<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period ended June 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Commission File Number 0-13981
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ELECTRONIC TELE-COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1357760
(State of incorporation) (IRS Employer Identification No.)
1915 MacArthur Road Waukesha, Wisconsin 53188
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(414) 542-5600
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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
--- ---
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As of August 1, 1996, there were outstanding 2,003,949 shares of Class A common
stock and 500,000 shares of Class B common stock. The Class B common stock,
79.5% of which is owned by affiliates, is the only voting stock. There is no
market for the Class B common stock.
<PAGE> 2
FORM 10-Q QUARTERLY REPORT
FOR THE PERIOD ENDED JUNE 30, 1996
In this report, Electronic Tele-Communications, Inc. is also referred to as
Electronic Tele-Communications, ETC, and the Company.
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Table of Contents
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets . . . . . . . . . 2
Consolidated Condensed Statements of
Operations . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Statements
of Cash Flows . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 6
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 7
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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<PAGE> 3
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30 December 31
1996 1995
----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 609,346 $ 497,971
Trade accounts receivable, net 1,184,579 1,280,955
Inventories (Note 2) 2,100,346 2,495,822
Refundable income taxes 377,048 201,072
Deferred income tax benefits 296,454 320,402
Prepaid expenses and other current assets 117,166 63,271
--------------------------------
Total current assets 4,684,939 4,859,493
LEASED SERVICE EQUIPMENT, NET 25,438 37,993
PROPERTY, PLANT AND EQUIPMENT, NET 1,913,231 2,053,482
DEFERRED INCOME TAX BENEFITS 23,702 46,998
EXCESS COST OVER NET ASSETS ACQUIRED 1,105,993 1,126,285
--------------------------------
Total Assets $7,753,303 $8,124,251
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 188,132 $ 238,608
Accrued expenses 761,005 639,851
Deferred revenue 114,555 100,937
--------------------------------
Total current liabilities 1,063,692 979,396
OTHER LONG-TERM LIABILITIES 278,730 324,479
--------------------------------
Total liabilities 1,342,422 1,303,875
--------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 5,000,000
shares, none issued
Class A common stock, authorized 10,000,000
shares, par value $.01, issued and
outstanding 2,003,949 shares 20,039 20,039
Class B common stock, authorized 10,000,000
shares, par value $.01, issued and
outstanding 500,000 shares 5,000 5,000
Additional paid-in capital 3,323,528 3,323,528
Retained earnings 3,062,314 3,471,809
--------------------------------
Total stockholders' equity 6,410,881 6,820,376
--------------------------------
Total Liabilities and Stockholders' Equity $7,753,303 $8,124,251
================================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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<PAGE> 4
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 - (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ------------------------
1996 1995 1996 1995
---------------------- ------------------------
<S> <C> <C> <C> <C>
NET SALES $2,773,906 $3,776,796 $5,644,039 $6,740,364
COST OF PRODUCTS SOLD 1,416,079 1,710,688 2,874,131 3,140,123
---------------------- ------------------------
GROSS PROFIT 1,357,827 2,066,108 2,769,908 3,600,241
OPERATING EXPENSES:
General and administrative 388,553 439,766 818,716 910,224
Marketing and selling 598,493 696,518 1,236,190 1,443,928
Research and development 519,405 635,161 1,082,840 1,363,355
---------------------- ------------------------
1,506,451 1,771,445 3,137,746 3,717,507
---------------------- ------------------------
EARNINGS (LOSS) FROM OPERATIONS (148,624) 294,663 (367,838) (117,266)
OTHER INCOME (EXPENSE):
Interest expense (66) (9,163) (1,157) (9,907)
Interest and dividend income 51 150 102 1,098
Miscellaneous (10,146) 149 (5,266) (9,997)
---------------------- ------------------------
(10,161) (8,864) (6,321) (18,806)
---------------------- ------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (158,785) 285,799 (374,159) (136,072)
Income taxes (benefit) (30,300) 98,200 (84,900) (46,300)
---------------------- ------------------------
NET EARNINGS (LOSS) $ (128,485) $ 187,599 $ (289,259) $ (89,772)
====================== ========================
EARNINGS (LOSS) PER SHARE:
Class A common $ (0.05) $ 0.08 $ (0.10) $ (0.02)
Class B common $ (0.05) $ 0.08 $ (0.16) $ (0.08)
Weighted average common
shares outstanding 2,503,949 2,503,949 2,503,949 2,503,949
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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<PAGE> 5
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 - (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
1996 1995
------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(289,259) $ (89,772)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 232,838 297,428
Deferred income taxes 47,244 -
Gain from sale of equipment (15,027) -
Changes in operating assets and liabilities:
Accounts receivable 96,376 748,374
Inventories 395,476 (207,793)
Prepaid expenses and other current assets (53,895) 36,006
Accounts payable and accrued expenses 24,929 (278,397)
Income taxes (175,976) (54,583)
Deferred revenue 13,618 35,642
-------------------------
Total adjustments 565,583 576,677
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Net cash provided by operating activities 276,324 486,905
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (59,740) (221,430)
Proceeds from sale of equipment 15,027
-------------------------
Net cash used by investing activities (44,713) (221,430)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (120,236) (120,237)
-------------------------
Net cash used by financing activities (120,236) (120,237)
-------------------------
Net increase in cash and cash equivalents 111,375 145,238
Cash and cash equivalents at beginning of year 497,971 627,045
-------------------------
Cash and cash equivalents at end of period $ 609,346 $ 772,283
=========================
Supplemental disclosures of cash flow information:
Cash received from income tax refunds $ - $ -
Cash paid for income taxes 43,771 228,283
Cash paid for interest expense 1,157 9,907
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
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<PAGE> 6
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996 - (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Company, such
consolidated condensed financial statements reflect all adjustments, which
consist only of normal recurring adjustments, necessary for a fair
presentation. Operating results for the three-month and six-month periods
ended June 30, 1996, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the SEC rules and regulations
dealing with interim financial statements. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's 1995 Annual
Report to Shareholders.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30 December 31
1996 1995
----------- -----------
<S> <C> <C>
Raw materials and supplies $1,054,875 $1,218,365
Work-in-process and finished goods 639,730 1,013,766
Maintenance and demo parts 661,976 624,281
Reserve for obsolescence (256,235) (360,590)
----------- -----------
Total inventories $2,100,346 $2,495,822
=========== ===========
</TABLE>
3. STOCK OPTIONS
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting For Stock-Based Compensation" (SFAS 123). The Company has elected,
as allowed under SFAS 123, to continue to apply Accounting Principles Board
Opinion No. 25, "Accounting For Stock Issued To Employees" for determining
annual compensation charges and will disclose the impact of fair value in the
footnotes to its financial statements for the year ended December 31, 1996.
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<PAGE> 7
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996 AND 1995, AND DECEMBER 31, 1995
(UNAUDITED)
RESULTS OF OPERATIONS
Net sales for the six-month period ended June 30, 1996, were $5,644,039,
compared to $6,740,364 for the corresponding period of 1995. For the
three-month periods ended June 30, 1996 and 1995, net sales were $2,773,906 and
$3,776,796, respectively. Lower net sales in the 1996 periods was due to
continued slow demand for the Company's interactive voice information systems
from several large original equipment manufacturers and several operating
telephone companies. Revenues from leases of time/weather/temperature
equipment remained relatively constant between years. Product pricing for the
Company's equipment also remained relatively constant between periods.
Gross profit as a percentage of net sales for the six-month periods ended June
30, 1996 and 1995, were 49% and 53%, respectively. For the three-month periods
ended June 30, 1996 and 1995, gross profit was 49% and 55%, respectively. The
decrease in gross profit as a percentage of net sales was due to lower sales
volume over which to spread fixed manufacturing costs.
Operating expenses were $3,137,746, or 56% of net sales for the six-month
period ended June 30, 1996, compared to $3,717,507, or 55% for the
corresponding period of 1995. Operating expenses were lower in all three
categories, general and administrative, marketing and selling, and research and
development, due primarily to lower staffing levels in the 1996 period. In
addition, advertising and convention expenses decreased slightly between years.
Net loss for the six-month period ended June 30, 1996, was $289,259 versus a
net loss of $89,772 for the same period of 1995. For the three-month period
ended June 30, 1996, there was a net loss of $128,485, compared to net earnings
of $187,599 for the 1995 period. The net loss in the 1996 periods was due to
lower sales volume, partially offset by lower operating expenses.
LIQUIDITY AND FINANCIAL RESOURCES
Working capital was $3,621,247 as of June 30, 1996, compared to $3,880,097 at
December 31, 1995. Cash provided by operating activities was $276,324 for the
six-month period ended June 30, 1996, compared to $486,905 for the
corresponding 1995 period. The cash provided by operating activities in the
1996 period was due primarily to reductions of inventories, partially offset by
the net loss. For the 1995 period, reductions in accounts receivable provided
the majority of cash from operating activities. Cash was used for capital
expenditures and payment of dividends in the 1996 and 1995 periods.
As of June 30, 1996, the Company had no borrowings on its available $3,500,000
revolving credit facility.
At current operating levels, management believes that cash generated from
operations, together with the available revolving credit facility, will provide
adequate funds to meet the Company's needs for the foreseeable future.
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<PAGE> 8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
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.
ELECTRONIC TELE-COMMUNICATIONS, INC.
/s/ Dean W. Danner
----------------------------------
Dean W. Danner
President and
Chief Executive Officer
/s/ Jeffrey M. Nigl
----------------------------------
Jeffrey M. Nigl
Vice President, Chief Financial
Officer, Treasurer and Principal
Accounting Officer
Date: August 1, 1996
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<PAGE> 1
EXHIBIT 11
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
---------------------- --------------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding:
Class A common 2,003,949 2,003,949
Class B common 500,000 500,000
Net effect of dilutive stock options -
based on the treasury stock method
using averaged market price:
Class A common - -
----------------------
Total shares: *
Class A common 2,003,949 2,003,949 2,003,949 2,003,949
====================== =======================
Class B common 500,000 500,000 500,000 500,000
====================== =======================
Net earnings (loss) $ (128,485) $ 187,599 $ (289,259) $ (89,772)
Less dividends paid:
Class A common - - 120,236 120,237
Class B common - - - -
---------------------- -----------------------
Undistributed earnings (loss) $ (128,485) $ 187,599 $ (409,495) $ (210,009)
====================== =======================
Allocation of undistributed
earnings (loss):
Class A common $ (102,829) $ 150,138 $ (327,725) $ (168,073)
Class B common (25,656) 37,461 (81,770) (41,936)
Calculation of earnings (loss) per share:
Class A common:
Dividends paid $ - $ - $ 0.06 $ 0.06
Allocation of undistributed
earnings (loss) (0.05) 0.08 (0.16) (0.08)
---------------------- -----------------------
Earnings (loss) per Class A common $ (0.05) $ 0.08 $ (0.10) $ (0.02)
====================== =======================
Class B common:
Dividends paid $ - $ - $ - $ -
Allocation of undistributed
earnings (loss) (0.05) 0.08 (0.16) (0.08)
---------------------- -----------------------
Earnings (loss) per Class B common $ (0.05) $ 0.08 $ (0.16) $ (0.08)
====================== =======================
</TABLE>
* Total shares of Class A common and Class B common for the Six Months Ended
June 30, 1996 and 1995, are calculated as the weighted average of the
quarters included.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Condensed Balance Sheet at June 30, 1996 (Unaudited) and the
Consolidated Condensed Statement of Operations for the Six Months Ended June 30,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 609,346
<SECURITIES> 0
<RECEIVABLES> 1,287,629
<ALLOWANCES> 103,050
<INVENTORY> 2,100,346
<CURRENT-ASSETS> 4,684,939
<PP&E> 5,968,035
<DEPRECIATION> 4,029,366
<TOTAL-ASSETS> 7,753,303
<CURRENT-LIABILITIES> 1,063,692
<BONDS> 0
0
0
<COMMON> 25,039
<OTHER-SE> 6,385,842
<TOTAL-LIABILITY-AND-EQUITY> 7,753,303
<SALES> 5,644,039
<TOTAL-REVENUES> 5,644,039
<CGS> 2,874,131
<TOTAL-COSTS> 2,874,131
<OTHER-EXPENSES> 3,170,110
<LOSS-PROVISION> (27,200)
<INTEREST-EXPENSE> 1,157
<INCOME-PRETAX> (374,159)
<INCOME-TAX> (84,900)
<INCOME-CONTINUING> (289,259)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (289,259)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
