<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, 1998
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
---------------
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 May 8, 1998, there were outstanding 2,008,949 shares of Class A common
stock and 499,998 shares of Class B common stock. The Class B common stock,
87.9% 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, 1998
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
<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 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
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31 December 31
1998 1997
-------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 344,637 $ 489,573
Trade accounts receivable, net 1,290,688 1,090,776
Inventories (Note 2) 1,688,405 1,842,940
Net investment in sales-type leases 98,188 77,123
Refundable income taxes 326,633 212,859
Deferred income tax benefits 58,500 78,000
Prepaid expenses and other current assets 148,425 143,393
-------------------------------------
Total current assets 3,955,476 3,934,664
PROPERTY, PLANT AND EQUIPMENT, NET 1,701,627 1,721,026
NET INVESTMENT IN SALES-TYPE LEASES 510,032 389,778
EXCESS COST OVER NET ASSETS ACQUIRED 1,042,511 1,052,041
-------------------------------------
Total Assets $ 7,209,646 $ 7,097,509
=====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ 575,000 $ 225,000
Accounts payable 108,297 84,964
Accrued expenses 690,546 637,927
Deferred revenue 167,737 132,328
-------------------------------------
Total current liabilities 1,541,580 1,080,219
LONG-TERM LIABILITIES 101,981 126,760
-------------------------------------
Total liabilities 1,643,561 1,206,979
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 2,008,949 shares 20,089 20,089
Class B common stock, authorized 10,000,000
shares, par value $.01, issued and outstanding
499,998 shares in 1998 and 500,000 shares in 1997 5,000 5,000
Additional paid-in capital 3,335,349 3,335,353
Retained earnings 2,205,647 2,530,088
-------------------------------------
Total stockholders' equity 5,566,085 5,890,530
-------------------------------------
Total Liabilities and Stockholders' Equity $ 7,209,646 $ 7,097,509
=====================================
</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, 1998 AND 1997 - (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
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1998 1997
----------------------------------
<S> <C> <C>
NET SALES $ 2,646,417 $ 3,499,879
COST OF PRODUCTS SOLD 1,513,599 1,950,909
----------------------------------
GROSS PROFIT 1,132,818 1,548,970
OPERATING EXPENSES:
General and administrative 389,321 427,222
Marketing and selling 605,375 551,250
Research and development 456,202 453,398
----------------------------------
1,450,898 1,431,870
----------------------------------
EARNINGS (LOSS) FROM OPERATIONS (318,080) 117,100
OTHER INCOME (EXPENSE):
Interest expense (5,990) (20)
Interest and dividend income 67 5,423
Miscellaneous (9,680) (9,573)
----------------------------------
(15,603) (4,170)
----------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (333,683) 112,930
Income taxes (benefit) (89,600) 35,000
==================================
NET EARNINGS (LOSS) $ (244,083) $ 77,930
==================================
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE:
Class A common $ (0.09) $ 0.04
Class B common $ (0.13) $ (0.02)
</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, 1998 AND 1997 - (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------------------
1998 1997
---------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (244,083) $ 77,930
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 94,783 104,038
Retirement of common stock (4) -
Deferred income taxes 19,500 3,229
Loss from sale of equipment - 1,158
Changes in operating assets and liabilities:
Accounts receivable (199,912) (706,912)
Inventories 154,535 509,066
Net investment in sales-type leases (141,319) (8,997)
Prepaid expenses and other assets (5,032) 9,075
Accounts payable and accrued expenses 51,173 69,041
Income taxes (113,774) 26,552
Deferred revenue 35,409 (74,298)
---------------------------------------
Total adjustments (104,641) (68,048)
---------------------------------------
Net cash provided by (used in) operating activities (348,724) 9,882
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (65,854) (54,717)
---------------------------------------
Net cash used in investing activities (65,854) (54,717)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility, net 350,000 -
Dividends paid (80,358) (120,237)
---------------------------------------
Net cash provided by (used in) financing activities 269,642 (120,237)
---------------------------------------
Net decrease in cash and cash equivalents (144,936) (165,072)
Cash and cash equivalents at beginning of year 489,573 1,001,976
---------------------------------------
Cash and cash equivalents at end of period $ 344,637 $ 836,904
=======================================
Supplemental disclosures of cash flow information:
Cash received from income tax refunds $ - $ -
Cash paid for income taxes 5,027 5,223
Cash paid for interest expense 5,560 20
</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, 1998 - (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 periods ended March 31, 1998, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
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 1997 Annual Report to
Shareholders.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31 December 31
1998 1997
------------ -----------
<S> <C> <C>
Raw materials and supplies $ 506,920 $ 611,561
Work-in-process and finished goods 783,327 784,518
Maintenance and demo parts 601,486 620,133
Reserve for obsolescence (203,328) (173,272)
----------- -----------
Total inventories $ 1,688,405 $ 1,842,940
=========== ===========
</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, 1998 AND 1997, AND DECEMBER 31, 1997 - (UNAUDITED)
RESULTS OF OPERATIONS
Net sales for the three-month period ended March 31, 1998, were $2,646,417,
compared to $3,499,879 for the corresponding period of 1997. The decrease in
sales for the 1998 three-month period was due primarily to the inclusion of a
$980,000 sale of interactive voice information systems to an international
customer in the 1997 first quarter. Revenues from sales of the Company's
interactive voice information systems were $1,266,319 or 48% of net sales, and
$2,200,449 or 63% of net sales, for the three-month periods ended March 31, 1998
and 1997, respectively. Revenues from operating leases, sales-type leases, and
services were $897,313, or 34% of net sales for the 1998 quarter, compared to
$900,357, or 26% of net sales for the 1997 quarter. Product pricing for the
Company's equipment 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, 1998 and 1997, was 43% and 44%, respectively. The slight decrease in
gross profit percentage between three-month periods was due to spreading fixed
manufacturing costs over lower sales volume in the 1998 first quarter, partially
offset by the effect of the sale to the international customer in the 1997
quarter of older technology equipment which had a lower profit margin than the
normal product mix.
Total operating expenses were $1,450,898, or 55% of net sales for the
three-month period ended March 31, 1998, compared to $1,431,780, or 41% for the
corresponding period of 1997. General and administrative expenses were down
slightly for the 1998 three-month period as a result of lower staffing and
decreased legal expenses. Marketing and selling expenses increased by 10%
between quarters due primarily to salary and benefit expenses related to
previously open sales and marketing positions which were fully staffed during
the 1998 quarter. Research and development expenses were relatively constant
between periods.
Net other expenses were $15,603 for the three-month period ended March 31, 1998,
compared to $4,170 for the corresponding period of 1997. The difference between
periods was primarily due to interest expense incurred for bank borrowings
during the 1998 period compared with interest income earned from investing
Company funds during the 1997 period.
Net loss for the three-month period ended March 31, 1998, was $244,083 versus
net earnings of $77,930 for the same period of 1997. The net loss for the 1998
period was primarily the result of lower sales volume.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $2,413,896 as of March 31, 1998, compared to $2,854,445 at
December 31, 1997. The decrease in working capital was due primarily to the net
loss, payment of dividends, and expenditures made for capital equipment. Cash
used in operating activities was $348,724 for the three-month period ended March
31, 1998, compared to cash provided of $9,882 for the corresponding 1997 period.
The cash used in operating activities in the 1998 period was due primarily to
the net loss, an increase in accounts receivable, and investment in sales-type
leases, partially offset by a decrease in inventories. Cash provided by
operating activities in the 1997 period was due primarily to net earnings and a
decrease in inventories, partially offset by an increase in accounts receivable
related to the large international shipment.
For the three-month periods ended March 31, 1998 and 1997, cash was used for
capital expenditures and payment of dividends. For the 1998 period, cash was
provided by bank borrowings.
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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, 1998 AND 1997, AND DECEMBER 31, 1997 - (UNAUDITED)
(CONTINUED)
As of March 31, 1998, the Company had borrowed $575,000 on its available
$3,500,000 revolving credit facility. The revolving credit facility expires on
June 30, 2000.
At anticipated operating levels, management believes that future cash generated
from operations, together with the available revolving credit facility, will
provide adequate funds to meet the Company's operating needs for the foreseeable
future.
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<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 1, 1998, 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 481,511 0
Bonita M. Danner 481,511 0
Hazel Danner 481,511 0
George W. Danner 481,511 0
A. William Huelsman 421,040 60,471
Joanne B. Huelsman 481,511 0
Peter J. Lettenberger 481,511 0
Richard A. Gabriel 481,511 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: May 8, 1998
-8-
<PAGE> 1
Exhibit 11
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
Earnings (loss) net of dividends paid (undistributed earnings) are allocated
equally per share to weighted average Class A shares, as adjusted for the
dilutive effect of stock options using the treasury stock method, and weighted
average Class B shares outstanding during the year. Earnings (loss) per Class A
and Class B common share were computed, as shown in the table below, by adding
dividends paid per Class A and Class B common share (distributed earnings) to
undistributed earnings.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
------------------------------
<S> <C> <C>
Numerator for basic and diluted earnings per share:
Net earnings (loss) $ (244,083) $ 77,930
Less dividends paid:
Class A common 80,358 120,237
Class B common - -
------------------------------
Undistributed earnings (loss) $ (324,441) $ (42,307)
Denominator for basic and diluted earnings per share:
Weighted average shares:
Class A common 2,008,949 2,003,949
Class B common 499,999 500,000
------------------------------
Total 2,508,948 2,503,949
Calculation of basic and diluted earnings (loss) per share:
Class A common:
Distributed earnings $ 0.04 $ 0.06
Undistributed earnings (loss) (0.13) (0.02)
------------------------------
Basic and diluted earnings (loss) per share $ (0.09) $ 0.04
==============================
Class B common:
Distributed earnings $ - $ -
Undistributed earnings (loss) (0.13) (0.02)
------------------------------
Basic and diluted earnings (loss) per share $ (0.13) $ (0.02)
==============================
</TABLE>
Options to purchase shares of Class A common stock under the Company's
Nonqualified Stock Option Plan were outstanding during the three month periods
ended March 31, 1998 and 1997. However, these shares were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AT MARCH 31, 1998 (UNAUDITED) AND THE
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31,1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 344,637
<SECURITIES> 0
<RECEIVABLES> 1,425,028
<ALLOWANCES> 134,340
<INVENTORY> 1,688,405
<CURRENT-ASSETS> 3,955,476
<PP&E> 5,735,780
<DEPRECIATION> 4,034,153
<TOTAL-ASSETS> 7,209,646
<CURRENT-LIABILITIES> 1,541,580
<BONDS> 0
0
0
<COMMON> 25,089
<OTHER-SE> 5,540,996
<TOTAL-LIABILITY-AND-EQUITY> 7,209,646
<SALES> 2,646,417
<TOTAL-REVENUES> 2,646,417
<CGS> 1,513,599
<TOTAL-COSTS> 1,513,599
<OTHER-EXPENSES> 1,402,511
<LOSS-PROVISION> 58,000
<INTEREST-EXPENSE> 5,990
<INCOME-PRETAX> (333,683)
<INCOME-TAX> (89,600)
<INCOME-CONTINUING> (244,083)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244,083)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
