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, 2001
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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
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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
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(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: 2,365,223 as of April 30, 2001
- ------------------------------------------------------------
EDISON CONTROL CORPORATION AND SUBSIDIARIES
INDEX
Form 10-Q
Page Number
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Part I Financial Information
Item 1 Financial Statements
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Consolidated Balance Sheets Pages 2 & 3
April 30, 2001 (Unaudited) and
January 31, 2001
Consolidated Statements of Income Pages 4 & 5
Three months ended April 30,
2001 and 2000 (Unaudited)
Consolidated Statements of Cash Flows Pages 6 & 7
Three months ended April 30,
2001 and 2000 (Unaudited)
Notes to Consolidated Financial Statements Pages 8-10
(Unaudited)
Item 2 Management's Discussion and Analysis of Pages 11-12
- ----------------------------------------------
Operations and Financial Condition
----------------------------------
Item 3 Quantitative and Qualitative Disclosures
- -----------------------------------------------
About Risk Pages 12-13
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Part II Other Information
Item 6 Exhibits and Reports on Form 8-K Page 14
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1
PART I.
Item 1
Financial Statements
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 2001 and January 31, 2001
(Unaudited)
April 30, January 31,
2001 2001
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $603,745 $305,337
Investments 95,000 95,000
Trading securities 235,600 420,797
Accounts receivable, net 3,970,739 4,233,754
Receivable from affiliate 186,725 136,657
Inventories, net 6,610,228 6,545,187
Prepaid expenses and other assets 214,842 261,025
Deferred income taxes 260,000 240,000
Refundable income taxes 0 62,150
Note receivable 0 164,155
---------- ----------
Total current assets 12,176,879 12,464,062
Investment in and advances to affiliate 542,808 524,919
Deferred income taxes 565,000 565,000
Property, plant and equipment, net 7,195,601 7,359,953
Goodwill (net of amortization) 8,167,736 8,225,801
Finance costs (net of
amortization) 41,448 42,498
---------- ----------
TOTAL ASSETS $28,689,472 $29,182,233
=========== ===========
(Continued)
See Accompanying Notes.
2
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 2001 and January 31, 2001
(Unaudited)
(Continued)
April 30, January 31,
2001 2001
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $1,126,836 $1,056,501
Accrued compensation 524,902 984,011
Taxes other than income taxes 33,310 23,061
Other accrued expenses 437,177 451,737
Income taxes payable 399,647 0
Deferred compensation 666,752 754,250
Current maturities on long-term debt 159,141 159,141
--------- ---------
Total current liabilities 3,347,765 3,428,701
Long-term debt, less current maturities 4,267,966 5,420,217
--------- ---------
Total Liabilities 7,615,731 8,848,918
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, 2,365,223 and 2,351,308 shares
issued and outstanding, respectively 23,652 23,513
Additional paid-in capital 10,444,217 10,344,868
Retained earnings 10,818,526 10,120,873
Accumulated other comprehensive (loss) (212,654) (155,939)
---------- ----------
Total Shareholders' Equity 21,073,741 20,333,315
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $28,689,472 $29,182,233
=========== ===========
See Accompanying Notes.
3
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED APRIL 30, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
NET SALES $6,693,359 $6,699,097
COST OF GOODS SOLD 4,061,060 4,005,624
--------- ---------
GROSS PROFIT 2,632,299 2,693,473
OTHER OPERATING EXPENSES:
Selling, engineering and
administrative expenses 1,225,927 1,457,840
Amortization 59,115 59,103
--------- ---------
Total other operating expenses 1,285,042 1,516,943
--------- ---------
OPERATING INCOME 1,347,257 1,176,530
OTHER EXPENSE (INCOME):
Interest expense 84,196 176,682
Realized losses (gains) on trading securities 77,907 (124,522)
Unrealized losses (gains) on trading securities 47,941 (19,986)
Miscellaneous income (13,910) (21,332)
-------- --------
Total other expense 196,134 10,842
-------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,151,123 1,165,688
PROVISION FOR INCOME TAXES 453,470 477,025
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INCOME FROM CONTINUING
OPERATIONS 697,653 688,663
(Continued)
See Accompanying Notes
4
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED APRIL 30, 2001 AND 2000
(Unaudited)
(Continued)
2001 2000
---- ----
DISCONTINUED OPERATIONS (Note 3):
(Loss) from operations of discontinued
Gilco division net of income taxes (credit)
of $0 and ($23,000), respectively $ 0 $ (37,153)
----------- -----------
NET INCOME 697,653 651,510
OTHER COMPREHENSIVE LOSS -
Foreign currency translation adjustment (56,715) (70,556)
-------- --------
COMPREHENSIVE INCOME $640,938 $ 580,954
======== =========
Income (loss) per share:
Basic:
Income from continuing operations $.30 $.29
Loss from discontinued operations .00 (.01)
----- ----
NET INCOME $.30 $.28
Diluted:
Income from continuing operations $.25 $.23
Loss from discontinued operations .00 (.01)
--- -----
NET INCOME $.25 $.22
See Accompanying Notes
5
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
OPERATING ACTIVITIES:
Net income $ 697,653 $ 651,510
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 304,893 308,071
Provision for doubtful accounts 73,752 78,091
Realized loss (gain) on sales of trading securities 77,907 (124,522)
Unrealized loss (gain) on trading securities 47,941 (19,986)
Purchases of trading securities 0 (80,783)
Proceeds from the sale of trading securities 59,349 480,078
Equity in earnings of affiliate (17,889) (16,251)
Changes in assets and liabilities:
Accounts receivable 189,263 (836,751)
Receivable from affiliate (50,068) (6,411)
Inventories (65,041) 288,566
Prepaid expenses and other assets 46,183 105,498
Trade accounts payable 70,335 427,054
Accrued compensation (459,109) (322,454)
Taxes other than income taxes 10,249 15,842
Other accrued expenses (14,560) 123,201
Deferred income taxes (54,124) 10,000
Income taxes payable 477,911 299,461
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Total adjustments 696,992 728,704
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,394,645 1,380,214
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INVESTING ACTIVITIES:
Payments received from note receivable 164,155
Additions to plant and equipment (81,426) (76,166)
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NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 82,729 (76,166)
------ --------
(Continued)
See Accompanying Notes.
6
EDISON CONTROL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 2001 AND 2000
(Unaudited)
(Continued)
2001 2000
---- ----
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt $ 0 $ 600,000
Payments on long-term debt (1,152,251) (1,577,889)
Stock options exercised 30,000 0
------ -
NET CASH USED IN
FINANCING ACTIVITIES (1,122,251) (977,889)
----------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (56,715) (70,556)
-------- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 298,408 255,603
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 305,337 539,586
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 603,745 $ 795,189
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 0 $ 144,564
Cash paid during the period for interest 90,865 183,937
See Accompanying Notes.
7
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 accounting principles generally accepted in the United States
of America 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 accounting principles
generally accepted in the United States of America 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, 2001 are
not necessarily indicative of the results that may be expected for other interim
periods or for the fiscal year ended January 31, 2002. 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, 2001.
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, 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. JABCO, LLC 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
accounting principles generally accepted in the United States of America
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.
8
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.
Income From Continuing Operations Per Share - Reconciliation of the numerator
and denominator of the basic and diluted per share computations for the three
months ended April 30, 2001 and 2000 are summarized as follows:
2001 2000
---- ----
Basic:
Income from continuing operations (numerator) $697,653 $688,663
Weighted average shares outstanding (denominator) 2,362,857 2,351,308
Income from continuing operations per share - basic $.30 $ .29
Diluted:
Income from continuing operations (numerator) $697,653 $688,663
Weighted average shares outstanding 2,362,857 2,351,308
Effect of dilutive securities:
Stock options 78,342 184,755
Stock warrants 328,265 378,749
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Weighted average shares outstanding (denominator) 2,769,464 2,914,812
Income from continuing operations per share - diluted $.25 $.23
New Accounting Standards - In May, 2000, the Emerging Issues Task Force ("EITF")
reached consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees
and Costs." EITF 00-10 provides guidance on the financial reporting of shipping
and handling fees and costs in the consolidated statements of income and
comprehensive income. Effective February 1, 2000, the Company adopted EITF 00-10
and, as a result, amounts billed to a customer in a sale transaction related to
shipping costs are reported as net sales and the related costs incurred for
shipping are reported as cost of goods sold. The Company previously reported
shipping costs as a reduction of net sales. Prior period consolidated financial
statements have been reclassified to conform to the new requirements.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133.
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, is required to be adopted on February 1, 2001. The Company evaluated
the impact of this statement and has concluded that the adoption of this
statement will not have an impact on the consolidated financial statements.
Reclassifications - Certain reclassifications have been made to the prior years'
financial statements to conform with the current year presentation.
9
Note 3 - Discontinued Operations
- --------------------------------
In September 2000, the Company sold the inventory, tooling and intangible assets
of its Gilco division to a third party for $400,000 cash and a non-interest
bearing note receivable for $164,155, which was paid in March 2001. Gilco had
supplied portable concrete and mortar/plaster mixers to various customers. The
sale resulted in a loss of $12,379, net of income taxes.
The results of operations of the Gilco division have been presented as
discontinued operations. Accordingly, previously reported statement of income
information has been restated to reflect this presentation. Net sales of the
Gilco division for the three-month period ended April 30, 2000 were $499,765.
Note 4 - 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 three months ended April 30, 2001 and 2000 follows:
2001 2000
---- ----
Net Operating Net Operating
Sales Income (Loss) Sales Income (Loss)
----- ------------- ----- -------------
ConForms $5,825,326 $1,307,746 $6,008,258 $1,455,796
Ultra Tech 868,033 127,684 690,839 76,201
Edison ________ (88,173) ________ (355,467)
-------- ---------
Total $6,693,359 $1,347,257 $6,699,097 $1,176,530
10
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 three months ended April 30, 2001 decreased $5,738 (.1%) to
$6,693,359 when compared with the same period of the prior year.
As a percentage of net sales, gross margin for the three months ended April 30,
2001 was 39.3% compared to 40.2% for the same period last year. This was due
largely to increased group insurance costs related to increased claim payments.
Selling, engineering and administrative expenses decreased by $231,913 (15.9%)
due largely to legal and professional expenses incurred in the first three
months of 2000 which related to discussions held with various parties interested
in acquiring all of the Company's common stock.
Interest expense decreased to $84,196 for the three months ended April 30, 2001
compared to $176,682 for the three months ended April 30, 2000 due to lower debt
balances.
11
The Company had a net loss on trading securities of $125,848 for the three
months ended April 30, 2001 compared to a net gain of $144,508 for the three
months ended April 30, 2000. Trading securities at April 30, 2001 consisted of
the following:
Number of Market
Name of Issuer/Title of Issue Shares Value
- ----------------------------- ------ -----
Common Stocks:
Allied Capital Corp. 2,000 $ 46,540
Compaq Computers Corp. 3,000 52,500
Glenayre Technologies, Inc. 37,000 74,740
Intel Corp. 2,000 61,820
---------
Total $ 235,600
==========
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 income 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 income
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 and financing costs created a total non-cash charge
of $59,115 for the first three months of fiscal 2001 compared to $59,103 for the
prior year first three-month period.
The Company recorded tax expense from continuing operations of $453,470 for the
three months ended April 30, 2001, which represents the estimated annual
effective rate of 39.4% 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.
Income from continuing operations of $697,653, or $.30 and $.25 per share, basic
and diluted, respectively, for the first three months of 2001 was an increase of
$8,990 (1.3%), from income from continuing operations of $688,663, or $.29 and
$.23 per share, basic and diluted, for the comparable period last year.
Liquidity and Capital Resources
- -------------------------------
The Company generated $1,394,645 in cash from operations during the first three
months of 2001, compared to cash generated from operations of $1,380,214 for the
same period last year. The Company received $164,155 in March, 2002 from a note
receivable relating to the sale of the Gilco division in 2000. The Company used
$81,426 in cash to acquire capital equipment and $1,152,251 for payments on
long-term debt. The result was a net increase in cash and cash equivalents of
$298,408 for the first
12
quarter of fiscal 2001 compared to a net increase of $255,603 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, 2002 are
expected to total approximately $1,000,000, compared to $478,872 for fiscal
2000.
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
totaled $4,427,107 as of April 30, 2001, are subject to interest rate risk. Most
of the borrowings float at either the prime rate or LIBOR plus a certain number
of basis points. Based on the April 30, 2001 balance, an increase of one percent
in the interest rate on the Company's loans would cause interest expense to
increase by approximately $45,000 or $.01 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 will be successful, especially in the event of a
significant and sudden decline in the value of a currency.
Equity Price Risk
- -----------------
Approximately .8% of the Company's total assets as of April 30, 2001 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 ($235,600 at April 30, 2001),
has led and will likely continue to lead, to significant period-to-period income
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 $24,000 or $0.01 per diluted share, net of taxes.
13
PART II.
Item 6.
Exhibits
- --------
There are no exhibits filed or incorporated by reference herein.
Reports on Form 8-K
- -------------------
The Company filed a current report on Form 8-K on April 16, 2001 relating to the
delisting of the Company's common stock from the Nasdaq National Market. The
Company received notification on April 9, 2001 from the Nasdaq Stock Market that
Nasdaq had decided to delist the Company's common stock from the Nasdaq National
Market at the opening of business on April 17, 2001 due to the Company's failure
to maintain a minimum market value of public float of $5,000,000 as required by
Marketplace Rule 4450(a)(2).
Edison Control Corporation's common stock began trading on the OTC Bulletin
Board effective April 17, 2001 under the symbol "EDCO". The OTC Bulletin Board
is a regulated quotation service that displays real-time quotes, last sale
prices, and volume information in over-the-counter securities.
14
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 11, 2001 /s/ Jay R. Hanamann
-----------------------
Jay R. Hanamann
(Chief Financial Officer)
15
Edison Control Corporation
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
None
16