10-Q 1 slp299.txt FORM 10-Q 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, 2002 -------------- 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) (262) 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: 1,769,126 as of April 30, 2002 ------------------------------------------------------------ EDISON CONTROL CORPORATION AND SUBSIDIARIES INDEX Form 10-Q Page Number Part I Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets Pages 2 & 3 April 30, 2002 and January 31, 2002 (Unaudited) Condensed Consolidated Statements of Income and Page 4 Comprehensive Income Three months ended April 30, 2002 and 2001 (Unaudited) Condensed Consolidated Statements of Cash Flows Pages 5 & 6 Three months ended April 30, 2002 and 2001 (Unaudited) Notes to Condensed Consolidated Financial Statements Pages 7 - 10 (Unaudited) Item 2 Management's Discussion and Analysis of Pages 10 - 12 Operations and Financial Condition Item 3 Quantitative and Qualitative Disclosures Page 12 - 13 About Risk Part II Other Information Item 6 Exhibits and Reports on Form 8-K Page 13 1 PART I. Item 1 Financial Statements EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS April 30, 2002 and January 31, 2002 (Unaudited) April 30, January 31, 2002 2002 ---- ---- ASSETS Current Assets: Cash and cash equivalents $ 342,470 $ 472,352 Trading securities 54,901 60,698 Accounts receivable, net 5,064,081 4,660,141 Inventories, net 7,108,081 7,250,891 Prepaid expenses and other assets 179,217 223,273 Deferred income taxes 205,000 200,000 ----------- ----------- Total current assets 12,953,750 12,867,355 Deferred income taxes 570,000 570,000 Property, plant and equipment, net 6,784,662 6,790,839 Goodwill, net 8,130,000 8,130,000 ----------- ----------- TOTAL ASSETS $28,438,412 $28,358,194 =========== =========== (Continued) See Accompanying Notes. 2 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS April 30, 2002 and January 31, 2002 (Unaudited) (Continued) April 30, January 31, 2002 2002 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 1,084,726 $ 1,286,190 Accrued compensation 488,052 1,186,972 Taxes other than income taxes 67,149 69,639 Other accrued expenses 445,947 398,739 Income taxes payable 357,314 78,352 Deferred compensation 666,752 666,752 Current maturities on long-term debt 259,514 259,514 ------------ ------------ Total current liabilities 3,369,454 3,946,158 Long-term debt, less current maturities 5,508,360 5,260,703 ------------ ------------ Total Liabilities 8,877,814 9,206,861 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 shares issued 23,652 23,652 Additional paid-in capital 10,444,217 10,444,217 Retained earnings 13,416,995 12,839,181 Accumulated other comprehensive (loss) (151,587) (237,446) ------------ ------------ 23,733,277 23,069,604 Less treasury stock at cost: 596,097 and 559,753 shares, respectively (4,172,679) (3,918,271) ------------ ------------ Total Shareholders' Equity 19,560,598 19,151,333 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,438,412 $ 28,358,194 ============ ============ See Accompanying Notes. 3 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME THREE MONTHS ENDED APRIL 30, 2002 AND 2001 (Unaudited) 2002 2001 ---- ---- NET SALES $ 6,855,369 $ 6,693,359 COST OF GOODS SOLD 4,424,547 4,061,060 ----------- ----------- GROSS PROFIT 2,430,822 2,632,299 OTHER OPERATING EXPENSES: Selling, engineering and administrative expenses 1,483,089 1,225,927 Amortization 0 59,115 ----------- ----------- Total other operating expenses 1,483,089 1,285,042 ----------- ----------- OPERATING INCOME 947,733 1,347,257 OTHER EXPENSE (INCOME): Interest expense 44,239 84,196 Realized losses on trading securities 0 77,907 Unrealized losses on trading securities 5,797 47,941 Miscellaneous income (3,447) (13,910) ----------- ----------- Total other expense 46,589 196,134 ----------- ----------- INCOME BEFORE INCOME TAXES 901,144 1,151,123 PROVISION FOR INCOME TAXES 323,330 453,470 ----------- ----------- NET INCOME 577,814 697,653 OTHER COMPREHENSIVE INCOME (LOSS) - Foreign currency translation adjustment 85,859 (56,715) ----------- ----------- COMPREHENSIVE INCOME $ 663,673 $ 640,938 =========== =========== NET INCOME PER SHARE: Net income per share - basic $ .32 $ .30 Net income per share - diluted $ .25 $ .25 See Accompanying Notes 4 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, 2002 AND 2001 (Unaudited) 2002 2001 ---- ---- OPERATING ACTIVITIES: Net income $ 577,814 $ 697,653 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 251,217 304,893 Provision for doubtful accounts 128,828 73,752 Realized loss on sales of trading securities 0 77,907 Unrealized loss on trading securities 5,797 47,941 Proceeds from the sale of trading securities 0 59,349 Equity in earnings of affiliate 0 (17,889) Changes in assets and liabilities: Accounts receivable (532,768) 189,263 Receivable from affiliate 0 (50,068) Inventories 142,810 (65,041) Prepaid expenses and other assets 44,056 46,183 Trade accounts payable (201,464) 70,335 Accrued compensation (698,920) (459,109) Taxes other than income taxes (2,490) 10,249 Other accrued expenses 47,208 (14,560) Deferred income taxes (5,000) (54,124) Income taxes payable 278,962 477,911 ----------- ----------- Total adjustments (541,764) 696,992 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 36,050 1,394,645 ----------- ----------- INVESTING ACTIVITIES: Payments received from note receivable 0 164,155 Additions to plant and equipment (245,040) (81,426) ----------- ----------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (245,040) 82,729 ----------- ----------- (Continued) See Accompanying Notes. 5 EDISON CONTROL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED APRIL 30, 2002 AND 2001 (Unaudited) (Continued) 2002 2001 ---- ---- FINANCING ACTIVITIES: Proceeds from issuance of long-term debt $ 900,000 $ 0 Purchases of treasury stock (254,408) 0 Payments on long-term debt (652,343) (1,152,251) Stock options exercised 0 30,000 ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (6,751) (1,122,251) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 85,859 (56,715) ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (129,882) 298,408 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 472,352 305,337 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 342,470 $ 603,745 =========== =========== Supplemental disclosure of cash flow information: Cash paid during the period for income taxes $ 64,007 $ 0 Cash paid during the period for interest 33,928 90,865 See Accompanying Notes. 6 EDISON CONTROL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation The accompanying unaudited condensed 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, 2002 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ended January 31, 2003. 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, 2002. 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. South Houston Hose is a distributor of industrial hose and fittings. 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. 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 for the periods and capital accounts have been translated using historical rates. The resulting translation adjustments are recorded as other comprehensive income or loss. 7 New Accounting Standards -In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the use of the pooling-of-interests method of accounting for business combinations and requires that all such transactions be accounted for by the purchase method. In addition SFAS No. 141 requires that intangible assets be recognized as assets apart from goodwill and that they meet specific criteria in the Standard. This standard is applicable to all business combinations initiated after June 30, 2001 and accordingly, the Company adopted this standard with the acquisition of South Houston Hose Company, Inc. and for all future business combinations. SFAS No. 142 is effective for the Company beginning February 1, 2002, and applies to goodwill and other intangible assets recognized in the Company's consolidated balance sheet as of that date, regardless of when those assets were initially recognized. SFAS No. 142 requires that upon adoption, amortization of goodwill will cease and instead, the carrying value of goodwill will be evaluated for impairment on an annual basis. Accordingly, the Company discontinued amortization of goodwill effective February 1, 2002. The Company is currently evaluating the impairment provisions of SFAS No. 142 and will complete the transitional impairment test during the quarter ended July 31, 2002. A reconciliation of previously reported net income and net income per share to the amounts adjusted for the exclusion of goodwill amortization, net of related income tax effect, follows: Quarter Ended April 30, 2002 2001 Reported net income $577,814 $697,653 Add goodwill amortization, net of income tax effect 35,800 -------- -------- Adjusted net income $577,814 $733,453 ======== ======== Net income per share-Basic: Reported net income $.32 $.30 Add goodwill amortization, net of income tax .02 -------- -------- Adjusted net income $.32 $.32 ======== ======== Net income per share-Diluted: Reported net income $.25 $.25 Add goodwill amortization, net of income tax .01 -------- -------- Adjusted net income $.25 $.26 ======== ======== 8 In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the financial accounting for and reporting of the impairment of long-lived assets and long-lived assets to be disposed of. This statement supersedes SFAS No. 121, among other items. The Company was required to adopt SFAS No. 144 on February 1, 2002. The adoption of SFAS No. 144 had no impact on the Company's financial statements. Net Income Per Share - Reconciliation of the numerator and denominator of the basic and diluted per share computations for the three months ended April 30, 2002 and 2001 are summarized as follows:

~~Three~~2002 ~~Months Ended Six Months Ended ------------------ ---------------- July 31, July 31, -------- --------~~ 2001 ~~2000 2001 2000~~ ---- ---- ~~----~~Basic: ~~----~~Net ~~NET~~income ~~SALES~~(numerator) $7577,~~097,924~~814 $6697,~~958,976~~653 ~~$13,791,283~~Weighted ~~$13,658,073~~average ~~COST~~shares OFoutstanding ~~GOODS~~(denominator) SOLD 4,570,532 4,372,775 8,631,592 8,378,399 --------- --------- --------- --------- GROSS PROFIT 2,527,392 2,586,201 5,159,691 5,279,674 OTHER OPERATING EXPENSES: Selling, engineering and administrative expenses 1,~~251~~786,~~204~~064 ~~1,095,444~~ 2,~~477~~362,~~131~~857 ~~2,553,284~~Net ~~Amortization~~income ~~59,115~~per ~~59,103~~share ~~118,230 118,206~~ -~~-----~~ ~~------~~basic ~~-------~~$.32 ~~-------~~$ ~~Total~~.30 ~~other~~Diluted: ~~operating~~Net ~~expenses~~income ~~1,310,319~~(numerator) 1$577,~~154,547~~814 2$697,~~595,361~~653 ~~2,671,490~~Weighted ~~---------~~average ~~---------~~shares ~~---------~~outstanding ~~--------- OPERATING INCOME~~ 1,~~217~~786,~~073~~064 ~~1,431,654~~ 2,~~564~~362,~~330~~857 ~~2,608,184~~Effect ~~OTHER~~of ~~EXPENSE~~dilutive ~~(INCOME)~~securities: ~~Interest~~Stock ~~expense~~options 47136,~~107~~727 ~~141~~78,~~336~~342 ~~131,303~~Stock ~~318,018~~warrants ~~Realized (gains) losses on trading securities (12~~374,~~913)~~549 2328,~~151~~265 ~~64,994 (122,371) Unrealized losses on trading securities 55,060 146,461 103,001 126,475 Miscellaneous income (50,711) (34,762) (64,621) (56,094)~~ -------- -------- ~~--------~~Weighted ~~--------~~average ~~Total~~shares ~~other~~outstanding ~~expense~~(denominator) ~~38,543 255,186 234,677 266,028 ------ ------- ------- ------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,178,530 1,176,468~~ 2,~~329~~297,~~653~~340 2,~~342~~769,~~156~~464 ~~PROVISION~~Net ~~FOR~~income ~~INCOME~~per ~~TAXES~~share ~~459,010 448,686 912,480 925,711~~ -~~------~~ ~~-------~~diluted ~~-------~~$.25 ~~-------~~$ ~~INCOME FROM CONTINUING OPERATIONS 719,520 727,782 1,417,173 1,416,445~~.25

Note 3 - Acquisitions On November 1, 2001 the Company purchased the remaining 50% of the outstanding common stock of South Houston Hose Company, Inc. ("South Houston Hose") from the seller for $800,000, which consisted of a cash payment of $300,000 and a note payable in the principal amount of $500,000. Prior to November 1, 2001, the Company owned 50% of the outstanding common stock of South Houston Hose and accounted for the investment by the equity method. South Houston Hose is a distributor of industrial hose and fittings. 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 acquisition. 9 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, 2002 and 2001 follows:

~~Three~~2002 ~~Months Ended Six Months Ended ------------------ ---------------- July 31, July 31, -------- --------~~ 2001 ~~2000 2001 2000~~ ---- ---- ~~----~~Net ~~----~~Operating ~~DISCONTINUED~~Net ~~OPERATIONS~~Operating (~~Note 3~~1): Sales Income (~~loss~~Loss) ~~from~~Sales ~~operations~~Income ~~of discontinued Gilco division net of income taxes~~ (~~credit~~Loss) ~~of $0, $7,000, $0 and and $(14,000), respectively $ 0 $ 15,596 $ 0 $ (21,557)~~ ----- ----- ---------- ------ ----- --------~~---~~ ~~NET~~ConForms ~~INCOME 719~~$5,~~520 743~~281,~~378~~535 $1,~~417~~020,~~173~~382 $5,825,326 $1,~~394~~307,~~888~~746 ~~OTHER~~Ultra ~~COMPREHENSIVE~~Tech ~~LOSS~~927,466 -27,147 ~~Foreign~~868,033 ~~currency~~127,684 ~~translation~~South ~~adjustment~~Houston (1Hose 646,~~868)~~368 ~~(67~~1,~~794)~~701 Edison (58101,~~583~~497) (~~138~~88,~~350~~173) ---------- ---------- ---------- ---------- ~~COMPREHENSIVE~~Total ~~INCOME~~ $ ~~717~~6,~~652~~855,369 $ ~~675~~947,~~584~~733 $ 16,~~358~~693,~~590~~359 $ 1,~~256~~347,~~538~~257 ~~========== ========== =========== =========== Income~~ (~~loss~~1) ~~per~~All ~~share:~~goodwill ~~Basic:~~amortization ~~Income~~for ~~from~~the ~~continuing~~three ~~operations~~months ~~$.30~~ended ~~$.31~~April ~~$.60 $.60 Income (loss) from discontinued operations .00 .01 .00 (.01) --- --- --- ---- NET INCOME $.~~30, ~~$.32~~2001 ~~$.60~~is ~~$.59~~included ~~Diluted:~~in ~~Income~~ConForms' ~~from~~operating ~~continuing operations $~~income.~~26 $.25 $.51 $.49 Loss from discontinued operations .00 .00 .00 (.01) --- --- --- --- NET INCOME $.26 $.25 $.51 $.48~~

Note 5 - Inventories Inventories consisted of the following:

~~Three~~April ~~Months Ended Six Months Ended ------------------ ---------------- July 31~~30, ~~July~~January 31, ~~--------~~2002 ~~--------~~2002 ~~2001 2000 2001 2000~~ ---- ---- ~~----~~Raw ~~----~~Materials ~~Basic: Income from continuing operations (numerator)~~ $ ~~719~~3,~~520 $ 727~~549,~~782~~159 $~~1,417,173~~ $13,~~416~~713,~~445~~552 ~~Weighted average shares outstanding (denominator) 2,365,223 2,351,308 2,364,110 2,351,308 Income from continuing operations per share~~Work-~~basic~~in-process ~~$ .30 $ .31 $ .60 $ .60 Diluted: Income from continuing operations (numerator) $ 719,520 $ 727,782 $~~1,~~417~~383,~~173~~972 $1,~~416~~412,~~445~~263 ~~Weighted~~Finished ~~average~~Goods ~~shares outstanding~~ 2,~~365~~212,~~223~~950 2,~~351~~148,~~308~~076 ~~2,364,110~~--------- ~~2,351,308~~--------- ~~Effect of dilutive securities: Stock options 67~~7,~~733 175~~146,~~387~~081 747,~~012 180~~273,~~382~~891 ~~Stock~~Less-reserve ~~warrants~~to ~~320,936~~reduce ~~389,959~~carrying ~~325,397~~value ~~383,982~~to ~~Weighted~~LIFO ~~average~~cost ~~shares outstanding~~ (~~denominator~~38,000) 2(23,~~753,892~~000) ~~2,916,654~~------------ ~~2,763,519 2,915,672 Income from continuing operations per share~~-~~diluted~~----------- $Net ~~.26~~inventories $ ~~.25~~7,108,081 $ ~~.51~~7,250,891 $============ ~~.49~~============

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 10 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, 2002 increased $162,010 (2.4%) to $6,855,369 when compared with the same period of the prior year. The acquisition of South Houston Hose on November 1, 2001 accounted for increased sales of $646,368. This increase was partially offset by lower sales for both ConForms U.S. and Europe due to a softer concrete pumping accessories market for the first three months of 2002 compared to the previous year. As a percentage of net sales, gross profit margin for the three months ended April 30, 2002 was 35.5% compared to 39.3% for the same period last year. This was due largely to lower margins for Ultra Tech due to a higher mix of lower margin project sales for the first three months of 2002 compared to the same period of the prior year and the inclusion of South Houston Hose sales which are typically lower margin than ConForms or Ultra Tech. Selling, engineering and administrative expenses increased by $257,162 or 21.0% for the first three months of 2002. This is due principally to the inclusion of approximately $220,000 of selling, engineering and administrative expenses for South Houston Hose for the first three months ended April 30, 2002. Interest expense decreased to $44,239 for the three months ended April 30, 2002 compared to $84,196 for the three months ended April 30, 2001 due primarily to lower interest rates. The Company recorded tax expense of $323,330 for the three months ended April 30, 2002, which represents the estimated annual effective rate of 35.9% 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 $577,814, or $.32 and $.25 per share, basic and diluted, respectively, for the first three months of 2002 was a decrease of $119,839 (17.2%), from net income of $697,653, or $.30 and $.25 per share, basic and diluted, for the comparable period last year. Excluding goodwill amortization in the prior year first quarter, net income would have been $733,453, or $.32 and $.26 per share, basic and diluted, respectively, for the quarter ended April 30, 2001. The decrease in net income is due largely to lower ConForms' sales combined with lower margins on Ultra Tech sales for the three month period ended April 30, 2002 compared to the same period from the previous year. Liquidity and Capital Resources The Company generated $36,050 in cash from operations during the first three months of 2002, compared to cash generated from operations of $1,394,645 for the same period 11 last year. This is due largely to a decrease in the change in accounts receivable of $722,031 combined with a decrease in the change in accounts payable of $271,799. The Company used $245,040 in cash to acquire capital equipment and $254,408 to repurchase its common stock and received $247,657 in net proceeds from the issuance of long-term debt during the three months ended April 30, 2002. The result was a net decrease in cash and cash equivalents of $129,882 for the three months ended April 30, 2002 compared to a net increase of $298,408 for the same period of the prior year. 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, 2003 are expected to total approximately $700,000, compared to $233,602 for fiscal 2001. 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. Accounting Policies and Estimates The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates, assumptions and judgments that affect amounts of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts or revenues and expenses during the year. The Company believes its estimates and assumptions are reasonable; however, future results could differ from those estimates under different assumptions or conditions. A discussion of certain accounting policies and estimates deemed to be critical to an understanding of the Company's financial condition and results of operations is contained in the Company's annual report on Form 10-K for the fiscal year ended January 31, 2002. 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 $5,200,000 as of April 30, 2002, are subject to interest rate risk. Most of the borrowings float at the prime rate or LIBOR plus a certain number of basis points. Based on the April 30, 2002 balance, an increase of one percent in the interest rate on the Company's loans would cause interest expense to increase by approximately $52,000 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. 12 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. PART II. Item 6. Exhibits There are no exhibits filed or incorporated by reference herein. Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter to which the report relates. 13 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 7, 2002 /s/ Jay R. Hanamann -------------------------- Jay R. Hanamann (Chief Financial Officer) 14 Edison Control Corporation Exhibit Index Exhibit No. Description None 15

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