<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
_______________
Commission File Number 0-13981
_______________
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
_______________
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
----- -----
_______________
As of November 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 SEPTEMBER 30, 1996
In this report, Electronic Tele-Communications, Inc. is also referred to as
Electronic Tele-Communications, ETC, and the Company.
_______________
Table of Contents
<TABLE>
<CAPTION>
Page
<S><C> <C>
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 . . . . . . . . . . . . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<PAGE> 3
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,637,017 $ 497,971
Trade accounts receivable, net 1,198,520 1,280,955
Inventories (Note 2) 2,372,361 2,495,822
Refundable income taxes 340,052 201,072
Deferred income tax benefits 330,642 320,402
Prepaid expenses and other current assets 104,931 63,271
-----------------------
Total current assets 5,983,523 4,859,493
LEASED SERVICE EQUIPMENT, NET 20,458 37,993
PROPERTY, PLANT AND EQUIPMENT, NET 1,877,306 2,053,482
DEFERRED INCOME TAX BENEFITS 21,722 46,998
EXCESS COST OVER NET ASSETS ACQUIRED 1,095,847 1,126,285
-----------------------
Total Assets $8,998,856 $8,124,251
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 358,809 $ 238,608
Accrued expenses 735,309 639,851
Deferred revenue 1,270,840 100,937
-----------------------
Total current liabilities 2,364,958 979,396
OTHER LONG-TERM LIABILITIES 255,664 324,479
-----------------------
Total liabilities 2,620,622 1,303,875
-----------------------
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 5,000,000
shares, none issued 0.00 0.00
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 3,029,667 3,471,809
-----------------------
Total stockholders' equity 6,378,234 6,820,376
-----------------------
Total Liabilities and Stockholders' Equity $8,998,856 $8,124,251
=======================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statemen
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<PAGE> 4
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 -
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ---------------------------
1996 1995 1996 1995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
NET SALES $ 3,217,381 $ 2,958,538 $ 8,861,420 $ 9,698,902
COST OF PRODUCTS SOLD 1,676,219 1,569,926 4,550,350 4,710,049
--------------------------- ---------------------------
GROSS PROFIT 1,541,162 1,388,612 4,311,070 4,988,853
OPERATING EXPENSES:
General and administrative 391,340 403,150 1,210,056 1,313,374
Marketing and selling 550,191 718,808 1,786,381 2,162,736
Research and development 489,767 622,011 1,572,607 1,985,366
--------------------------- ---------------------------
1,431,298 1,743,969 4,569,044 5,461,476
--------------------------- ---------------------------
EARNINGS (LOSS) FROM OPERATIONS 109,864 (355,357) (257,974) (472,623)
OTHER INCOME (EXPENSE):
Interest expense 81 (584) (1,076) (10,491)
Interest and dividend income 12,775 37 12,877 1,135
Miscellaneous (10,330) (10,146) (15,596) (20,143)
--------------------------- ---------------------------
2,526 (10,693) (3,795) (29,499)
--------------------------- ---------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 112,390 (366,050) (261,769) (502,122)
Income taxes (benefit) 4,800 (103,100) (80,100) (149,400)
--------------------------- ---------------------------
NET EARNINGS (LOSS) $ 107,590 $ (262,950) $ (181,669) $ (352,722)
=========================== ===========================
EARNINGS (LOSS) PER SHARE:
Class A common $ 0.05 $ (0.10) $ (0.06) $ (0.12)
Class B common $ 0.03 $ (0.12) $ (0.14) $ (0.20)
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
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 - (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (181,669) $ (352,722)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 334,964 441,553
Deferred income taxes 15,036 0.0
Gain from sale of equipment (14,843) 0.0
Changes in operating assets and liabilities:
Accounts receivable 82,435 1,015,768
Inventories 123,461 101,442
Prepaid expenses and other current assets (41,660) 63,942
Accounts payable and accrued expenses 146,844 (277,497)
Income taxes (138,980) (161,887)
Deferred revenue 1,169,903 (88,540)
-----------------------------
Total adjustments 1,677,160 1,094,781
-----------------------------
Net cash provided by operating activities 1,495,491 742,059
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (110,815) (418,814)
Proceeds from sale of equipment 14,843 0.0
-----------------------------
Net cash used by investing activities (95,972) (418,814)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (260,473) (260,474)
-----------------------------
Net cash used by financing activities (260,473) (260,474)
-----------------------------
Net increase in cash and cash equivalents 1,139,046 62,771
Cash and cash equivalents at beginning of year 497,971 627,045
-----------------------------
Cash and cash equivalents at end of period $1,637,017 $ 689,816
=============================
Supplemental disclosures of cash flow information:
Cash received from income tax refunds $ -- $ --
Cash paid for income taxes 43,783 232,549
Cash paid for interest expense 1,076 10,491
</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
SEPTEMBER 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 nine-month periods
ended September 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>
SEPTEMBER 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and supplies $1,023,431 $1,218,365
Work-in-process and finished goods 1,046,765 1,013,766
Maintenance and demo parts 647,840 624,281
Reserve for obsolescence (345,675) (360,590)
---------- ----------
Total inventories $2,372,361 $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
SEPTEMBER 30, 1996 AND 1995, AND DECEMBER 31, 1995 - (UNAUDITED)
RESULTS OF OPERATIONS
Net sales for the nine-month period ended September 30, 1996, were $8,861,420,
compared to $9,698,902 for the corresponding period of 1995. Lower net sales
in the 1996 nine-month period were due to slow demand during the first half of
1996 for the Company's interactive voice information systems from several large
original equipment manufacturers and several operating telephone companies.
For the three-month periods ended September 30, 1996 and 1995, net sales were
$3,217,381 and $2,958,538, respectively. The increase in net sales for the
1996 three-month period was due to increased shipments to several operating
telephone companies compared to the same period of 1995. 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 nine-month periods ended
September 30, 1996 and 1995, was 49% and 51%, respectively. The decrease in
gross profit percentage between periods was due to spreading fixed
manufacturing costs over lower sales volume in the 1996 period. Product mix
remained relatively constant between periods and did not have an impact on
gross margins. For the three-month periods ended September 30, 1996 and 1995,
gross profit was 48% and 47%, respectively. The increase in gross profit as a
percentage of net sales was due to higher sales volume in the 1996 three-month
period over which to spread fixed manufacturing costs.
Operating expenses were $4,569,044, or 52% of net sales for the nine-month
period ended September 30, 1996, compared to $5,461,476, or 56% for the
corresponding period of 1995. General and administrative expenses were
$1,210,056 and $1,313,374 for the nine-month periods ended September 30, 1996
and 1995, respectively. The decrease in general and administrative expenses
was due to lower staffing levels in 1996. Marketing and selling expenses were
$1,786,381 and $2,162,736 for the nine-month periods ended September 30, 1996
and 1995, respectively. The decrease was due primarily to lower staffing
levels, lower commissions based on reduced sales volume, and lower expenses
related to attending trade shows. Research and development expenses were
$1,572,607 and $1,985,366 for the nine-month periods ended September 30, 1996
and 1995, respectively. The decrease in research and development expenses
between periods was due to lower staffing levels in the 1996 period.
Net other expenses were $3,795 and $29,499 for the nine-month periods ended
September 30, 1996 and 1995, respectively. The decrease in net other expenses
in the 1996 period was due to a combination of lower interest expense based on
lower bank borrowings and higher interest income derived from cash invested.
Net loss for the nine-month period ended September 30, 1996, was $181,669
versus a net loss of $352,722 for the same period of 1995. For the three-month
period ended September 30, 1996, there were net earnings of $107,590, compared
to a net loss of $262,950 for the 1995 period. The net loss in the 1996
nine-month period was due to lower sales volume, partially offset by lower
operating expenses. For the 1996 three-month period, net earnings were due to
increased sales volume and lower operating expenses.
LIQUIDITY AND FINANCIAL RESOURCES
Working capital was $3,618,565 as of September 30, 1996, compared to $3,880,097
at December 31, 1995. Cash provided by operating activities was $1,495,491 for
the nine-month period ended September 30, 1996, compared to $742,059 for the
corresponding 1995 period. The cash provided by operating activities in the
1996 period was due primarily to prepayments by an international customer,
partially offset by the net loss.
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<PAGE> 8
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1996 AND 1995, AND DECEMBER 31, 1995 - (UNAUDITED)
(CONTINUED)
For the 1995 period, reductions in accounts receivable provided the majority of
cash from operating activities, partially offset by a net loss and an increase
in accounts payable and accrued expenses. Cash was used for capital
expenditures and payment of dividends in the 1996 and 1995 periods.
As of September 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> 9
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: November 1, 1996
-8-
<PAGE> 1
EXHIBIT 11
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 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) $ 107,590 $ (262,950) $ (181,669) $ (352,722)
=========================== ==========================
Less dividends paid:
Class A common 120,237 120,237 240,474 240,474
Class B common 20,000 20,000 20,000 20,000
--------------------------- --------------------------
Undistributed earnings (loss) $ (32,647) $ (403,187) $ (442,143) $ (613,196)
=========================== ==========================
Allocation of undistributed
earnings (loss):
Class A common $ (26,128) $ (322,677) $ (353,854) $ (490,750)
Class B common (6,519) (80,510) (88,289) (122,446)
Calculation of earnings (loss) per share:
Class A common:
Dividends paid $ 0.06 $ $0.06 $ 0.12 $ 0.12
Allocation of undistributed
earnings (loss) (0.01) (0.16) (0.18) (0.24)
--------------------------- --------------------------
Earnings (loss) per Class A common share $ 0.05 $ (0.10) $ (0.06) $ (0.12)
=========================== ==========================
Class B common:
Dividends paid $ 0.04 $ 0.04 $ 0.04 $ 0.04
Allocation of undistributed
earnings (loss) (0.01) (0.16) (0.18) (0.24)
--------------------------- --------------------------
Earnings (loss) per Class B common share $ 0.03 $ (0.12) $ (0.14) $ (0.20)
=========================== ==========================
</TABLE>
* Total shares of Class A common and Class B common for the Nine Months Ended
September 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 SEPTEMBER 30, 1996 (UNAUDITED) AND THE
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,637,017
<SECURITIES> 0
<RECEIVABLES> 1,301,315
<ALLOWANCES> 102,795
<INVENTORY> 2,372,361
<CURRENT-ASSETS> 5,983,523
<PP&E> 5,978,024
<DEPRECIATION> 4,080,260
<TOTAL-ASSETS> 8,998,856
<CURRENT-LIABILITIES> 2,364,958
<BONDS> 0
0
0
<COMMON> 25,039
<OTHER-SE> 6,353,195
<TOTAL-LIABILITY-AND-EQUITY> 8,998,856
<SALES> 8,861,420
<TOTAL-REVENUES> 8,861,420
<CGS> 4,550,350
<TOTAL-COSTS> 4,550,350
<OTHER-EXPENSES> 4,596,063
<LOSS-PROVISION> (24,300)
<INTEREST-EXPENSE> 1,076
<INCOME-PRETAX> (261,769)
<INCOME-TAX> (80,100)
<INCOME-CONTINUING> (181,669)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,669)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
