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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-13981
ELECTRONIC TELE-COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1357760
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1915 MacArthur Road Waukesha, Wisconsin 53188
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 542-5600
Securities registered pursuant to section 12(b) of the Act:
None.
Securities registered pursuant to section 12(g) of the Act:
Class A Common Stock, Par Value $.01 per share.
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of voting and non-voting common stock held by
non-affiliates of the Registrant as of March 1, 2000 was $5,842,000. As of March
1, 2000, there were outstanding 2,009,149 shares of Class A common stock and
499,998 shares of Class B common stock. The Class B common stock is the only
voting stock. 87.9% of the Class B common stock is owned by affiliates. There is
no market for the Class B common stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV incorporate by reference portions of Electronic
Tele-Communications' 1999 Annual Report to Shareholders. Part IV incorporates by
reference certain exhibits previously filed with Electronic Tele-Communications'
S-1 Registration Statement (No. 2-99175) dated July 24, 1985, and subsequent
reports under the Securities Exchange Act of 1934.
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Electronic Tele-Communications, Inc. is a Wisconsin corporation, incorporated in
1980. The Company designs, manufactures, and markets digital voice information
platforms and related services for the telecommunications industry.
Substantially all of the Company's products are proprietary and have been
developed since 1989. Research and development activities have been and will
continue to be important to the development of new products and markets.
ETC has executive offices, manufacturing, engineering, technical services,
marketing, and a regional sales office in Waukesha, Wisconsin. In addition,
engineering, technical services, and a regional sales office are located in
Atlanta, Georgia, and technical services, repair services, and a regional sales
office are located in Pleasanton, California. ETC also has two sales
representatives in various other locations in the United States.
(b) Financial Information About Industry Segments
Not applicable. The Company has one reportable operating segment.
(c) Narrative Description of Business
GENERAL
Electronic Tele-Communications designs, manufactures, and markets digital voice
information systems and call processing systems. It also provides comprehensive
services in support of these systems, including installation, training, 24-hour
technical support, professional voice recording and weather forecasting. Its
equipment provides a wide range of audio and computer information and call
handling capabilities via telephone networks, computer networks, and the
Internet. The Company's products are utilized by a variety of customers,
including: (1) telephone companies which use the products to provide information
to callers regarding misdialed or changed numbers, sources of assistance or
calling instructions, enhanced services such as call forwarding, automatic
callback, and repeat dialing, and automated pay phone interaction; (2) public
and private providers of informational announcements such as news, sports,
weather, time, stock reports, or advertisements; (3) large and small businesses
which use call handling products for applications such as voice mail and call
sequencing; and (4) private reporting and information services through
pay-per-call services, commonly referred to as "900 Services." The Company's
systems are generally priced from $500 to $200,000.
The Company's products are primarily solid-state and are controlled by
microprocessors and software. They use digital technology for voice and data
storage and processing. Digital storage provides for the instant and unlimited
playback of voice messages and data. Voice recordings are digitized,
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or encoded as data, and stored in memory in the Company's equipment. This data
may then be decoded and delivered as voice messages and computer data via
telephone networks, computer networks, and the Internet.
The Company's products provide 100% non-blocking operation, so that the caller
always receives the announcement service without any delay, regardless of the
number of telephone lines simultaneously accessing the service. This provides
greater caller acceptance of the service and reduces telephone traffic by
eliminating long waits for announcements and repeated calls to a busy
announcement service.
In addition to an extensive line of standard digital announcer equipment, ETC
designs and manufactures interactive voice platforms which provide callers with
a spoken menu from which to choose informational topics of interest. ETC also
offers voice mail systems that provide prompt telephone answering and
message-taking capabilities, eliminating annoying and time-consuming telephone
tag. Finally, ETC provides a variety of special function and customized
products, meeting the varied needs of telephone service providers world-wide.
TECHNOLOGY AND PRODUCT DEVELOPMENT
Most of Electronic Tele-Communications' products consist of proprietary circuit
card assemblies, purchased assemblies, and purchased and proprietary software.
The Company's technologies involve the design of electronic systems, including
printed circuit boards and the arrangement of electronic components thereon, and
the purchase, integration, and development of application software necessary to
access and control the systems, messages and their formats.
The Company designs printed circuit boards for use in its systems using computer
aided design equipment. This equipment permits the design of complex
multi-layered printed circuit boards which not only have wiring on the top and
bottom surfaces, but also incorporate six or more inside layers of circuitry.
Printed circuit boards, when equipped with the electronic components required to
perform specified functions, are called cards. The electronic components include
computer memory chips, microprocessors, integrated circuits, resistors,
capacitors, transformers, and switches.
Application software to operate the Company's products involves the formulation
of specialized computer programs, which are purchased and integrated into the
Company's systems. Some of the Company's software programs are proprietary and
designed in-house. The application programs provide the operating equipment with
the instructions necessary to access and control the messages and their format,
permit diagnostic tests, and allow monitoring by reading, translating and acting
upon commands and information.
ETC's products employ the concept of distributed processing. This means that
each assembly contains its own microprocessor which controls the functions of
that particular card. Distributed processing permits the system to be modularly
expanded, allows for a variety of configurations of the systems, and increases
system reliability.
All of ETC's products are equipped with self-diagnostic features that
automatically alert the user to equipment malfunctions or external problems
which must be corrected to maintain proper system operation.
New product development and product improvements are significant to ETC's
business. The Company spent approximately $1,654,000, $1,752,000, and $1,785,000
in 1999, 1998, and 1997, respectively, on research and development activities,
all of which were exclusively Company sponsored and supported.
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Electronic Tele-Communications owns some patents, and seeks to obtain trademarks
and copyright protection on all of its proprietary systems, programs, and
printed material. The Company has registered its corporate logo and the
Audichron(R), Digicept(R), Aris(R), and USA TIME(R) trademarks to protect its
products. The Company believes that its patents, trademarks, and copyrights are
a significant factor in maintaining its market position, but does not believe
that its business is dependent upon any single patent, copyright or trademark.
PRODUCTS
Interactive Voice Platforms
The Company produces Digicept(R) Digital Network Application ("DNA") Modules,
the Digicept(R) 2000, and the Audichron(R) System 3 and System 3 Jr.
Additionally, in the year 2000, production will begin on the Company's newest
voice platform, Digicept Emcee(TM). The Emcee is a scalable, open-system network
peripheral designed to meet the needs of emerging advanced networks. Together,
these products constitute a comprehensive line of interactive voice platforms,
providing multi-message, user-selectable voice announcements. All five systems
feature Automatic Intercept Service, Changed Number Announcement and Automatic
Number Announcement. These applications intercept erroneously dialed numbers,
informing the caller of changed numbers or other dialing instructions. Each
system also provides prompts and messages in support of enhanced telephone
services, providing instructions for custom calling services and automated pay
phone operation. In addition, the interactive voice platforms may be used to
provide user selectable information regarding entertainment or transportation
schedules, medical, financial and insurance data, news and sports updates, and
other public information.
Voice Mail, Audiotex, Time/Weather/Temperature
The Audichron(R) 410 combines voice mail, audiotex, and time/weather/temperature
functions in a single system. Flexible, industry standard hardware and software
allow for the continued development of additional features required by the
business user or service provider. Both rack-mount and tower enclosures are
available, designed to meet the varied needs of both the telephone company and
business office environments.
Audichron Zephyr(TM), debuting in 2000, will provide basic
time/weather/temperature functionality in a low-cost, solid-state platform.
Audichron announcers provide professionally recorded voice announcements,
available with synchronous entry so that every caller hears the entire
announcement from the beginning. Promotional announcements, in rotating or fixed
time slots, may be added for additional revenue generation. All maintenance for
weather forecast updates, message changes and time adjustment is provided
remotely. Monthly call rate reporting is provided to the customer to document
system usage.
Digital Recorder/Announcers
The basic unit of the Company's Digicept system is the Digicept
recorder/announcer, which stores a single announcement for playback to the
telephone network. The Digicept line also includes the Extended Memory
recorder/announcer, providing extended-length, single-channel messages. Calls to
the recorder/announcers are generally grouped through multiple interface
circuits, also manufactured by the Company, allowing simultaneous access to the
recorder/announcer by hundreds of phone lines. High-speed T1 interfaces are
available to connect large recorder/announcer systems directly to a 24-channel
digital T1 network. The Digicept recorder/announcers are most often
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found in telephone company central offices, providing informational
announcements regarding incorrectly dialed or changed numbers, telephone
services and weather conditions. These announcers are also used by businesses to
provide information on finance, transportation, public service and education.
The Messenger(TM) 612 single-channel announcer, housed in a self-contained
package, provides similar functionality in a business office environment.
The Company's Digicept, Aris(R) and Messenger product lines include
multi-channel recorder/announcers designed for applications requiring the
simultaneous playback of multiple messages. These multi-channel announcers
provide informational announcements similar to those of the single-channel
recorder/announcers. The Digicept line offers two multi-channel
recorder/announcers, which are typically rack mounted in telephone company
central offices or other large business applications. The Aris and Messenger
announcers are housed in self-contained packages, ideal for use in office
environments. The Aris line offers one multi-channel announcer, in several
configurations, while the Messenger line offers two multi-channel announcers.
Common Equipment
Interface and trunk circuits combine hardware and software to provide the
connection between the telephone central office, the calling party and the
Company's announcement systems. The Company has developed interface circuits for
its Digicept and Audichron product lines. By providing both the interface
circuits and the announcement systems, the Company offers integrated solutions
designed to meet customers' needs while providing for the modular expansion of
the systems. The Company provides interface circuits that can perform a wide
variety of functions and are compatible with most telephone circuitry, including
T1 interfaces for direct connection to the digital telephone network.
SERVICES
Leasing Services
The Company's Audichron subsidiary leases announcement systems in the United
States and internationally. These systems form the USA TIME(R) network of
time/weather/temperature announcers. These systems primarily serve financial
institutions and telephone companies.
Recording Services
A professional staff is available from ETC's recording studio in Atlanta,
Georgia to provide high quality recordings of commercial announcements and
customized messages in a variety of formats. These announcements include
interactive system vocabularies, call processing system prompts,
information-on-hold announcements and commercial announcements for telemedia.
Recordings may be provided on cassette or reel-to-reel tapes, or may be
digitized and stored on floppy diskettes or delivered via the Internet.
Meteorological Services
A staff of degreed meteorologists, using state-of-the-art information services
and equipment, update weather forecasts from ETC's weather center in Atlanta,
Georgia. A rigid quality control program ensures that forecasts are accurate and
timely. These forecasts serve approximately 500 USA TIME sites, and are
downloaded to the Company's time/weather/temperature systems via the telephone
network, using computer-generated calling. Additionally, all maintenance, call
rate reports, promotional messages, time adjustment and daylight savings time
changes are provided remotely from the weather center.
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Technical Services
The Company offers equipment installation, training, and 24-hour technical
support of its various products. Maintenance and installation services include
customer premise support and software and documentation updates. Classes are
held in ETC's training centers, and at customer sites, to instruct employees and
customers on the operation and use of ETC's products. Technical bulletins and
software updates are also available from the Company's World Wide Web site.
Miscellaneous Services
In addition to its manufactured products, the Company offers engineering and
product services to the telephone companies and other equipment customers. The
company can design call processing and voice announcement systems to a
customer's specifications. This includes determining equipment requirements
based on the Company's standard offerings and interconnecting the cards and
systems to the exact size and capability needed by the customer.
MANUFACTURING PROCESSES
ETC's manufacturing processes involve the fabrication of products from
components manufactured to specification by others or purchased as stock items
from independent suppliers. Items such as memory chips, computers, disk drives,
microprocessing units, integrated circuits, resistors, capacitors, transformers,
switches, wire and related items are purchased as stock items from a variety of
manufacturers and distributors. Some components are manufactured by a single
producer, but the Company believes suitable replacement components would be
available from a variety of sources should the product of any producer become
unavailable. The Company's printed circuit boards and product enclosures are
manufactured by outside suppliers to the Company's specifications. The Company
believes these products would be available from a variety of sources and that
the loss of any single source of supply would not materially affect the
Company's business.
The products manufactured by ETC generally require a high degree of precision
and dexterity in the assembly stage and multiple testing and quality assurance
checks prior to shipment. By stressing quality and maintaining rigid testing and
quality assurance procedures, the Company has been able to achieve a low product
return-for-service rate.
The Company purchases computers, monitors, printers, disk drives, and other
computer related accessories. These components are assembled into systems and
packaged with software and sold to the customer.
In addition to hardware manufactured by the Company, software is an integral
component of the Company's announcement systems. Purchased and internally
generated software programs are loaded into the voice announcement systems in a
variety of methods, including "burning" the programs into microprocessors, or
using CDs or floppy disks to transfer the programs onto computer hard drives or
memory chips. These software programs dictate how the voice announcement systems
perform, and give the products flexibility to meet many different customer
specifications and needs.
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SALES, MARKETING AND CUSTOMERS
ETC's manufactured products are marketed primarily through Company sales
personnel, with approximately 7% being sold through independent distributors and
telecommunications dealers. Sales and leases of the Company's
time/weather/temperature machines and related information update services are
performed through the Company's sales personnel. Approximately 97% of the
Company's 1999 sales were in the United States, and 3% were to international
customers.
During 1999, ETC's products and related services were sold and leased to
approximately 1,310 customers, primarily operating telephone companies,
competitive local exchange carriers ("CLECs"), telephone original equipment
manufactures ("OEMs"), telecommunication dealers, telephone service providers,
financial institutions, and other businesses.
ETC engages in direct advertising through trade publications, direct mail
communications, and the Company's World Wide Web site (http://www.etcia.com).
The Company participates in a number of trade shows each year and is a member of
many national and state telephone associations. The Company's marketing staff
are headquartered in Waukesha, Wisconsin. In addition regional sales offices are
located in Waukesha, Wisconsin, Atlanta, Georgia, and Pleasanton, California,
and two sales representatives are at various other locations in the United
States. Technical service departments exist within all three regional sales
offices to provide assistance to customer questions and custom application
requirements.
BACKLOG
As of December 31, 1999, the amount of the Company's backlog orders believed to
be firm was $64,000. This compares with $1,288,000 of backlog orders as of
December 31, 1998. The large decrease in the backlog was due primarily to a
slowdown of customer purchases because of Y2K. As of March 20, 2000, the order
backlog has increased to $715,000. Two customers comprised 23% and 10%,
respectively, of the 1999 backlog. Four different customers comprised 21%, 11%,
10%, and 10%, respectively, of the 1998 backlog. The Company typically
experiences variations in product sales that have no seasonal pattern and are
caused by the timing of major equipment purchases by the operating telephone
companies, CLECs and OEMs.
COMPETITION
The market as a whole for telecommunications equipment sold to operating
telephone companies, CLECs and OEMs is highly competitive, primarily on the
basis of quality, price, availability for delivery, and capabilities. The
segment of the market in which the Company's products are sold is competitive,
primarily on the basis of product capabilities and quality, and to a lesser
extent on the basis of price and availability for delivery. Product capability
is determined by the ability to provide the type of service required by the
customer. Product quality is determined by factors such as product consistency,
durability, workmanship and reliability.
Based on comparisons with competitors' products, the Company believes it offers
comparable products with more features at lower prices. Some of the Company's
competitors are larger than the Company and have substantially greater financial
resources.
The Company's time/weather/temperature systems compete indirectly with other
sources of time, weather and temperature information such as radio stations,
television, and cable TV, where these services are provided to listeners and
viewers free of charge on a regular basis.
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EMPLOYEES
As of December 31, 1999, ETC employed 122 persons. Approximately 20% of the
Company's employees are engaged in research and development, 18% in sales and
marketing, 13% in management and office support, 22% in service and support, and
27% in manufacturing. The Company has never experienced a work stoppage due to a
labor dispute, is not a party to any labor contract, and considers its relations
with employees to be excellent. The Company believes that there is an adequate
supply of professional and manufacturing personnel available in the metropolitan
areas where it has facilities to meet its anticipated personnel requirements.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The information in Note 14 on page 21 in ETC's 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's executive offices, manufacturing and engineering facilities,
technical services, marketing, and a regional sales office are located at 1915
MacArthur Road, Waukesha, Wisconsin 53188. This facility contains approximately
29,000 square feet of space. The Company believes that its equipment and
facilities at its Waukesha location are modern, well maintained, and adequate
for its anticipated needs.
The Company leases 56,300 square feet in seven buildings located in Atlanta,
Georgia. These facilities include a regional sales office, engineering,
technical services, and accounting. The leases expire at different times
throughout the year 2000, and the Company is currently subleasing 20,500 square
feet of this space to other tenants. The properties are modern and well
maintained. It is anticipated that the Atlanta facility will move to a smaller
space in the same area when the leases expire during the year 2000.
The Company leases 6,052 square feet at 5870 Stoneridge Drive, Suite 5,
Pleasanton, California 94588. This lease expires in 2004, with an option to
extend to 2009. This facility contains a regional sales office, repair services,
and technical services. The Company believes that its equipment and facilities
at its California location are modern, well maintained, and adequate for its
anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending material legal proceedings not arising
in the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information
The Company's Class A common stock trades on The NASDAQ Stock Market under the
symbol ETCIA. There is no market for the Company's Class B common stock.
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For the market prices of common stock, see the caption "Quarterly Financial
Data" on page 23 in ETC's 1999 Annual Report to Shareholders incorporated herein
by reference.
(b) Holders
As of March 1, 2000, there were approximately 1,100 shareholders of record and
beneficial shareholders owning Class A common stock and 8 shareholders of record
of Class B common stock.
(c) Dividends
For 1999, the Company paid a cash dividend of $.08 per share of Class A common
stock. For 1998, the Company paid a cash dividend of $.04 per share of Class A
common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Five Year Review of Selected Financial Data"
on page 22 in ETC's 1999 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information on pages 6 through 9 in ETC's 1999 Annual Report to Shareholders
is incorporated herein by reference.
The Company may from time to time make statements that could be considered
"forward-looking" statements as defined in the Private Securities Litigation
Reform Act of 1995. These "forward-looking" statements are provided in
compliance with the "Safe Harbor" provision of the Private Securities Litigation
Reform Act of 1995.
The Company wishes to caution readers that the following factors, among others,
sometimes have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual consolidated results during 2000
and beyond to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company:
Technology Changes
As technological advancements are made in the product requirements of the
Company's customers, the Company must continue to develop new products to keep
pace with such advancements. If the Company were unable to develop new products
at a pace required by customers, its ability to continue to serve existing
customers and obtain new customers would be impaired, thus adversely affecting
the Company's revenues and profitability.
Backlog
Because of the nature of the products sold by the Company and the delivery
requirements of customers, most of the Company's orders are filled within a
short time and the Company has relatively short production cycles and low levels
of order backlog. This low level of long-term orders and backlog makes it more
difficult to predict accurately future sales than would be the case if the
Company had a higher level of long-term orders and backlog.
Acquisitions
The Company has in the past expanded through acquisition of other companies. The
extent to which the Company makes acquisitions and the profitability of the
companies it acquires may impact the Company's overall profitability.
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Status of the Economy
The Company's products are sold to a number of different customers in different
industries and different countries. Thus, any general downturn in domestic or
international economic conditions or rates of growth could impact the Company's
sales and levels of profitability.
Governmental Regulations
Many different governmental regulations affect the telecommunications industry.
Any changes in these regulations could have a material impact on the Company's
business.
Sources of Supply
The Company is, in part, dependent upon the continuing availability of products
and raw materials provided by single source suppliers. The inability of the
Company to obtain products or raw materials on a timely basis or the termination
of such relationships could have an adverse effect on the Company. However, the
Company believes suitable replacement components would be available in most
cases from other sources should the product of any producer become unavailable.
Expense Structure
The Company's expense structure for certain costs is based on the Company's
expected level of sales and growth. To the extent that the Company's actual
level of sales or growth is different from that which it expects, the Company's
ability to timely adjust its cost structure to those levels will impact the
Company's results of operations.
Product Mix
The Company's profitability is impacted by the mix of products it sells. Certain
of the Company's products have lower profit margins than others. If the
Company's actual mix of products sold is different from the expected mix, the
Company's expected profit margins would be affected by such changes.
Major Customers
The Company has in the past and probably will in the future rely on large sales
volume to certain customers. Loss of any of these customers could have a
material impact on the sales revenue and profitability of the Company.
Competition
The Company operates in the telecommunications industry where many companies are
substantially larger and have substantially greater resources than ETC. If any
of these companies were to decide to compete with ETC in its markets, the sales
revenues and profitability of ETC could be materially impacted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not use derivative financial instruments for speculative or
trading purposes. The Company is exposed to market risk related to changes in
short-term interest rates as a result of borrowings under its revolving credit
facility. However, due to the short-term nature and low amount of borrowings,
any impact on the Company's earnings due to changes in interest rates would be
insignificant.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information on pages 9 through 23 in ETC's 1999 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Directors and executive officers of the Company are as follows:
NAME AGE TITLE
---- --- -----
George W. Danner 80 Chairman of the Board
and Director
Dean W. Danner 49 President, Chief Executive
Officer and Director
Bonita M. Danner 48 Vice President Engineering
and Director
Hazel Danner 79 Corporate Secretary
and Director
Jeffrey M. Nigl 41 Vice President, Treasurer
and Chief Financial Officer
Robert R. Spiering 55 Vice President Tech Services
Joseph A. Voight, Jr. 49 Vice President Sales
Joanne B. Huelsman 61 Director
A. William Huelsman 62 Director
Peter J. Lettenberger 62 Director
Richard A. Gabriel 67 Director
GEORGE W. DANNER - Mr. Danner retired as the Company's Chief Executive Officer
in May 1993. He has served as Chairman of the Board and Director since May 1993.
Prior thereto, he served as Chairman of the Board, Chief Executive Officer and a
Director since May 1989. Prior thereto he served as President, Chief Executive
Officer and a Director of the Company since its incorporation in 1980. Prior
thereto he was Vice President of GTE Automatic Electric Corporation (a
diversified manufacturer of telecommunications equipment), a subsidiary of GTE
Corporation. Mr. Danner is a registered Professional Engineer, and became
actively involved in the telephone industry in 1949, when he founded Electronic
Secretary Industries, Inc., a manufacturer of electronic telephone answering and
recording equipment, which was merged into GTE Corporation in 1957.
DEAN W. DANNER - Mr. Danner was elected the Company's Chief Executive Officer in
May 1993. Mr. Danner has served as a Director of the Company since incorporation
in 1980. Prior to his election as CEO, he was elected President in May 1989 and
has served as Chief Operating Officer since 1987. Prior thereto he served as
Executive Vice President since 1985. He was Vice President and Director of
Engineering prior thereto since the Company's incorporation in 1980. Prior
thereto he was a Manager of Engineering of GTE Automatic Electric Corporation.
He is a registered Professional Engineer and holds five United States patents.
BONITA M. DANNER - Ms. Danner has served as a Director of the Company since
incorporation in 1980. She was appointed Assistant Vice President in 1983,
Director of Engineering in 1988, and Vice President Engineering in May 1989.
Prior thereto, she was a project engineer since 1980. She has been a member
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of the Company's Audit Committee since 1993. She is a registered Professional
Engineer.
HAZEL DANNER - Ms. Danner has served as a Director of the Company and has been
employed as its Administrative Coordinator since its incorporation in 1980. She
was elected Corporate Secretary in 1983.
JEFFREY M. NIGL - Mr. Nigl, a certified public accountant, was elected Vice
President in May 1990 and Treasurer in May 1993. He has been Chief Financial
Officer since 1988 and prior thereto he was Controller since joining the Company
in 1985. Prior thereto he was employed for two years as Controller of SportsVue
Cable Network of Milwaukee, Wisconsin, and prior thereto for more than three
years as a senior accountant for Arthur Andersen LLP.
ROBERT R. SPIERING - Mr. Spiering was elected Vice President Technical Services
in May 1994. Prior thereto he was Director of Technical Services since 1990.
Prior thereto he was Engineering Supervisor since 1988 and Project Engineer
since joining the Company in 1985.
JOSEPH A. VOIGHT, JR. - Mr. Voight joined the Company as Vice President Sales in
August 1999. Prior thereto he was Vice President North American Sales since 1996
of Generac Power Systems, Inc., a manufacturer of generators. Prior thereto Mr.
Voight held National and Regional Sales Manager positions at Generac since 1980.
Prior thereto he was employed by Ford Motor Company since 1976 and prior thereto
served in the Air Force since 1972.
JOANNE B. HUELSMAN - Ms. Huelsman has served as a Director of the Company since
its incorporation in 1980. Ms. Huelsman has been a member of the Company's Audit
Committee since its creation in 1985. She served as Secretary of the Company
from 1980 to 1983 and has served as its Treasurer from 1983 to May 1993. Ms.
Huelsman has been the owner of Berg Management Company since 1980, has been an
elected member of the Wisconsin State Legislature since 1983 and has been
engaged in the practice of law since 1980.
A. WILLIAM HUELSMAN - Mr. Huelsman has served as a Director of the Company since
its incorporation in 1980. He has been a member of the Company's Compensation
Committee since its creation in 1985. Mr. Huelsman is a registered Professional
Engineer and a real estate developer and, prior to 1996, was Chairman and Chief
Executive Officer of Intelligraphics, Inc., a digital mapping firm.
PETER J. LETTENBERGER - Mr. Lettenberger has served as a Director of the Company
and a member of its Compensation Committee since 1985. He is a partner of
Quarles & Brady, which firm he joined in 1964, and is a director of Brady
Corporation.
RICHARD A. GABRIEL - Mr. Gabriel was elected to the Board of Directors in
December 1993. He is also a member of the Company's Audit Committee and
Compensation Committee. Mr. Gabriel is a business consultant and, prior to 1997,
was Executive Vice President of Stolper Fabralloy Company of Waukesha,
Wisconsin, a manufacturer of precision aircraft and ground turbine sheet metal
components. Prior thereto he was Manufacturing Manager of Kieffer Company from
1992 to 1993, and Executive Vice President of Intelligraphics, Inc. from 1989 to
1992.
All of the Directors serve until their respective successors are elected at the
next annual meeting of shareholders. Officers serve at the discretion of the
Board of Directors. George W. Danner and Hazel Danner are the parents of Dean W.
Danner, who is the husband of Bonita M. Danner. A. William Huelsman is the
husband of Joanne B. Huelsman. Other than as noted, none of the Company's
Directors or executive officers has any family relationship with any other
Director or executive officer.
-12-
<PAGE> 13
SK ITEM 405 DISCLOSURE - The Form 3 filing for Joseph A. Voight, Jr., which was
due to be filed with the Securities Exchange Commission on September 2, 1999,
was filed on February 4, 2000.
ITEM 11. EXECUTIVE COMPENSATION.
The Company is a "small business issuer" as defined in Item 10(a)(1) of
Regulation S-B and has elected to provide information in response to this Item
11 in accordance with the provisions of Item 402(a)(1)(i).
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for the
Company's Chief Executive Officer and the highest-paid executive officers, as
well as the total compensation paid to each individual during the Company's last
three fiscal years. Columns (e) in the table related to Other Annual
Compensation, (f) related to Restricted Stock Awards, and (h) related to LTIP
Payouts have been omitted as there is no compensation to report.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------- ------------
(a) (b) (c) (d) (g) (i)
Securities
Name Under- All Other
and lying Compen-
Principal Options/ sation
Position Year Salary($) Bonus($) SARs(#) ($)
- --------------------------------------------------------------------------------
Dean W. Danner 1999 135,500 5,200(1)
President and 1998 132,000 7,100 5,300(1)
CEO 1997 132,000 5,300(1)
- ----------------------------
(1) Consists of directors' fees of $2,500 in each year, with the remainder
being Company matching contributions pursuant to the Company's 401(k)
retirement savings plan.
AGGREGATED OPTIONS/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
The following table summarizes options and SARs exercised during 1999 and the
value of unexercised options and SARs held by the named executives at fiscal
year-end:
(a) (b) (c) (d) (e)
Number of
Securities
Underlying
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at Fiscal at Fiscal
Acquired Value Year-End(#) Year-End($)
on Exercise Realized Exercisable(E)/ Exercisable(E)/
Name (#) ($) Unexercisable(U) Unexercisable(U)
- ------------------------------------------------------------------------------
Dean W. Danner 0 0 5,800(E) 100(E)
200(U) 25(U)
The Company does not have any information to report and has therefore omitted
disclosures related to S-B Item 402(c) Options/SAR Grants Table; S-B Item
-13-
<PAGE> 14
402(e) Long-Term Incentive Plan ("LTIP") Awards Table; S-B Item 402(h)
Employment Contracts and Termination of Employment and Change in Control
Arrangements; and S-B Item 402(i) Report on Repricing of Options/SARs.
COMPENSATION OF DIRECTORS
Each Director of the Company is entitled to receive $500 for each Directors'
meeting attended, except for the Chairman of the Board, who receives $1,000 per
Directors' meeting attended. In addition, each outside Director receives an
annual retainer of $2,500 upon reelection at each Annual Shareholders Meeting.
These amounts are included in the preceding Summary Compensation Table.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of each class of the Company's Common Stock by each Director,
Executive Officer, or person known by the Company to own beneficially more than
5% of either class of Common Stock, and all Directors and Executive Officers as
a group as of February 11, 2000:
Class A Common Stock(1) Class B Common Stock(1)
--------------------------- ---------------------------
Shares Percentage Shares Percentage
Beneficially of Shares Beneficially of Shares
Owned Outstanding Owned Outstanding
------------- ----------- ------------- -----------
Hazel Danner 192,951(3) 9.6% 75,048 15.0%
Bonita M. Danner 183,301(3) 9.1% 75,048 15.0%
Dean W. Danner 187,087(3) 9.3% 71,461 14.3%
George W. Danner 173,837 8.7% 71,461 14.3%
Joanne B. Huelsman 139,801 7.0% 75,048 15.0%
A. William Huelsman 114,187 5.7% 71,461 14.3%
Georgia Barre(2) 104,959 5.2% 41,984 8.4%
Peter J. Lettenberger 500 0.0% - 0.0%
Richard Gabriel 5,500(3) 0.3% - 0.0%
All Executive Officers
and Directors as a
group (11 persons) 993,274(3) 49.4% 439,527 87.9%
- ---------------------
(1) George W. Danner and Hazel Danner are the parents of Dean W. Danner (the
husband of Bonita M. Danner). A. William Huelsman is the husband of
Joanne B. Huelsman. All spouses disclaim beneficial ownership of one
another's shares, and the owners hold the shares directly and have sole
voting and investment power over the shares beneficially held, except
that Bonita M. and Dean W. Danner share voting and investment power with
respect to 20,400 shares of Class A Common Stock owned by their children.
(2) Georgia Barre is not an officer or director of the Company.
(3) Class A common shares beneficially owned include the right to acquire
shares of Class A common stock upon exercise of stock options as follows:
Hazel Danner, 1,000 shares; Bonita Danner, 1,800 shares; Dean Danner,
5,800 shares; and Richard Gabriel, 5,000 shares. Shares beneficially
owned by all officers and directors as a group include two additional
officers with the right to acquire a total of 15,700 shares of Class A
common stock upon exercise of stock options.
The address for Bonita M. Danner, Hazel B. Danner, George W. Danner, and Dean W.
Danner is 1915 MacArthur Road, Waukesha, WI 53188. The address for Joanne B.
Huelsman is 235 West Broadway, Suite 30, Waukesha, WI 53186. The address for A.
William Huelsman is 235 West Broadway, Suite 40, Waukesha, WI 53186. The address
for Georgia Barre is 1110 Belmont Drive, Waukesha, WI 53186. The
-14-
<PAGE> 15
address for Peter J. Lettenberger is 411 East Wisconsin Avenue, Milwaukee, WI
53202-4497. The address for Richard Gabriel is 498 Johns Pass Avenue, Madeira
Beach, FL 33708.
All of the outstanding Class B common stock is subject to a cross purchase
agreement among the owners thereof (the "Parties") pursuant to which the shares
generally may not be transferred except to a spouse, descendant or certain other
permitted transferees unless they have first been offered to the other Parties.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial statements
The Financial Statements, Notes to Financial Statements,
Independent Auditors' Report, Five Year Review, and Quarterly
Financial Data on pages 9 through 23 in ETC's 1999 Annual
Report to Shareholders are incorporated herein by reference.
2. Financial statement schedules
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
-------- ----------- ------
II Valuation and Qualifying Accounts 19
The Independent Auditors' Report on Financial Statement
Schedules appears in Exhibit 24.1 of this report.
All other financial statement schedules are omitted as they
are not required, or the required information is shown in the
Financial Statements and Notes to Financial Statements on
pages 9 through 23 in ETC's 1999 Annual Report to Shareholders
incorporated herein by reference.
3. Exhibits
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
3.1 Restated Articles of Incorporation of Electronic
Tele-Communications, Inc. - July 2, 1985 was
filed as Exhibit 3.1 to Form S-1 (No. 2-99175)
and is incorporated herein by reference.
3.2 Amended Bylaws of Electronic Tele-Communications,
Inc. adopted June 28, 1985 was filed as Exhibit
3.2 to Form S-1 (No. 2-99175) and is incorporated
herein by reference.
10.1 Electronic Tele-Communications, Inc. Tuition Reimbursement
Plan effective January 1, 1985 was filed as Exhibit 10.1 to
Form S-1 (No. 2-99175) and is incorporated herein by
reference.
-15-
<PAGE> 16
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
10.2 Executive Incentive Compensation Plan effective January 1,
1989 was filed as Exhibit 10.2 to the 1988 Form 10-K and is
incorporated herein by reference.
10.3 Electronic Tele-Communications, Inc. 1989 Nonqualified Stock
Option Plan effective April 21, 1989 was filed as Form S-8
and is incorporated herein by reference.
10.4 First Amendment to Credit Agreement dated April 4, 1991, by
and between Electronic Tele- Communications, Inc. and Bank
One, Milwaukee, NA (the original Credit Agreement dated May
17, 1989 was filed as Exhibit 10.1 to the Registrant's Form
8-K dated May 31, 1989) was filed as Exhibit 10.1 to Form 8-K
dated April 17, 1991 and is incorporated herein by reference.
10.5 Letters of amendment, dated March 6, 1992 and February 18,
1993, to First Amendment to Credit Agreement dated April 4,
1991 by and between Electronic Tele-Communications, Inc. and
Bank One, Milwaukee, NA was filed as Exhibit 10.5 to the 1992
Form 10-K and is incorporated herein by reference.
10.6 Second Amendment to Credit Agreement dated as of May 13,
1994, by and between Electronic Tele-Communications, Inc.
and Bank One, Milwaukee, NA.
10.7 Third Amendment to Credit Agreement dated as of September 26,
1997, by and between Electronic Tele-Communications, Inc. and
Bank One, Wisconsin.
10.8 Electronic Tele-Communications, Inc. 1999 Nonqualified Stock
Option Plan effective May 7, 1999, was filed as Exhibit 10.8
to the September 30, 1999 Form 10-Q and is incorporated
herein by reference.
10.9 Fourth Amendment to Credit Agreement dated as of January 26,
1999, by and between Electronic Tele-Communications, Inc. and
Bank One, Wisconsin is filed with this 1999 Form 10-K.
10.10 Fifth Amendment to Credit Agreement dated as of February 11,
2000, by and between Electronic Tele-Communications, Inc. and
Bank One, Wisconsin is filed with this 1999 Form 10-K.
13 1999 Annual Report to Shareholders.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule.
28 Cross Purchase Agreement dated June 28, 1985 was
filed as Exhibit 28.1 to Form S-1 (No. 2-99175) and
is incorporated herein by reference.
(b) Reports on Form 8-K:
None.
-16-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Dean W. Danner
---------------------------------
Dean W. Danner
President and
Date: March 24, 2000 Chief Executive Officer
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Dean W. Danner President, Chief Executive March 24, 2000
- -------------------------------- Officer and Director
Dean W. Danner
/s/ Jeffrey M. Nigl Vice President, Treasurer, March 24, 2000
- -------------------------------- Chief Financial Officer,
Jeffrey M. Nigl and Principal Accounting
Officer
/s/ Bonita M. Danner Vice President Engineering March 24, 2000
- -------------------------------- and Director
Bonita M. Danner
/s/ Hazel Danner Secretary and Director March 24, 2000
- --------------------------------
Hazel Danner
/s/ George W. Danner Director March 24, 2000
- --------------------------------
George W. Danner
/s/ Joanne B. Huelsman Director March 24, 2000
- --------------------------------
Joanne B. Huelsman
/s/ A. William Huelsman Director March 24, 2000
- --------------------------------
A. William Huelsman
/s/ Peter J. Lettenberger Director March 24, 2000
- --------------------------------
Peter J. Lettenberger
/s/ Richard A. Gabriel Director March 24, 2000
- --------------------------------
Richard A. Gabriel
</TABLE>
-17-
<PAGE> 18
Schedule II
ELECTRONIC TELE-COMMUNICATIONS, INC.
-----------------
VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 1999
<TABLE>
<CAPTION>
Charge
(Credit)
Balance at to Costs Balance
Beginning and at End
Description of Period Expenses Deductions of Period
----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for
Doubtful Accounts:
Year Ended
December 31, 1997 $ 113,500 $ 270,000 $ 262,000 $ 121,500
Year Ended
December 31, 1998 $ 121,500 $ 47,600 $ 61,900 $ 107,200
Year Ended
December 31, 1999 $ 107,200 $ (8,000) $ 16,500 $ 82,700
Allowance for
Inventory Obsolescence:
Year Ended
December 31, 1997 $ 242,582 $ 40,000 $ 109,310 $ 173,272
Year Ended
December 31, 1998 $ 173,272 $ 70,000 $ 98,012 $ 145,260
Year Ended
December 31, 1999 $ 145,260 $ 44,210 $ 61,810 $ 127,660
</TABLE>
-18-
<PAGE> 1
EXHIBIT 10.9
FOURTH AMENDMENT TO CREDIT AGREEMENT
This Amendment ("Amendment") is made as of the 26th day of January,
1999, by and between Electronic Tele-Communications, Inc. (the Borrower") and
Bank One, Wisconsin (the "Bank").
WHEREAS, the Borrower and the Bank entered into a Credit Agreement,
dated May 17, 1989, as amended (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below:
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning ascribed
in the Credit Agreement.
2. Section 6.8 The Section bearing the heading Consolidated Tangible
Net Worth of the Credit Agreement is hereby amended and restated in its entirely
to read as follows: Permit Consolidated Tangible Net Worth at any time during
the following periods to be less than the following amounts:
Period Amount
------ ------
at December 31, 1998, and until December 31, 1999 $4,787,000.00
at December 3,1 1999, and thereafter $5,000,000.00
Notwithstanding the foregoing, if (a) ETC repurchases its
Class A common stock in the fiscal year 1999 for an amount not to exceed
$1,000,000.00, the Consolidated Tangible Net Worth covenant shall thereafter be
decreased by the amount of such repurchase price, up to a maximum of
$1000,000.00, subject to the condition that ETC has a positive net income
computed on a fiscal year-to-date basis as of the last day of the month
immediately proceeding the month in which such repurchase occurs; provided,
however, that notwithstanding anything to the contrary contained in this
subsection ETC shall be required to maintain a minimum Consolidated Tangible Net
Worth of $5,000,000.00 at December 31, 1999, and at all times thereafter; and if
(b) ETC pays a dividend of up to $.06 per share to ETC's Class A shareholders in
fiscal year 1999, the Consolidated Tangible Net Worth covenant shall therefore
be decreased by the aggregate amount of such dividend subject to the condition
that ETC has a positive net income computed on a fiscal year-to date basis as of
the last day of the month prior to the month in which such dividend is declared,
provided, however, that notwithstanding anything to the contrary contained in
this subsection. ETC shall be required to maintain a minimum Consolidated
Tangible Net Worth of $5,000,000.00 at December 31, 1999, and at all times
thereafter.
3. The Borrower represents and warrants that (a) the representations
and warranties contained in the Credit Agreement are true and correct in all
material respects as of the date of this Amendment, (b) no condition, act or
event which could constitute an Event of Default under the Credit Agreement
exists, and (c) no condition, event, act or omission has occurred, which, with
the giving of notice or passage of time, would constitute an event of Default
under the Credit Agreement.
4. The Borrower agrees to pay all fees and out-of-pocket disbursements
incurred by the Bank in connection with this Amendment, including legal fees
incurred by the Bank in the preparation, consummation, administration and
enforcement of this Amendment.
5. This Amendment shall become effective only after it is fully
executed by the Borrower and the Bank and the Bank shall have received from the
Borrower the following documents: Except as amended by this Amendment, the
Credit Agreement shall remain in full force and effect in accordance with its
terms.
6. This Amendment is a modification only and not a novation. Except for
the above-quoted modifications(s), the Credit Agreement, any agreement of
security document, and all the terms and conditions thereof, shall be and remain
in full force and effect with the changes herein deemed to be incorporated
therein. This Amendment is to be considered attached to the Credit Agreement and
made a part thereof. This Amendment shall not release of affect the liability of
any guarantor, surety or endorser of the Credit Agreement or release any owner
of collateral securing the Credit Agreement. The validity, priority and
enforceability of the Credit Agreement shall not be impaired hereby. To the
extent that any provision of this Amendment conflicts with any term or condition
set forth in the Credit Agreement, or any agreement of
<PAGE> 2
security document executed in conjunction therewith, the provisions of this
Amendment shall supersede and control. Borrower acknowledges that as of the date
of this Amendment it has no offsets with respect to all amounts owed by borrower
to Bank and Borrower waives and releases all claims which it may have against
Bank arising under the Credit Agreement on or prior to the date of Amendment.
7. The Borrower acknowledges and agrees that this Amendment is limited
to the terms outlined above, and shall not be construed as an amendment of any
other terms or provisions of the Credit Agreement; The Borrower hereby
specifically ratifies and affirms the terms and provisions of the Credit
Agreement. Borrower releases Bank from any and all claims which may have arisen,
known or unknown, in connection with the Credit Agreement on or prior to the
date hereof. This Amendment shall not establish a course of dealing or be
construed as evidence of any willingness on the Bank's part to grant other or
future amendments, should any be requested.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the day and year first above written.
BANK ONE, WISCONSIN ELECTRONIC TELE-COMMUNICATIONS, INC.
By: /s/ Terry R. Sutter By: /s/ Dean W. Danner
------------------------------------- ---------------------------------
Terry R. Sutter, Vice President Dean W. Danner, President
<PAGE> 1
EXHIBIT 10.10
FIFTH AMENDMENT TO CREDIT AGREEMENT
This Amendment ("Amendment") is made as of the 11th day of February,
2000, by and between Electronic Tele-Communications, Inc. (the "Borrower") and
Bank One, Wisconsin (the "Bank").
WHEREAS, the Borrower and the Bank entered into a Credit Agreement,
dated May 17,1989 as amended (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below:
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning ascribed
in the Credit Agreement.
2. Section 6.8 The Section bearing the heading Consolidated Tangible
Net Worth of the Credit Agreement is hereby amended and restated in its entirety
to read as follows:
Permit Consolidated Tangible Net Worth at any time to be less than
$4,755,000.00 at January 1, 2000 and at all times thereafter; and if
ETC pays dividends during the period January 1, 2000 until March 31,
2000, then these dividends shall not be subtracted from Consolidated
Tangible Net Worth.
3. The Borrower represents and warrants that (a) the representations
and warranties contained in the Credit Agreement are true and correct in all
material respects as of the date of this Amendment, (b) no condition, act or
event which could constitute an Event of Default under the Credit Agreement
exists, and (c) no condition, event, act or omission has occurred, which, with
the giving of notice or passage of time, would constitute an Event of Default
under the Credit Agreement.
4. The Borrower acknowledges that as of the date of this Amendment,
Events of Default have occurred and are continuing under the Credit Agreement
due to Borrower's failure to maintain compliance with the Consolidated Tangible
Net Worth Covenant. Bank One hereby waives the remedies available to Bank One on
account of the violations of such covenants until December 31,1999 (the "Waiver
Termination Date"), subject to the conditions that (a) no material adverse
change occurs and is continuing in Borrower's financial condition or results
from operations from those presented by the Borrower's January 31, 2000 interim
financial statements which has been delivered by Borrower to Bank One, and (b)
no other Event of Default occurs and is continuing. This is a limited waiver
which applies only until the Waiver Termination Date, on which date and at all
times thereafter Borrower shall be required to be and at all times remain in
strict compliance with each of these covenants. Nothing in this Amendment shall
be construed as a waiver of any other term or condition of the Credit Agreement
or any of the other Loan Documents, nor shall be construed as a commitment on
the part of the Bank One to waive any subsequent violation of the same or any
other term or condition set forth in the Credit Agreement or any of the other
Loan Documents. The waiver granted in this paragraph is
-19-
<PAGE> 2
strictly limited to the covenants and time periods referenced above. In all
other respects the terms and conditions of the Credit Agreement, as expressly
modified by this Amendment, remain in full force and effect in accordance with
their stated terms.
5. The Borrower agrees to pay all fees and out-of-pocket disbursements
incurred by the Bank in connection with this Amendment, including legal fees
incurred by the Bank in the preparation, consummation, administration and
enforcement of this Amendment.
6. This Amendment shall become effective only after it is fully
executed by the Borrower and the Bank. Except as amended by this Amendment, the
Credit Agreement shall remain in full force and effect in accordance with its
terms.
7. This Amendment is a modification only and not a novation. Except for
the above-quoted modification(s), the Credit Agreement, any agreement or
security document, and all the terms and conditions thereof, shall be and remain
in full force and effect with the changes herein deemed to be incorporated
therein. This Amendment is to be considered attached to the Credit Agreement and
made a part thereof. This Amendment shall not release or affect the liability of
any guarantor, surety or endorser of the Credit Agreement or release any owner
of collateral securing the Credit Agreement. The validity, priority and
enforceability of the Credit Agreement shall not be impaired hereby. To the
extent that any provision of this Amendment conflicts with any term or condition
set forth in the Credit Agreement, or any agreement or security document
executed in conjunction therewith, the provisions of this Amendment shall
supersede and control. Borrower acknowledges that as of the date of this
Amendment it has no offsets with respect to all amounts owed by Borrower to Bank
and Borrower waives and releases all claims which it may have against Bank
arising under the Credit Agreement on or prior to the date of this Amendment.
8. The Borrower acknowledges and agrees that this Amendment is limited
to the terms outlined above, and shall not be construed as an amendment of any
other terms or provisions of the Credit Agreement; The Borrower hereby
specifically ratifies and affirms the terms and provisions of the Credit
Agreement. Borrower releases Bank from any and all claims which may have arisen,
known or unknown, in connection with the Credit Agreement on or prior to the
date hereof. This Amendment shall not establish a course of dealing or be
construed as evidence of any willingness on the Bank's part to grant other or
future amendments, should any be requested.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the day and year first above written.
ELECTRONIC TELE-COMMUNICATIONS, INC.
By: /s/ Dean W. Danner
---------------------------------
Dean W. Danner, President
BANK ONE, WISCONSIN
By: /s/ Terry R. Sutter
---------------------------------
Terry R. Sutter, Vice President
<PAGE> 1
ELECTRONIC TELE-COMMUNICATIONS, INC.
1999
ANNUAL
REPORT
<PAGE> 2
TABLE OF CONTENTS
--------------------------------------------------------------
Letter to Shareholders 1
1999 Highlights 2
The Voice of the Network(TM) 4
Management's Discussion and Analysis 6
Report of Auditors 9
Consolidated Financial Statements 10
Notes to Financial Statements 14
ETC Five Year Review 22
is a quality
supplier of
telecommunications Quarterly Financial Data 23
solutions for
our customers
worldwide. Shareholder Information 24
ETC's Mission Statement Corporate Officers and Directors 25
<PAGE> 3
A LETTER TO OUR SHAREHOLDERS
---------------------------------------------------
[PHOTO]
"The year 2000 marks a special event
for your Company. ETC will celebrate
its 20th anniversary."
"To celebrate our
history and
accomplishments,
ETC will host its
2000 Annual
Shareholders
Meeting at its
corporate facility...
Preceding the
meeting, everyone
is also invited to
ETC's Open House."
ETC ended 1999, to our disappointment, with a small loss for the year. After
beginning the year with three profitable quarters, and continuing on the
positive trend created in early 1998, an extremely weak 1999 fourth quarter
eroded our year-to-date profits. It appears the slow down in the fourth quarter
was primarily due to Y2K. Many of our customers held back on their purchases and
waited to see what effect Y2K would have on their business. Many other
technology companies experienced similar slow downs. Most companies, including
ETC, made it through Y2K relatively unscathed, and sales activity is increasing.
ETC's sales for 1999 were $10,824,000, resulting in a loss of $94,000, or $.02
per Class A common share. On 1998 sales of $13,150,000, ETC recorded a profit of
$179,000, or $.08 per Class A common share. The fourth quarter of 1999 was very
slow with sales of $1,791,000 and a loss of $392,000, or $.16 per share. The
comparable period of 1998 had sales of $4,269,000 and a profit of $351,000, or
$.14 per share.
Despite the unacceptable 1999 financial results, we remain optimistic about the
future of ETC. In August we announced the addition of Joe Voight as ETC's new
Vice President of Sales. Joe brings 20 plus years of sales management
experience to ETC and has extensive experience selling central office support
products to the telecommunications industry. We welcome Joe to the ETC team and
look forward to his contribution toward positioning ETC to capitalize on the
rapid and explosive growth taking place in the telecommunications industry.
Another exciting 1999 event for ETC was our October participation in the TELECOM
99 + INTERACTIVE 99, an international convention which occurs in Geneva,
Switzerland every four years. At the convention, ETC introduced Digicept
Emcee(TM), an open-systems network peripheral which acts as The Voice of the
Network(TM). The Emcee offers standard and revenue-generating applications,
enhanced services, and opportunities for branding and custom messaging for our
customers. Additionally, the Emcee is built around a CompactPCI(R) architecture
and Windows(R) NT/Windows 2000 operating system both of which provide an easy
path to future capabilities and applications. We look forward to shipping Emcee
to our customers in 2000.
The year 2000 marks a special event for your Company. ETC~will celebrate its
20th anniversary. Although we recognize June 1980 as the incorporation of ETC,
our company's history goes back to 1933, the year in which The Audichron Company
introduced the Time of Day Answering system. (ETC~acquired The Audichron Company
in 1989.) To celebrate our history and accomplishments, ETC will host its 2000
Annual Shareholders Meeting at its corporate facility on May 5, 2000 at 2:00
p.m. Central Time. Preceding the meeting, everyone is also invited to ETC's Open
House which will begin at noon.
In conclusion, we would like to thank our shareholders, customers and employees
for their support over the past year. Please visit us on our web site at
www.etcia.com to follow our progress in 2000.
Sincerely,
/s/ Dean W. Danner
- -------------------------------------
Dean W. Danner
President and Chief Executive Officer
March 13, 2000
1
<PAGE> 4
[PHOTO]
1999
"Emcee reflects a dynamic shift in
ETC's future product development and
JOE VOIGHT, where we, as a company, are
VICE PRESIDENT positioning ourselves in the market."
OF SALES
- --------------------- Scott Stephenson, Director of Marketing
Q: WHAT FACTORS HAD THE MOST IMPACT ON ETC'S 1999 SALES?
A: Two components adversely affected ETC for 1999. The first, was our
customer's allocation of resources to Y2K. The second was the merger mania
in the industry between service providers such as Regional Bell Operating
Companies, Incumbent Local Exchange Carriers and Long Distance Carriers.
Both factors significantly tied up budgetary resources. Projects in the
pipeline for 1999 were pushed into 2000. The dust needs to settle before
budgets can be reworked and the purchasing process can take place.
Q: ONCE THE MERGERS ARE COMPLETE, WILL IT BE BUSINESS AS USUAL?
A: Actually, mergers have contributed to re-defining the network and have in
effect, generated a window of opportunity for ETC.
Acquisitions have enabled the big players to secure technologies and a
variety of network advantages. These companies are discovering, though, as
they redeploy and fund their networks, that they can't do everything.
Instead, they are focusing on what they historically do best--switching.
Resources are being designated for developing new switches and software to
update existing switches to work in their new networks.
Any necessary add-on products for these integrated networks must be able to
exist outside a traditional Central Office and meet a variety of different
protocols. Products that are 100% proprietary do not fit into the equation.
A window of opportunity exists for companies that can offer products that
are not hard-coded with switch-specific software.
Q: CAN ETC OFFER THESE TYPES OF PRODUCTS?
A: 1999 was a transition year for ETC. We began migrating from products
marketed toward the traditional telephone network to those that fit in the
converged network. Products that function in the converged network
interface with traditional and newer methods of transmitting voice and
data. The launch of Emcee at World Telecom Geneva was an important first
step for ETC. We anticipate Emcee will be ready for deployment in the
marketplace in early 2000. Emcee frees ETC from its reliance on the switch
and allows it to make and complete calls--in essence, to be the voice of
the network.
Q: What changes have occurred in sales philosophy?
A: Rather than simply being one of many suppliers, we are focused on being a
Partner--working closely with the service provider to develop a long-term
Partner relationship. We are laying the groundwork for creating partner
relationships with a number of companies. Being a Partner involves
completing the necessary product testing and certifications, as well as
developing specific applications that meet advanced network requirements.
DIGICEPT EMCEE(TM) DEBUT
- -------------------------------------------------------------------------------
ETC formally introduced its new open-systems network peripheral at TELECOM 99 +
INTERACTIVE 99 last October in Geneva, Switzerland. Approximately 200,000
visitors attended this show, considered to be the world's predominant
telecommunications event. A core team of engineering, sales and marketing
represented ETC and answered questions regarding Emcee's revenue-generating
applications, enhanced services, and opportunities for branding and custom
messaging.
A sampling of the product's capabilities was demonstrated at the convention.
Applications included automatic callback (information about last incoming call
such as telephone number, date, time of call and dial out to that number),
changed number with call completion (notification of changed telephone numbers
with the option to connect to the new number), repeat dial (distinctive ring
notifies caller when a busy line is available), wake-up/reminder service and
time, temperature and weather announcement service.
Emcee interfaces with and supports applications for T1, E1, ISDN, and SS7
network protocols. Additionally, Emcee's open-standard CompactPCI architecture
and Windows(R) NT/Windows 2000 operating system provide the path to future
capabilities and applications.
[PHOTO]
(l-r:) David Haugen, International Sales; Scott Stephenson, Director of
Marketing; Joe Voight, Vice President of Sales; Dean Danner, CEO; and Boni
Danner, Vice President of Engineering.
2
<PAGE> 5
[PHOTO]
HIGHLIGHTS
[PHOTO]
"Providing TTY ETC's next-generation time,
intercept messages temperature, and weather announcer,
is an important part Audichron Zephyr, made an advance
of providing equal appearance last October.
communication
access for the deaf,
and hard-of-hearing,
population."
Scott Stephenson,
Director of Marketing
TTY INTERCEPT TAKES
CENTER STAGE
- -------------------------------------------------------------------------------
TTY intercept moved into the news spotlight thanks to Section 255 rulings and
the lead taken by the Wisconsin Public Service Commission in proposing
legislation to require intercept messages in TTY compatible format. Service
providers, in an effort to jumpstart their networks before final mandates, are
considering adding TTY tones following standard intercept messages, such as
changed number, to provide equal communication access for the deaf, hard of
hearing and speech-impaired.
ETC received invitations in 1999 to share information regarding TTY intercept in
its intercept products. Scott Stephenson, ETC's Director of Marketing, presented
TTY Intercept at the Wisconsin Association of the Deaf's 46th Biennial
Convention. He also served as a Research Forum Panelist at the 13th Biennial
Telecommunications for the Deaf, Inc. International Conference in Seattle,
Washington.
TTY conversations take place by callers typing messages back and forth, instead
of talking and listening. TTY intercept would enable notification of changed
numbers, new area codes or other out-of-service information to TTY device users.
Currently, most intercept messages are typically supplied in spoken format
only.
AUDICHRON ZEPHYR(TM) PREVIEW
AT BMA
- -------------------------------------------------------------------------------
ETC's next-generation time, temperature, and weather announcer, Audichron
Zephyr, made an advance appearance at the Bank Marketing Association Marketing
Forum last October. An official product rollout is anticipated in mid 2000.
Audichron Zephyr continues ETC's 60-year tradition of supplying successful
marketing, advertising, and promotional solutions by providing time,
temperature and weather service to the community. The banking industry
represents a major portion of ETC's customer base of current time, temperature,
weather providers. Radio stations, funeral homes, health care providers,
schools, hotels and theaters, to name a few, also offer these types of services
to differentiate themselves in the market.
[PHOTO]
Our goal is total
administration for
the customer. We
can configure, monitor,
and manage a
system remotely--
the customer never
has to touch
his equipment."
Rudy Spiering,
Vice President,
Technical Services
USAGE OF ETC'S TECH OPTIONS AT ALL-TIME HIGH
- -------------------------------------------------------------------------------
ETC saw increased usage of its technical installation, education, and
professional recording services in 1999. This increased demand attests to a
market hungry for professional assistance in the administration and~maximum
utilization of equipment.
ETC~technicians completed over 130 installations in 1999 from Alaska to Maine to
Mexico. Typical services included installation of circuit cards, power supplies
and probes; connection of cables, T1 lines and power; and complete system
check-out and initialization. Four levels of installation services are
available, or a customer can request a quote for custom needs.
Installation services is the first step in ETC offering its customers total
administration. During 2000, efforts will be focused on a hands-free program
whereby ETC remotely manages system configuration, message creation/downloading,
and overall monitoring of the system. If needed, modifications can be made by
ETC for worry-free maintenance and administration.
Over 50 hands-on classes were conducted for approximately 200 students through
ETC's training program. Customized formats combined with accessible class
locations provide a convenient and flexible structure for ETC customers. Classes
continuously improve in response to suggestions on instructor evaluation forms.
Additionally, ETC Recording Services saw increased revenues and usage by
companies outside the telephone industry. New customers included major
department stores and toll-free ordering services. A variety of businesses are
realizing the importance of professional voices for their voice messaging
equipment.
3
<PAGE> 6
THE VOICE OF THE
[PHOTO]
MARKETS
-----------------------------------------------------------------------
ETC markets products to providers of wireline or wireless service--ILECs
(incumbent local exchange carriers), RBOCs (Regional Bell Operating Companies),
CLECs (competitive local exchange carriers), and cellular and PCS carriers. In
addition, long distance companies, cable companies, and utilities who have
provided access to the public telephone network through their switches are
prospective customers. The opening of the market to competition mandated by the
Telecommunications Act of 1996 has broadened ETC's domestic opportunity for
business and generated increased interest in applications that can differentiate
service providers.
Internationally, ETC markets its products to countries in South America, Asia
and other parts of the world. In addition to ETC's sales staff, a network of
distributors assists in marketing ETC products abroad. Best-selling products
include the popular MAX Terminator and the Digicept DNA Module.
ETC also offers solutions for an array of businesses and industries around the
world. Applications can be found in health care, finance, education,
transportation, theaters, and hospitality. ETC products are an easy, economical
way for businesses to transform their telephones into public bulletin boards,
community promotional tools, business advertising mediums, or information
services.
[PHOTO]
"The last incoming
call was from
313-4485.
This call occurred
on October 10,
1999 at 5:04 p.m.
If you wish to call
this number using
Automatic Callback,
press one."
***
"The number you
have reached,
313-4292 has
been changed.
The new number is
313-2887.
To connect directly
for 55 cents,
press one."
PRODUCTS
-----------------------------------------------------------------------
ETC's team approach to product development incorporates research with data from
the field. Products are designed for switch compatibility and are submitted to a
number of OEM certification or compliance field testing programs on a regular
basis. Scalability and centralized administration features ensure ETC systems
grow with increased customer and network needs.
- - DIGICEPT EMCEE supplies the functionality, compatibility, and
revenue-generating applications needed for today's advanced network.
Applications are virtually unlimited and can include: changed number with
call completion, wake-up/reminder service, repeat dialing, and time,
temperature and weather. An open-standard platform, Emcee interfaces with
and supports applications for T1, E1, ISDN and SS7 protocols. The system
delivers a graphical user interface and Bellcore standard billing records
for ease of management.
- - DIGICEPT(R) DNA MODULES announce information for the switch related to
changed numbers, network status, calling feature status or payment
information. These messages, called intercept, are often customized by the
service provider to include branding for name recognition in the industry.
Revenue-generating applications such as time and temperature have been
integrated into this scalable, modular system.
- - AUDICHRON(R) 410 combines voice mail and audiotex in an easy-to-administer
platform. Configurable Class of Service templates enable administrators to
set up various service packages. Additionally, an information bulletin
board can be set up whereby callers receive up-to-the-minute information by
pressing the appropriate numbers on their telephone keypad.
- - MAX(TM) TERMINATOR keeps telephone peripherals working efficiently by
detecting steady or interrupted progress tones and quickly disconnecting
the line. Freeing the line to receive additional calls is important in call
sequencing when a holding caller hangs up and effectively ties up the line.
MAX Terminator also prevents the recording of annoying telephone tones on
voice mail systems when callers hang up rather than leaving messages.
- - AUDICHRON TIME, TEMPERATURE AND WEATHER ANNOUNCEMENT SYSTEMS offer
essential services to the community. Providers can order various
Weathertel(R) forecasting packages. Updated forecasts are sent
electronically from ETC's Atlanta Weather Center and downloaded into ETC
weather equipment. Ad messages, played before these announcements, can be
recorded by the sponsor or ordered through ETC's Recording Services Studio.
4
<PAGE> 7
NETWORK(TM) "Let Repeat Dialing call you back when
this line is available. To activate for
65 cents, press one."
[PHOTO]
"Good morning.
This is your
Wake-Up Service
brought to you by
XYZ Cellular.
The current time is
7:00 AM.
The temperature is
19 degrees Celsius.
Increasing clouds
and a chance for
thunderstorms
this afternoon with
a high of 25
degrees Celsius.
Have a good day."
INDUSTRY TRENDS
----------------------------------------------------------------
Competition.
Convergence.
Change.
Since the Telecommunications Act of 1996 opened the industry to competition,
service providers have discovered the importance of differentiation in the
market. Consumers now have more choices than ever for an array of standard and
enhanced telecommunications services. Providers demand products that offer
branding, enhanced services and custom applications in order to stay
competitive. Furthermore, they expect integration, flexibility, centralized
administration, scalability and revenue generating capabilities to maximize
network potential.
The trend of convergence, the bringing together of many traditional and newer
methods of sending information over the network, also shapes the industry.
Converged networks can offer integrated services of voice, video, data, fax and
Internet over a single connection. Networks of the future will rely on
convergence to offer customers enhanced services, billing, and management
options for the ultimate communications network. Supplying products that
integrate effectively in the converging network provide the pathway to
additional opportunities.
The concurrent evolution of the industry and the network provides an exciting
arena of growth, challenge and business opportunity. As the network emerges,
companies are continually redefining their roles and developing innovative
products to meet new customer needs. The explosion of new product offerings,
service providers, integrated services, mergers and alliances over the last
several year attests to an industry defined by change.
ETC is no exception. Our vision has expanded beyond our traditional position in
the switched telephone network to where we can find our voice in a converging
network. The development of open-standard products, such as Emcee, will enable
ETC to compete by providing the appropriate interfaces and integrative network
capabilities. Also, product development can occur more rapidly, enabling ETC~to
bring advanced applications to market faster for our customers.
[PHOTO]
HISTORY
------------------------------------------------------------------------
ETC's history stems from a revolutionary idea.
In 1949, its founder George Danner, along with Joseph Zimmerman, an equally
aspiring engineer, introduced their Electronic Secretary telephone answering and
recording device. Innovative for its time, the device offered telephone
companies a means to provide service to its customers and a new avenue for
revenue generation. Despite initial resistance by the phone companies, product
demand and investment eventually ensured not only the success of the Electronic
Secretary, but the birth of a new company.
The two-person Electronic Secretary operation grew to 60 employees. General
Telephone System approached the founders for acquisition and a merger was
consummated in 1957. By 1963, with 160 employees, annual sales exceeded four
million dollars.
Further integration took place with General Telephone Company's largest
manufacturing facility, GTE Automatic Electric, as the Waukesha Branch. In 1980,
Danner left GTE to establish Electronic Tele-Communications, Inc. and introduced
central office digital voice announcers.
Two acquisitions followed. In1989, ETC acquired The Audichron Company, inventor
of the telephone time of day answering system. In 1991, ETC acquired Automation
Electronics Corporation, expanding ETC's telco offerings to include announcement
devices for business applications.
Today, ETC continues to build on its cornerstone of innovation and meeting
customer needs. Our products and related services offer a means to generate
revenue, provide enhanced services, and most importantly, speak for the network.
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements, Notes to Consolidated Financial
Statements, and Five Year Review of Selected Financial Data, all of which
appear later in this report.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statements of Operations, expressed as percentages of net
sales, together with the percentage changes in such items from the prior
period.
--------------------------------------------------------------------------
Percent Change
Increase
(Decrease)
1999 1998
Percentage of Net Sales VS. vs.
1999 1998 1997 1998 1997
-----------------------------------------
Net sales 100.0% 100.0% 100.0% (17.7)% 13.0%
Cost of products sold 50.5 54.2 57.1 (23.2) 7.2
Gross profit 49.5 45.8 42.9 (11.1) 20.8
General and administrative
expenses 11.8 11.1 14.5 (12.9) (12.9)
Marketing and selling expenses 23.2 17.9 19.5 7.0 3.3
Research and development
expenses 15.3 13.3 15.3 (5.6) (1.8)
Other income (expense) 0.0 (0.5) (0.1) * *
Earnings (loss) before income
taxes (0.8) 3.0 (6.5) * *
Income taxes (benefit) 0.1 1.6 (0.7) * *
Net earnings (loss) (0.9) 1.4 (5.8) * *
--------------------------------------------------------------------------
*Not meaningful to presentation
1999 VS. 1998
REVENUES
Net sales decreased by 18% from $13,150,000 in 1998 to $10,824,000 in 1999.
The decrease in net sales in 1999 was due primarily to lower sales of the
Company's interactive voice information systems. Sales of the Company's
interactive voice information systems were made primarily to large,
original equipment manufacturers, several operating telephone companies,
and competitive local exchange carriers. Sales of interactive voice
information systems decreased $2,071,000 in 1999 and represented 53% and
59% of sales in 1999 and 1998, respectively. The decrease was due to a
$2,000,000 sale to a major customer in 1998 that did not repeat in 1999.
Sales of older technology passive recorder/announcer, call sequencer, and
other miscellaneous equipment decreased $572,000 in 1999 to $966,000, and
it is expected that these sales will continue to decrease as a percentage
of total Company sales in upcoming years as the industry continues to shift
toward interactive products. Revenue dollars from operating leases,
installment sales contracts, and services increased slightly between years
to $3,866,000 in 1999, representing 36% and 29% of net sales in 1999 and
1998, respectively. The increase was due primarily to increased sales of
the Company's newer time/weather/temperature systems under installment
sales contracts. Product pricing remained relatively constant between
years, and inflation did not have a material impact on revenues.
GROSS PROFIT
Gross profit was 49.5% of net sales in 1999 versus 45.8% in 1998. The
increase was due primarily to higher sales in 1999 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 a lower 1999
sales volume. In addition, the 1998 gross margin was adversely affected by
volume discounts and trade-up allowances given to a major customer in 1998.
6
<PAGE> 9
ELECTRONIC TELE-COMMUNICATIONS, INC.
OPERATING EXPENSES
Total operating expenses were $5,445,000 in 1999, or 50.3% of net sales,
compared to $5,567,000 in 1998, or 42.3% of net sales. The decrease in
operating expense dollars in 1999 consisted of decreases in general and
administrative expenses and research and development expenses, partially
offset by an increase in marketing and selling expenses. The decrease in
general and administrative expenses was due primarily to lower 1999
facility costs, and the impact of professional fees in 1998 related to
corporate strategic planning that did not repeat in 1999. Research and
development expense decreased between years due to lower salaries and
benefits related to open engineering positions in 1999, and lower patent
fees. Marketing and selling expenses were up in 1999 due to attendance at
an international telecom show in Geneva, Switzerland, together with
increases in advertising in trade publications, and increased salary,
benefits and commission expenses related to sales positions that were fully
staffed during 1999. As a percentage of net sales, all operating expense
categories increased between years due to spreading fixed operating costs
over a lower sales volume.
OTHER INCOME AND EXPENSE
Net other income in 1999 was $1,000, compared to net other expense of
$67,000 in 1998. The decrease was due primarily to lower interest expense
on decreased levels of bank borrowing in 1999.
INCOME TAXES
Income tax expense was $6,000 in 1999, or an effective tax rate of 6.8%,
compared to income tax expense of $215,000 in 1998, or an effective tax
rate of 54.5%. The 1999 income tax expense was a result of the statutory
rate, adjusted for an increase in the valuation allowance on deferred tax
assets, amortization of goodwill, and other permanent differences. The 1998
income tax expense was a result of federal and state taxes on net earnings
and an increase in the valuation allowance on deferred tax assets, offset
somewhat by reversal of a previously recorded tax liability no longer
deemed necessary.
NET LOSS AND LOSS PER SHARE
Net loss was $94,000 in 1999 versus net earnings of $179,000 in 1998. The
decrease in net earnings between years was due primarily to lower sales
volume in 1999, partially offset by higher gross margins and lower
operating expenses. Loss per Class A common share was $.02 in 1999 versus
earnings of $.08 in 1998.
1998 VS. 1997
REVENUES
Net sales increased by 13% from $11,636,000 in 1997 to $13,150,000 in 1998.
The increase in net sales in 1998 was due primarily to higher sales of the
Company's interactive voice information systems, partially offset by lower
revenues from services. Sales of the Company's interactive voice
information systems were made primarily to large, original equipment
manufacturers, several operating telephone companies, and competitive local
exchange carriers. Sales of interactive voice information systems increased
$1,828,000 in 1998 and represented 59% and 51% of sales in 1998 and 1997,
respectively. Sales of older technology passive recorder/announcer
equipment decreased $198,000 in 1998 to $490,000, and it is expected that
these sales will continue to decrease as a percentage of total Company
sales in upcoming years as the industry continues to shift toward
interactive products. Revenues from operating leases, installment sales
contracts, and services decreased between periods, accounting for 29% and
35% of net sales in 1998 and 1997, respectively. The decrease was due
primarily to decreased lease revenue from the Company's older
time/weather/temperature systems, partially offset by increased sales of
the Company's newer time/weather/temperature systems under installment
sales contracts. Product pricing remained relatively constant between
years, and inflation did not have a material impact on revenues.
GROSS PROFIT
Gross profit was 45.8% of net sales in 1998 versus 42.9% in 1997. The
increase was due primarily to spreading fixed manufacturing costs over a
higher sales volume, partially offset by volume discounts and trade-up
allowances given to a major customer in 1998. In addition, the 1997 gross
margin was adversely affected by a one-time $240,000 write-off of a portion
of an account receivable related to a large international sale.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATING EXPENSES
Total operating expenses were $5,567,000 in 1998, or 42.3% of net sales,
compared to $5,741,000 in 1997, or 49.3% of net sales. The decrease in
operating expense dollars in 1998 was primarily in general and
administrative expenses due to lower staffing and decreased legal expenses.
Marketing and selling expenses were up slightly in 1998 due to increased
salary, benefits and commission expenses related to sales positions that
were fully staffed during 1998. Research and development expense remained
relatively constant between years. As a percentage of net sales, all
operating expense categories decreased between years due to spreading fixed
operating costs over higher sales volume.
OTHER INCOME AND EXPENSE
Net other expense in 1998 was $67,000, compared to $12,000 in 1997. The
increase was related primarily to higher interest expense on increased
levels of bank borrowing in 1998.
INCOME TAXES
Income tax expense was $215,000 in 1998, or an effective tax rate of 54.5%,
compared to income tax benefit of $84,000 in 1997, or an effective tax rate
of (11.0)%. The 1998 income tax expense was a result of federal and state
taxes on net earnings and an increase in the valuation allowance on
deferred tax assets, offset somewhat by reversal of a previously recorded
tax liability no longer deemed necessary. The 1997 income tax benefit was
the result of the net loss and an increase in the valuation allowance for
deferred income taxes, partially reduced by the effect of goodwill
amortization and state income tax expense.
NET EARNINGS AND EARNINGS PER SHARE
Net earnings were $179,000 in 1998 versus a net loss of $677,000 in 1997.
The increase in net earnings between years was due primarily to higher
sales volume and lower operating expenses in 1998. In addition, in 1997
there was an impact from the one-time write-off of a portion of an
international receivable. Earnings per Class A common share were $.08 in
1998 versus a loss per share of $.25 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $2,300,000 at December 31, 1999, compared to $2,783,000
for 1998 and $2,854,000 for 1997. The decrease in working capital in 1999
was due primarily to investment in installment sales contracts, payments
made for equipment and dividends, and a net loss. The slight decrease in
working capital in 1998 was due primarily to investment in installment
sales contracts and payments made for equipment and dividends, partially
offset by net earnings. The decrease in working capital in 1997 was due
primarily to a net loss and payments made for equipment and dividends. Cash
provided by operating activities in 1999 of $909,000 was a result of a
decrease in accounts receivable, partially offset by investment in
installment sales contracts, an increase in inventories, reductions in
payables and accrued expenses, and a net loss.
In 1999, payments made for dividends, purchases of capital equipment, and
repayment of short-term borrowings were funded primarily by the reduction
of accounts receivable. In 1998, payments made for dividends and purchases
of capital equipment were funded primarily by short-term borrowings and
reductions of inventories. In 1997, payments made for dividends and
purchases of capital equipment were funded primarily by short-term
~borrowings and reductions of accounts receivable and inventories.
In 1999, the decrease in accounts receivable was due to a large sale to a
customer in December 1998 that was paid in January 1999. This sale also
resulted in the increase in accounts receivable and reduction in
inventories in 1998. Income tax refunds in 1998 were in response to tax
returns filed to claim refunds by carryback of the 1997 loss to offset
previous years' earnings.
Capital expenditures were $189,000 in 1999, $247,000 in 1998, and $233,000
in 1997. Capital expenditures in 1999 consisted primarily of computer
equipment and software additions and upgrades, together with purchases of
development equipment for engineering. Capital expenditures in 1998 and
1997 consisted primarily of computer equipment additions and upgrades.
As of December 31, 1999, the Company had borrowings of $200,000 on its
available $3,500,000 revolving credit facility. The revolving credit
facility expires on June 30, 2000.
8
<PAGE> 11
ELECTRONIC TELE-COMMUNICATIONS, INC.
At current 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.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions
in mission-critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000
date change. The Company's expenses during 1999 in connection with
remediating its systems were minimal and were included in the Company's
normal operating budget. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal
systems, or the products and services of third parties. The Company will
continue to monitor its mission-critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
FORWARD-LOOKING STATEMENTS
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.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
ELECTRONIC TELE-COMMUNICATIONS, INC.
We have audited the consolidated balance sheets of Electronic
Tele-Communications, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Electronic Tele-Communications, Inc. at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 4, 2000
9
<PAGE> 12
ELECTRONIC TELE-COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
-------------------------------------------------------------------------
NET SALES (Note 14) $ 10,823,705 $ 13,149,994 $ 11,636,464
COST OF PRODUCTS SOLD 5,467,581 7,122,327 6,644,969
------------------------------------------
GROSS PROFIT 5,356,124 6,027,667 4,991,495
OPERATING EXPENSES:
General and administrative 1,275,454 1,464,602 1,681,658
Marketing and selling 2,515,635 2,350,465 2,274,716
Research and development 1,654,246 1,751,603 1,784,590
------------------------------------------
5,445,335 5,566,670 5,740,964
------------------------------------------
EARNINGS (LOSS) FROM OPERATIONS (89,211) 460,997 (749,469)
OTHER INCOME (EXPENSE):
Interest expense (2,171) (67,388) (19,278)
Interest and dividend income 3,225 215 7,408
------------------------------------------
1,054 (67,173) (11,870)
------------------------------------------
EARNINGS (LOSS) BEFORE
INCOME TAXES (88,157) 393,824 (761,339)
Income taxes
(benefit) (Note 7) 6,000 214,500 (84,000)
------------------------------------------
NET EARNINGS (LOSS) $ (94,157) $ 179,324 $ (677,339)
==========================================
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE (Notes 11,
12 and 13):
Class A common $ (0.02) $ 0.08 $ (0.25)
==========================================
Class B common $ (0.10) $ 0.04 $ (0.33)
==========================================
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
10
<PAGE> 13
ELECTRONIC TELE-COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
-------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 307,652 $ 848,087
Trade accounts receivable, less
allowance for doubtful accounts
of $55,000 in 1999 and $81,800 in
1998 (Notes 8 and 14) 873,423 2,625,629
Inventories (Notes 2 and 8) 1,574,413 1,384,265
Net investment in installment sales
contracts (Note 3) 288,925 156,022
Refundable income taxes 73,097 -
Prepaid expenses and other current assets 127,905 166,051
----------------------------
Total current assets 3,245,415 5,180,054
PROPERTY, PLANT AND EQUIPMENT (Notes 4 and 8) 1,460,281 1,628,448
NET INVESTMENT IN INSTALLMENT SALES
CONTRACTS (Note 3) 1,122,842 748,842
EXCESS OF COST OVER NET ASSETS ACQUIRED,
less accumulated amortization of $418,184
in 1999 and $387,898 in 1998 (Note 7) 851,137 881,422
----------------------------
Total Assets $ 6,679,675 $ 8,438,766
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility (Note 8) $ 200,000 $ 1,300,000
Accounts payable 120,892 173,958
Accrued expenses (Note 6) 534,837 704,105
Income taxes payable - 50,750
Deferred revenue 89,327 168,068
----------------------------
Total current liabilities 945,056 2,396,881
LONG-TERM LIABILITIES (Note 5) - 52,393
----------------------------
Total liabilities 945,056 2,449,274
STOCKHOLDERS' EQUITY (Notes 11 and 12):
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 2,374,181 2,629,054
----------------------------
Total stockholders' equity 5,734,619 5,989,492
----------------------------
Total Liabilities and Stockholders' Equity $ 6,679,675 $ 8,438,766
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
11
<PAGE> 14
ELECTRONIC TELE-COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (94,157) $ 179,324 $ (677,339)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 380,578 373,038 387,473
Issuance of common stock - - 11,875
Deferred income taxes 6,000 210,500 243,200
Loss from sale of equipment 799 4,573 5,654
Changes in operating assets and liabilities:
Accounts receivable 1,752,206 (1,534,853) 222,299
Inventories (190,148) 458,675 591,432
Net investment in installment
sales contracts (506,903) (437,963) (428,764)
Prepaid expenses and other assets 38,146 (22,658) 10,049
Accounts payable and accrued expenses (274,727) 80,805 (132,419)
Income taxes (123,847) 263,609 (413,198)
Deferred revenue (78,741) 35,740 (64,051)
--------------------------------------------
Total adjustments 1,003,363 (568,534) 433,550
--------------------------------------------
Net cash provided by (used in)
operating activities 909,206 (389,210) (243,789)
============================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (189,125) (247,114) (233,140)
Proceeds from sale of equipment 200 200 -
--------------------------------------------
Net cash used in investing activities (188,925) (246,914) (233,140)
============================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility, net (1,100,000) 1,075,000 225,000
Dividends paid (160,716) (80,358) (260,474)
Purchase and retirement of common stock - (4) -
--------------------------------------------
Net cash provided by (used in)
financing activities (1,260,716) 994,638 (35,474)
============================================
Net increase (decrease) in cash and
cash equivalents (540,435) 358,514 (512,403)
Cash and cash equivalents at beginning
of year 848,087 489,573 1,001,976
--------------------------------------------
Cash and cash equivalents at end of year $ 307,652 $ 848,087 $ 489,573
============================================
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 147,495 $ 7,027 $ 85,998
Cash received from income tax refunds 17,647 266,636 -
Cash paid for interest expense 8,027 63,018 16,904
-----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
12
<PAGE> 15
ELECTRONIC TELE-COMMUNICATIONS, INC.
Consolidated Statements of stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock (Note 11)
----------------------------------------------
Total
Class A Class B Additional Stock-
Number Number Paid-in Retained holders'
of Shares Amount of Shares Amount Capital Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 2,003,949 $ 20,039 500,000 $ 5,000 $ 3,323,528 $ 3,467,901 $ 6,816,468
Issuance of common stock 5,000 50 - - 11,825 - 11,875
Net loss - - - - - (677,339) (677,339)
Cash dividends paid:
$.12 per Class A common share - - - - - (240,474) (240,474)
$.04 per Class B common share - - - - - (20,000) (20,000)
Balances at December 31, 1997 2,008,949 20,089 500,000 5,000 3,335,353 2,530,088 5,890,530
------------------------------------------------------------------------------------------------
Purchase and retirement
of common stock - - (2) - (4) - (4)
Net earnings - - - - - 179,324 179,324
Cash dividends paid:
$.04 per Class A common share - - - - - (80,358) (80,358)
Balances at December 31, 1998 2,008,949 20,089 499,998 5,000 3,335,349 2,629,054 5,989,492
------------------------------------------------------------------------------------------------
NET LOSS - - - - - (94,157) (94,157)
CASH DIVIDENDS PAID:
$.08 PER CLASS A COMMON SHARE - - - - - (160,716) (160,716)
------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999 2,008,949 $ 20,089 499,998 $ 5,000 $ 3,335,349 $2,374,181 $5,734,619
===============================================================================================-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND CONCENTRATION OF CREDIT RISK
The Company designs, manufactures, and markets digital voice information systems
and related services. The Company's equipment provides a wide range of audio and
computer information and call handling capabilities via telephone networks,
computer networks, and the Internet. The Company's digital voice information
systems deliver network interoperability and revenue-generating applications.
Branding, time and temperature announcements, and weather forecasts are just a
few of the applications designed to increase customers' name recognition and
market presence. Additionally, revenue-generating applications such as automatic
callback, changed number with call completion, repeat dialing, voice mail, and
wake-up/reminder services enable providers to differentiate themselves from
their competition. Services include professional recording, turn-key
installations, on-site training, and 24-hour technical support.
The Company's customers include Regional Bell Operating Companies, Competitive
Local Exchange Carriers, independent telephone companies, long distance
companies, wireless carriers, cable companies, utilities, leading
telecommunications manufacturers, and other businesses and organizations.
The Company was incorporated in Wisconsin in 1980. The Company's executive
offices, together with manufacturing, engineering, marketing, sales, and
technical services are located in Waukesha, Wisconsin. In addition, engineering,
technical services, and a regional sales office are located in Atlanta, Georgia,
and technical services, repair services, and a regional sales office are located
in Pleasanton, California.
The Company's sales are concentrated primarily in the domestic
telecommunications industry. The Company performs periodic credit evaluations
of its customers' financial condition and does not require collateral.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary, The Audichron Company. All intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation
and amortization. For financial reporting purposes, depreciation and
amortization is provided using the straight-line method over estimated useful
lives of 3 to 20 years.
The Company leases certain voice announcement equipment for terms of one month
to three years with renewal options on a month-to-month basis. All such leases
are treated as operating leases. The leased equipment is stated at cost less
accumulated depreciation. Depreciation is provided on the straight-line method
over the estimated useful lives of the equipment.
EXCESS COST OVER NET ASSETS ACQUIRED
Excess cost over net assets acquired are recorded at cost and amortized by the
straight-line method over periods between 25 and 40 years.
14
<PAGE> 17
ELECTRONIC TELE-COMMUNICATIONS, INC.
IMPAIRMENT OF LONG-LIVED ASSETS
Property and equipment, goodwill and other intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected undiscounted
cash flows is less than the carrying value of the related asset or group of
assets, a loss is recognized for the difference between the fair value and
carrying value of the asset or group of assets. Such analyses necessarily
involve significant judgment.
REVENUE RECOGNITION
Revenue from equipment sales is recognized at the time of shipment. Revenue from
operating leases and services is recognized when the related service is
provided. Revenue from the sale of maintenance contracts is deferred and
recognized over the term of the contract.
Certain sales are under installment sales contracts of the Company's
Audichron(R) 410 interactive systems. Revenue is recognized upon shipment of
these systems to the customer. The difference between the expected minimum
payments and the revenue recognized for each agreement is unearned revenue. The
unearned revenue is amortized over the term of each agreement using the
effective interest method.
Revenue from installment sales contracts, operating leases and services were
approximately 36%, 29%, and 35% of total revenue in 1999, 1998 and 1997,
respectively.
RESEARCH AND DEVELOPMENT
Research and development costs related to the design and development of new
products are expensed as incurred.
SEGMENT INFORMATION
The Company reports segment information in accordance with Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of a
Business Enterprise and Related Information," which establishes standards for
disclosures about operating segments in annual and interim financial statements,
products and services, geographic areas and major customers. See Note 14 for
additional information.
COMPREHENSIVE INCOME
Net income (loss) for 1999, 1998 and 1997 is the same as comprehensive income as
defined pursuant to SFAS No. 130, "Reporting Comprehensive Income."
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
amended by SFAS No. 137. Provisions of these standards are required to be
adopted in years beginning after June 15, 2000. 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 the adoption of SFAS No. 133 and SFAS No. 137 will have
an effect on its 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. The
Company capitalizes the cost of software it obtains for internal use, and
amortizes it using the straight-line method over the useful life of the
software. Adoption of SOP 98-1 does not have an impact on the financial
statements of the Company.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1999
classifications.
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
2. INVENTORIES
Inventories consisted of the following at December 31:
1999 1998
- --------------------------------------------------------------------------------
Raw materials and supplies $ 577,456 $ 437,349
Work-in-process and finished goods 714,119 559,674
Maintenance and demo parts 410,498 532,502
Reserve for obsolescence (127,660) (145,260)
--------------------------
Total inventories $ 1,574,413 $ 1,384,265
=========== ===========
- --------------------------------------------------------------------------------
3. INSTALLMENT SALES CONTRACTS
The Company engages in sales agreements with customers for Audichron(R) 410
systems that are accounted for as sales-type leases. The agreements have varying
terms expiring in various years through 2005.
Following is a summary of the components of the Company's net investment in
installment sales contracts at December 31:
1999 1998
- --------------------------------------------------------------------------------
Total minimum lease payments to be received $ 2,365,444 $ 1,582,037
Unearned revenue (925,955) (651,773)
Allowance for doubtful accounts (27,722) (25,400)
Net investment in installment sales contracts $ 1,411,767 $ 904,864
=========== ===========
- --------------------------------------------------------------------------------
In accordance with the sales agreements, title passes to the customer upon
shipment of the equipment, and therefore, there is no residual value of the
equipment.
Future minimum lease payments to be received under these agreements at December
31, 1999 are as follows:
Year Lease Payments
- --------------------------------------------------------------------------------
2000 $ 646,662
2001 613,279
2002 508,920
2003 367,415
2004 211,689
Thereafter 17,479
----------
Total minimum lease payments to be received $2,365,444
==========
- --------------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
1999 1998
- --------------------------------------------------------------------------------
Land $ 289,290 $ 289,290
Buildings and improvements 1,612,788 1,612,788
Equipment and furniture 3,290,524 3,280,006
-----------------------------
5,192,602 5,182,084
Accumulated depreciation and amortization (3,732,321) (3,553,636)
-----------------------------
Net property, plant and equipment $1,460,281 $1,628,448
========== ==========
- --------------------------------------------------------------------------------
16
<PAGE> 19
ELECTRONIC TELE-COMMUNICATIONS, INC.
5. PLANT, OFFICE AND EQUIPMENT LEASES
The Company leases its plant and office facilities in Atlanta, Georgia and
Pleasanton, California under long-term operating leases extending to the years
2000 and 2004, respectively. Future minimum lease payments at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
Year Rental Payments Sublease Rentals Net Rental Payments
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 324,700 $ 42,900 $ 281,800
2001 102,700 - 102,700
2002 106,800 - 106,800
2003 111,100 - 111,100
2004 28,000 - 28,000
----------------------------------------------------
Total minimum lease payments $ 673,300 $ 42,900 $ 630,400
====================================================
- ---------------------------------------------------------------------------------------------
</TABLE>
Included in minimum lease payments are certain payments for abandoned leases. A
liability of $40,700 and $117,500 at December 31, 1999 and 1998, respectively,
for those payments is included in accrued expenses and long-term liabilities.
Rent expense consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total rent expense $ 561,973 $ 612,006 $ 606,664
Amounts received under sublease rentals (224,982) (234,021) (238,980)
---------------------------------------
Net rent expense $ 336,991 $ 377,985 $ 367,684
- ----------------------------------------------------------------------------------------
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consists of the following at December 31:
1999 1998
- --------------------------------------------------------------------------------
Accrued wages and benefits $277,714 $365,501
Product warranty reserve 73,416 108,475
State and local sales tax accrual 61,875 37,780
Other accrued expenses 121,832 192,349
-------- --------
Total accrued expenses $534,837 $704,105
======== ========
- --------------------------------------------------------------------------------
7. INCOME TAXES
Income tax expense (benefit) consists of the following:
1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $ -- $ -- $(332,200)
State -- 4,000 5,000
----------------------------------
Total current -- 4,000 (327,200)
Deferred (2,200) 88,900 6,800
Change in valuation reserve 8,200 121,600 236,400
----------------------------------
Income tax expense (benefit) $ 6,000 $ 214,500 $ (84,000)
==================================
- --------------------------------------------------------------------------------
A reconciliation of income taxes at the United States statutory rate to the
effective tax rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate (34.0)% 34.0% (34.0)%
State income taxes net of Federal benefit - 0.7 0.4
State effect of change in deferred tax assets (10.3) 1.4 (2.6)
Amortization of goodwill and acquisition costs 13.1 3.3 1.5
Change in deferred income tax valuation allowance 9.3 30.9 31.1
Reversal of previously recorded tax liability - (18.1) -
Permanent differences 28.7 2.3 (7.4)
--------------------------------
Effective tax rate 6.8% 54.5% (11.0)%
- ------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $711,400 available to offset future federal taxable income which
expire in 2005 and 2019. The utilization of the net operating loss carryforwards
of $528,600 is subject to an annual limitation of approximately $155,000. These
carryforwards resulted from the Company's acquisition of Automation Electronics
Corporation (AEC) in 1991. For financial reporting purposes, a valuation reserve
of $179,300 as of December 31, 1999 and $185,300 as of December 31, 1998, was
provided to offset the deferred tax assets related to those carryforwards. When
realized, the tax benefit related to the acquired net operating loss
carryforwards will be applied to reduce goodwill related to the acquisition of
AEC. The additional valuation reserve of $441,200 and $433,000 at December 31,
1999 and 1998, respectively, was provided because of uncertainty as to whether a
portion of the net deferred tax asset would be realized, based on the Company's
financial results in the current and prior years. If the Company is profitable
in future years, this portion of the valuation reserve will be reduced and used
to offset income tax expense.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows:
1999 1998
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Excess of tax over book depreciation $ (13,800) $ (18,200)
Deferred tax assets:
Acquired net operating loss carryforwards 179,300 185,300
Net operating loss carryforward generated 62,100 --
Inventories 192,400 205,000
Allowance for doubtful accounts 31,400 40,800
Restructuring charge 15,500 44,600
Accrued charges and other 153,600 160,800
----------------------
Total deferred tax assets 634,300 636,500
----------------------
Net deferred tax asset before valuation reserve 620,500 618,300
Valuation reserve (620,500) (618,300)
----------------------
Net deferred tax asset $ -- $ --
======================
- --------------------------------------------------------------------------------
8. REVOLVING CREDIT FACILITY
The Company has a $3,500,000 Revolving Credit Agreement with a bank. Under the
agreement, the Company has the option to elect to have interest rates determined
based upon the announced reference rate of the bank (8.50% at December 31,
1999), or LIBOR plus margin (8.49% at December 31, 1999). No compensating
balances or commitment fees are required under the agreement. The agreement
expires on June 30, 2000, at which time any outstanding balances are due.
As of December 31, 1999, the Company had borrowings of $200,000 on the revolving
credit facility.
The revolving credit facility is secured by a credit agreement with the bank
listing certain assets as collateral. The provisions of the credit agreement
restrict security interests in Company assets, require maintenance of minimum
current ratios, tangible net worth, net earnings, and debt ratios, and limit
capital expenditures and restricted payments.
9. PROFIT SHARING PLAN
The Company has a profit sharing plan pursuant to Section 401(k) of the Internal
Revenue Code, whereby participants may contribute a percentage of compensation,
but not in excess of the maximum allowed under the Code. Substantially all
employees are eligible to participate. The plan provides for, and the Company
expenses, Company matching contributions and additional discretionary
contributions determined by the Board of Directors which, in the aggregate,
amounted to $85,200 in 1999, $86,500 in 1998, and $87,900 in 1997.
18
<PAGE> 21
ELECTRONIC TELE-COMMUNICATIONS, INC.
10. STOCK OPTION PLAN
On May 7, 1999, the Board of Directors and Shareholders of the Company adopted a
1999 Nonqualified Stock Option Plan whereby 175,000 shares of Class A common
stock are authorized for granting of options to key employees of the Company as
determined by the Stock Option Committee of the Board of Directors. Options
granted may be exercised not more than 20% each year from date of grant, and
expire ten years from date of grant. The exercise price is the average of the
highest and lowest transaction prices of the stock on the date of grant. Options
are cancelled upon termination of employment and that stock becomes available
for future option grants. As of December 31, 1999, no options have been granted
under the 1999 Plan, and 175,000 are available for granting.
In addition, the Company has a 1989 Nonqualified Stock Option Plan which expired
with respect to granting of future options. Options outstanding under the 1989
Plan will remain in effect until they have been exercised or have expired or
terminated.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," (Statement 123) requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
measurement date, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to
December 31, 1994, under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted- average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.2% 5.5% 6.3%
Expected dividend yield 2.7% 6.4% 6.9%
Volatility factor of the expected market price of
the Company's common stock 0.89 0.54 0.54
Weighted-average expected life of the option 4.6 YEARS 4.6 years 4.6 years
=================================================
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Pro forma net income (loss) $ (98,670) $175,260 $ (681,362)
Pro forma earnings (loss) per share:
Class A common $ (0.02) $ 0.08 $ (0.26)
Class B common $ (0.10) $ 0.04 $ (0.34)
========================================
- --------------------------------------------------------------------------------
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
Transactions with respect to the Company's stock option plan were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
- --------------------------------------------------------------------------------------------------------
Weighted Weighted WEIGHTED
Average Average AVERAGE
Option Exercise Option Exercise OPTION EXERCISE
Shares Price Shares Price SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 133,800 $5.14 141,600 $4.75 151,300 $3.90
Granted 17,600 1.75 42,700 1.50 37,200 1.71
Forfeited (9,800) 4.64 (33,000) 4.45 (63,400) 3.84
Outstanding at end of year 141,600 4.75 151,300 3.90 125,100 3.28
Exercisable at end of year 101,440 5.49 91,440 5.16 64,260 4.75
Weighted average fair value of
options granted during the year 0.54 0.47 1.03
- --------------------------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1999, ranged from
$1.44 to $8.50. Additional information related to these options segregated by
exercise price range is as follows:
<TABLE>
<CAPTION>
Exercise Price Range
$1.44 to $2.00 to $5.25 to
$1.99 $5.24 $8.50
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding 65,100 23,800 36,200
Weighted average exercise price of options outstanding $1.63 $3.28 $6.24
Weighted average remaining contractual life of options outstanding 7.4 years 4.9 years 2.6 years
Options exercisable 8,760 19,300 36,200
Weighted average exercise price of options exercisable $1.61 $3.37 $6.24
- --------------------------------------------------------------------------------------------------------
</TABLE>
11. CAPITAL STOCK
The Company has two classes of common stock and has also authorized 5,000,000
shares of preferred stock.
In the event of liquidation, holders of Class A common stock are entitled to
receive, after distribution of amounts due to holders of preferred stock, $3 per
share (subject to adjustments for stock splits, stock dividends or similar
events involving Class A common stock) before any distribution to holders of
Class B common stock. After the payment of $3 per share to Class A common stock
holders, the Class B common stock holders are entitled to receive $3 per share.
Thereafter, the Class A and Class B common stock holders share equally in any
further distributions.
The Company's Board of Directors has the authority and responsibility to
determine the rate of dividend, liquidation value, and other preferences of the
preferred stock upon issuance. No shares of preferred stock have been issued to
date.
12. DIVIDENDS
The holders of Class A common stock, which is non-voting, are entitled to
receive a non-cumulative annual cash dividend of $.08 per share before any
dividends may be paid to the holders of Class B common stock. Thereafter, any
additional dividend in a fiscal year must be paid on the two classes of common
stock on an equal basis. If the preferential dividend is omitted for three
consecutive years, the Class A common stock is entitled to vote in the following
year.
20
<PAGE> 23
ELECTRONIC TELE-COMMUNICATIONS, INC.
13. EARNINGS PER SHARE
Earnings (loss) net of dividends paid (undistributed earnings) are allocated
equally per share to weighted average Class A common shares, as adjusted for the
dilutive effect of stock options using the treasury stock method, and weighted
average Class B common 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>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net earnings (loss) $ (94,157) $ 179,324 $ (677,339)
Less dividends paid:
Class A common 160,716 80,358 240,474
Class B common -- -- 20,000
-----------------------------------------
Undistributed earnings (loss) $ (254,873) $ 98,966 $ (937,813)
Denominator for basic and diluted earnings per share:
Weighted average shares:
Class A common 2,008,949 2,008,949 2,004,751
Class B common 499,998 499,998 500,000
-----------------------------------------
Total 2,508,947 2,508,947 2,504,751
Calculation of basic and diluted earnings (loss) per share:
Class A common:
Distributed earnings $ 0.08 $ 0.04 $ 0.12
Undistributed earnings (loss) (0.10) 0.04 (0.37)
-----------------------------------------
Basic and diluted earnings (loss) per share $ (0.02) $ 0.08 $ (0.25)
Class B common:
Distributed earnings $ -- $ -- $ 0.04
Undistributed earnings (loss) (0.10) 0.04 (0.37)
-----------------------------------------
Basic and diluted earnings (loss) per share $ (0.10) $ 0.04 $ (0.33)
========================================
- --------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase shares of Class A common stock under the Company's
Nonqualified Stock Option Plan were outstanding. 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 64,260 for 1999, 91,440 for 1998, and 101,440 for
1997. See Note 10 for additional information regarding stock options.
14. ENTERPRISE INFORMATION
The Company operates as one reportable segment.
GEOGRAPHIC INFORMATION
Geographic information related to the Company's revenues and long-lived assets
are as follows:
<TABLE>
<CAPTION>
Revenues (a) Long-Lived Assets
Year-ended December 31, December 31,
1999 1998 1997 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $10,508,555 $12,700,166 $10,259,107 $ 1,460,281 $ 1,628,448
Philippines -- -- 986,289 -- --
Other countries 315,150 449,828 391,068 -- --
-------------------------------------------------------------------
Total $10,823,705 $13,149,994 $11,636,464 $ 1,460,281 $ 1,628,448
===================================================================
- -------------------------------------------------------------------------------------
</TABLE>
(a) Revenues are attributed to countries based on the location of customers.
MAJOR CUSTOMERS
No customer accounted for more than 10% of sales in 1999. One customer accounted
for 16% of sales in 1998. The amount due from the customer at December 31, 1998
was approximately $1,589,400. Another customer accounted for 13% of sales in
1997.
21
<PAGE> 24
FIVE YEAR REVIEW OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales $ 10,823,705 $ 13,149,994 $ 11,636,464 $ 12,913,830 $ 12,902,268
Cost of products sold 5,467,581 7,122,327 6,644,969 6,503,886 6,159,220
Gross profit 5,356,124 6,027,667 4,991,495 6,409,944 6,743,048
General and administrative 1,275,454 1,464,602 1,681,658 1,701,075 1,722,352
Marketing and selling 2,515,635 2,350,465 2,274,716 2,332,151 2,784,829
Research and development 1,654,246 1,751,603 1,784,590 1,980,856 2,533,422
Other income (expense) 1,054 (67,173) (11,870) 22,104 (9,861)
-------------------------------------------------------------------------------
Earnings (loss) before income taxes (88,157) 393,824 (761,339) 417,966 (307,416)
Income taxes 6,000 214,500 (84,000) 161,400 (76,700)
-------------------------------------------------------------------------------
Net earnings (loss) $ (94,157) $ 179,324 $ (677,339) $ 256,566 $ (230,716)
===============================================================================
PER SHARE DATA:
Weighted average
shares outstanding 2,508,947 2,508,947 2,504,751 2,503,949 2,503,949
Basic and diluted earnings (loss)
per share:
Class A common $ (0.02) $ 0.08 $ (0.25) $ 0.12 $ (0.08)
Class B common $ (0.10) $ 0.04 $ (0.33) $ 0.04 $ (0.16)
Shares outstanding at year end 2,508,947 2,508,947 2,508,949 2,503,949 2,503,949
Book value per share $ 2.29 $ 2.39 $ 2.35 $ 2.72 $ 2.72
Cash dividends paid per share $ 0.08 $ 0.04 $ 0.12 $ 0.12 $ 0.12
OTHER DATA:
Working capital $ 2,300,359 $ 2,783,173 $ 2,854,445 $ 4,035,932 $ 3,880,097
Current ratio 3.4 2.2 3.6 4.5 5.0
Total assets $ 6,679,675 $ 8,438,766 $ 7,097,509 $ 8,195,256 $ 8,124,251
Total long-term obligations$ -- $ - $ - $ - $ -
Stockholders' equity $ 5,734,619 $ 5,989,492 $ 5,890,530 $ 6,816,468 $ 6,820,376
After tax return on sales (0.9)% 1.4% (5.8)% 2.0% (1.8)%
Return on equity (1.6)% 3.0% (11.5)% 3.8% (3.4)%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
ELECTRONIC TELE-COMMUNICATIONS, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 QUARTERS
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $3,269,107 $2,875,246 $2,888,497 $1,790,855 $10,823,705
GROSS PROFIT 1,685,362 1,424,193 1,440,680 805,889 5,356,124
NET EARNINGS (LOSS) 177,858 23,965 96,130 (392,110) (94,157)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
CLASS A COMMON 0.08 0.01 0.05 (0.16) (0.02)
CLASS B COMMON 0.04 0.01 0.01 (0.16) (0.10)
DIVIDENDS PER CLASS A COMMON SHARE 0.04 0.00 0.04 0.00 0.08
STOCK PRICE FOR CLASS A COMMON:
HIGH 2.500 3.125 2.875 6.000
LOW 0.594 1.000 1.000 1.250
1998 Quarters
- ------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Total
---------------------------------------------------------------------------
Net sales $2,646,417 $3,209,765 $3,025,266 $4,268,546 $13,149,994
Gross profit 1,132,818 1,579,770 1,476,613 1,838,466 6,027,667
Net earnings (loss) (244,083) 52,034 20,682 350,691 179,324
Basic and diluted earnings (loss) per share:
Class A common (0.09) 0.02 0.01 0.14 0.08
Class B common (0.13) 0.02 0.01 0.14 0.04
Dividends per Class A common share 0.04 0.00 0.00 0.00 0.04
Stock price for Class A common:
High 2.250 2.000 1.500 1.375
Low 1.438 1.313 0.875 0.375
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
SHAREHOLDER INFORMATION
Annual Meeting of Shareholders
May 5, 2000
2:00 p.m
ANNUAL MEETING OF SHAREHOLDERS
2:00 p.m., Friday, May 5, 2000, Electronic Tele-Communications, Inc. 1915
MacArthur Road, Waukesha, WI.
10-K REPORT AND INVESTOR RELATIONS
Electronic Tele-Communications, Inc. Form 10-K annual report may be obtained
without charge by writing to Investor Relations Department, Electronic
Tele-Communications, Inc., 1915 MacArthur Road, Waukesha, WI 53188. Investor
relations inquiries may be made in writing or by telephone, (262) 542-5600.
STOCK HELD IN "STREET NAME"
Electronic Tele-Communications, Inc. maintains a direct mailing list to ensure
that shareholders whose stock is held in broker accounts receive shareholder
information on a timely basis. Shareholders may add their names to this list by
writing or calling our Investor Relations Department.
STOCK LISTING
Electronic Tele-Communications, Inc. Class A common stock trades on The NASDAQ
Stock Market under the symbol ETCIA.
SHAREHOLDERS OF RECORD
As of March 1, 2000, there were approximately 1,100 shareholders of record and
beneficial shareholders owning Class A common stock.
TRANSFER AGENT AND REGISTRAR
For address changes or questions regarding your shares or dividend checks,
please contact: Firstar Trust Company, 1555 North River Center Drive, Suite 301,
Milwaukee, WI, 53212, Telephone (414) 905-5000.
INDEPENDENT AUDITORS
Ernst & Young LLP, 111 East Kilbourn Avenue, Milwaukee, WI 53202
LEGAL COUNSEL
Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee, WI 53202
24
<PAGE> 27
Corporate Officers, Directors
and Committee Assignments
CORPORATE OFFICERS
- - Dean W. Danner, P.E., President and Chief Executive Officer
- - Jeffrey M. Nigl, C.P.A., Vice President, Treasurer and Chief Financial Officer
- - Joseph A. Voight, Jr., Vice President Sales
- - Bonita M. Danner, P.E., Vice President Engineering
- - Robert R. Spiering, Vice President Technical Services
- - Hazel Danner, Corporate Secretary and Director Human Resources
- - Elaine McTyre, Assistant Corporate Secretary
DIRECTORS
- - Peter J. Lettenberger, Esq., 2, Partner, Quarles & Brady
- - A. William Huelsman, 2,4, Investor
- - Joanne B. Huelsman, Esq., 1, Wisconsin State Senator
- - Richard A. Gabriel, 1,2, Consultant
- - Hazel Danner, 3,4, Corporate Secretary and Director Human Resources
- - George W. Danner, P.E., 3, Chairman of the Board
- - Dean W. Danner, P.E., 3,4, President and Chief Executive Officer
- - Bonita M. Danner, P.E., 1,3, Vice President Engineering
COMMITTEE ASSIGNMENTS
1 -- Audit Committee
2 -- Compensation and Stock Option Committee
3 -- Executive Committee
4 -- Facilities Committee
<PAGE> 28
[ETC LOGO]
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual Report (Form 10-K) of
Electronic Tele-Communications, Inc. of our report dated February 4, 2000
included in the 1999 Annual Report to Shareholders of Electronic
Tele-Communications, Inc.
Our audits also included the financial statement schedule of Electronic
Tele-Communications, Inc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the Electronic Tele-Communications, Inc. 1989
Nonqualified Stock Option Plan and the Registration Statement (Form S-8)
pertaining to the Electronic Tele-Communications, Inc. 1999 Nonqualified Stock
Option Plan of our report dated February 4, 2000, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Electronic
Tele-Communications, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 307,652
<SECURITIES> 0
<RECEIVABLES> 1,245,048
<ALLOWANCES> 82,700
<INVENTORY> 1,574,413
<CURRENT-ASSETS> 3,245,415
<PP&E> 5,192,602
<DEPRECIATION> 3,732,321
<TOTAL-ASSETS> 6,679,675
<CURRENT-LIABILITIES> 945,056
<BONDS> 0
25,089
0
<COMMON> 0
<OTHER-SE> 5,709,530
<TOTAL-LIABILITY-AND-EQUITY> 6,679,675
<SALES> 10,823,705
<TOTAL-REVENUES> 10,823,705
<CGS> 5,467,581
<TOTAL-COSTS> 5,467,581
<OTHER-EXPENSES> 5,450,110
<LOSS-PROVISION> (8,000)
<INTEREST-EXPENSE> 2,171
<INCOME-PRETAX> (88,157)
<INCOME-TAX> 6,000
<INCOME-CONTINUING> (94,157)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,157)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
