<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 March 31, 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 April 28, 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 MARCH 31, 1997
In this report, Electronic Tele-Communications, Inc. is also referred to as
Electronic Tele-Communications, ETC, and the Company.
_______________
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. . . . . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
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<PAGE> 3
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
1997 1996
--------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 836,904 $ 1,001,976
Trade accounts receivable, net 2,019,987 1,313,075
Inventories (Note 2) 1,925,306 2,434,372
Net investment in sales-type leases 15,830 16,805
Deferred income tax benefits 278,700 268,350
Prepaid expenses and other current assets 144,367 153,442
-------------- -------------
Total current assets 5,221,094 5,188,020
PROPERTY, PLANT AND EQUIPMENT, NET 1,805,276 1,847,340
NET INVESTMENT IN SALES-TYPE LEASES 31,304 21,332
DEFERRED INCOME TAX BENEFITS 58,996 52,850
EXCESS COST OVER NET ASSETS ACQUIRED 977,374 1,005,514
-------------- -------------
Total Assets $ 8,094,044 $ 8,115,056
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 162,044 $ 127,562
Accrued expenses 686,614 627,808
Income taxes payable 146,691 120,139
Deferred revenue 122,081 196,379
-------------- -------------
Total current liabilities 1,117,430 1,071,888
LONG-TERM LIABILITIES 202,453 226,700
-------------- -------------
Total liabilities 1,319,883 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 3,425,594 3,467,901
-------------- -------------
Total stockholders' equity 6,774,161 6,816,468
-------------- -------------
Total Liabilities and Stockholders' Equity $ 8,094,044 $ 8,115,056
============== =============
</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 PERIODS ENDED MARCH 31, 1997 AND 1996 - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1996
--------------------
<S> <C> <C>
NET SALES $ 3,499,879 $ 2,870,133
COST OF PRODUCTS SOLD 1,950,909 1,458,052
--------------- -----------
GROSS PROFIT 1,548,970 1,412,081
OPERATING EXPENSES:
General and administrative 427,222 430,163
Marketing and selling 551,250 637,697
Research and development 453,398 563,435
--------------- -----------
1,431,870 1,631,295
--------------- -----------
EARNINGS (LOSS) FROM OPERATIONS 117,100 (219,214)
OTHER INCOME (EXPENSE):
Interest expense (20) (1,091)
Interest and dividend income 5,423 51
Miscellaneous (9,573) 4,880
--------------- -----------
(4,170) 3,840
--------------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES 112,930 (215,374)
Income taxes (benefit) 35,000 (54,600)
--------------- -----------
NET EARNINGS (LOSS) $ 77,930 $ (160,774)
=============== ===========
EARNINGS (LOSS) PER SHARE:
Class A common $ 0.04 $ (0.05)
Class B common $ (0.02) $ (0.11)
Weighted average common
shares outstanding 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
THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996 - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
1997 1996
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 77,930 $ (160,774)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 104,038 120,193
Deferred income taxes 3,229 -
(Gain) loss from sale of equipment 1,158 (15,027)
Changes in operating assets and liabilities:
Accounts receivable (706,912) 86,631
Inventories 509,066 171,020
Net investment in sales-type leases (8,997) -
Prepaid expenses and other assets 9,075 (57,988)
Accounts payable and accrued expenses 69,041 (43,021)
Income taxes 26,552 (90,208)
Deferred revenue (74,298) 5,810
-------------- -----------
Total adjustments (68,048) 177,410
-------------- -----------
Net cash provided by operating activities 9,882 16,636
-------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (54,717) (55,778)
Proceeds from sale of equipment - 15,027
-------------- -----------
Net cash used by investing activities (54,717) (40,751)
-------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (120,237) (120,237)
-------------- -----------
Net cash used by financing activities (120,237) (120,237)
-------------- -----------
Net decrease in cash and cash equivalents (165,072) (144,352)
Cash and cash equivalents at beginning of year 1,001,976 497,971
-------------- -----------
Cash and cash equivalents at end of period $ 836,904 $ 353,619
============== ===========
Supplemental disclosures of cash flow information:
Cash received from income tax refunds $ - $ -
Cash paid for income taxes 5,223 35,548
Cash paid for interest expense 20 1,091
</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
MARCH 31, 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 period ended March 31,
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>
MARCH 31 December 31
1997 1996
-------- -----------
<S> <C> <C>
Raw materials and supplies $ 711,959 $ 714,249
Work-in-process and finished goods 848,690 1,278,059
Maintenance and demo parts 634,138 684,646
Reserve for obsolescence (269,481) (242,582)
------------- ------------
Total inventories $ 1,925,306 $ 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
MARCH 31, 1997 AND 1996, AND DECEMBER 31, 1996 - (UNAUDITED)
RESULTS OF OPERATIONS
Net sales for the three-month period ended March 31, 1997, were $3,499,879,
compared to $2,870,133 for the corresponding period of 1996, a 22% increase.
The 1997 period included 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. Without the international sale, net sales between
quarters decreased approximately $350,000. This decrease was attributed to
lower sales of interactive voice information systems to large original
equipment manufacturers and several operating telephone companies. Sales to
these customers are highly dependent on the timing of operating telehone
companies' upgrade programs. Service revenue dollars remained relatively
constant between years and represented 26% of net sales in the 1997 quarter and
31% in the 1996 quarter. 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 three-month periods ended
March 31, 1997 and 1996, was 44% 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.
Total operating expenses were $1,431,870, or 41% of net sales for the
three-month period ended March 31, 1997, compared to $1,631,295, or 57% for the
corresponding period of 1996. General and administrative expenses were
relatively constant between periods. Marketing and selling expenses were
$551,250 and $637,697 for the three-month periods ended March 31, 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 $453,398 and $563,435 for the three-month periods
ended March 31, 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 $4,170 for the three-month period ended March 31, 1997,
compared to net other income of $3,840 for the corresponding period of 1996.
The difference between quarters was primarily due to one-time gains from sales
of plant equipment in the 1996 period.
Net earnings for the three-month period ended March 31, 1997, were $77,930
versus a net loss of $160,774 for the same period of 1996. The net earnings
for the 1997 period 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 $4,103,664 as of March 31, 1997, compared to $4,116,132 at
December 31, 1996. Cash provided by operating activities was $9,882 for the
three-month period ended March 31, 1997, compared to $16,636 for the
corresponding 1996 period. The cash provided by operating activities in the
1997 period was due primarily to net earnings and a decrease in inventories,
mostly offset by an increase in accounts receivable. The inventory decrease and
the accounts receivable increase were the result of the large international
shipment in the 1997 quarter. Cash provided by operating activities in the
1996 quarter were due primarily to a decrease in inventories mostly offset by a
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
MARCH 31, 1997 AND 1996, AND DECEMBER 31, 1996 - (UNAUDITED)
(CONTINUED)
For the three-month periods ended March 31, 1997 and 1996, cash was used for
capital expenditures and payment of dividends.
As of March 31, 1997, the Company had no borrowings on its available $3,500,000
revolving credit facility. The revolving credit facility expires on May 15,
1997, and 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.
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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: April 28, 1997
-8-
<PAGE> 1
EXHIBIT 11
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
THREE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
--------------------------------------
<S> <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
=============== =============
Class B common 500,000 500,000
=============== =============
Net earnings (loss) $ 77,930 $ (160,774)
Less dividends paid:
Class A common 120,237 120,237
Class B common - -
--------------- -------------
Undistributed earnings (loss) $ (42,307) $ (281,011)
=============== =============
Allocation of undistributed
earnings (loss):
Class A common $ (33,859) $ (224,897)
Class B common (8,448) (56,114)
Calculation of earnings (loss) per share:
Class A common:
Dividends paid $ 0.06 $ 0.06
Allocation of undistributed
earnings (loss) (0.02) (0.11)
--------------- -------------
Earnings (loss) per Class A common share $ 0.04 $ (0.05)
=============== =============
Class B common:
Dividends paid $ - $ -
Allocation of undistributed
earnings (loss) (0.02) (0.11)
--------------- -------------
Earnings (loss) per Class B common share $ (0.02) $ (0.11)
=============== =============
</TABLE>
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AT MARCH 31, 1997 (UNAUDITED) AND THE
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 836,904
<SECURITIES> 0
<RECEIVABLES> 2,133,463
<ALLOWANCES> 113,476
<INVENTORY> 1,925,306
<CURRENT-ASSETS> 5,221,094
<PP&E> 5,699,173
<DEPRECIATION> 3,893,897
<TOTAL-ASSETS> 8,094,044
<CURRENT-LIABILITIES> 1,117,430
<BONDS> 0
0
0
<COMMON> 25,039
<OTHER-SE> 6,749,122
<TOTAL-LIABILITY-AND-EQUITY> 8,094,044
<SALES> 3,499,879
<TOTAL-REVENUES> 3,499,879
<CGS> 1,950,909
<TOTAL-COSTS> 1,950,909
<OTHER-EXPENSES> 1,423,120
<LOSS-PROVISION> 12,900
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 112,930
<INCOME-TAX> 35,000
<INCOME-CONTINUING> 77,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,930
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
