<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 June 30, 1997
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 July 29, 1997, 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, 1997
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>
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 4. Submission of Matters to a Vote of Security Holders ............. 8
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
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30 December 31
1997 1996
<S> <C> <C>
--------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 383,130 $ 1,001,976
Trade accounts receivable, net 2,337,255 1,313,075
Inventories (Note 2) 1,971,639 2,434,372
Net investment in sales-type leases 48,476 16,805
Deferred income tax benefits 282,905 268,350
Prepaid expenses and other current assets 99,491 153,442
---------------------------------------------------
Total current assets 5,122,896 5,188,020
PROPERTY, PLANT AND EQUIPMENT, NET 1,803,042 1,847,340
NET INVESTMENT IN SALES-TYPE LEASES 185,702 21,332
DEFERRED INCOME TAX BENEFITS 96,491 52,850
EXCESS COST OVER NET ASSETS ACQUIRED 1,068,871 1,005,514
---------------------------------------------------
Total Assets $ 8,277,002 $ 8,115,056
===================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 206,008 $ 127,562
Accrued expenses 700,188 627,808
Income taxes payable 294,003 120,139
Deferred revenue 109,947 196,379
---------------------------------------------------
Total current liabilities 1,310,146 1,071,888
LONG-TERM LIABILITIES 178,074 226,700
---------------------------------------------------
Total liabilities 1,488,220 1,298,588
--------------------------------------------------
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 3,440,215 3,467,901
---------------------------------------------------
Total stockholders' equity 6,788,782 6,816,468
---------------------------------------------------
Total Liabilities and Stockholders' Equity $ 8,277,002 $ 8,115,056
===================================================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-2-
<PAGE> 4
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996 - (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------------ -----------------------------------
1997 1996 1997 1996
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 3,052,554 $ 2,773,906 $ 6,552,433 $ 5,644,039
COST OF PRODUCTS SOLD 1,585,219 1,416,079 3,536,128 2,874,131
------------------------------------ -----------------------------------
GROSS PROFIT 1,467,335 1,357,827 3,016,305 2,769,908
OPERATING EXPENSES:
General and administrative 417,373 388,553 844,595 818,716
Marketing and selling 581,385 598,493 1,132,635 1,236,190
Research and development 431,732 519,405 885,130 1,082,840
------------------------------------ -----------------------------------
1,430,490 1,506,451 2,862,360 3,137,746
------------------------------------ -----------------------------------
EARNINGS (LOSS) FROM OPERATIONS 36,845 (148,624) 153,945 (367,838)
OTHER INCOME (EXPENSE):
Interest expense (7,795) (66) (7,815) (1,157)
Interest and dividend income 1,885 51 7,308 102
Miscellaneous (8,414) (10,146) (17,987) (5,266)
------------------------------------- -----------------------------------
(14,324) (10,161) (18,494) (6,321)
------------------------------------- -----------------------------------
EARNINGS (LOSS) BEFORE INCOME
TAXES 22,521 (158,785) 135,451 (374,159)
Income taxes (benefit) 7,900 (30,300) 42,900 (84,900)
------------------------------------- ------------------------------------
NET EARNINGS (LOSS) $ 14,621 $ (128,485) $ 92,551 $ (289,259)
===================================== ====================================
EARNINGS (LOSS) PER SHARE:
Class A common $ 0.01 $ (0.05) $ 0.05 $ (0.10)
Class B common $ 0.01 $ (0.05) $ (0.01) $ (0.16)
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.
-3-
<PAGE> 5
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996 - (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
-------------------------------------------------
1997 1996
-------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 92,551 $ (289,259)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 203,707 232,838
Deferred income taxes (138,383) 47,244
(Gain) loss from sale of equipment 1,158 (15,027)
Changes in operating assets and liabilities:
Accounts receivable (1,024,180) 96,376
Inventories 462,733 395,476
Net investment in sales-type leases (196,041) -
Prepaid expenses and other assets 53,951 (53,895)
Accounts payable and accrued expenses 102,200 24,929
Income taxes 173,864 (175,976)
Deferred revenue (86,432) 13,619
-------------------------------------------------
Total adjustments (447,423) 565,584
-------------------------------------------------
Net cash provided (used) by operating activities (354,872) 276,325
-------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (143,737) (59,740)
Proceeds from sale of equipment - 15,027
-------------------------------------------------
Net cash used by investing activities (143,737) (44,713)
-------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (120,237) (120,237)
-------------------------------------------------
Net cash used by financing activities (120,237) (120,237)
-------------------------------------------------
Net increase (decrease) in cash and cash equivalents (618,846) 111,375
Cash and cash equivalents at beginning of year 1,001,976 497,971
-------------------------------------------------
Cash and cash equivalents at end of period $ 383,130 $ 609,346
=================================================
Supplemental disclosures of cash flow information:
Cash received from income tax refunds $ - $ -
Cash paid for income taxes 7,423 43,771
Cash paid for interest expense 7,815 1,157
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-4-
<PAGE> 6
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 - (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, 1997, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997.
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 1996 Annual
Report to Shareholders.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30 December 31
1997 1996
------------ ---------------
<S> <C> <C>
Raw materials and supplies $ 696,283 $ 714,249
Work-in-process and finished goods 835,597 1,278,059
Maintenance and demo parts 699,824 684,646
Reserve for obsolescence (260,065) (242,582)
------------ ---------------
Total inventories $ 1,971,639 $2,434,372
============ ===============
</TABLE>
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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, 1997 AND 1996, AND DECEMBER 31, 1996 - (UNAUDITED)
RESULTS OF OPERATIONS
- ---------------------
Net sales for the six-month period ended June 30, 1997, were $6,552,433,
compared to $5,644,039 for the corresponding period of 1996. Net sales were
$3,052,554 and $2,773,906 for the three-month periods ended June 30, 1997 and
1996, respectively. The increase in sales for the 1997 six-month period was
due primarily to a $980,000 sale of interactive voice information systems to an
international customer. This represented the last of three shipments to this
international customer, the first two of which occurred in the fourth quarter
of 1996. Service revenue dollars remained relatively constant between years
and represented 29% of net sales in the 1997 six-month period and 33% in the
1996 period. Product pricing for the Company's equipment also remained
relatively constant between periods, and inflation did not have a material
impact on revenues.
Gross profit as a percentage of net sales for the six-month periods ended June
30, 1997 and 1996, was 46% and 49%, respectively. The decrease in gross profit
percentage between periods was due primarily to the large sale to the
international customer of older technology equipment which had a lower profit
margin than the normal product mix. For the quarters ended June 30, 1997 and
1996, gross profit percentages were relatively constant at 48% and 49%,
respectively.
Total operating expenses were $2,862,360, or 44% of net sales for the six-month
period ended June 30, 1997, compared to $3,137,746, or 56% for the
corresponding period of 1996. For the three-month periods ended June 30, 1997
and 1996, total operating expenses were $1,430,490 (47%) and $1,506,451 (54%),
respectively. General and administrative expenses were relatively constant
between periods. Marketing and selling expenses were $1,132,635 and $1,236,190
for the six-month periods ended June 30, 1997 and 1996, respectively. The
decrease was due primarily to lower staffing levels and lower marketing
expenses related to conventions and dues. Research and development expenses
were $885,130 and $1,082,840 for the six-month periods ended June 30, 1997 and
1996, respectively. The decrease in research and development expenses between
periods was due to lower staffing levels in the 1997 period and elimination of
the product development function in the Pleasanton, California office.
Net other expenses were $18,494 for the six-month period ended June 30, 1997,
compared to $6,321 for the corresponding period of 1996. The difference
between periods was primarily due to one-time gains from sales of plant
equipment in the 1996 period.
Net earnings for the six-month period ended June 30, 1997, were $92,551 versus
a net loss of $289,259 for the same period of 1996. For the three-month
periods ended June 30, 1997 and 1996, net earnings were $14,621and net loss was
$128,485, respectively. The net earnings for the 1997 periods were a result of
higher sales and lower operating expenses, partially offset by lower profit
margins on sales of equipment to an international customer.
LIQUIDITY AND FINANCIAL RESOURCES
- ---------------------------------
Working capital was $3,812,750 as of June 30, 1997, compared to $4,116,132 at
December 31, 1996. Cash used by operating activities was $354,872 for the
six-month period ended June 30, 1997, compared to cash provided of $276,325 for
the corresponding 1996 period. The cash used by operating activities in the
1997 period was due primarily to an increase in accounts receivable related to
the large sale of equipment to an international customer, partially offset by
net earnings and a decrease in inventories. Cash provided by operating
activities in the 1996 period was due primarily to a decrease in inventories
mostly offset by a net loss.
-6-
<PAGE> 8
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997 AND 1996, AND DECEMBER 31, 1996 - (UNAUDITED)
(CONTINUED)
For the six-month periods ended June 30, 1997 and 1996, cash was used for
capital expenditures and payment of dividends.
As of June 30, 1997, the Company had no borrowings on its available $3,500,000
revolving credit facility. The revolving credit facility expired on May 15,
1997, and was extended until September 15, 1997. The revolving credit facility
is currently being renegotiated with the bank.
Currently, the Company has a receivable for the remaining balance due from an
international customer related to the large shipments of equipment in the
fourth quarter of 1996 and the first quarter of 1997. The customer paid 50%
down on the order, or $1,189,957.50. The remaining balance of $1,189,957.50 is
overdue and unpaid at this time. The Company fully expects to collect the
balance in its entirety. However, if any amounts could not be collected, any
uncollected amount could have a material impact on the Company's financial
statements in future periods.
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.
-7-
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the annual meeting of the Registrant on May 2, 1997, shareholders voted on
the election of directors for a one year term. The Class B common stock of the
Registrant is the only class of voting securities. The Class B common stock is
not registered under the Securities Exchange Act of 1934. There was no
solicitation in opposition to the nominees proposed and there were no
abstentions or broker non-votes. Each of the nominees were elected as follows:
<TABLE>
<CAPTION>
Director Votes Votes
Name For Withheld
------------------------ ------- --------
<S> <C> <C>
Dean W. Danner 439,529 0
Bonita M. Danner 439,529 0
Hazel Danner 439,529 0
George W. Danner 439,529 0
A. William Huelsman 397,545 41,984
Joanne B. Huelsman 439,529 0
Peter J. Lettenberger 439,529 0
Richard A. Gabriel 439,529 0
</TABLE>
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: July 29, 1997
-8-
<PAGE> 1
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
---------------------------------------- ----------------------------------------
<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) $ 14,621 $ (128,485) $ 92,551 $ (289,259)
Less dividends paid:
Class A common - - 120,237 120,236
Class B common - - - -
----------------------------------------- ----------------------------------------
Undistributed earnings (loss) $ 14,621 $ (128,485) $ (27,686) $ (409,495)
========================================= ========================================
Allocation of undistributed
earnings (loss):
Class A common $ 11,701 $ (102,829) $ (22,158) $ (327,725)
Class B common 2,920 (25,656) (5,528) (81,770)
Calculation of earnings (loss) per share:
Class A common:
Dividends paid $ - $ - $ 0.06 $ 0.06
Allocation of undistributed
earnings (loss) 0.01 (0.05) (0.01) (0.08)
---------------------------------------- ----------------------------------------
Earnings (loss) per Class A common share $ 0.01 $ (0.05) $ 0.05 $ (0.02)
======================================== ========================================
Class B common:
Dividends paid $ - $ - $ - $ -
Allocation of undistributed
earnings (loss) 0.01 (0.05) (0.01) (0.08)
----------------------------------------- ----------------------------------------
Earnings (loss) per Class B common share 0.01 $ (0.05) $ (0.01) $ (0.08)
========================================= ========================================
</TABLE>
* Total shares of Class A common and Class B common for the Six-Month Periods
Ended June 30, 1997 and 1996, are calculated as the weighted average of the
quarters included.
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Condensed Balance Sheet at June 30, 1997 (Unaudited) and the
Consolidated Condensed Statement of Operations for the Six Months Ended June 30,
1997 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JAN-01-1997
<CASH> 383,130
<SECURITIES> 0
<RECEIVABLES> 2,442,157
<ALLOWANCES> 104,902
<INVENTORY> 1,971,639
<CURRENT-ASSETS> 5,122,896
<PP&E> 5,684,468
<DEPRECIATION> 3,881,426
<TOTAL-ASSETS> 8,277,002
<CURRENT-LIABILITIES> 1,310,146
<BONDS> 0
25,039
0
<COMMON> 0
<OTHER-SE> 6,763,743
<TOTAL-LIABILITY-AND-EQUITY> 8,277,002
<SALES> 6,552,433
<TOTAL-REVENUES> 6,552,433
<CGS> 3,536,128
<TOTAL-COSTS> 3,536,128
<OTHER-EXPENSES> 1,433,219
<LOSS-PROVISION> 3,800
<INTEREST-EXPENSE> 7,815
<INCOME-PRETAX> 135,451
<INCOME-TAX> 42,900
<INCOME-CONTINUING> 92,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,551
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
