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 October 31, 1999 ---------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _____________________ Commission file number 0-14812 ------- EDISON CONTROL CORPORATION -------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2716367 - ---------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 777 Maritime Drive PO Box 308 Port Washington, WI 53074-0308 ------------------------------ (Address of principal executive offices) (Zip Code) (414) 268-6800 -------------- (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No_____ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value: 2,346,933 as of October 31, 1999 - -------------------------------------------------------------- EDISON CONTROL CORPORATION AND SUBSIDIARIES INDEX Form 10-Q Page Number ----------- Part I Financial Information ---------------------------- Item 1 Financial Statements - --------------------------- Consolidated Balance Sheets Pages 2-3 October 31, 1999 (Unaudited) and January 31, 1999 Consolidated Statements of Income Page 4 Three and nine months ended October 31, 1999 and 1998 (Unaudited) Consolidated Statements of Cash Flows Pages 5-6 Nine months ended October 31, 1999 and 1998 (Unaudited) Notes to Consolidated Financial Statements Pages 7-9 (Unaudited) Item 2 Management's Discussion and Analysis of Pages 10-13 - ---------------------------------------------- Operations and Financial Condition ---------------------------------- Item 3 Quantitative and Qualitative Disclosures - ----------------------------------------------- About Risk Page 13 ---------- Part II Other Information ------------------------- Item 6 Exhibits Page 14 and - --------------- Exhibit Index 1 PART I. Item 1 Financial Statements - -------------------- EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS October 31, 1999 and January 31, 1999 October 31, January 31, 1999 1999 ---- ---- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $455,236 $468,072 Investments 95,000 190,000 Trading securities 1,014,525 3,616,314 Trade accounts receivable, net 3,983,598 3,513,342 Receivable from affiliate 50,616 93,575 Inventories, net 6,862,474 7,619,746 Prepaid expenses and other assets 233,889 193,650 Refundable income taxes 0 120,505 Deferred income taxes 222,000 2,000 Assets held for sale 0 1,032,200 Deferred financing costs 0 389,236 - ------- Total current assets 12,917,338 17,238,640 Investment in and advances to affiliate 466,263 421,263 Other Assets: Prepaid pension 64,510 151,477 Deferred income taxes 279,000 129,000 ------- ------- Total other assets 343,510 280,477 Property, plant and equipment, net 8,024,223 8,187,899 Goodwill (net of amortization) 8,516,122 8,690,318 Organizational/finance costs (net of amortization) 47,031 84,400 ------ ------ TOTAL ASSETS $30,314,487 $34,902,997 =========== =========== (Continued) See Accompanying Notes. 2 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS October 31, 1999 and January 31, 1999 (Continued) October 31, January 31, 1999 1999 ---- ---- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 1,076,323 $ 1,939,917 Accrued compensation 751,926 739,938 Taxes other than income taxes 5,836 21,325 Other accrued expenses 538,522 522,694 Income taxes payable 135,490 0 Deferred compensation 754,250 754,250 Current maturities on long-term debt 933,439 530,423 ------- --------- Total current liabilities 4,195,786 4,508,547 Long-term debt, less current maturities 8,531,845 14,211,178 --------- ---------- Total Liabilities 12,727,631 18,719,725 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, 2,346,933 shares issued and outstanding 23,469 23,469 Additional paid-in capital 10,323,225 10,323,225 Retained earnings 7,156,926 5,760,823 Accumulated other comprehensive income 83,236 75,755 ------ ------ Total Shareholders' Equity 17,586,856 16,183,272 ---------- ---------- TOTAL LIABILITIES AND EQUITY $30,314,487 $34,902,997 =========== =========== See Accompanying Notes. 3 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE AND NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (Unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- October 31, October 31, ---------- ---------- 1999 1998 1999 1998 ---- ---- ---- ---- NET SALES $6,709,216 $6,498,890 $19,759,315 $20,106,180 COST OF GOODS SOLD 4,287,645 4,134,410 12,668,699 12,815,869 --------- --------- ---------- ---------- GROSS PROFIT 2,421,571 2,364,480 7,090,616 7,290,311 OTHER OPERATING EXPENSES: Selling, engineering and administrative expenses 1,119,464 1,137,889 3,431,788 3,464,185 Goodwill and organizational/ finance cost amortization 59,115 79,646 211,565 238,938 ------ ------ ------- ------- Total other operating expenses 1,178,579 1,217,535 3,643,353 3,703,123 --------- --------- --------- --------- OPERATING INCOME 1,242,992 1,146,945 3,447,263 3,587,188 OTHER EXPENSE (INCOME): Interest expense 176,388 219,798 635,215 725,883 Realized (gains) losses on trading securities (286,147) 91,219 (542,600) (134,852) Unrealized losses on trading securities 378,297 803,614 559,938 823,360 Stock warrant amortization 0 245,833 389,236 737,500 Loss on sale of assets 18,543 0 128,543 0 Miscellaneous income (9,429) (38,883) (55,247) (140,440) ------- -------- -------- --------- Total other expense 277,652 1,321,581 1,115,085 2,011,451 ------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES 965,340 (174,636) 2,332,178 1,575,737 INCOME TAXES (CREDIT) 379,479 (52,138) 936,075 686,338 ------- -------- ------- ------- NET INCOME (LOSS) 585,861 (122,498) 1,396,103 889,399 OTHER COMPREHENSIVE INCOME - Foreign currency translation adjustment 26,469 103,309 7,481 111,376 ------ ------- ----- ------- COMPREHENSIVE INCOME (LOSS) $612,360 ($ 19,189) $1,403,584 $1,000,775 ======== ========== ========== ========== Net income (loss) per share-basic $.25 ($.05) $.59 $.38 Net income (loss) per share-diluted $.20 ($.05) $.48 $.31 See Accompanying Notes. 4 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (Unaudited) 1999 1998 ---- ---- Net income $1,396,103 $889,399 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,287,167 1,503,921 Provision for doubtful accounts 102,896 54,375 Loss on sale of assets 128,543 3,592 Realized gain on sales of trading securities (542,600) (134,852) Unrealized loss on trading securities 559,938 823,360 Purchases of trading securities (417,875) (2,013,188) Proceeds from the sale of trading securities 3,002,326 2,207,626 Equity in earnings of affiliate (45,000) (80,000) Changes in assets and liabilities: Accounts receivable (573,152) (646,379) Receivable from affiliate 42,959 (26,895) Inventories 757,272 (933,375) Prepaid expenses and other assets 46,728 195,968 Trade accounts payable (863,594) 175,096 Accrued compensation 11,988 (49,516) Taxes other than income taxes (15,489) 12,298 Other accrued expenses 15,828 (71,244) Deferred income taxes (370,000) (605,000) Income taxes payable 255,995 71,393 ------- ------ Total adjustments 3,383,930 487,180 --------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,780,033 1,376,579 --------- --------- Cash flows from investing activities: Additions to plant and equipment (522,690) (2,141,913) Maturity of certificate of deposit 95,000 0 Proceeds from sale of assets 903,657 11,267 ------- ------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 475,967 (2,130,646) ------- --------- (Continued) See Accompanying Notes. 5 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED OCTOBER 31, 1999 AND 1998 (Unaudited) (Continued) 1999 1998 ---- ---- Cash flows from financing activities: Proceeds from issuance of long-term debt $5,457,183 $1,775,000 Principal payments on long-term debt (10,733,500) (1,274,816) Payments received from affiliates 0 90,723 Stock options exercised 0 177,500 - ------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (5,276,317) 768,407 --------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 7,481 111,376 ----- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12,836) 125,716 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 468,072 1,037,288 ------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 455,236 $1,163,004 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $1,050,080 $1,219,945 Cash paid during the period for interest 655,907 718,379 See Accompanying Notes. 6 EDISON CONTROL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation - ------------------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ending October 31, 1999 are not necessarily indicative of the results that may be expected for other interim periods or the year ended January 31, 2000. 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, 1999. Note 2 - Nature of Business and Accounting Policies - ---------------------------------------------------- Principles of Consolidation - The consolidated financial statements include the accounts of Edison Control Corporation ("Edison") and subsidiaries, all of which subsidiaries are wholly owned by Edison (collectively, the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. Nature of Operations - The Company is currently comprised of the following operations. Construction Forms ("ConForms") is a leading manufacturer and distributor of systems of pipes, couplings and hoses and other equipment used for the pumping of concrete. ConForms manufactures a wide variety of finished products which are used to create appropriate configurations of systems for various concrete pumps. Ultra Tech manufactures abrasion resistant piping systems for use in industries such as mining, pulp and paper, power and waste treatment. Gilco produces a line of concrete and plaster/mortar mixers. JABCO primarily leases property and equipment to the Company. Trading Securities - Debt and equity securities purchased and held principally for the purpose of sale in the near term are classified as "trading securities" and reported at fair value with unrealized gains and losses included in earnings. The cost of individual securities sold is based on the first-in, first-out method. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. 7 Translation of Foreign Currencies - Assets and liabilities of foreign operations are translated into United States dollars at current exchange rates. Income and expense accounts are translated into United States dollars at average rates of exchange prevailing during the year. Adjustments resulting from the translation of financial statements of the foreign operations are included as foreign currency translation adjustments in other comprehensive income. Net Income Per Share - Reconciliation of the numerator and denominator of the basic and diluted per share computations for the three and nine-month periods ended October 31, 1999 and 1998 are summarized below. The stock options and warrants were antidilutive for the three months ended October 31, 1998. Three Months Ended Nine Months Ended ------------------ ----------------- October 31, October 31, ---------- ---------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income per share-basic: Net income (loss) (numerator) $ 585,861 ($122,498) $1,396,103 $ 889,399 Weighted average shares outstanding (denominator) 2,346,933 2,346,933 2,346,933 2,310,913 Net income (loss) per share-basic $ .25 ($.05) $ .59 $ .38 Net income per share-diluted: Net income (loss) (numerator) $ 585,861 ($122,498) $1,396,103 $ 889,399 Weighted average shares outstanding 2,346,933 2,346,933 2,346,933 2,310,913 Effect of dilutive securities: Stock options 147,758 0 177,815 183,401 Stock warrants 372,888 0 392,173 391,270 Weighted average shares outstanding (denominator) 2,867,579 2,346,933 2,916,921 2,885,584 Net income (loss) per share-diluted $ .20 ($.05) $ .48 $ .31 Reclassifications - Certain reclassifications have been made to the prior periods' financial statements to conform with the current year presentation. Note 3 - Long-Term Debt - ----------------------- On April 30, 1999, Edison refinanced its bank debt and amended its master credit agreement with LaSalle National Bank of Chicago. As part of the refinancing, Edison liquidated approximately $2,600,000 of its existing trading security portfolio and utilized $2,500,000 of these funds to reduce its outstanding debt. Also, as part of the refinancing, LaSalle paid the subordinated bank loan holder in full (approximately $6,800,000). 8 The Company's amended master credit agreement expires April 30, 2004 and allows for revolving credit borrowings not to exceed $6,000,000 ($2,300,000 outstanding at October 31, 1999). Borrowings, which are based on qualified assets, bear interest at either the prime rate or the LIBOR rate plus 2%. The Company also maintains a term loan ($4,450,000 outstanding at October 31, 1999) under the amended master credit agreement. Quarterly principal payments of $200,000 are required by the agreement. Borrowings bear interest at either the prime rate or the LIBOR rate plus 2.25%. The agreement calls for an additional annual principal payment based on excess cash flow as defined in the agreement. The terms of the amended master credit agreement, among other provisions, require the Company to maintain a minimum current ratio, tangible net worth, and debt service coverage ratio, and restricts the Company to a maximum funded debt to EBITDA ratio. Substantially all of the Company's assets are collateralized under the amended master credit agreement. The LIBOR spread may be reduced or increased annually based on the achievement of a certain "funded debt to EBITDA" ratio. 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 segments' operations and their accounting policies are contained in Note 2. Segment information for the three and nine-month periods ended October 31, 1999 and 1998 follows: Three Months Ended October 31, ----------------------------- 1999 1998 ---- ---- Net Operating Net Operating Sales Income Sales Income ----- ------ ----- ------ ConForms $ 5,302,538 $ 1,227,940 $ 5,011,859 $ 1,037,333 Ultra Tech 842,913 126,597 748,718 199,420 Gilco 563,765 (39,503) 738,313 (21,639) Edison ________ (72,042) ________ (68,169) -------- -------- Total $ 6,709,216 $ 1,242,992 $ 6,498,890 $ 1,146,945 Nine Months Ended October 31, ---------------------------- 1999 1998 ---- ---- Net Operating Net Operating Sales Income Sales Income ----- ------ ----- ------ ConForms $15,744,637 $3,528,369 $15,272,474 $3,082,344 Ultra Tech 2,336,703 354,223 3,063,816 862,634 Gilco 1,677,975 (172,646) 1,769,890 (86,967) Edison ________ (262,683) ________ (270,823) --------- --------- Total $19,759,315 $3,447,263 $20,106,180 $3,587,188 9 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, stock price variations affecting the Company's securities trading portfolio and issues related to Year 2000 problems. These factors could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Net sales for the quarter ended October 31, 1999 increased $210,326 (3.2%) to $6,709,216 compared with net sales for the same period of the prior year. For the first nine months of this year, net sales decreased $346,865 (1.7%) to $19,759,315 compared with net sales for the same period of the prior year. The principal reason for the change was due to the decrease in large project sales at Ultra Tech during the first quarter. Ultra Tech's sales volume will continue to fluctuate based on its ability to attain large project sales in the industries it serves. As a percentage of net sales, gross margin for the quarter decreased to 36.1% from 36.4%. Gross margin for the nine months ended October 31, 1999 was 35.9% compared to 36.3% for the nine months ended October 31, 1998. Improved results from ConForms were offset by decreased sales of higher margin Ultra Tech products and lower margins on sales of Gilco products. Selling, engineering and administrative expenses for the three and nine-month periods ended October 31, 1999 decreased by $18,425 (1.6%) and $32,397 (.9%) from the same period last year. Interest expense decreased to $176,388 and $635,215 for the three and nine-month periods ended October 31, 1999 compared to $219,798 and $725,883 for the same periods ended October 31, 1998. Interest expense is expected to continue to decrease due to the debt refinancing described in Note 3 of the Notes to Consolidated Financial Statements and anticipated future principal reductions. The Company had a $92,150 and $17,338 net loss on trading securities for the three and nine-month periods ended October 31, 1999 compared to a $894,833 and $688,508 net loss for the same periods of the prior year. Trading securities at October 31, 1999 consisted of the following: 10 Number of Market Name of Issuer/Title of Issue Shares Value - ----------------------------- ------ ----- Common Stocks: Glenayre Technologies, Inc. 40,000 $ 118,750 Liberty Digital Inc. 3,000 93,750 Pacificare Health Systems Inc. 10,000 394,375 Sun International Hotels 100 2,025 US Trust Corporation 5,000 405,625 ---------- Total $ 1,014,525 =========== Although the Company has no established formal investment policies or practices for its trading securities portfolio, the Company generally pursues an aggressive trading strategy, focusing primarily on generating near-term capital appreciation from its investments in common equity securities. Securities held in the Company's portfolio at the end of each period are reported at fair value, with unrealized gains and losses included in earnings for that period. These factors, combined with the relative size of the Company's trading portfolio, has led, and will likely continue to lead, to significant period-to-period earnings volatility depending upon the capital appreciation or depreciation of the Company's trading securities portfolio as of the end of each reporting period. The Company does not use or buy derivative securities. The amortization of goodwill, financing costs and stock warrants created a total non-cash charge of $600,801 for the nine months ended October 31, 1999 compared to $976,438 for the same period of the prior year. Due to the repayment of the Company's subordinated bank loan, the associated guarantee provided by the principal shareholder of Edison was canceled. Accordingly, all remaining deferred financing costs ($143,403), related to the warrant issued to the principal shareholder for providing the guarantee, were expensed in the first quarter of fiscal 1999. The total amortization of all these non-cash charges for the year ended January 31, 2000 is expected to approximate $660,000. During the third quarter, the Company completed the sale of the land and building in Cedarburg, Wisconsin to a third party. The sale resulted in a loss of $128,543. The Company recorded tax expense of $936,075 for the nine months ended October 31, 1999, which represents the estimated annual effective rate of 40.1% applied to pre-tax 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 $585,861, or $.25 and $.20 per share, basic and diluted, respectively, for the third quarter of fiscal 1999 was an increase of $708,359 from a net loss of $122,498, or ($.05) per share, basic and diluted, for the comparable period of the prior year. The change was principally due to a net loss on trading securities of $92,150 for the third quarter of 1999 compared to a net loss on trading securities of $894,833 for the third quarter of 1998. For the nine months ended October 31, 1999, net income was $1,396,103 or $.59 and $.48 per basic and diluted share, respectively, compared to net income of $889,399, or $.38 and $.31 per basic and diluted share, respectively, in the 11 comparable period of the prior year. The change was principally due to a net loss on trading securities of $17,338 for the nine months ended October 31, 1999 compared to a net loss on trading securities of $688,508 for the nine months ended October 31, 1998. Liquidity and Capital Resources - ------------------------------- The Company generated $4,780,033 in cash from operations during the first nine months of 1999, compared to cash flow generated by operations of $1,376,579 for the same period last year. This change was due largely to the net proceeds of approximately $2,600,000 received from sales of trading securities during the period. The Company used $522,690 in cash to acquire capital equipment and received $95,000 in cash from the maturity of a certificate of deposits and $903,657 from the sale of the land and building in Cedarburg, Wisconsin. As described in Note 3 of the Notes to Consolidated Financial Statements, the Company refinanced its bank debt resulting in a net debt reduction of $5,276,317 for the first nine months compared to a net debt increase of $500,184 in the prior comparable period. The result was a net decrease in cash and cash equivalents of $12,836 for the first nine months of fiscal 1999 compared to a net increase of $125,716 in the prior year's first nine months. 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, 2000 are expected to total approximately $900,000, compared to $3,082,725 for fiscal 1998. The significant decrease is due principally to the completion in fiscal year 1998 of construction of an addition at the Company's Port Washington facility and the implementation of a new enterprise resource planning system during 1998. 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 - ---------------- During fiscal 1998, the Company 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 involved replacing certain hardware and software maintained by the Company. The Company has received a representation from the ERP software provider that its software is Year 2000 compliant. On February 1, 1999, the Company started operating with the new ERP system. Contingency plans have been developed and will be implemented if Year 2000 problems are encountered with the new ERP system. The total cumulative cost of the project was approximately $530,000. Purchased ERP system hardware and software, approximately $385,000 of the total estimated cost, was capitalized in fiscal 1998. Personnel and all other remaining costs related to the project were expensed as incurred in fiscal 1998. The Company has not formally communicated with all its customers and suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to address Year 2000 issues. The Company's business operations could be affected by 12 the Year 2000 readiness of its customers and suppliers in such areas as the delay in receipt of cash from customers, the interruption of utilities and the inability of suppliers to deliver in a timely manner. The Company does not anticipate any materially adverse affect on its business due to Year 2000 problems encountered by its customers or suppliers; however, there can be no assurance that its business will not be materially adversely affected by such problems. 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 debt obligations, which totaled $9,465,284 as of October 31, 1999, are subject to interest rate risk. Most of the borrowings float at either the prime rate or LIBOR plus a certain amount of basis points. Based on the October 31, 1999 balance, an increase of one percent in the interest rate on the Company's loans would cause an increase in interest expense of approximately $95,000, or $.02 per diluted share, 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 3.4% of the Company's total assets as of October 31, 1999 are invested in trading securities of various domestic companies. The market value of these investments is subject to fluctuation. This factor, combined with the relative size of the Company's trading portfolio ($1,014,525 at October 31, 1999), has led and will likely continue to lead, to significant period-to-period earnings volatility depending upon the capital appreciation or depreciation of the Company's trading securities portfolio. A 10% decrease in the quoted market price of these trading securities would decrease the fair market value of these securities by approximately $101,000, or $.02 per diluted share. 13 PART II. Item 6. Exhibits - -------- The Exhibits filed or incorporated by reference herein are as specified in the Exhibit Index. Reports on Form 8-K - ------------------- The Company filed no reports on Form 8-K during the quarter to which the report relates. 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: December 3, 1999 /s/ Jay R. Hanamann ----------------------- Jay R. Hanamann (Chief Financial Officer) 15 Edison Control Corporation Exhibit Index ------------- Exhibit No. Description - ----------- ------------ 27. Financial Data Schedule. 16