leading Wisconsin-based manufacturer of concrete pumping systems, abrasion-
resistant piping systems, and concrete and plaster/mortar mixers. On October
31, 1996, Edison sold its faulted circuit indicator business to its manager.
On November 15, 1996, the Company changed its fiscal year end to January 31,
1997 to conform with the year end of the acquired companies. Accordingly,
the financial statements reflect the change in year end and a one-month
transition period.
RESULTS OF OPERATIONS
Fiscal 1996 versus Fiscal 1995 Operations
Net sales for the year ended January 31, 1997 ("fiscal 1996") totaled
$13,604,340 compared to $791,502 for the year ended December 31, 1995
("fiscal 1995"). Net sales of the acquired companies from June 21, 1996
accounted for $12,717,228 of the total net sales. On a pro forma basis,
net sales of the acquired companies increased 7.2% from $19,789,192 in fiscal
1995 to $21,221,335 in fiscal 1996. The increase was due to increased export
and domestic volume of the concrete pumping systems business.
Gross profit percentage was 32.4% for fiscal 1996 compared to 16.5% for
fiscal 1995. The gross profit percent of the acquired companies was 33.0% for
fiscal 1996.
Selling, engineering and administrative expenses for fiscal 1996 increased to
$3,238,168 compared to $729,267 in 1995. As a percent of sales, the amount
decreased from 92.1% in 1995 to 23.8% in fiscal 1996. The acquired companies
selling, engineering and administrative expenses for fiscal 1996 were
$2,406,711 or 18.9% of net sales of the acquired companies.
Stock option amortization of $455,691 related to options for 167,611 shares
of the Company's common stock granted to the acquired companies' management
in June 1996. The difference between the $3.00 option price and the $7.50
market price at time of grant is being amortized over the one year vesting
period. The Company expects to recognize $298,558 of amortization in fiscal
1997.
Intangible amortization of $187,536 relates principally to the goodwill and
organizational/finance costs associated with the acquisition. The Company
anticipates $314,400 of amortization in fiscal 1997.
Operating earnings for fiscal 1996 were $531,702 or 3.9% of net sales
compared to an operating loss of $598,622 in 1995. The acquired companies
accounted for $1,596,362 of operating earnings for fiscal 1996.
Net investment earnings, which includes interest, dividends, and realized and
unrealized gains or losses on trading securities, decreased from $4,096,645
in 1995 to $33,279 for fiscal 1996. A majority of this decrease was related
to the decline in value of Glenayre Technologies, Inc. stock held by the
Company. The Company realized significant gains on sales of this stock
during the year, but also incurred significant unrealized losses on the stock
during the year.
Interest expense increased to $775,762 for fiscal 1996 from $0 in fiscal
1995. This change related to the debt incurred on the acquisition. Interest
expense is expected to increase in fiscal 1997 due to a full year of borrowing.
The loss on sale of net assets for $434,166 related to the sale, on October
31, 1996 of certain net assets of the electronic fault indicator business.
The Company anticipated continued operating losses in the future from this
business and, accordingly, decided to dispose of its assets.
Stock warrant amortization of $594,097 related to a warrant granted to the
principal stockholder in connection with this stockholder's personal guaranty
of subordinated debt incurred in connection with the Company's acquisition of
Construction Forms and its affiliates. The warrant was granted for 500,000
shares of the Company's common stock at $1.60 per share. At the time the
transaction was negotiated in April 1996, the Company's Common Stock was
$4.00 per share and on the date the acquisition was consummated on June 21,
1996, the closing price in said market for the Company's Common Stock was
$7.50 per share. In approving the transaction, the Board of Directors
received an opinion of Commonwealth Associates, an independent investment
banking firmm that the Warrant issued for the limited guarantee and collateral
was fair, from a financial point of view, to the holders of the Company's
Common Stock. The difference between the Warrant price and the fair market
value at the time the transaction was negotiated is being amortized over the
three year term of the subordinated debt. Amortization of $400,000 is
expected in fiscal 1997.
The net loss for the year was principally due to the loss on sale of net
assets and the amortization of goodwill, financing costs, stock options and
stock warrants. Excluding these items, the Company would have had net income
of approximately $270,000, or $.11 per share.
1995 versus 1994
Net sales for fiscal 1995 totaled $791,502, a decrease of $652,502 or 45.2%,
compared with 1994. While sales prices remained stable in 1995, the sales
decrease was due in part to a decline in the sale of the Company's products
for export. Sales in Mexico in 1994 were $229,219 versus $36,093 in 1995,
an 84% decrease. Sales domestically decreased as well, primarily due to
sales to Jacksonville Electric Authority from $261,648 in 1994 and decreasing
to $0 in 1995. This decline was partly attributable to an excess inventory
condition at Jacksonville Electric Authority. Management also believes the
decreased 1995 unit volume was a result of decreased spending by the
Company's electric utility customers for products such as faulted circuit
indicators which are not essential for the generation and distribution of
electric power.
Gross profit margins decreased to 16.5% in fiscal 1995 from 30.4% in fiscal
1994. The decrease was due to reduced unit volume and the allocation of
overhead cost over the unit volume.
Selling, general and administrative expenses were $729,267 in fiscal year
1995, an increase of $52,410, or 7.2% from 1994. As a percentage of sales,
selling, general and administrative expenses increased to 92% of sales in
1995, from 47% of sales in 1994. This increase is a result of increased
salary, rent and other administrative expenses related to the hiring of a
President and Chief Executive Officer in February, 1995. Selling expenses
remained constant at 14% of sales.
The operating loss before interest and dividends, realized gains and
unrealized gains (losses) on trading securities was $598,622 in fiscal year
1995 compared to $238,179 in fiscal 1994, an increase in the loss of
$360,443. The increase in the operating loss was due to decreased sales
volume, decreased gross profit margin and increased selling, general and
administrative expenses.
Interest and dividends, net of security fees and commissions, for fiscal year
1995 was $39,598 compared to $187,818 in fiscal year 1994, a decrease of
$148,220 or 78.9%. This decrease was due to fewer dividend generating
securities. Realized gains on the sale of trading securities for 1995 was
$2,214,145 as compared to $712,530 for 1994. The increase of $1,501,615 or
210.7% was due to increased trading activities. In addition, 1995 included
unrealized gains on trading securities of $1,842,902 as compared to losses of
$193,830 in 1994. The increase in unrealized gains was mainly attributable
to an upward-market trend.
The effective tax rate increased to 40% in 1995 as compared to 18% in 1994
due to the remaining tax-loss carry forward being utilized in fiscal 1994.
Net income of $2,082,582 or $.95 per share for fiscal year 1995 increased
from $1,830,347 or $.85 per share in fiscal year 1994 for a difference of
$252,235.
Cash increased $1,199,095 from $821,901 in fiscal 1994 to $2,020,996 in 1995.
This increase is significantly a result of cash provided by operations of
$1,122,000 which was generated from the sale of trading securities and
proceeds from the exercise of $117,000 of stock options.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $7,234,818 for fiscal 1996, compared
to $1,122,000 for fiscal 1995. The increase was mainly due to the sale of
trading securities to finance the acquisition of Construction Forms, Inc. and
its affiliates. The reduction of inventories of the acquired companies to
accommodate the leveraged position of the Company also contributed to the
increase.
Net working capital of $11,554,170 at January 31, 1997 increased $1,254,295,
or 12.2%, from the December 31, 1995 levels of $10,299,875. The current
ratio at January 31, 1997 was 3.9:1 compared to 5.73:1 at December 31, 1995.
The change was mainly due to changes in cash, trading securities and debt
used to finance the acquisition and increased net working capital of the
acquired companies.
Cash used in investing activities for fiscal 1996 was $19,274,791 compared to
$39,905 in fiscal 1995. This change was the result of the acquisition of
Construction Forms, Inc. and its affiliates. The purchase price of
approximately $20,550,000, including acquisition costs, was funded by
$4,800,000 of the Company's available resources, with the remaining amount
funded from available bank borrowings. Capital expenditures increased by
$376,435 principally due to the acquired companies' activities.
Cash provided by financing activities in fiscal 1996 of $12,166,288 was
primarily due to the issuance of debt related to the acquisition and
subsequent payments of debt. The Company's debt to capitalization ratio at
January 31, 1997 was 55.4% compared to 0% at December 31,1995. The Company
maintains various debt agreements which are described in more detail in the
footnotes to the consolidated financial statements. Required principal
payments in fiscal 1997 are expected to be approximately $869,000. The
Company entered into a two year $10,000,000 interest rate cap/floor
agreement to reduce the impact of changes in interest rate borrowings under
its variable rate debt. The agreement, which expires December 10, 1998,
maintains a cap rate of 7% (90 day LIBOR) and a floor rate of 4.5%.
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,
1998 are expected to total approximately $500,000, as compared to $416,340
for fiscal 1996.
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.
Summary of Selected Financial Data
Edison Control Corporation
Year Ended
January 31, Year Ended December 31,
1997 1995 1994 1993 1992
Statement of Operations
Net sales 13,604,340 791,502 1,444,004 1,195,807 1,611,297
Cost of sales 9,191,243 660,857 1,005,326 851,701 1,193,232
Gross profit 4,413,097 130,645 438,678 344,106 418,065
Selling, engineering
and administrative 3,238,168 729,267 676,857 651,267 762,953
Operating income (loss) 531,702 (598,622) (238,179) (307,161) (344,888)
Realized gains on
trading securities 2,802,490 2,214,145 712,530 545,742 133,648
Unrealized gains (losses)
on trading securities (2,854,059) 1,842,902 (193,830) 0 0
Interest, dividends and
other income 84,848 39,598 187,818 305,390 326,426
(Loss) earnings from
continuing operations (731,028) 2,082,582 1,830,347 543,971 115,186
Cumulative effect of
change in accounting
principle, net of
income taxes 0 0 1,447,567 0 0
Net (loss) earnings (731,028) 2,082,582 1,830,347 543,971 115,186
Per common share
(Loss) earnings before
cumulative effect of
change in accounting
principle (0.33) 0.95 0.18 0.25 0.05
Cumulative effect of
change in accounting
principle, less taxes 0 0 0.67 0 0
Net (loss) earnings (0.33) 0.95 0.85 0.25 0.05
Book value 5.98 4.86 3.89 3.02 2.76
At Year End
Working capital 11,554,170 10,299,875 8,101,993 6,256,984 5,674,025
Property, plant and
equipment-net 7,077,228 65,687 65,618 88,999 127,647
Total assets 34,060,105 12,553,489 9,332,572 6,444,468 5,951,247
Long-term debt 16,907,424 0 0 0 0
Stockholders' equity 13,601,241 10,375,912 8,176,330 6,345,983 2,802,012
Weighted average common
shares and common share
equivalents 2,210,849 2,189,633 2,149,500 2,140,599 2,100,000
Common stock
outstanding 2,275,933 2,136,000 2,100,000 2,100,000 2,100,000
<FN>
Note: As discussed in the Management's Discussion and Analysis of Financial
Condition and Results of Operations, significant changes were made to
the Company's core business in fiscal 1996.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Edison Control Corporation:
We have audited the accompanying consolidated balance sheet of Edison Control
Corporation and subsidiaries (the "Company") as of January 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended and the one-month transition period ended
January 31, 1996. 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. The financial statements of the
Company for the years ended December 31, 1995 and 1994 were audited by other
auditors whose report, dated February 14, 1996, expressed an unqualified
opinion on those statements and included an explanatory paragraph that
described a change in the method of accounting for debt and equity securities
as discussed in Note 1 to the consolidated financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 31,
1997, and the results of their operations and their cash flows for the year
then ended and the one-month transition period ended January 31, 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
April 7, 1997
EDISON CONTROL CORPORATION
Consolidated Balance Sheets
January 31, 1997 and December 31, 1995
Assets 1997 1995
Current assets:
Cash and cash equivalents (Note 1) 772,008 2,020,996
Investments (Note 1) 284,000 284,000
Trading securities (Notes 1 and 4) 4,751,688 9,838,998
Accounts receivable, less allowance of $292,000
and $0, respectively (Note 1) 2,713,308 55,398
Receivable from affiliate (Note 6) 156,035 0
Inventories (Notes 1 and 5) 5,316,948 230,318
Prepaid expenses and other current assets 197,576 47,739
Deferred compensation (Notes 1 and 11) 298,558 0
Deferred financing costs (Note 11) 983,333 0
Total current assets 15,473,454 12,477,449
Investment in and advances to affiliate
(Note 6) 340,054 0
Other assets:
Prepaid pension (Note 10) 385,021 0
Deferred financing costs (Note 11) 1,372,591 0
Deferred income taxes (Note 8) 0 10,350
Total other assets 1,757,591 10,350
Property, plant and equipment (Note 1):
Cost:
Land 343,059 0
Building and improvements 2,672,111 75,038
Machinery and equipment 4,383,674 364,942
Construction in progress 7,322 0
Total property, plant and equipment 7,406,166 439,980
Less - accumulated depreciation (328,938) (374,293)
Property, plant and equipment, net 7,077,228 65,687
Goodwill (net of amortization of $135,484)
(Note 1) 9,154,833 0
Organizational/finance costs (net of
amortization of $54,125) (Note 1) 256,945 0
TOTAL ASSETS 34,060,105 12,553,486
<FN>
See notes to consolidated financial statements.
Liabilities and Stockholders' Equity 1997 1995
Current liabilities:
Trade accounts payable 868,088 924
Accrued compensation 606,010 0
Taxes other than income taxes 38,119 0
Other accrued expenses (Note 7) 529,896 51,701
Income taxes payable (Note 8) 9,077 518,728
Deferred income taxes (Note 8) 245,000 1,606,221
Deferred compensation (Notes 1 and 11) 754,250 0
Current maturities on long-term debt (Note 9) 868,844 0
Total current liabilities 3,919,284 2,177,574
Long-term debt-less current maturities (Note 9) 16,038,580 0
Deferred income taxes (Note 8) 501,000 0
Total liabilities 20,458,864 2,177,574
Stockholders' equity (Note 11):
Preferred stock, $.01 par value; 1,000,000
shares authorized, none issued 0 0
Common stock, $.01 par value; 10,000,000 shares
authorized, issued and outstanding 2,275,933
and 2,136,000 shares, respectively 22,759 21,360
Additional paid-in capital 10,016,435 6,143,334
Retained earnings 3,453,331 4,211,218
Foreign currency translation adjustments 108,716 0
Total stockholders' equity 13,601,241 10,375,912
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 34,060,105 12,553,486
<FN>
See notes to consolidated financial statements.
EDISON CONTROL CORPORATION
Consolidated Statements of Operations
Years ended January 31, 1997, December 31, 1995, 1994
and one-month transition period ended January 31, 1996
One-Month
Year Ended Ended Year Ended
January 31, January 31, December 31, December 31,
Net sales 13,604,340 63,564 791,502 1,444,004
Cost of goods sold 9,191,243 54,046 660,857 1,005,326
Gross profit 4,413,097 9,518 130,645 438,678
Other operating expenses:
Selling, engineering and
administrative expenses 3,238,168 83,009 729,267 676,857
Stock option amortization
(Note 11) 455,691 0 0 0
Goodwill and
organizational/finance
cost amortization
(Note 1) 187,536 0 0 0
Total other operating
expenses 3,881,395 83,009 729,267 676,857
Operating earnings (loss) 531,702 (73,491) (598,622) (238,179)
Other expense (income):
Interest expense 775,762 0 0 0
Realized (gains) losses
on trading securities (2,802,490) (600,496) (2,214,145) (712,530)
Unrealized losses (gains)
on trading securities 2,854,059 583,345 (1,842,902) 193,830
Interest and
miscellaneous income (84,848) (10,481) (39,598) (187,818)
Loss on sale of assets,
net (Note 2) 434,166 0 0 0
Stock warrant
amortization (Note 11) 594,097 0 0 0
Equity in earnings of
affiliate (Note 6) (18,016) 0 0 0
Total other expense
(income) 1,752,730 (27,632) (4,096,645) (706,518)
(Loss) earnings before
income taxes (credit)
and cumulative effect
of change in accounting
principle (1,221,028) (45,859) 3,498,023 468,339
Income taxes (credit)
(Note 8) (490,000) (19,000) 1,415,441 85,559
(Loss) earnings before
cumulative effect of
change in accounting
principle (731,028) (26,859) 2,082,582 382,780
Cumulative effect of change
in accounting principle,
less income taxes of
$962,635 0 0 0 1,447,567
Net (loss) earnings (731,028) (26,859) 2,082,582 382,780
(Loss) earnings per common
share and common share
equivalentS:
(Loss) earnings before
cumulative effect of
change in accounting
principle (0.33) (0.01) 0.95 0.18
Cumulative effect of
change in accounting
principle 0 0 0 0.67
Net (loss) earnings (0.33) (0.01) 0.95 0.85
Weighted average common
shares and common share
equivalents 2,210,849 2,136,000 2,189,633 2,149,500
<FN>
See notes to consolidated financial statements
EDISON CONTROL CORPORATION
Consolidated Statements of Stockholders' Equity
Years ended January 31, 1997, December 31, 1995, 1994
and one-month transition period ended January 31, 1996
Foreign
Additional Currency
Common Stock Paid-in Retained Translation
Shares Amount Capital Earnings Adjustments Total
Balances, January
1, 1994 2,100,000 21,000 6,026,694 298,289 0 6,345,983
Net earnings 0 0 0 1,830,347 0 1,830,347
Balances, December
31, 1994 2,100,000 21,000 6,026,694 2,128,636 0 8,176,330
Stock options
exercised 36,000 360 116,640 0 0 117,000
Net earnings 0 0 0 2,082,582 0 2,082,582
Balances, December
31, 1995 2,136,000 21,360 6,143,334 4,211,218 0 10,375,912
Net (loss) 0 0 0 (26,859) 0 (26,859)
Balances, January
31, 1996 2,136,000 21,360 6,143,334 4,184,359 0 10,349,053
Stock issued at
acquisition
(Note 11) 114,933 1,149 860,851 0 0 862,000
Stock warrants
issued
(Note 11) 0 0 2,950,000 0 0 2,950,000
Stock options
exercised
(Note 11) 25,000 250 62,250 0 0 62,500
Foreign currency
translation
adjustment 0 0 0 0 108,716 108,716
Net (loss) 0 0 0 (731,028) 0 (731,028)
Balances, January
31, 1997 2,275,933 22,759 10,016,435 3,453,331 108,716 13,601,241
<FN>
See notes to consolidated financial statements.
EDISON CONTROL CORPORATION
Consolidated Statements of Cash Flows
Years ended January 31, 1997, December 31, 1995, 1994
and one-month transition period ended January 31, 1996
One-Month
Year Ended Ended Year Ended
January 31, January 31, December 31, December 31,
1997 1996 1995 1994
Operating activities:
Net (loss) earnings (731,028) (26,859) 2,082,582 1,830,347
Adjustments to reconcile net
(loss) to net cash provided
by (used in) operating
activities:
Depreciation of plant and
equipment 328,421 2,389 39,836 38,512
Amortization 1,235,253 0 0 0
Provision for doubtful
accounts 10,127 0 0 0
Realized (gain) on trading
securities (2,802,490) (600,409) (2,214,145) (712,530)
Unrealized loss (gain) on
trading securities 2,854,059 583,345 (1,842,902) 193,830
Purchases of trading
securities (9,003,912) (3,436,325) (16,653,501) (8,282,783)
Proceeds from the sales of
trading securities 15,409,029 2,084,100 18,501,000 8,908,423
Cumulative effect of change
in accounting principle 0 0 0 (2,410,202)
Loss on sale of assets 396,318 0 0 0
Equity in earnings of
affiliate (18,016) 0 0 0
Changes in assets and
liabilities, net of acquired
companies:
Accounts receivable (140,961) (40,958) 170,748 (40,213)
Receivable from affilate 44,973 0 0 0
Inventories 1,417,211 4,493 19,139 (4,578)
Prepaid expenses and other
assets 23,928 7,500 (458) 20,530
Prepaid pension 57,577 0 0 0
Trade accounts payable (71,315) 20,876 (68,527) 16,264
Accrued compensation 78,084 8,283 0 0
Taxes, other than income
taxes (44,774) 0 0 0
Accrued expenses 101,490 (9,413) 14,323 (7,920)
Income taxes (538,285) 216,000 351,054 167,674
Deferred income taxes (1,370,871) (235,000) 722,851 873,020
Net cash provided by (used
in) operating activities 7,234,818 (1,422,065) 1,122,000 590,374
Investing activities:
Additions to plant and
equipment (416,340) 0 (39,095) (15,131)
Maturities of certificates
of deposit 0 0 0 95,000
Payments received on advance
to affiliate 45,823 0 0 0
Proceeds from sale of
assets 9,819 0 0 0
Payment for the purchase of
acquired companies, net of
cash acquired 18,914,093
Net cash (used in) provided
by investing activities (19,274,791) 0 (39,905) 79,869
Financing activities:
Proceeds from issuance of
long-term debt 16,540,000 0 0 0
Payments on long-term debt (4,531,936) 0 0 0
Proceeds from issuance of
common stock 95,724 0 0 0
Stock options exercised 62,500 0 117,000 0
Net cash provided by
financing activities 12,166,288 0 117,000 0
Effect of exchange rate
changes on cash 46,762 0 0 0
Net increase (decrease) in
cash and cash equivalents 173,077 (1,422,065) 1,199,095 670,243
Cash and cash equivalents,
beginning of period 598,931 2,020,996 821,901 151,658
Cash and cash equivalents,
end of period 772,008 598,931 2,020,996 821,901
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest 773,954 0 0 0
Income taxes, net of
refunds 1,419,070 0 341,536 0
Supplemental scheduled of non-cash investing and financing activities:
Stock issued under separate
agreement which offset a
portion of purchase price
of acquired companies 766,274 0 0 0
Notes receivable offset
against purchase price
of acquired companies 332,400 0 0 0
Fair value of warrants
issued in connection with
financing of acquisition 2,950,000 0 0 0
<FN>
See notes to consolidated financial statements.
EDISON CONTROL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997, DECEMBER 31, 1995, 1994
AND ONE-MONTH TRANSITION PERIOD ENDED JANUARY 31, 1996
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Edison Control Corporation ("Edison") and subsidiaries, all
of which are wholly owned (collectively, the "Company"). All material
intercompany accounts and transactions have been eliminated in consolidation.
Nature of Operations - The Company is currently comprised of four operating
segments. 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
Ultra Tech.
The Company's principal market is North America with limited sales activity
in Europe.
Cash Equivalents - The Company considers all temporary investments with
maturities of three months or less when acquired to be cash equivalents.
Investments - Investments consist of certificates of deposit with maturities
in excess of three months and are recorded at cost which approximates market.
The Company intends to hold the certificates until maturity.
Trading Securities - Debt and equity securities purchased 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.
Accounting Change - In May 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The Company adopted the
provisions of the new standard for securities held as of or acquired after
January 1, 1994. The cumulative effect as of January 1, 1994 of adopting
Statement No. 115 increased net income by $1,447,567 (net of $962,635 in
deferred income taxes), or $.67 per share.
Accounts Receivable - Accounts receivable are stated net of an allowance for
doubtful accounts and finance charges.
Inventories - Inventories are stated at the lower of cost (principally
last-in, first-out method) or market.
Property, Plant and Equipment - Property, plant and equipment is stated at
cost. Expenditures for major renewals and improvements are capitalized,
while maintenance and repairs, which do not significantly improve the related
asset or extend its useful life, are charged to expense as incurred. For
financial reporting purposes, plant and equipment is depreciated primarily by
the straight-line method over the estimated useful lives of the assets.
Depreciation claimed for income tax purposes is computed by accelerated
methods.
Goodwill and Intangible Assets - Goodwill represents the excess of the
purchase price over the fair value of identifiable net assets of acquired
companies and is amortized on a straight-line basis over 40 years. The
Company assesses the carrying value of goodwill at each balance sheet date.
Consistent with Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of", such assessments include, as appropriate, a comparison of
the estimated future nondiscounted cash flows anticipated to be generated
during the remaining amortization period of the goodwill to the net carrying
value of goodwill. The Company recognizes diminution in value of goodwill,
if any, on a current basis. Organizational/finance costs are amortized over
their economic useful lives ranging from three to twenty years.
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 reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments - Management believes the carrying amount
of financial instruments is a reasonable estimate of the fair value of these
instruments.
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 period. Adjustments
resulting from the translation of financial statements of the foreign
operations are included as foreign currency translation adjustments in the
stockholders' equity section of the accompanying consolidated balance sheets.
Revenue Recognition - The Company recognizes revenue upon shipment of products.
Research and Development - Amounts expended for research and development for
the year ended January 31, 1997, the one-month transition period ended
January 31, 1996, and the years ended December 31, 1995 and 1994 totaled
approximately $190,000, $6,000, $43,000 and $32,000, respectively, and are
expensed as incurred.
Net (Loss) Earnings Per Common Share and Common Share Equivalent - Net (loss)
earnings per common share and common share equivalent is computed based upon
the weighted average number of common shares and common share equivalents
(stock options and warrants) outstanding during the year. Common share
equivalents from dilutive stock options and warrants were calculated using
the treasury stock method. Common share equivalents (stock options and
warrants) are antidilutive for the year ended January 31, 1997 and period
ended January 31, 1996.
Accounting Pronouncements - Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-based Compensation" was issued in 1995.
The Company has elected to continue to account for stock-based compensation
under Accounting Principles Board Opinion No. 25 as allowed by SFAS No. 123.
Reclassifications - Certain reclassifications have been made to the prior
years' financial statements to conform with the current year presentation.
2. ACQUISITIONS AND DISPOSITIONS
On June 21, 1996, the Company purchased all of the issued and outstanding
stock of Construction Forms, Inc. and subsidiaries and JABCO, LLC for an
aggregate cash consideration of approximately $20,550,000. The acquisition
was accounted for as a purchase transaction with the purchase price allocated
to the fair value of specific assets acquired and liabilities assumed.
Accordingly, the results of operations have been included since the date of
the acquisition. Resultant goodwill is being amortized over 40 years. The
purchase price was allocated as follows:
Receivables 2,810,237
Inventory 6,699,256
Property, plant and equipment 6,990,408
Goodwill 9,290,317
Prepaid pension 442,598
Cash and other assets 1,714,648
Liabilities assumed (7,397,464)
Total 20,550,000
The following unaudited pro-forma results of operations give effect to the
acquisition as if it had occurred at the beginning of the fiscal year for
each of the periods presented:
Year Ended
January 31, December 31,
1997 1995
Net sales 22,810,447 20,580,694
Net (loss) earnings (681,643) 607,565
Net (loss) earnings per common share (0.30) 0.21
The unaudited pro-forma information is not necessarily indicative of either
results of operations that would have occurred had the purchase been made at
the beginning of each fiscal year or of future results of operations of the
combined companies.
On October 31, 1996, the Company sold certain net assets of its electronic
fault indicator operation. In return, the Company received cash of $10,000,
a $275,000 promissory note bearing interest at an annual rate of 8.25%, and
a five year warrant to purchase 20% of the capital stock of the new company.
It is management's opinion that the possibility of collection of any
principal or interest on the note receivable is remote and, accordingly, has
reserved the total balance of the note and will not record any interest
income until received. The total loss on the sale of these net assets was
$434,166, including the note receivable reserve.
3. CHANGE IN FISCAL YEAR
The Company changed its fiscal year end from December 31 to January 31 in
order to correspond with the fiscal year of the acquired companies.
4. TRADING AND MARKETABLE SECURITIES
Trading securities at January 31, 1997 consisted of the following:
Number of
Name of Issuer/ Shares or
Title of Issue Units Cost Market
Common Stocks:
Computer Associates International, Inc. 10,000 630,000 453,750
Deisgner Holdings, Inc. 10,000 165,000 141,250
Electronic Data Systems Corp. 10,000 441,250 460,000
General Motors Corp. 10,000 532,500 610,000
Glenayre Technologies, Inc. 50,000 1,163,961 962,500
Healthsource 10,000 138,750 132,500
Panavision 6,400 139,750 120,000
Sun International Hotels 5,100 259,475 181,688
US Trust Corporation 20,000 659,125 1,690,000
Total 4,129,811 4,751,688
Trading securities at December 31, 1995 consisted of the following:
Number of
Name of Issuer/ Shares or
Title of Issue Units Cost Market
Common Stocks:
Chase Manhattan 13,600 629,625 821,100
Exel Ltd. - Ord. 10,000 537,500 608,750
Glenayre Technologies, Inc. 65,000 1,355,175 4,046,250
Ivax Corporation 35,745 354,542 1,018,733
Made Networks NV 7,340 242,500 328,465
3COM Corporation 10,000 461,250 466,250
US Trust Corporation 20,000 659,125 995,000
Wang Laboratories, Inc., New 35,000 618,750 581,875
York International 17,500 776,250 822,500
Total Common Stocks 5,634,717 9,688,923
Preferred Stock:
Bankamerica Corp. 5,800 145,000 150,075
Total 5,779,717 9,838,998
5. INVENTORIES
Inventories consisted of the following:
January 31, December 31,
1997 1995
Raw materials 2,737,369 217,651
Work-in-process 617,615 0
Finished goods 2,016,964 12,667
Subtotal 5,371,948 230,318
Less-reserve to reduce carrying
value to LIFO cost (55,000) 0
Net inventories 5,316,948 230,318
6. INVESTMENT IN AND ADVANCES TO AFFILIATE
The Company owns 50% of the outstanding common stock of South Houston Hose
Company and accounts for the investment by the equity method. The Company
had sales of approximately $685,000 to the affiliate during 1996. Summary
unaudited financial information as of January 31, 1997 and the year then
ended is as follows:
Current assets 934,399
Noncurrent assets 49,930
Current liabilities 306,198
Noncurrent liabilities 41,555
Stockholders' equity 636,576
Net sales 2,239,949
Net earnings 94,070
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
Year Ended
January 31, December 31,
Group benefits 190,680 0
Warranty 151,000 0
Legal and professional 78,500 0
Interest 57,268 0
Selling commissions 17,475 2,907
Other 34,973 4,621
Total 529,861 51,701
8. INCOME TAXES
Deferred income taxes are provided on temporary differences relating to
reporting expenses in different periods for financial statement and income
tax purposes and differences in bases of assets and liabilities. Such
differences relate primarily to unrealized gain (losses) on investments,
depreciation expense, inventory costs, bad debt expense, warranty costs,
insurance, compensation and pension expense.
The provision for income taxes (credit) is as follows:
One-Month
Year Ended Ended Year Ended Year Ended
January 31, January 31, December 31, December 31,
1997 1996 1995 1994
Currently payable:
Federal 718,871 184,000 506,616 128,924
State 162,000 32,000 185,974 46,250
Subtotal 880,871 216,000 692,590 175,174
Deferred:
Federal (1,120,871) (200,000) 556,595 (69,127)
State (250,000) (35,000) 166,256 (20,488)
Subtotal (1,370,871) (235,000) 722,851 (89,615)
Total (490,000) (19,000) 1,415,441 85,559
Temporary differences which gave rise to the deferred tax assets
(liabilities) included the following items at January 31, 1997 and
December 31, 1995:
1997 1995
Deferred tax assets:
Compensation and other employee benefits 290,000 0
Inventory items 0 400
Book reserves and other items 6,000 0
Fixed assets 0 9,950
Net operating loss carryforwards 140,000 0
Deferred financing 207,000 0
Vacation pay 63,000 0
Subtotal 706,000 10,350
Deferred tax liabilities:
Inventory items (543,000) 0
Unrealized gains (243,000) (1,606,221)
Fixed assets (516,000) 0
Pension benefit (150,000) 0
Subtotal (1,452,000) (1,606,221)
Net deferred tax liability (746,000) (1,595,871)
The reconciliation of income tax computed at the U.S. federal statutory rates
to income tax expense is:
One-Month
Year Ended Ended Year Ended
January 31, January 31, December 31, December 31,
Statutory tax rate 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal
tax benefit 4.8% 5.7% 7.0% 4.3%
Goodwill (3.8)% 0.0% 0.0% 0.0%
Dividends received
deduction 1.3% 2.9% (0.5)% (3.1)%
Effect of utilization of
loss carryforward and
change in valuation
allowance 0.0% 0.0% 0.0% (13.7)%
Reversal of provision for
taxes not necessary in the
future 4.5% 0.0% 0.0% 0.0%
Other, net (0.7)% (1.2)% 0.0% (3.2)%
Effective tax rate 40.1% 41.4% 40.5% 18.3%
At January 31, 1997, the Company has net operating loss carryforwards for
Federal and state income tax purposes of approximately $280,000 and $500,000,
respectively, expiring in 2012.
9. LONG-TERM DEBT
Long-term debt, less current maturities consisted of the following at
January 31, 1997:
Industrial revenue bonds 3,000,000
Bank revolving credit loan 3,800,000
Bank overadvance term loan 3,281,944
Subordinated bank loan 6,798,300
Obligation to former officer 27,180
Total debt 16,907,424
Less current portion (868,844)
Total long-term debt 16,038,580
The Industrial Revenue Bonds ("IRB") were issued to finance construction of a
new production facility in Port Washington, Wisconsin. A total of $3,000,000
was issued for the facility and is due in annual installments of $125,000
from February 1997 through February 2000, $150,000 from February 2001 through
February 2005, and $175,000 from February 2006 through February 2015. The
interest rate at January 31, 1997 approximated 3.65%.
The master credit agreement, which expires June 21, 1999, allows for revolving
credit borrowings not to exceed $6,000,000. Borrowings, which are based on
qualified assets, bear interest at either the prime rate plus .50% or the
LIBOR rate plus 1.25% on the first $1,800,000 of debt (6.91% at January 31,
1997) and the LIBOR rate plus 2.00% on amounts in excess of $1,800,000 (7.66%
at January 31, 1997).
Also under the master credit agreement, the Company maintains an overadvance
term loan. Monthly principal payments of $59,722 are required by the
agreement. Borrowings bear interest at either the prime rate plus .375% or
the LIBOR rate plus 3.1%. The interest rate at January 31, 1997 was 8.625%.
The agreement calls for additional principal payments based on excess cash
flow as defined in the agreement.
The terms under the master credit agreement, among other provisions, require
the Company to maintain a minimum current ratio, tangible net worth, and
fixed charge ratio, and restricts the Company to a maximum debt to worth
ratio. Substantially all of the Company's assets are collateralized under
the above debt agreements.
The Company has a loan agreement with a bank which provides for subordinated
borrowings up to $6,800,000 through June 22, 1999. Borrowings bear interest
at the bank's LIBOR rate plus 1.25%. On January 31, 1997, the interest rate
was 6.81%. The loan is secured by substantially all of the assets of the
Company and is guaranteed by the principal stockholder of Edison.
The Company has an obligation to a former officer due in September 1997.
Interest is payable annually at 6%.
The Company has entered into a two year $10,000,000 interest rate cap/floor
agreement to reduce the impact of changes in interest rate borrowings under
its variable rate debt. The agreement maintains a cap rate of 7% (90 day
LIBOR) and a floor rate of 4.5%. The Company paid a fee of $32,500 related
to the cap/floor agreement and is amortizing the fee over the life of the
agreement. The interest rate cap/floor agreement expires December 10, 1998.
Annual principal payments for the next five years on long-term debt are as
follows:
Year Revolving Overadvance Obligation
Ending Credit Term Subordinated to Former
January 31, IRB Loan Loan Bank Loan Officer Total
1998 125,000 0 716,664 0 27,180 868,844
1999 125,000 0 716,664 0 0 841,664
2000 125,000 3,800,000 1,848,616 6,798,300 0 12,571,916
2001 125,000 0 0 0 0 125,000
2002 150,000 0 0 0 0 150,000
Thereafter 2,350,000 0 0 0 0 2,350,000
Total 3,000,000 3,800,000 3,281,944 6,798,300 27,180 16,907,424
10. EMPLOYEE RETIREMENT PLANS
The Company has a noncontributory defined benefit pension plan, which relates
to the acquired companies, covering substantially all full-time employees.
The plan provides for benefits based on years of service and compensation.
The following table sets forth the plan's funded status and amounts
recognized in the Company's financial statements at January 31, 1997:
1997
Actuarial present value of benefit obligations:
Accumulated beneit obligation, including vested beneftis of
$1,992,192 2,024,083
Projected benefit obligation for service rendered to date 2,843,888
Plan assets at fair value, primarily pooled common stock and
bond funds, stocks and bonds 3,521,295
Plan assets in excess of projected benefit obligation 677,407
Unrecognized net gain from past experience different from that
assumed (292,386)
Prepaid pension expense recognized in the consolidated balance
sheet at January 31, 1997 385,021
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 7.5% and 6% for the year ended January 31, 1997. The expected rate of
return on plan assets is 8.0% for the year ended January 31, 1997. The
Company's funding policy is to contribute annually amounts within the limits
which can be deducted for Federal income tax purposes. No contributions were
made to the Plan during the year ended January 31, 1997.
Pension expense consisted of the following components for the year ended
January 31, 1997:
Service cost-benefits earning during the year 65,707
Interst on projected benefit obligation 119,475
Actual return on plan assets (gain) loss (369,579)
Net amortization and deferral 241,974
Net periodic pension expense 57,577
The Company also has a retirement savings and thrift plan (401(k) plan),
which relates to the acquired companies, covering substantially all of its
employees. Under the 401(k) plan, the Company contributes amounts based on
employee contributions. Amounts charged to earnings for the plan for the
year ended January 31, 1997 was $42,831.
11. EMPLOYEE STOCK OPTION PLANS
The Company adopted a 1986 Stock Option Plan (the "Plan") for the benefit of
directors, officers and key employees of the Company. Pursuant to the Plan,
as amended, these persons may be granted options to purchase up to an
aggregate of 150,000 shares of Common Stock. The Board of Directors may
authorize the granting of options under the Plan, and may determine to whom
the options may be granted, the number thereof, the option price and the
exercise period. The price for incentive stock options, which may be granted
under the Plan and which meet the requirements of Section 422A of the
Internal Revenue Code, as amended, will not be less than the fair market
value of the Common Stock on the date the option is granted (100% of such
fair market value for an optionee who holds more than 10% of the outstanding
shares of the capital stock of the Company). The price for non-statutory
options shall be fixed in the discretion of the Board of Directors and in no
event will the option price for any non-statutory option granted be less than
85% of the fair market value of the Common Stock on the date of grant. The
maximum exercise period for any option under the Plan is ten years from the
date the option is granted (five years for an optionee who holds more than
10% of the outstanding shares of the capital stock of the Company). In
November 1987, the Board of Directors issued non-statutory options to
purchase an aggregate of 90,000 shares at an exercise price of $2.50 per
share ("2.50 options"). In 1989, the Company issued non-statutory options
to purchase an additional 60,000 shares at an exercise price of $1.22 per
share. In November 1996, William Finneran purchased 25,000 shares of his
options.
In June 1993, the Board of Directors granted non-statutory options to
purchase 18,000 shares each to Clark H. Bailey, Gerald B. Cramer, John J.
Delucca and Jay J. Miller, and 35,000 shares to William B. Finneran,
Directors of the Company, at an exercise price of $2.50 per share, vesting
50% at June 5, 1994 and 50% at June 4, 1995 ("vesting $2.50 options"). In
June 1995, Clarke H. Bailey exercised his option and purchased 18,000 shares.
In July 1993, the Board of Directors granted a non-statutory option to
purchase 18,000 shares to John M. Sanzo, a Director of the Company, at an
exercise price of $4.00 per share, vesting 50% at July 15, 1994 and 50% at
July 15, 1995 ("vesting $4.00 options"). In October 1994, the Board of
Directors resolved that the stock option, heretofore, granted to Mr. John M.
Sanzo to be fully vested notwithstanding any term of said option to the
contrary and that said option would expire 120 days following the
effectiveness of a Registration Statement on Form S-8 under the Securities
Act of 1993, as amended. In June 1995, John M. Sanzo exercised his option
and purchased 18,000 shares.
In October 1995, the 1986 Stock Option Plan was amended to increase by
200,000 the number of shares of common stock authorized for issuance,
thereunder to a total of 350,000 shares.
In February 1995, the Board of Directors authorized and on October 17, 1995,
the stockholders approved, a grant to the Company's President and Chief
Executive Officer of an option to purchase up to 200,000 shares of common
stock pursuant to the 1986 Option Plan at an exercise price of $4.00 per
share, vesting 33% each at date of grant, on February 1, 1996, and on
February 1, 1997, respectively.
In February 1996, nonqualified options for 17,500 shares were granted to
three individuals for services rendered at an exercise price of $4.50 per
share. The options are exercisable up to the close of business on December
31, 1999.
In connection with the issuance of the subordinated debt, the principal
stockholder of the Company provided collateral to a bank to support a
guaranty of repayment by the Company of the principal and interest on the
loan. The arrangement was made to reduce the cost of borrowed funds from
that which would have been otherwise obtainable by the Company from
unaffiliated "mezzanine" lenders. In consideration of his providing such
collateral, the Company issued, subject to stockholder approval, a ten (10)
year Warrant to purchase 500,000 shares of Common Stock exercisable at a
price of $1.60 per share. At the time the transaction was negotiated,
Common Stock was quoted at approximately $4.00 per share. On the date
the ConForms acquisition was consummated, which was the grant date, the
closing sale price for the Common Stock in the over-the-counter market was
$7.50 per share. The difference between the Warrant price and the fair
market value at the time the transaction was negotiated is being amortized
over the three year term of the subordinated debt.
In connection with the ConForms acquisition, the Company entered into
agreements for the sale for investment of an aggregate of 114,933 shares of
Common Stock for a total purchase price of $862,000 to key management
personnel of ConForms and its affiliates. In addition, the Company granted
ten year nonqualified options to purchase an aggregate of 167,611 shares of
Common Stock exercisable at $3.00 per share to key personnel. Such options
vest fully on the first anniversary of the closing of the acquisition. On
the date of the grant of the options, the closing sale price for the Common
Stock was $7.50 per share. The difference between the option price and the
fair market value at the time of grant is being amortized over the one year
vesting period.
The Company has adopted the disclosure-only provisions of SFAS No.123,
"Accounting for Stock-Based Compensation," but continues to apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
all of its plans. Compensation expense was $1,049,788, $0, and $0 for the year
ended January 31, 1997, the one-month transition period ended January 31,
1996, and the year ended December 31, 1995, respectively. If the Company had
elected to recognize compensation costs for the options/warrants issued after
December 15, 1994 in accordance with SFAS No. 123, net (loss) earnings and
net (loss) earnings per share would have changed to the pro forma amounts as
follows:
Year One-Month Year
Ended Ended Ended
January 31, January 31, December 31,
1997 1996 1995
Net (loss) earnings
As reported: (731,028) (26,859) 2,082,582
Pro forma: (2,128,210) (26,859) 2,000,075
Net (loss) earnings per share
As reported: (0.33) (0.01) 0.95
Pro forma: (0.96) (0.01) 0.91
The fair value of stock options/warrants used to compute and disclose pro
forma net (loss) earnings and pro forma net (loss) earnings per share is the
estimated present value at grant date using the Black Scholes option pricing
model with the following weighted average assumptions:
Year One-Month Year
Ended Ended Ended
January 31, January 31, December 31,
1997 1996 1995
Dividend yeild 0% 0% 0%
Expected volatility 53% 46% 46%
Risk-free interest rate (6 year) 5.35% 5.35%
Risk-free interest rate (5 year) 6.65%
Risk-free interest rate (3 year) 5.07% 5.07%
Risk-free interest rate (2 year) 6.29%
Stock option/warrant activity is summarized as follows:
Weighted One-Month Weighted
Year Ended Average Ended Average
January 31, Exercise January 31, Exercise
1997 Price 1996 Price
Options/warrants outstanding,
beginning of period 314,000 3.46 314,000 3.46
Options/warrants granted 685,111 2.02 0 0
Options/warrants exercised (25,000) 2.50 0 0
Options/warrants outstanding,
end of period 974,111 2.47 314,000 3.46
Options/warrants exercisable,
end of period 739,833 2.21 180,666 3.05
Price range per share 1.60 - 4.50 2.50 - 4.00
Year Weighted Year Weighted
Ended Average Ended Average
December 31, Exercise December 31, Exercise
1995 Price 1994 Price
Options/warrants outstanding,
beginning of period 150,000 2.68 150,000 2.68
Options/warrants granted 200,000 4.00 0 0
Options/warrants exercised (36,000) 3.25 0 0
Options/warrants outstanding,
end of period 314,000 3.46 150,000 2.68
Options/warrrants exercisable 180,666 3.05 96,500 2.78
Price range per share 2.50 - 4.00 2.50 - 4.00
12. VALUATION ACCOUNTS
The Company had no valuation accounts as of December 31, 1995. The
acquisition on June 21, 1996 included various valuation accounts. Activity
related to these valuation accounts for the year ended January 31, 1997 is
as follows:
Deductions
for bad debts
written off,
Additions inventory
Balance charged to disposed of, Balance,
Beginning Acquired costs and or warranty End of
Valuation Accounts of Period Companies expenses claims Period
Allowance for doubt-
ful accounts and
finance charges 0 304,026 10,127 (22,153) 292,000
Excess and obsolete
inventory reserve 0 770,000 2,500 0 772,500
Notes receivable
reserve 0 0 275,000 0 275,000
Warranty reserve 0 174,466 42,360 (65,826) 151,000
13. COMMITMENTS
The Company has entered into employment agreements with three of its executives.
Minimum salaries to be paid to these individuals for the years ended January
31, 1998 and 1999 are $495,000 and $145,000, respectively.
The Company leases warehouse facilities expiring at various dates through
November 1998. Future minimum lease payments required under these
noncancelable operating lease agreements are approximately as follows:
Year Ending
January 31,
1998 109,480
1998 86,700
Total 196,180
Total rent expense for the year ended January 31, 1997, one-month transition
period ended January 31, 1996 and the years ended December 31, 1995 and 1994
was approximately $137,000, $6,000, $49,000, and $45,000, respectively.
14. RELATED PARTY TRANSACTIONS
At January 31, 1997, Edison held in its investment portfolio 50,000 shares
of common stock of Glenayre Technologies, Inc. which were purchased during
1993, 1995 and 1996 at a cost of $1,163,961 and have a market value at
January 31, 1997 of $962,500. The Chairman of the Board of Glenayre
Technologies, Inc. is a former member of the Board of Directors of the Company.
15. FOREIGN OPERATIONS
Foreign operations information for the year ended January 31, 1997 follows:
United United
States Kingdom Total
Net sales to unaffiliated customers 12,158,482 1,445,858 13,604,340
Operating earnings 498,279 33,423 531,702
Identifiable assets 31,936,230 2,123,875 34,060,105
Depreciation and amortization 1,548,701 14,973 1,563,674
Capital expenditures 355,401 60,939 416,340
16. CONTINGENCIES AND LITIGATION
The Company is involved in various legal proceedings which have arisen in the
normal course of business. Reserves are recorded when the occurrence of loss
is probable and can be reasonably estimated. In the opinion of management,
the resolution of these contingencies will not have a materially adverse
effect on the Company's financial condition or results of operations.