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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ________________ Commission file number 0-14812 EDISON CONTROL CORPORATION (Exact name of registrant as specified in its charter) New Jersey 22-2716367 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) W60 N151 Cardinal Avenue PO Box 326 Cedarburg, WI 53012-0326 (Address of principal executive offices) (Zip Code) (414) 377-6565 (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: 2,275,933 as of April 30, 1998 EDISON CONTROL CORPORATION AND SUBSIDIARIES INDEX Exhibit Reference or Form 10-Q Page Number Part I Financial Information Item 1 Financial Statements Consolidated Balance Sheets 10-Q, Pages 2 & 3 April 30, 1998 (Unaudited) and January 31, 1998 Consolidated Statements of Operations 10-Q, Page 4 Three months ended April 30, 1998 and 1997 (Unaudited) Consolidated Statements of Cash Flows 10-Q, Pages 5 & 6 Three months ended April 30, 1998 and 1997 (Unaudited) Notes to Consolidated Financial Statements 10-Q, Pages 7 - 9 (Unaudited) Item 2 Management's Discussion and Analysis of 10-Q, Pages 9 - 11 Operations and Financial Condition Part II Other Information Item 6 Exhibits 10-Q, Page 12 and Exhibit Index PART I. Item 1 Financial Statements EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 1998 and January 31, 1998 April 30, January 31, 1998 1998 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 743,516 $1,037,288 Investments 190,000 190,000 Trading securities 4,766,981 3,653,763 Trade accounts receivable, net 3,693,570 2,995,637 Receivable from affiliates 130,074 103,482 Inventories, net 6,275,489 5,974,302 Prepaid expenses and current other assets 136,409 193,099 Refundable income taxes 37,771 81,182 Deferred financing costs 983,333 983,333 ---------- ---------- Total current assets 16,957,143 15,212,086 Investment in and advances to affiliate 423,150 433,150 Other Assets: Prepaid pension 256,134 283,134 Deferred financing costs 143,404 389,236 ---------- ---------- Total other assets 399,538 672,370 Property, plant and equipment, net 6,820,543 6,945,103 Goodwill (net of amortization) 8,864,511 8,922,576 Organizational/finance costs (net of amortization) 149,091 170,672 ---------- ---------- TOTAL ASSETS $33,613,976 $32,355,957 ========== ========== (Continued) See Accompanying Notes. EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 1998 and January 31, 1998 (Continued) April 30, January 31, 1998 1998 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 1,441,450 $ 1,261,244 Accrued compensation 441,249 781,566 Taxes other than income taxes 72,286 29,985 Other accrued expenses 584,085 555,045 Deferred income taxes 360,000 115,000 Deferred compensation 754,250 754,250 Current maturities on long-term debt 841,664 841,664 --------- --------- Total current liabilities 4,494,984 4,338,754 Long-term debt, less current maturities 13,365,885 13,181,678 Deferred income taxes 420,000 245,000 --------- --------- TOTAL LIABILITIES 18,280,869 17,765,432 Shareholders' Equity: Preferred stock, $.01 par value: 1,000,000 shares authorized, none issued 0 0 Common stock, $.01 par value: 10,000,000 shares authorized, 2,275,933 shares issued and outstanding 22,759 22,759 Additional paid-in-capital 10,016,435 10,016,435 Retained earnings 5,213,238 4,558,493 Accumulated other comprehensive income 80,675 (7,162) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 15,333,107 14,590,525 ---------- ---------- TOTAL LIABILITIES AND EQUITY $33,613,976 $32,355,957 ========== ========== See Accompanying Notes. EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED APRIL 30, 1998 AND 1997 (Unaudited) 1998 1997 NET SALES $6,725,614 $5,707,231 COST OF GOODS SOLD 4,453,433 3,682,752 --------- ---------- GROSS PROFIT 2,272,181 2,024,479 OTHER OPERATING EXPENSES: Selling, engineering and administrative expenses 1,192,549 1,082,771 Stock option amortization 0 188,563 Goodwill and organizational/ finance cost amortization 79,646 79,635 ---------- ---------- Total other operating expenses 1,272,195 1,350,969 ---------- ---------- OPERATING INCOME 999,986 673,510 OTHER EXPENSE (INCOME): Interest expense 268,203 310,984 Realized losses on trading securities 12,250 195,688 Unrealized (gains) losses on trading securities(622,780) 436,900 Stock warrant amortization 245,833 245,835 Miscellaneous (income) expense (39,171) (22,172) ---------- ---------- Total other (income) expense (135,665) 1,167,235 ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES (CREDIT) 1,135,651 (493,725) INCOME TAXES (CREDIT) 480,906 (179,960) ---------- ---------- NET INCOME (LOSS) $654,745 $(313,765) ========== ========== Net income (loss) per share - basic $.29 $(.14) Net income (loss) per share - diluted $.23 $(.14) See Accompanying Notes. EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, 1998 AND 1997 (Unaudited) 1998 1997 Net income (loss) $ 654,745 $ (313,765) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 510,955 682,885 Provision for doubtful accounts 36,929 34,958 Realized loss on sales of trading securities 12,250 195,688 Unrealized (gain) loss on trading securities (622,780) 436,900 Purchases of trading securities (650,438) (1,006,875) Proceeds from the sale of trading securities 147,750 1,179,312 Equity in earnings of affiliates (20,000) 0 Changes in assets and liabilities: Accounts receivable (734,862) (664,145) Receivable from affiliate (26,592) 81,209 Inventories (301,187) 163,336 Prepaid expenses and other assets 83,690 28,727 Trade accounts payable 180,206 466,962 Accrued compensation (340,317) (206,213) Taxes other than income taxes 42,301 12,560 Accrued expenses 29,040 47,485 Deferred income taxes 420,000 (297,000) Income taxes payable 43,411 (735) --------- -------- Total adjustments (1,189,644) 1,155,054 --------- --------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (534,899) 841,289 --------- --------- Cash flows from investing activities: Additions to plant and equipment (60,917) (100,493) Payments received from affiliates 30,000 0 --------- --------- NET CASH USED IN INVESTING ACTIVITIES (30,917) (100,493) --------- --------- (Continued) See Accompanying Notes. EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, 1998 AND 1997 (Unaudited) (Continued) 1998 1997 Cash flows from financing activities: Proceeds from issuance of long-term debt $500,000 $0 Principal payments on long-term debt (315,793) (779,217) --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 184,207 (779,217) --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 87,837 35,655 --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (293,772) (2,766) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,037,288 772,008 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 743,516 $ 769,242 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 17,495 $117,775 Cash paid during the period for interest 249,740 261,601 See Accompanying Notes. EDISON CONTROL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instruction 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 April 30, 1998 are not necessarily indicative of the results that may be expected for other interim periods or the year ended January 31, 1999. 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, 1998. Note 2 - Nature of Business and Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of Edison Control Corporation ("Edison") and subsidiaries, all of which subsidiaries are wholly owned by Edison (collectively, the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. Nature of Operations - The Company is currently comprised of the following operations. Construction Forms ("ConForms") is a leading manufacturer and distributor of systems of pipes, couplings and hoses and other equipment used for the pumping of concrete. ConForms manufactures a wide variety of finished products which are used to create appropriate configurations of systems for various concrete pumps. Ultra Tech manufactures abrasion resistant piping systems for use in industries such as mining, pulp and paper, power and waste treatment. Gilco produces a line of concrete and plaster/mortar mixers. JABCO primarily leases property and equipment to Ultra Tech. Trading Securities - Debt and equity securities purchased and held principally for the purpose of sale in the near term are classified as "trading securities" and reported at fair value with unrealized gains and losses included in earnings. The cost of individual securities sold is based on the first-in, first-out method. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. 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. 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. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Statement is effective for fiscal 1998. The Company is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 131 will not have an impact on the Company's consolidated financial statements. Net income (loss) per share - Effective for 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share," which established new standards for the calculation of net income per share effective for interim and annual periods ending after December 1997. Income per share for the three-month period ended April 30, 1997 has been restated to comply with SFAS No. 128. Reconciliation of the numerator and denominator of the basic and diluted per share computations for the three month periods ended April 30, 1998 and 1997 are summarized as follows: 1998 1997 Net income (loss) per share basic: Net income (loss) (numerator) $654,745 $(313,765) Weighted average shares outstanding (denominator) 2,275,933 2,275,933 Net income (loss) per share - basic $ .29 $(.14) Net income (loss) per share diluted: Net income (loss) (numerator) $654,745 $(313,765) Weighted average shares outstanding (denominator) 2,275,933 2,275,933 Effect of dilutive securities: Stock options 186,778 0 Stock warrants 352,679 0 ---------- ---------- Weighted average shares outstanding (denominator) 2,815,391 2,275,933 Net income (loss) per share - diluted $ .23 $(.14) Stock options and warrants were antidilutive for the three-month period ended April 30, 1997 under the treasury stock method. Reclassifications - Certain reclassifications have been made to the prior periods' financial statements to conform with the current year presentation. Comprehensive Income- Effective February 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." Statement 130 establishes new rules for the reporting and display of comprehensive income and its components. The adoption of this Statement had no impact on the Company's net income or shareholders' equity. Statement 130 requires the Company's foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform with the requirements of Statement 130. During the three months ended April 30, 1998 and 1997, total comprehensive income (loss), which was comprised of net income (loss) and foreign currency translation adjustments, amounted to approximately $743,000 and ($278,000), respectively. 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 which are described in close proximity to such statements and which would cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward- looking statements. The forward-looking statements included herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Net sales for the quarter ended April 30, 1998 increased $1,018,383 (17.8%) to $6,725,614 when compared with the same period of the prior year. Strong domestic sales at ConForms, large project sales at Ultra Tech and the inclusion of sales from the Company's Malaysian operation which started in October 1997, accounted for the increase. As a percentage of net sales, gross margin for the quarter decreased to 33.8% from 35.5% due to the strength of the United States dollar abroad and lower margins on large project sales for Ultra Tech. Selling, engineering and administrative expenses as a percentage of sales improved to 17.7% compared to 19.0% for the same period last year. This improvement was mainly due to leveraging higher sales volume with minimal increases in selling, engineering and administrative expenses. Interest expense decreased to $268,203 for the quarter ended April 30, 1998 compared to $310,984 for the quarter ended April 30, 1997. This change resulted from a reduction of outstanding debt from the same period last year. The $610,530 net gain on trading securities compared to last year's net loss of $632,588 accounted for the Company's major change in pre-tax income. The principal reason for the increase was an increase in the market value of US Trust and other trading securities compared to the decline in the market value of Glenayre Technologies, Inc. during the same period last year. Trading securities at April 30, 1998 consisted of the following: Number of Market Name of Issuer/Title of Issue Shares Value Common Stocks: Cendant Corp. 20,000 $ 501,250 General Motors Corp. 5,000 276,250 Glenayre Technologies, Inc. 40,000 627,500 NCR Corp. 10,000 366,875 Panavision Inc. 6,400 167,200 Raytheon 2,812 155,187 Sonat Inc. 5,000 221,250 Sun International Hotels 10,100 463,969 US Trust Corporation 25,000 1,775,000 VIVUS 20,000 212,500 --------- --------- Total $ 4,766,981 =========== Although the Company has no established formal investment policies or practices for its trading securities portfolio, the Company generally pursues an aggressive trading strategy, focusing primarily on generating near-term capital appreciation from its investments in common equity securities. Securities held in the Company's portfolio at the end of each period are reported at fair value, with unrealized gains and losses included in earnings for that period. These factors, combined with the relative size of the Company's trading portfolio, has led, and will likely continue to lead, to significant period-to-period earnings volatility depending upon the capital appreciation or depreciation of the Company's trading securities portfolio as of the end of each reporting period. The Company does not use or buy derivative securities. The amortization of goodwill, financing costs, stock options and stock warrants created a total non-cash charge of $325,479 for the first quarter compared to $514,033 for the prior year first quarter. The reduction was due to the deferred compensation for the stock options granted in connection with the ConForms' acquisition by the Company on June 21, 1996 being fully amortized as of June 21, 1997. The total amortization of all these non-cash charges for the year ended January 31, 1999 is expected to approximate $1,300,000. The Company recorded tax expense of $480,906 for the three months ended April 30, 1998, which represents the estimated annual effective rate of 42.3% applied to pre-tax book income. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement reporting purposes and the amounts used for income tax purposes. Net income of $654,745, or $.29 and $.23 per share, basic and diluted, respectively, for the first quarter of 1998 was an increase of $968,510, from a net loss of $313,765, or $.14 per share, basic and diluted, for the comparable period of the prior year. This change is principally due to the net gain on trading securities, the reduction of amortization of the non-cash charges described above and leveraging higher sales volume with minimal increases in selling, engineering and administrative expenses. Liquidity and Capital Resources The Company used $534,899 in cash from operations during the first three months of 1998, compared to cash flow provided from operations of $841,289 for the same period last year. This was due largely to a net purchase of $502,688 of trading securities during the period and increases in accounts receivable and inventories caused by the significant increase in sales activity. The Company used $60,917 in cash to acquire capital equipment and received $184,207 in cash from net long-term debt activity. The result was a net decrease in cash and cash equivalents of $293,772 for the first quarter compared to a net decrease of $2,766 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, 1999 are expected to total approximately $2,500,000, compared to $554,923 for fiscal 1997. The significant increase is due principally to the construction of an addition at the Company's Port Washington facility and the implementation of a new enterprise resource planning system. The Company also intends to sell its Cedarburg facility. The Company's asking price for the facility is $1,350,000, although there can be no assurance as to when or if this facility may be resold. 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. Year 2000 Issues As is the case with most other companies using computers in their operations, the Company is in the process of addressing the Year 2000 problem. The Company is currently engaged in a comprehensive project to select and implement a new enterprise resource planning ("ERP") system that will properly recognize the Year 2000 problem. This project involves replacing certain hardware and software maintained by the Company. Management expects to complete this project in early 1999. The Company estimates that the total cumulative cost of the project will be approximately $500,000 and will be funded through the Company's operating cash flows or the existing bank line of credit. Purchased ERP system hardware and software, approximately $350,000 of the total estimated cost, will be capitalized in accordance with normal policy. Personnel and all other costs related to the project are currently, and will continue to be, expensed as incurred. PART II. Item 6. Exhibits The Exhibits filed or incorporated by reference herein are as specified in the Exhibit Index. Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter to which the report relates. 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: May 29, 1998 /s/ Jay R. Hanamann Jay R. Hanamann (Chief Financial Officer) Edison Control Corporation Exhibit Index Exhibit No. Description 27. Financial Data Schedule.