<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period ended June 30, 1999
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)
(414) 542-5600
(Registrant's telephone number, including area code)
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 31, 1999, 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. The Class B
common stock is not traded on an exchange.
<PAGE> 2
ELECTRONIC TELE-COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . 4
Notes to Condensed Consolidated 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 . . . . . . . . . . . . . . . . . . .9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
</TABLE>
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<PAGE> 3
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
(UNAUDITED) (Note 1)
JUNE 30 December 31
1999 1998
--------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 503,902 $ 848,087
Trade accounts receivable, net 1,238,101 2,600,229
Inventories (Note 2) 1,826,649 1,384,265
Net investment in installment sales contracts 215,154 157,579
Prepaid expenses and other current assets 130,194 166,051
------------------------------
Total current assets 3,914,000 5,156,211
PROPERTY, PLANT AND EQUIPMENT, NET 1,551,011 1,628,448
NET INVESTMENT IN INSTALLMENT SALES CONTRACTS 878,588 772,685
EXCESS COST OVER NET ASSETS ACQUIRED 844,126 881,422
------------------------------
Total Assets $ 7,187,725 $ 8,438,766
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ - $ 1,300,000
Accounts payable 118,571 173,958
Accrued expenses 718,805 704,105
Income taxes payable 107,798 50,750
Deferred revenue 111,466 168,068
------------------------------
Total current liabilities 1,056,640 2,396,881
LONG-TERM LIABILITIES 20,128 52,393
------------------------------
Total liabilities 1,076,768 2,449,274
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 5,000 5,000
Additional paid-in capital 3,335,349 3,335,349
Retained earnings 2,750,519 2,629,054
------------------------------
Total stockholders' equity 6,110,957 5,989,492
------------------------------
Total Liabilities and Stockholders' Equity $ 7,187,725 $ 8,438,766
==============================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 4
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 - (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------------- -----------------------------------
1999 1998 1999 1998
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 2,875,246 $ 3,209,765 $ 6,144,353 $ 5,856,182
COST OF PRODUCTS SOLD 1,451,053 1,629,995 3,034,798 3,143,594
---------------------------- ----------------------------
GROSS PROFIT 1,424,193 1,579,770 3,109,555 2,712,588
OPERATING EXPENSES:
General and administrative 290,670 353,148 637,410 742,469
Marketing and selling 676,088 635,349 1,317,115 1,240,724
Research and development 423,835 438,554 857,952 894,756
---------------------------- ----------------------------
1,390,593 1,427,051 2,812,477 2,877,949
---------------------------- ----------------------------
EARNINGS (LOSS) FROM OPERATIONS 33,600 152,719 297,078 (165,361)
OTHER INCOME (EXPENSE):
Interest expense - (18,906) (1,283) (24,896)
Interest and dividend income 937 50 3,171 117
Miscellaneous (7,572) (9,529) (15,143) (19,209)
---------------------------- ----------------------------
(6,635) (28,385) (13,255) (43,988)
---------------------------- ----------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES 26,965 124,334 283,823 (209,349)
Income taxes (benefit) 3,000 72,300 82,000 (17,300)
---------------------------- ----------------------------
NET EARNINGS (LOSS) $ 23,965 $ 52,034 $ 201,823 $ (192,049)
---------------------------- ----------------------------
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE:
Class A common $ 0.01 $ 0.02 $ 0.09 $ (0.07)
Class B common $ 0.01 $ 0.02 $ 0.05 $ (0.11)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE> 5
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 - (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
----------------------------------------
1999 1998
----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings (loss) $ 201,823 $ (192,049)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 207,372 192,287
Deferred income taxes 22,153 39,000
Changes in operating assets and liabilities:
Accounts receivable 1,362,128 (724,668)
Inventories (442,384) (106,707)
Net investment in installment sales contracts (163,478) (253,494)
Prepaid expenses and other assets 35,857 13,782
Accounts payable and accrued expenses (72,952) 211,783
Income taxes 57,048 (60,906)
Deferred revenue (56,602) (12,839)
--------------------------------
Total adjustments 949,142 (701,762)
--------------------------------
Net cash provided by (used in) operating activities 1,150,965 (893,811)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (114,792) (156,077)
--------------------------------
Net cash provided by (used in) investing activities (114,792) (156,077)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings on revolving credit facility, net (1,300,000) 1,000,000
Dividends paid (80,358) (80,358)
Purchase and retirement of common stock - (4)
--------------------------------
Net cash provided by (used in) financing activities (1,380,358) 919,638
--------------------------------
Net increase (decrease) in cash and cash equivalents (344,185) (130,250)
Cash and cash equivalents at beginning of year 848,087 489,573
--------------------------------
Cash and cash equivalents at end of period $ 503,902 $ 359,323
--------------------------------
Supplemental disclosures of cash flow information:
Cash received from income tax refunds $ - $ -
Cash paid for income taxes 5,587 5,027
Cash paid for interest expense 8,027 18,876
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
<PAGE> 6
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 - (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, which consist only of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for the
three-month and six-month periods ended June 30, 1999, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
The balance sheet at December 31, 1998, has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's 1998 Annual Report to Shareholders.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30 December 31
1999 1998
------------- --------------
<S> <C> <C>
Raw materials and supplies $ 647,393 $ 437,349
Work-in-process and finished goods 853,595 559,674
Maintenance and demo parts 523,829 532,502
Reserve for obsolescence (198,168) (145,260)
----------- -----------
Total inventories $ 1,826,649 $ 1,384,265
=========== ===========
</TABLE>
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. Because the
Company has not used derivatives in the past and does not expect to do so in the
future, the Company does not anticipate that adoption of SFAS No. 133 will have
an effect on it results of operations or financial position.
In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of Computer
Software Developed For or Obtained For Internal Use." The SOP, which has been
adopted prospectively as of January 1, 1999, requires the capitalization of
certain costs incurred in connection with developing or obtaining internal use
software. The Company does not develop its own software for internal use. Prior
to the adoption of the SOP 98-1, the Company capitalized the cost of software it
obtained for internal use, and amortized it using the straight-line method over
the useful life of the software. The Company will continue to follow this
practice in accordance with the SOP. Adoption of SOP 98-1 will not have an
impact on the financial statements of the Company.
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<PAGE> 7
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales were $2,875,246 and $3,209,765 for the three-month periods ended June
30, 1999 and 1998, respectively. Net sales for the six-month period ended June
30, 1999 were $6,144,353, compared to $5,856,182 for the corresponding period of
1998. The decrease in net sales for the three-month period ended June 30, 1999,
was due to weaker than expected sales of the Company's interactive voice
information systems to operating telephone companies, original equipment
manufacturers, and competitive local exchange carriers (CLEC's). However, for
the six-month period ended June 30, 1999, sales of the Company's interactive
voice information systems were higher than the prior year comparable period due
to a strong 1999 first quarter. Revenues from sales of the Company's interactive
voice information systems were $3,747,300 or 61% of net sales, and $3,261,689 or
56% of net sales, for the six-month periods ended June 30, 1999 and 1998,
respectively. Revenues from operating leases, installment sales contracts, and
services were $1,838,721 or 30% of net sales for the 1999 six-month period,
compared to $1,797,617 or 31% of net sales for the corresponding 1998 period.
The dollar increase between years was primarily due to increased revenues from
new installment sales contracts, and increased revenue from installation of the
Company's interactive voice information systems. Product pricing for the
Company's equipment remained relatively constant between periods, and inflation
did not have a material impact on revenues.
For the three-month periods ended June 30, 1999 and 1998, the gross profit
percentage was 50% and 49%, respectively. Gross profit as a percentage of net
sales for the six-month periods ended June 30, 1999 and 1998, were 51% and 46%,
respectively. The increase in gross profit percentage in the 1999 three-month
periods was due to higher sales of various Y2K upgrades which have a higher
profit margin than the Company's normal product mix, partially offset by
spreading fixed manufacturing costs over lower sales volume. The increase in the
six-month periods was due to spreading fixed manufacturing costs over higher
sales volume, and sales of various Y2K upgrades which have a higher profit
margin than the Company's normal product mix.
For the three-month periods ended June 30, 1999 and 1998, total operating
expenses were $1,390,593 or 48% of net sales, and $1,427,051 or 44% of net
sales, respectively. Total operating expenses were $2,812,477 or 46% of net
sales for the six-month period ended June 30, 1999, compared to $2,877,949 or
49% for the corresponding period of 1998. General and administrative expenses
were lower for the 1999 periods as a result of lower staffing. Marketing and
selling expenses increased in 1999 over 1998 due primarily to salary and benefit
expenses related to previously open sales and marketing positions that were more
fully staffed during the 1999 periods. Research and development expenses were
slightly lower in the 1999 periods due to open engineering positions.
Net other expenses were $13,255 for the six-month period ended June 30, 1999,
compared to $43,988 for the corresponding period of 1998. The decrease between
periods was primarily due to less interest expense incurred for bank borrowings
during the 1999 periods and higher interest income earned from investing Company
funds. Miscellaneous other expense consists primarily of amortization of
goodwill.
For the three-month periods ended June 30, 1999 and 1998, net earnings were
$23,965 and $52,034, respectively. Lower net earnings for the 1999 quarter were
due to lower net sales, partially offset by higher gross margins, lower
operating expenses, and lower interest expense. Net earnings for the six-month
period ended June 30, 1999 were $201,823 versus a net loss of $192,049 for the
corresponding 1998 period. Higher earnings in the 1999 period were attributable
to higher sales, higher gross profit margin on products sold, lower operating
expenses, and lower interest expense.
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<PAGE> 8
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND SOURCES OF CAPITAL
Working capital was $2,857,360 as of June 30, 1999, compared to $2,759,330 at
December 31, 1998. The slight increase in working capital was due primarily to
net earnings, partially offset by payment of dividends and expenditures made for
capital equipment. Cash provided by operating activities was $1,150,965 for the
six-month period ended June 30, 1999, compared to cash used of $893,811 for the
corresponding 1998 period. The cash provided by operating activities in the 1999
period was due primarily to net earnings and a decrease in accounts receivable,
partially offset by an increase in inventories. Cash used in operating
activities in the 1998 period was due primarily to the net loss, increases in
accounts receivable and inventories, and investment in installment sales
contracts, partially offset by an increase in accounts payable and accrued
expenses.
For the six-month period ended June 30, 1999, cash provided by net earnings and
reduction of accounts receivable was used for repayment of bank borrowings,
payment of dividends, purchases of capital equipment, and increases in
inventories. For the 1998 six-month period, cash provided by bank borrowings was
used for payment of dividends, purchases of capital equipment, and to fund
increased accounts receivable and the net loss.
As of June 30, 1999, the Company had no borrowings on its available $3,500,000
revolving credit facility. The revolving credit facility expires on June 30,
2000.
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 operating needs for the foreseeable future.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Some of ETC's internal
operating computer programs had time-sensitive software that recognized a date
using "00" as the year 1900 rather than the year 2000. This could have caused
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities. In addition, ETC's
products contain computer programs that may be impacted by the Year 2000 Issue.
The Company also deals with third parties that may be affected by the Year 2000
Issue and may subsequently affect ETC.
ETC has completed its assessment of the Year 2000 Issue in regard to its
internal computer systems and has modified and replaced minor portions of its
software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The project has been completed, and the
Company believes that with these modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems.
The Company has completed evaluation of its products and has determined that all
of its current systems are Year 2000 compliant. For any customers that possess
ETC equipment that is currently not Year 2000 compliant, the Company will
provide upgrades or migration paths to new equipment to address the Year 2000
needs of its customers.
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<PAGE> 9
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
ETC is continuing to evaluate the Year 2000 readiness of its critical third
party suppliers. If it is determined that any suppliers are not Year 2000 ready,
ETC will continue to monitor the situation and take appropriate action. Based on
current progress, ETC does not anticipate any adverse consequences due to
supplier Year 2000 readiness.
The total year 2000 project cost is expected to be minimal and all costs will be
expensed as incurred and are included within the Company's normal operating
budget. Computer system software upgrades are included under normal maintenance
contracts
ETC believes, based on an overall analysis of the Year 2000 Issue, that it will
be able to manage its total Year 2000 transition without any adverse effect on
its business operations, products or financial prospects. However, the actual
results could differ and if such modifications and conversions are not made or
are not completed timely, the Year 2000 Issue could have a material impact on
the operations of the Company.
FORWARD LOOKING INFORMATION
From time to time, information provided by the Company, statements made by its
employees, and information included in its filings with the Securities and
Exchange Commission which are not historical facts are forward-looking in nature
and relate to trends and events that may affect the Company's future financial
position and operating results. Such forward-looking information is provided
pursuant to the Safe Harbor provision of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties including, but not
limited to, technology changes, backlog, acquisitions, status of the economy,
governmental regulations, sources of supply, expense structure, product mix,
major customers, competition, litigation, and other risk factors detailed in the
Company's filings of Form 10-K with the Securities and Exchange Commission.
Investors are encouraged to consider the risks and uncertainties included in
those filings.
-8-
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the Registrant on May 7, 1999, 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 458,014 0
Bonita M. Danner 458,014 0
Hazel Danner 458,014 0
George W. Danner 458,014 0
A. William Huelsman 458,014 0
Joanne B. Huelsman 458,014 0
Peter J. Lettenberger 458,014 0
Richard A. Gabriel 458,014 0
</TABLE>
Also voted on at the annual meeting was the approval and adoption of the
Electronic Tele-Communications, Inc. 1999 Nonqualified Stock Option Plan. The
Plan was approved and adopted with 458,014 votes for and no votes withheld.
There were no abstentions or broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.8 Electronic Tele-Communications,
Inc. 1999 Nonqualified
Stock Option Plan
Exhibit 11 Computation of Earnings Per
Share
Exhibit 27 Financial Data Schedule
-9-
<PAGE> 11
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 12, 1999
-10-
<PAGE> 1
EXHIBIT 10.8
ELECTRONIC TELE-COMMUNICATIONS, INC.
1999 NONQUALIFIED STOCK OPTION PLAN
1. PURPOSE.
The purpose of this Plan is to promote the growth and development of
Electronic Tele-Communications, Inc. (the "Company") by (a) providing
increased long-term incentives for employees and non-employee directors
of the Company and any present or future subsidiary of the Company and
(b) facilitating the efforts of the Company and its Subsidiaries to
obtain and retain employees and directors of outstanding ability. This
Plan provides for the granting of nonqualified stock options which are
intended not to qualify for the treatment provided under Section 422A
of the Internal Revenue Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Stock Option Committee (the
"Committee") of the Board of Directors of the company. The Stock Option
Committee shall consist of at least three non-employee members of the
Board of Directors. A majority of the members of the Committee shall
constitute a quorum. The approval of such a quorum, expressed by vote
at a meeting, or in writing without a meeting, shall constitute the
action of the Committee and shall be valid and effective for all
purposes of the Plan.
(b) The Committee is authorized, subject to the provisions of the Plan,
to adopt, amend and rescind such rules and regulations as it may deem
appropriate for the administration of the Plan, and to make
determinations and interpretations which it deems consistent with the
Plan's provisions. The Committee's determinations and interpretations
shall be final and conclusive.
3. ELIGIBILITY.
(a) In any plan year, all persons who have been employed by the Company
or a Subsidiary, including those persons who have been employed by a
Subsidiary prior to the date on which it became a Subsidiary, shall be
eligible to receive options under the plan without regard to their
length of service.
(b) All non-employee directors of the Company or its Subsidiaries shall
be eligible to receive options under the Plan without regard to the
length of their service with the Company.
(c) Notwithstanding the foregoing, no person owning five percent (5%)
or more of any class of stock in the Company, other than a full time
employee, shall be eligible to receive options under this Plan.
4. SHARES SUBJECT TO OPTIONS.
(a) The stock to be subject to options under the Plan shall be shares
of the Company's Class A Common Stock, $.01 par value, subject to
adjustment under Paragraph 13 hereof, and may be authorized but
un-issued Class A Common Stock or Class A Common Stock issued and
reacquired by the Company.
(b) The aggregate number of shares which may be issued pursuant to
exercises of options granted under the Plan shall not exceed One
Hundred Seventy-five Thousand (175,000) shares of the Company's Class A
Common Stock, subject to adjustment under paragraph 13 hereof.
(c) Shares subject to and not issued under an option which expires or
terminates or is cancelled for any reason during the term of the Plan
shall again be available for the granting of options under the Plan.
5. EXERCISE PRICE.
(a) The exercise price at which shares may be purchased under each
option shall be not less than 100 percent of the Fair Market Value of
the shares on the date on which the option is granted. For all purposes
of this Plan, the term "Fair Market Value" shall be the average of the
highest and lowest sale prices of the stock, on the date of grant, as
reported by NASDAQ (the National Association of Securities Dealers,
Inc. Automated Quotation System). However, if at any time the Class A
Common Stock is listed on any exchange, the "Fair Market Value" shall
be the average of the reported highest and lowest prices at which
shares of Class A Common Stock are sold on such exchange on the date
the option is granted. In the absence of reported sales on NASDAQ or of
such exchange on the said date, the "Fair Market Value" shall be the
average of the reported closing bid and asked prices for the shares on
NASDAQ or such exchange on the date the option is granted.
(b) The cash proceeds of the sale of stock subject to an option are to
be added to the general funds of the Company available for its
corporate purposes.
1
<PAGE> 2
6. GRANTING OF OPTIONS.
(a) The Committee may from time to time at its discretion, subject to
the provisions of the Plan, determine which options shall be granted
and at the time of each grant determine those eligible employees and
non-employee directors to whom options shall be granted, the number of
shares subject to such options, the date or dates on which the options
become exercisable, either wholly or in part, and the expiration date
of the options.
(b) Each option shall be evidenced by a written agreement containing
terms and conditions established by the Committee consistent with the
provisions of the Plan.
7. TERM OF PLAN.
Options may be granted under the Plan at any time up to December 31,
2009, on which date the Plan shall expire except as to options the
outstanding, which options shall remain in effect until they have been
exercised or have expired or terminated.
8. EXERCISE OF OPTIONS.
(a) Options granted under the Plan may be exercised only in accordance
with the terms established by the Committee, but no option shall be
exercisable until the optionee has completed at least the number of
years of continuous employment, or service as a director, from the date
of grant of each option as follows, and then the option shall be
exercisable for any amount of shares up to the maximum percentage of
shares covered thereunder as follows:
<TABLE>
<CAPTION>
Number of Completed Maximum
Years of Continuous Percentage of
Employment or Service Shares for Which
After the Date of Option is
Grant of Option Exercisable
-------------------- ----------------
<S> <C>
Less than 1 Zero
At least 1 but less than 2 20%
At least 2 but less than 3 40%
At least 3 but less than 4 60%
At least 4 but less than 5 80%
At least 5 100%
</TABLE>
(b) Unless otherwise determined by the Committee at the time of grant,
each option granted hereunder shall expire on a date which is ten years
after the date on which the option was granted.
(c) Although the Company intends to exert its best efforts so that the
shares purchasable upon the exercise of an option, when it first
becomes exercisable, will be registered under, or exempt from the
registration requirements of, the Federal Securities Act of 1933 ("The
Act") and any applicable state securities law, if the exercise of an
option would otherwise result in the violation by the Company of any
provision of the Act or of any state securities law, the Company may
require that such exercise be deferred until the Company has taken
appropriate action to avoid any such violation.
(d) The exercise price for shares purchased shall be paid in full at
the time of exercise and no shares shall be issued until full payment
therefore is made. Such payment may be made either (i) in cash or (ii)
by delivering shares of the Company's common stock which have been
beneficially owned by the optionee, the optionee's spouse, or both of
them for a period of at least six months prior to the time of exercise
(the "Delivered Stock") or (iii) by delivering a combination of cash
and Delivered Stock. Delivered Stock shall be valued at its Fair Market
Value determined as of the date of exercise of the option.
(e) An optionee shall not be deemed the holder of any shares subject to
the option until the shares are fully paid and issued to him upon
exercise of such option.
9. TRANSFERABILITY OF OPTIONS.
An option granted under the Plan may not be transferred except by will
or the laws of descent and distribution and may be exercised during the
lifetime of optionee (to the extent exercisable) only by him. The
option and any rights and privileges pertaining thereto shall not be
transferred, assigned, pledged or hypothecated by him in any way
whether by operation of law or otherwise and shall not be subject to
execution, attachment or similar process.
2
<PAGE> 3
10. TERMINATION OF EMPLOYMENT OR SERVICE.
(a) If an optionee ceases to serve as a director or be employed by the
Company or a Subsidiary for any reason (except death or retirement as
defined in 11) after optionee shall have continuously served as a
director or been so employed for one year after the date of grant of
an option, the optionee may, at any time within 90 days after the date
of such termination but in no event later than the date of expiration
of the option, exercise the option to the extent he was entitled to do
so on the date of such termination; provided, however, that if such
optionee is dismissed or his service as a director is terminated for
cause, of which the Committee shall be the sole judge, his option
shall forthwith expire. Any options or portions of options of
terminated employees not so exercised shall terminate.
(b) The Committee may determine that, for the purpose of the Plan, an
optionee who is on a leave of absence will be considered as in the
continuous employment or service of the Company or a Subsidiary.
(c) A change in employment or service from the Company to a Subsidiary
or from a Subsidiary to the Company or another Subsidiary shall not be
a termination of employment or service or an interruption of continuous
employment or service for the purposes of the Plan.
(d) Nothing in the Plan or in any option granted under the Plan shall
confer on any employee or director any right to continue in the employ
or service of the Company or its Subsidiaries, or affect the right of
the Company or its Subsidiaries to terminate his employment or service
at any time.
11. RETIREMENT.
If an optionee retires from employment or service with the Company or a
Subsidiary in good standing having accumulated 75 points, consisting of
complete years of service plus whole years of age, and on the date of
his retirement any option granted to him under this Plan is outstanding
and unexercised, then regardless of whether such option would have been
exercisable at the time of retirement under paragraph 8(a) hereof, the
optionee may exercise such option at any time within one year after the
date of retirement, but not later than the expiration date of the
option, for any amount of shares up to the maximum percentage of shares
covered thereunder as follows, based on optionee's number of completed
years of continuous employment or service with the Company or a
Subsidiary (including optionee's number of completed years of
continuous employment or service with a subsidiary prior to the date on
which it becomes a subsidiary of the Company) prior to his retirement.
Any options or portions of options of retired optionees not so
exercised shall terminate.
12. DEATH.
If an optionee dies while in the employ or service of the Company or a
Subsidiary, or within 90 days after optionee's retirement as defined in
11 from such employment or service, the person or persons to whom the
option is transferred by will or the laws of descent and distribution
may, at any time within one year after the date of death but not later
than the expiration date of the option, exercise all of the options
granted to the optionee under this Plan, whether or not such options
would have been fully exercisable on such date under paragraphs 8(A) or
11 hereof. Any options or portions of options of deceased optionees not
so exercised shall terminate.
13. CHANGES IN COMMON STOCK.
In the event of the reorganization, re-capitalization, stock split,
stock dividend, merger, consolidation, combination or exchange of
shares, rights offering, or any other change affecting the Class A
Common Stock of the Company, the Committee shall make such changes in
the aggregate number and kind of shares available under the Plan and in
the number, price, and kind of shares covered by options granted or to
be granted under the Plan as are appropriate and equitable to prevent
any diminution or enlargement of the rights of participants in the
Plan.
14. AMENDMENT OR DISCONTINUANCE.
The Committee may, at any time, without the approval of the
stockholders of the Company, alter, amend, modify, accelerate vesting,
suspend or discontinue the Plan, but may not, without the consent of
the holder of an option, make any alteration which would adversely
affect an option previously granted under the Plan or, without the
approval of the stockholders of the Company, make any alteration which
would (a) increase the aggregate number of shares subject to options
under the Plan, except for adjustments pursuant to paragraph 13; (b)
decrease the minimum option price; or (c) extend the term of the Plan
or the maximum period during which any option may be exercised.
3
<PAGE> 4
15. LIABILITY.
No member of the Board of Directors or officers or employees of the
Company or its Subsidiaries shall be personally liable for any action,
omission or determination made in good faith in connection with the
Plan.
16. EFFECTIVE DATE.
This Plan, recommended by the Compensation/Stock Option Committee of
the Board of Directors on April 16, 1999 and subsequently approved by
the Board of Directors via Unanimous Consent, shall become effective
upon the approval of the voting stockholders of the Company at the 1998
annual meeting of stockholders on May 7, 1999, or any adjournment
thereof. No option granted hereunder shall be or become exercisable
unless and until such stockholder approval has occurred.
17. DISSOLUTION OR MERGER.
Anything contained herein to the contrary notwithstanding, upon the
dissolution or liquidation of the Company, or upon any merger in which
the Company is not the surviving corporation, at any time prior to the
expiration date of an option or the termination of an option hereunder,
an optionee shall have the right within sixty (60) days prior to the
effective date of such dissolution, liquidation or merger, to surrender
then outstanding and unexercised options to the Company for cash,
subject to the discretion of the Committee as to the exact timing of
said surrender, regardless of whether the option was then exercisable
under the provisions of paragraph 8(a). Notwithstanding the foregoing,
however, in the case of a retired optionee, the optionee's right to
surrender his outstanding and unexercised options under this paragraph
shall be available only to the extent that at the time of any such
surrender optionee would have been entitled to exercise his option
under paragraph 11 hereof. The amount of cash to be paid to the
optionee for all such surrendered options shall be equal to the number
of shares of Class A Common Stock subject to such surrendered options,
multiplied by the difference between the option price per share and the
Fair Market Value per share of Class A Common Stock of the Company at
the time of surrender.
18. MISCELLANEOUS.
(a) The term "Board of Directors" herein shall mean the Board of
Directors of the Company and, to the extent that any powers and
discretion vested in the Board of Directors are delegated to any
committee of the Board, the term "Board of Directors" shall also mean
such committee.
(b) The term "Subsidiary" used herein shall mean any corporation more
than 50 percent of whose total combined voting stock of all classes is
held by the Company or by another corporation qualifying as a
Subsidiary within this definition.
19. WITHHOLDING TAXES.
Pursuant to applicable Federal and state laws, the Company may be
required to collect withholding taxes upon the exercise of an option.
The Company may require, as a condition to the exercise of an option,
that the optionee concurrently pay to the Company the entire amount or
a portion of any taxes which the Company is required to withhold by
reason of such exercise, in such amount as the Committee or the Company
in its discretion may determine. In lieu of part or all of any such
payment, the optionee may elect, subject to such rules and regulations
as the Committee may adopt from time to time, to have the Company
withhold from the shares to be issued upon exercise of the option that
number of shares having a Fair Market Value equal to the amount which
the Company is required to withhold.
1999 Stock Option Plan/DWD
4
<PAGE> 1
EXHIBIT 11
ELECTRONIC TELE-COMMUNICATIONS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
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 SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
----------------------------------- -----------------------------------
Numerator for basic and diluted earnings per share:
<S> <C> <C> <C> <C>
Net earnings (loss) $ 23,965 $52,034 $ 201,823 $ (192,049)
Less dividends paid:
Class A common - 0 80,358 80,358
Class B common - - - -
--------------------------- ----------------------------
Undistributed earnings (loss) $ 23,965 $52,034 $ 121,465 $ (272,407)
Denominator for basic and diluted earnings per share:
Weighted average shares:
Class A common 2,008,949 2,008,949 2,008,949 2,008,949
Class B common 499,998 499,998 499,998 499,999
--------------------------- ----------------------------
Total 2,508,947 2,508,947 2,508,947 2,508,948
Calculation of basic and diluted earnings (loss) per share:
Class A common:
Distributed earnings $ - $ - $ 0.04 $ 0.04
Undistributed earnings (loss) 0.01 0.02 0.05 (0.11)
--------------------------- ----------------------------
Basic and diluted earnings (loss) per share $ 0.01 $ 0.02 $ 0.09 $ (0.07)
=========================== ============================
Class B common:
Distributed earnings $ - $ - $ - $ -
Undistributed earnings (loss) 0.01 0.02 0.05 (0.11)
--------------------------- ----------------------------
Basic and diluted earnings (loss) per share $ 0.01 $ 0.02 $ 0.05 $ (0.11)
=========================== ============================
</TABLE>
Options to purchase shares of Class A common stock under the Company's
Nonqualified Stock Option Plan were outstanding during the three-month and
six-month periods ended June 30, 1999 and 1998. 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. The number of shares excluded
from the computation were 69,900 for the 1999 periods and 93,940 for the 1998
periods.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 30, 1999 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Six Months Ended June 30,
1999 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 503,902
<SECURITIES> 0
<RECEIVABLES> 1,338,572
<ALLOWANCES> 100,471
<INVENTORY> 1,826,649
<CURRENT-ASSETS> 3,914,000
<PP&E> 5,273,043
<DEPRECIATION> 3,722,032
<TOTAL-ASSETS> 7,187,725
<CURRENT-LIABILITIES> 1,056,640
<BONDS> 0
0
0
<COMMON> 25,089
<OTHER-SE> 6,085,868
<TOTAL-LIABILITY-AND-EQUITY> 7,187,725
<SALES> 6,144,353
<TOTAL-REVENUES> 6,144,353
<CGS> 3,034,798
<TOTAL-COSTS> 3,034,798
<OTHER-EXPENSES> 2,708,449
<LOSS-PROVISION> 116,000
<INTEREST-EXPENSE> 1,283
<INCOME-PRETAX> 283,823
<INCOME-TAX> 82,000
<INCOME-CONTINUING> 201,823
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,823
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
