SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 1-13764
ELECTRONICS COMMUNICATIONS CORP.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2649088
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Plog Road
Fairfield, New Jersey 07004
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 808-8862
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 [ ].
The number of shares of the registrant's common stock ( par value)
outstanding as of , was .
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
June 30, 1997, March 31, 1997 and December 31, 1996
Consolidated Condensed Statements of Operations
for the three months ended June 30, 1997 and 1996
Consolidated Condensed Statements of Cash Flows
for the three months ended June 30, 1997
Consolidated Condensed Statements of Changes in
Stockholders' Equity for the three months ended
June 30, 1997
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis or Plan
of Operation
PART II. OTHER INFORMATION
Signature page
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, MARCH 31, DECEMBER 31,
------------ ------------ --------------
1997 1997 1996
(UNAUDITED) (UNAUDITED)
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CURRENT ASSETS
Cash ............................................. $ 23,447 $ 48,620 $ 179,188
Accounts Receivable
(Net of $508,400 Allowance for Doubtful Accounts
at June 30, 1997, $504,000 at March 31, 1997
and $574,910 at December 31, 1996.) ............ 731,176 685,709 676,797
Inventories ...................................... 186,338 256,698 187,953
Loan Receivable .................................. 114,560 114,560 114,560
Marketing Service Contract ....................... 850,685 1,027,911 1,205,137
Prepaid Expenses ................................. 6,158 6,158 12,162
------------ ------------ ------------
TOTAL CURRENT ASSETS ....... 1,912,364 2,139,656 2,375,797
------------ ------------ ------------
PROPERTY AND EQUIPMENT
Property and Equipment ........................... 2,800,394 2,794,870 2,754,910
Accumulated Depreciation ......................... (924,017) (778,502) (634,314)
------------ ------------ ------------
NET PROPERTY AND EQUIPMENT ....... 1,876,377 2,016,368 2,120,596
------------ ------------ ------------
OTHER ASSETS
PCS Licenses .................................... 26,452,200 26,452,200 26,452,200
Deferred PCS Interest ........................... 1,334,275 910,023 479,401
Loan Origination Fees ........................... 123,750 287,876 808,287
Paging Carrier Agreement ........................ 945,649 962,835 980,022
Deferred Private Placements Costs ................ -- 347,971 237,243
Deferred Debenture Costs ........................ 137,969 -- --
Deferred PCS License Costs ....................... 391,191 366,650 335,932
Security Deposits and Other Assets ............... 141,287 126,945 160,795
Goodwill ........................................ 62,346 63,459 66,202
Deferred Registration Costs ..................... 76,546 84,176 84,176
------------ ------------ ------------
TOTAL OTHER ASSETS ....... 29,665,213 29,602,135 29,604,258
------------ ------------ ------------
TOTAL ASSETS ....... $ 33,453,954 $ 33,758,159 $ 34,100,651
============ ============ ============
See Notes to Consolidated Financial Statements.
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, MARCH 31, DECEMBER 31,
----------- ------------ ------------
1997 1997 1996
(UNAUDITED) (UNAUDITED)
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CURRENT LIABILITIES
Accounts Payable ................................... 2,576,224 $ 1,971,849 $ 1,956,329
Notes Payable - Other .............................. 205,788 941,949 1,081,538
Notes Payable - Bank ............................... 95,000 95,000 95,000
Notes Payable - Stockholders ....................... 112,604 92,215 181,677
Current Portion of Obligations Under Capital Leases 234,885 234,885 234,885
Current Portion of Long Term Debt .................. 8,793 8,793 8,793
Private Placement Advance .......................... -- 1,628,254 500,000
Accrued Expenses ................................... 353,025 1,002,617 552,005
Accrued Interest ................................... 1,024,051 607,429 493,401
Customer Deposits .................................. 22,854 23,929 24,009
----------- ------------ ------------
TOTAL CURRENT LIABILITIES ......... 4,633,224 6,606,920 5,127,637
------------ ------------ ------------
LONG TERM LIABILITIES
Notes Payable ...................................... 23,806,980 23,806,980 23,806,980
Long Term Debt ..................................... 38,981 41,879 43,971
Obligations under Capital Leases ................... 625,085 682,377 745,639
Debentures Payable Advance ......................... 1,061,302 -- --
------------ ------------ ------------
TOTAL LONG TERM LIABILITIES .......................... 25,532,348 24,531,236 24,596,590
------------ ------------ ------------
Minority Interest .................................... 428,344 424,542 415,474
See Notes to Consolidated Financial Statements.
</TABLE>
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
JUNE 30, MARCH 31, DECEMBER 31,
----------- ------------ ------------
1997 1997 1996
(UNAUDITED) (UNAUDITED)
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STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01 per share,
8,000,000 authorized, 4,000,000
Series B Non-Voting Convertible Shares issued
outstanding at June 30, 1997, March 31, 1997
and December 31 1996, respectively .............. 40,000 40,000 40,000
Common Stock, par value $.60 per share, 40,000,000
authorized, issued and outstanding , 1,221,626 at
June 30, 1997 and 1,015,765 at March 31, 1997
and December 31, 1996 .......................... 732,976 609,460 609,460
Additional Paid-In Capital ......................... 20,185,397 18,295,820 18,295,820
Retained (Deficit) ................................. (12,092,634) (10,723,068) (8,978,629)
Subscription Receivable ............................ (6,000,000) (6,000,000) (6,000,000)
Notes Receivable arising from Common Stock Purchase
Warrants Sold ...................................... (5,701) (5,701) (5,701)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY ......... 2,860,038 2,216,511 3,960,950
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........... $ 33,453,954 $ 33,779,209 $ 34,100,651
============ ============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT)
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
----------------------------
1997 1996
----------- -----------
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REVENUES
Paging & Two Way Radio .............................. $ 545,532 --
Commissions ......................................... 95,573 1,036,169
Electronics ......................................... 9,614 1,230,268
Interest Income ..................................... 430 --
----------- -----------
TOTAL SALES .......... 651,149 2,266,437
----------- -----------
COST OF SALES
Paging & Two Way Radio .............................. 347,167 --
Commissions ......................................... 85,663 808,962
Electronics ......................................... 9,421 971,918
TOTAL COST OF SALES .......... 442,251 1,780,880
----------- -----------
GROSS PROFIT .......... 208,898 485,557
----------- -----------
EXPENSES
Selling ............................................. 542,204 380,566
General and Administrative .......................... 938,195 685,111
Interest Expense .................................... 94,263 43,327
----------- -----------
TOTAL EXPENSES .......... 1,574,662 1,109,004
----------- -----------
INCOME BEFORE MINORITY INTEREST,
AND INCOME TAXES ...................................... (1,365,764) (623,447)
----------- -----------
Minority Interest in Loss of Consolidated Subsidiaries (3,802) --
----------- -----------
LOSS BEFORE INCOME TAXES .............................. (1,369,566) (623,447)
Income Taxes ........................................ -- --
----------- -----------
NET LOSS .............................................. ($1,369,566) ($ 623,447)
LOSS PER COMMON SHARE ................................. ($ 1.30) ($ 2.27)
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING (NOTE 11) ........... 1,052,820 274,983
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
----------- -----------
1997 1996
----------- -----------
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ............................................. ($1,369,566) ($ 623,447)
Adjustments to Reconcile Net Loss
Net Cash Used By Operations:
Issue of Common Stock for Marketing Agreement ........ -- $ 187,500
Issue of Common Stock for interest expense ........... 33,334
Depreciation and Amortization ........................ 355,481 10,942
Amortization of Service Contract ..................... 177,226 --
Provision for Doubtful Accounts ...................... 4,404 --
Non Cash Other Expense ............................... -- (7)
Minority Interest in Loss ............................ (3,802) --
Changes in:
Accounts Receivable .................................. (49,871) (909,659)
Inventories .......................................... 70,360 6,281
Prepayments .......................................... -- 9,141
Accounts Payable ..................................... 604,375 (321,732)
Accrued Expenses and Taxes Payable ................... (649,592) 84,714
Accrued Interest ..................................... 416,622 --
Customer Deposits .................................... (1,075) 38,742
TOTAL ADJUSTMENTS .................................. 957,462 (894,078)
----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES ................................... (412,104) (1,517,525)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Receivable ...................................... -- 482,966
Purchase Warrants .................................... -- 33,300
Other Assets ......................................... (5,599) (21,267)
Deferred PCS Interest Costs .......................... (424,252) (17,500)
Deferred PCS License and Buildout Costs .............. (24,541) --
Deferred Private Placement Costs ..................... 347,971 (143,037)
Deferred Debenture Costs ............................. (137,969) --
Bid Deposit .......................................... -- (322,610)
Additions to Property and Equipment .................. (5,524) (134,906)
Payment for purchase of Threshold Communications, Inc.
net of cash acquired ............................... -- (180,556)
----------- -----------
NET CASH BY
INVESTING ACTIVITIES ................................... (249,914) (303,610)
----------- -----------
See Notes to Consolidated Financial Statements.
</TABLE>
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(continued)
THREE MONTHS ENDED
JUNE 30,
----------- -----------
1997 1996
----------- -----------
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CASH FLOWS FROM FINANCING
ACTIVITIES
Net Proceeds (Payments) of Shareholder Loans ......... 20,389 (218,312)
Private Placement Advance ............................ (1,628,254) --
Payments of Bank Loans ............................... -- (15,000)
Proceeds from Debentures Advance ..................... 1,061,302 2,808,406
Payments of Other Loans .............................. (364,059) --
Principal Payments of Capital Lease Obligations ...... (57,292) (24,665)
Sale of Common Stock ................................. 1,604,759 142,250
----------- -----------
NET CASH BY
FINANCING ACTIVITIES ................................... 636,845 2,692,679
----------- -----------
NET INCREASE (DECREASE) IN CASH ........................ (25,173) 871,544
CASH, BEGINNING OF PERIODS ............................. 48,620 54,329
----------- -----------
CASH, END OF PERIODS ................................... $ 23,447 $ 925,873
=========== ===========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOWS
CASH PAID DURING THE PERIOD FOR :
Interest .......................................... $ 94,263 $ 43,327
Taxes ............................................. -- --
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Property Acquired Under Capital Lease ............. -- ($32,258)
Common Stock Issued for Payment of Loan Payable ... $375,000 --
See Notes to Consolidated Financial Statements.
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Retained
Preferred Stock Common Stock Paid-In Earnings
Shares Amount Shares Amount Capital (Deficit)
------------ ------------ ------------ ------------ ------------ ------------
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Balance as of December 31, 1996 .. 4,000,000 $ 40,000 1,015,765 $ 609,460 $ 18,295,820 ($ 8,978,629)
Net loss ......................... -- -- -- -- ($ 1,744,439) --
------------ ------------ ------------ ------------ ------------ ------------
Balance as of March 31, 1997 ..... 4,000,000 $ 40,000 1,015,765 $ 609,460 $ 18,295,820 ($10,723,068)
Sale of Common Stock in connection
with Private Placement net of
$457,239 of expenses ........... -- -- 205,861 $ 123,516 $ 1,889,577 --
Net loss ......................... -- -- -- -- -- ($ 1,369,566)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of June 30, 1997 ...... 4,000,000 $ 40,000 1,221,626 $ 732,976 $ 20,185,397 ($12,092,634)
============ ============ ============ ============ ============ ============
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Notes Receivable
Arising From
Common Stock Subscription
Purchase Warrant Receivable Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance as of December 31, 1996 .. ($ 5,701) ($6,000,000) $ 3,960,950
Net loss ......................... -- -- ($1,744,439)
----------- ----------- -----------
Balance as of March 31, 1997 ..... ($ 5,701) ($6,000,000) $ 2,216,511
Sale of Common Stock in connection
with Private Placement net of
$457,239 of expenses ........... -- -- $ 2,013,093
Net loss ......................... -- -- ($1,369,566)
----------- ----------- -----------
Balance as of June 30, 1997 ...... ($ 5,701) ($6,000,000) $ 2,860,038
=========== =========== ===========
</TABLE>
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Business Activity and Basis of Presentation
During 1994, Electronics Communications Corp. (the "Company") changed
its name from Genetic Breeding, Inc. to Internow Affiliates, Inc. and
then to Electronics Communications Corp. Effective on January 1, 1994,
the Company acquired Free Trade Distributors, Inc. (which engages in
the wholesale distribution of cellular telephones and related
accessories and electronic products) and Trade Zone Distributors, Inc.
(which engages in the activation of cellular radio subscribers for
commissions, both serving the New York Metropolitan Area).
In 1995, the Company formed Electrocomm Wireless, Inc., a Delaware
corporation as a subsidiary, to become a radio paging and two-way radio
carrier in the New York Metropolitan Area and the State of New Jersey.
In July 1995, the Company formed Personal Communications Network,
Inc.("PCN"), a Delaware corporation, to participate in the Federal
Communications Commission auction for licenses to engage in personal
communications services ("PCS"). On May 8, 1996 the Company obtained
six PCS licenses for $26,452,200 entitling it to operate wireless PCS
telephone systems covering nearly 1.5 million people in three states.
In February, 1997 four (4) officers and directors of the Company
acquired a 24% interest in "PCN".
On March 22, 1996, Threshold Communications, Inc. ("TCI") acquired
substantially all of the assets and assumed certain liabilities of
General Communications and Electronics, Inc. ("GCE"). TCI also acquired
as part of this transaction 56 2/3% of the outstanding stock of General
Towers of America, Inc. (which engages in the business of providing two
way radio services in the New York Metropolitan Area). TCI and its
subsidiary General Towers of America, Inc. ("GTA") are treated as
subsidiaries of the Company.
On June 28, 1996, the Company acquired 51% of Threshold Communications,
Inc. (which engages in the business of providing radio paging services
in the New York Metropolitan Area.)
On July 31, 1997 the Company authorized a 12 to 1 reverse stock split
of its $.05 par value common stock. The new common stock will have a
$.60 per share par value. All references to number of common shares for
all periods presented have been retroactively restated for the reverse
stock split.
On August 11, 1997 the Company changed its year end from December 31 to
March 31.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
necessarily include all of the information and footnotes required by
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ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
generally accepted accounting principles for complete financial
statements. In the opinion of management all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three months ended June
30, 1997 are not necessarily indicative of the results that may be
expected for the year ended March 31, 1998. The unaudited consolidated
financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's annual report on form 10K-SB for the year ended December 31,
1996.
(B) Principles of Consolidation
The consolidated financial statements include the accounts of
Electronics Communications Corp., subsequent to the Acquisition, and
its wholly-owned subsidiaries, Free Trade Distributors, Inc., Trade
Zone Distributors, Inc. (Trade Zone Distributors , Inc. has a wholly
owned subsidiary, Trade Zone Distributors, II, Inc. which is an
inactive, non-operating entity), Electrocomm Wireless, Inc., and
majority owned subsidiaries, Personal Communications Network, Inc.,
Threshold Communications, Inc. and General Towers of America, Inc. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
(C) Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
using accelerated methods over the estimated useful lives of the
respective assets (5 to 7 years). Depreciation expense charged to
operations for the quarter ended June 30, 1997 and 1996 was $145,515
and $21,881, respectively.
(D) Inventories
Inventories are valued at the lower of cost or market, cost is
determined using the first in, first out method.
(E) Revenue Recognition
It is the Company's policy to categorize revenue into either sales from
electronic goods, commissions for fees earned on sales of cellular
radio service contracts or sales from its radio paging and two way
radio services. Sales from electronic goods includes, but is not
limited to cellular phones and related accessories and other electronic
automobile and office products. Revenue from the above mentioned
products are recognized when they are shipped. Revenues from sales of
electronic goods represented 1% and 54% of the Company's total revenue
for the quarter ended June 30, 1997 and 1996 respectively. Commissions
are inclusive of fees earned for the sale of cellular radio service
contracts and residuals received on those contracts. Revenues and
related commissions from the sale of the service contracts are
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(E) Revenue Recognition (continued)
recognized at the point of activation. Revenues from residuals are
realized when approved by the cellular radio service supplier and are
paid on customer usage for a maximum of three years. Commission revenue
represented 15% and 40% of the Company's total revenue for the quarter
ended June 30, 1997 and 1996 respectively.
The Company establishes a reserve of 3.5% for charge-backs on customers
that prematurely terminate cellular service. In addition to the
commissions paid by the cellular radio supplier, the Company receives
co-op fees. Co-op fees are reimbursements of expenditures that are
approved by the cellular radio supplier for advertising and promotion
in connection with the sale of cellular radio contracts. Revenues from
radio paging and two way radio services are recognized in the beginning
of the month for which they are invoiced and amounted to 84% of
revenues in the quarter ended, June 30, 1997.
(F) Concentration of Credit Risk
The Company maintains its major cash accounts in banks in the New York
and New Jersey Area. The total cash deposits are insured by the Federal
Deposit Insurance Corporation up to $100,000 per account.
The Company currently receives all of its commission revenue from two
major cellular radio and PCS carriers. Although there are a limited
number of sources for this type of revenue, management believes that
other sources could provide similar commissions on comparable terms. A
change in carriers could cause a delay in activations and a loss of
sales which would affect operating results adversely.
(G) 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
(H) Fair Value of Financial Instruments
At June 30, 1997, March 31, 1997 and December 31, 1996, the fair values
of cash, cash equivalents, non-convertible short term debt and current
portion of long-term debt, accounts payable, accrued interest, accrued
salaries and other accrued liabilities approximated their carrying
values because of the short-term nature of these instruments. The fair
value and carrying amount of the Company's long term notes payable are
deemed to be approximately equivalent as the note was issued based upon
current interest rates.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PRIVATE PLACEMENT OF SECURITIES AND 8% CUMULATIVE CONVERTIBLE
DEBENTURES
Prior to June 30, 1997 the Company received a $923,333 advance
representing future payments for $1,061,302 of 8% cumulative
convertible debentures due June 30, 2000. Subsequent to June 30, 1997
the Company received $1,251,667 for $1,438,698 of these debentures.
205,861 units consisting of one share of common stock and 1 1/2
warrants to purchase .75 shares of common stock sold in a Private
Placement of securities on May 29, 1997 are expected to be converted
into $2,470,334 of the 8% cumulative convertible debentures. The
closing is expected to be completed in the September 30, 1997 quarter.
For the issuance of the 205,861 units on May 29, 1997, the Company
received $1,604,760, exchanged $408,334 of notes payable and accrued
interest and paid $457,239 of expenses related to the Private Placement
of securities.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts Receivable consist of amounts due for sales of electronic
goods, commissions due from major cellular radio and PCS suppliers and
from sales of radio paging and two way radio service. Components of
Accounts Receivable are $154,399 for the sale of electronic goods,
$197,552 for commissions, and $379,225 for the sale of radio paging and
two way radio service at June 30, 1997, $131,435, $194,129 and $360,145
at March 31, 1997 and $183,178, $240,908 and $252,711 at December 31,
1996.
NOTE 4 - OTHER ASSETS
(A) The PCS licenses were awarded in a Federal Communications
Commissions "C" Block Auction. The markets awarded the Company include
Elmire-Corning, New York; Bangor/Lewiston-Auburn/Waterville-Augusta,
Maine; and Burlington/Rutland-Bennington, Vermont. The Vermont markets
encompass virtually the whole state. The Maine markets cover a majority
of the population and most of the state geographically. The licenses
expire and are subject to renewal after ten (10) years.
The Company's total winning bids amounted to $26,452,200, after the 25%
discount provided to small businesses, which the Company qualifies for,
under the terms of the auction. The Company deposited cash of
$2,645,220. The remaining balance will be paid out over the next 10
years with 7% interest only during the first six years. Included on the
license costs are certain legal fees incurred in obtaining the license.
Capitalized PCS interest in the amount of $1,334,275 represents
interest capitalized in conjunction with these licenses. Interest
capitalized was $424,252, $430,622 and $479,401 for the three months
ended June 30, 1997, March 31, 1997 and the year ended December 31,
1996 respectively. The company has not begun PCS service. Upon
inception of such services, the Company will amortize the licenses and
related costs over a 40 year period.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) Deferred License Costs consists of various legal, consulting and
registration fees in connection with obtaining paging licenses, two-way
radio licenses and personal communication service licensing. Interest
cost associated with obtaining these licenses is being capitalized. The
licenses when put into service will be amortized over a forty year
period.
(C) The Paging Carrier Agreement consists of six paging licenses with
various paging carriers. The cost of such agreements are being
amortized over a fifteen year period.
NOTE 5 - LOAN RECEIVABLE
On June 30, 1997 the loan receivable-other consists solely of a note
due from one of the Company's consultants. This note is due December
31, 1997 and bears an interest rate of 8%.
NOTE 6 - MARKETING SERVICE CONTRACT
On September 4, 1996, the Company entered into a Client Service
Agreement with a public relations firm. Pursuant to the terms of the
agreement, the firm was hired as a financial public relations
consultant to promote the Company's business to the financial
community. The term of the agreement is for two years. In consideration
of the services to be performed by the firm, the Company issued 191,667
registered shares of the Company's common stock. As of June 30, 1997
the Company had $850,685 prepaid with respect to this contract.
NOTE 7 - NOTES PAYABLE
(A ) On April 18, 1995, the Company entered into a financing agreement
with a bank in the amount of $100,000. This loan is personally
guaranteed by the Company's President, cross corporate guaranteed by
Free Trade Distributors, Inc. and secured by the Company's inventory.
Interest is payable monthly at the rate of 1.5% per annum in excess of
the bank's fluctuating prime lending rate. At June 30, 1997, March 31,
1977 and December 31, 1996, the balance on this loan was $95,000. This
note was extended by the bank until August 7, 1997. The Company is
negotiating to convert this financing arrangement into a long term note
or similar debt instrument which should be completed prior to September
30, 1997.
(B) On February 29, 1996, the Company entered into a financing
arrangement with a corporation in the amount of $134,000. Interest is
payable at a rate of 10% in monthly installments of $1,117 per month.
As additional consideration, the Company issued the corporation 66,667
"A" Warrants with 90 day registration rights and "Piggy Back"
registration rights with any other offering of the Company. The balance
of this loan was $109,711 at December 31, 1996. The note was paid in
1997. As a result of this transaction, $500,000 in loan origination
fees were recognized, which were being amortized over the life of the
loan.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C) In connection with TCI's acquisition of GCE, the Company assumed a
$350,000 non-interest bearing note payable to a corporation owned by a
shareholder of the Company. The Principal amount of this non interest
bearing note was $251,777, $281,944 and $311,111 at June 30, 1997,
March 31, 1997 and December 31, 1996, respectively, less unamortized
discount (discount is based on interest of 12%) for a net balance of
$205,788, $235,955 and $265,121 respectively.
(D) The Notes Payable - FCC consist of six 7% 10 year notes aggregating
$23,806,980. The notes are payable in quarterly installments of
interest only for the first six years and principal plus interest
thereafter. The notes are secured by the PCS licenses. The interest
payment due December 31, 1996 was partially paid on March 31, 1997. The
Company has not made a quarterly interest payment since March 31, 1997.
This non-payment is due to an FCC moratorium on quarterly interest
payments while it awaits a decision on the FCC changing the quarterly
installment due. This anticipated change is being considered to allow
PCS license holders to better utilize short term cash to more quickly
build out their systems in an effort to generate revenues. The Company
has accrued interest expense of $1,334,275 through the June 30, 1997
quarter.
(E) On September 20, 1996, the Company entered into a loan agreement
with a private lender, pursuant to which the Company borrowed $500,000.
The loan bore interest at the rate of 10% per annum. The loan became
due and payable on or before June 20, 1997, however the Company
requested an automatic three (3) month extension on the due date. The
Company used the proceeds of this loan for general corporate purposes.
The balance owed at March 31, 1997 and December 31, 1996 was $500,000.
In the three months ended June 30, 1997, the Company paid $125,000 of
this note and exchanged $375,000 for shares of common stock of the
Company.
(F) Purchase Money Notes Payable in monthly installments of $1,262
including interest at 13%. The last payment is due on August 1, 2001.
This loan is collateralized by equipment with a book value of $44,842.
The balance of this loan was $47,774, $50,852 and $52,764 at June 30,
1997, March 31, 1997 and December 31, 1996 respectively.
(G) On October 21, 1996 the Company entered into a loan agreement with
a private lender in the amount of $200,000. The loan is due in November
1997 with interest at 10% per annum. The loan was secured by all of the
Company's current accounts receivable as well as all equipment and
fixtures owned by the Company. See Notes 2J and 13. The note was paid
in full during the quarter ended June 30, 1997
NOTE 8 - CAPITAL LEASE
The interest rates on the capitalized leases range from 10% to 29.17%
and are imputed based on the lower of the Company's incremental
borrowing rate at the inception of each lease or the lessors implicit
rate of return.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - NOTES PAYABLE - STOCKHOLDERS
Notes Payable - Stockholders are unsecured and payable on demand with
interest at rates from 7.5% to 10.65% per annum.
NOTE 10 - OTHER ADVERTISING, PROMOTIONAL AND MARKETING SERVICES
On October 7, 1996 the Company entered into a consulting agreement.
Pursuant to the agreement the consulting firm is to provide financial
consulting and advisory services to the Company and its subsidiary PCN,
including, without limitation, general advice with respect to
financing, acquisition, joint venture or other corporate transactions.
In consideration of the services to be rendered PCN is issuing to the
consulting firm or its designees ten shares of its common stock
representing an aggregate of 10% of the issued and outstanding shares
of PCN.
NOTE 11 - LOSS PER COMMON SHARE
The Company computes loss per common share by dividing the net loss by
the weighted average number of common stock and dilutive equivalent
shares outstanding. The computation of fully diluted net loss per share
was antidilutive in each of the periods presented; therefore, the
amounts reported for primary and fully diluted loss are the same.
NOTE 12 - CONVERTIBLE PREFERRED STOCK
On July 23, 1996, the Board of Directors of the Company authorized the
issuance of an aggregate of 4,000,000 shares of Series B Preferred
Stock ("Preferred Stock"). Each share of Preferred Stock is valued at
$1.50 per share and convertible into .13 shares of the Company's common
stock. These shares were purchased by three year Promissory Notes
("Notes") bearing interest at the rate of 7% per annum. The interest
shall accrue and not be payable until the securities are sold. The
Notes shall be immediately extendible for additional one year terms.
The Notes are non-recourse, but collateralized by the Pledge of the
Preferred Stock. Each share of Preferred Stock is subject to a three
year vesting period, whereby 1/3 was immediately vested, and the
balance to be vested during the next two years as long as the
aforementioned individuals remain as either an officer or director of
the Company.
NOTE 13 - WARRANTS TO PURCHASE COMMON STOCK
During 1996, the Company issued 46,667 shares of Class A warrants in
connection with obtaining financing from certain private lenders. The
warrants entitle the holder to purchase one share of common stock at a
price of $30.00 and are exercisable through May 12, 1999.
NOTE 14 - INCOME TAXES
The Company adopted the liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under the liability method,
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
deferred taxes are determined based on the differences between the
financial statement and tax basis of assets and liabilities at enacted
tax rates in effect in the years in which the differences are expected
to reverse. The Company has net operating loss carry forwards that it
does not expect to utilize pursuant to Internal Revenue Regulations.
NOTE 15- PENDING LITIGATION
On March 4, 1996 the Company commenced an action entitled Electronics
Communications Corp. against Toshiba America Consumer Products, Inc.
("Toshiba") and Audiovox Corporation ("Audiovox"), case number 96 Civ.
1365, in the United States District Court of the Southern District of
New York. The Complaint asserts claims for antitrust, breach of
contract, tortious interference with contract and tortious interference
with prospective economic advantage and business relations. The
Complaint seeks damages in excess of $3,000,000. This action was
commenced because the Company expended significant monies and resources
including the issuance of 16,667 shares of the Company's common stock
to a consultant in anticipation of a South American cellular telephone
program which the Company was to undertake exclusively on behalf of
Toshiba, based on certain reliance on Toshiba, and the withdrawal of
Toshiba's commitment based on what the Company believes is an unlawful
conspiracy with Audiovox. Immediately prior to the commencement of the
program, Toshiba discontinued manufacturing the line of cellular
telephones that the program was designed to offer. This decision, which
the Company believes was coerced by Audiovox, has caused significant
damages to the Company.
The defendants Toshiba and Audiovox moved to dismiss a portion of the
case, claiming that the Company had not pled a cognizable antitrust
cause of action, and that the remaining claims should be dismissed for
the lack of supplemental jurisdiction, which could then be prosecuted
in state courts. On August 12, 1996 the Court ruled in favor of the
motion of defendants, Toshiba and Audiovox, and the case was dismissed
on such date. The Company appealed the Court's ruling, filing its Brief
on Appeal on February 21, 1997. On March 12, 1997, Toshiba and Audiovox
served their responsive briefs, and oral argument before the United
States Court of Appeals for the Second Circuit was held on May 22,
1997, and the parties are awaiting the Court's decision.
On or about March 11, 1997, the Company was served with a Summons and
Complaint in an action entitled: "Daily News, L.P. v. Free Trade a/k/a
Free Trade Distributors, Inc. and Electronics Communications Corp.,"
pending in the United States District Court for the Southern District
of New York. The Plaintiff, The Daily News, claims breach of a certain
Advertising Contract, in that the Company's subsidiary failed to pay
for certain advertising and failed to meet the minimum advertising
expenditures set forth therein, resulting in the Imposition of a "short
rate" with higher payment requirements. As a result, Plaintiff claims
damages aggregating $156,284.87. The Company believes it has an
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15- PENDING LITIGATION (continued)
excellent working relationship with The Daily News, and that this suit
resulted from a misunderstanding between the respective principals of
the parties, and which concerned the dependency of the level of the
Company's advertising on the continuation of the Company's agency
relationship with BANMC. Counsel for the Company and The Daily News
stipulated to extend the Company's time to answer or move with respect
to the Complaint, so that the principals might confer.
As a result of those discussions, an Agreement in Principle regarding
settlement was reached. Counsel for the parties have prepared and the
parties have executed appropriate settlement documents which have been
submitted to the Court to be "So Ordered." In substance, the agreement
provides for the payment of $75,000 by the Company in sequential
payments through in or about March, 1998, with a resumption of
advertising in The Daily News at such times and in such amounts as the
Company may determine. If The Daily News is satisfied that the business
relationship has been restored to its satisfaction as at December 31,
1997, it shall waive all additional payments and the matter shall be
settled for $75,000. If for any reason The Daily News elects to
proceed, the Company retains all defenses to the payment of any amounts
in excess of $75,000.
On or about July 11, 1997 the Company was served with a Summons and
Complaint in an action entitled: Brightpoint, Inc. v. Free Trade
Distributors, Inc. and Electronics Communications Corp., pending in the
United States District Court for the southern District of Indiana,
Indianapolis Division. Brightpoint is a former supplier of the Company,
and claims that the Company owes it approximately $400,000 plus
interest for merchandise delivered, consisting principally of cellular
telephones. Prior to this suit, counsel for the Company advised the
potential claimant that the Company believes it has valid and
compelling counterclaims which equal or exceed Brightpoint's claims for
payment. The Company has not answered yet, based upon an agreement with
counsel for Brightpoint to extend such obligation to answer without
date, pending an exchange of documents, information and views, and
possible settlement discussions. However, if settlement can not be
achieved on a basis deemed to be reasonable by Management for the
Company, the Company intends to direct its counsel to deny the
essential allegations of the Complaint, and to assert counterclaims in
excess of Brightpoint's claims. Since this litigation is at its
incipient stage, it is too early to fully assess the likely outcome, or
any ability to achieve alternative resolution.
NOTE 16- BUSINESS PLAN AND LIQUIDITY
The Company's financial statements for the three months ended June 30,
1997 have been prepared on a going concern basis, which contemplates
the realization of assets and settlement of liabilities and commitments
in the normal course of business. The Company has incurred net losses
of $1,369,566 for the quarter ended June 30, 1997, $1,048,802 for the
quarter ended March 31, 1997 and $5,604,054 for the year ended December
31, 1996. The Company has a working capital deficiency of $2,720,860 at
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16- BUSINESS PLAN AND LIQUIDITY (continued)
June 30, 1997. In addition, the Company has an interest payment in
excess of $2,000,000 due to the FCC (see Note "7D") upon lifting of the
moratorium. Management recognizes that the Company must generate
additional resources or consider modifying operations to enable it to
continue operations with available resources. Management's plans
include consideration of the sale of additional equity securities under
appropriate market conditions, alliances with entities interested in
and resources to support the Company's operation or other business
transactions which would generate sufficient resources to assume
continuation of the Company's operations.
The Company has retained investment banking counsel to advise it on the
possible sale of equity securities as well as to introduce and assist
in the evaluation of potential merger and partnering opportunities. The
Company also has retained independent consultants to assist it to
identify other entities interested in its business. Management expects
that these efforts will result in the introduction of other parties
with interests and resources which may be compatible with that of the
Company. However, no assurances can be given that the Company will be
successful in raising additional capital or entering into a business
alliance. Further, there can be no assurance, assuming the Company
raises additional funds or enters into a business alliance, that the
Company will achieve profitability or positive cash flow. If the
Company is unable to obtain adequate additional financing or enter into
such business alliance, management will be required to sharply curtail
the Company's operations.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS:
Three months ended June 30, 1997 compared to the three months ended June 30,
1996.
Revenues for sales of electronic products and commissions decreased by
$1,220,654 and $940,596. respectively to $9,614. And $95,573. for the quarter
ended June 30, 1997. The decrease was fully attributable to the Company's
redirection of its operations and business away from acting principally as a
distributor of consumer home and office electronics products to operating as a
multi-faceted wireless telecommunications company. In light of this change in
direction, paging and two-way radio sales was $542,532. For the quarter ended
June 30, 1997 cost of paging and two-way radio sales was $347,167 or 64.0% for
the quarter.
Cost of electronics and commissions sales as a percentage of sales for
the quarter ended June 30, 1997 was 98.0% and 89.6%, respectively versus 79.0%
and 78.1%, respectively for the quarter ended June 30, 1996. This increase cost
of sales was totally attributable to the change in business direction addressed
previously. In addition, the costs attributable to commission sales increased
due to the settlement and separation agreement which is addressed fully in Part
II, Item 5, "Other Information".
Selling, general and administrative expenses increased by $414,722, or
38.9% as compared to the quarter ended June 30, 1996. This increase was
attributable in part to increased sales and administrative personnel and other
expenses required to meet the Company's expansion and growth as a multi-faceted
wireless communications provider.
Interest expense increased by $50,936 for the comparable quarters due to
increased borrowing by the Company.
The Company had an operating loss before taxes of $1,369,566 for the
quarter ended June 30, 1997 as compared to a loss of $623,447 for the quarter
ended June 30, 1996. These losses resulted primarily from expenditures
associated with the development and marketing of the Company's paging and
two-way radio systems and the Company's move to more suitable premises including
offsite antenna and transmitter sites.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred net losses of $1,369,566 for the quarter ended
June 30, 1997. The Company has a working capital deficiency of $2,720,860 at
June 30, 1997. Management recognizes that the Company must generate additional
resources or consider modifying operations to enable it to continue operations
with available resources. Management's plans include consideration of the sale
of additional equity securities under appropriate market conditions, alliances
with entities interested in and resources to support the Company's operation or
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
other business transactions which would generate sufficient resources to resume
continuation of the Company's cash flow operations. However, no assurances can
be given that the Company will be successful in raising additional capital or
entering into a business alliance. Further, there can be no alternative,
assuming the Company raises additional funds or enters into a business alliance,
that the Company will achieve profitability or positive cash flow. If the
Company is unable to obtain adequate additional financing or enter into such
business alliance, management will be required to severely curtail the Company's
operation.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 4, 1996 the Company commenced an action entitled Electronics
Communications Corp. against Toshiba America Consumer Products, Inc.
("Toshiba") and Audiovox Corporation ("Audiovox"), case number 96 Civ.
1365, in the United States District Court of the Southern District of
New York. The Complaint asserts claims for antitrust, breach of
contract, tortious interference with contract and tortious interference
with prospective economic advantage and business relations. The
Complaint seeks damages in excess of $3,000,000. This action was
commenced because the Company expended significant monies and resources
including the issuance of 16,667 shares of the Company's common stock
to a consultant in anticipation of a South American cellular telephone
program which the Company was to undertake exclusively on behalf of
Toshiba, based on certain reliance on Toshiba, and the withdrawal of
Toshiba's commitment based on what the Company believes is an unlawful
conspiracy with Audiovox. Immediately prior to the commencement of the
program, Toshiba discontinued manufacturing the line of cellular
telephones that the program was designed to offer. This decision, which
the Company believes was coerced by Audiovox, has caused significant
damages to the Company.
The defendants Toshiba and Audiovox moved to dismiss a portion of the
case, claiming that the Company had not pled a cognizable antitrust
cause of action, and that the remaining claims should be dismissed for
the lack of supplemental jurisdiction, which could then be prosecuted
in state courts. On August 12, 1996 the Court ruled in favor of the
motion of defendants, Toshiba and Audiovox, and the case was dismissed
on such date. The Company appealed the Court's ruling, filing its Brief
on Appeal on February 21, 1997. On March 12, 1997, Toshiba and Audiovox
served their responsive briefs, and oral argument before the United
States Court of Appeals for the Second Circuit was held on May 22,
1997, and the parties are awaiting the Court's decision.
On or about March 11, 1997, the Company was served with a Summons and
Complaint in an action entitled: "Daily News, L.P. v. Free Trade a/k/a
Free Trade Distributors, Inc. and Electronics Communications Corp.,"
pending in the United States District Court for the Southern District
of New York. The Plaintiff, The Daily News, claims breach of a certain
Advertising Contract, in that the Company's subsidiary failed to pay
for certain advertising and failed to meet the minimum advertising
expenditures set forth therein, resulting in the Imposition of a "short
rate" with higher payment requirements. As a result, Plaintiff claims
damages aggregating $156,284.87. The Company believes it has an
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS (continued)
excellent working relationship with The Daily News, and that this suit
resulted from a misunderstanding between the respective principals of
the parties, and which concerned the dependency of the level of the
Company's advertising on the continuation of the Company's agency
relationship with BANMC. Counsel for the Company and The Daily News
stipulated to extend the Company's time to answer or move with respect
to the Complaint, so that the principals might confer.
As a result of those discussions, an Agreement in Principle regarding
settlement was reached. Counsel for the parties have prepared and the
parties have executed appropriate settlement documents which have been
submitted to the Court to be "So Ordered." In substance, the agreement
provides for the payment of $75,000 by the Company in sequential
payments through in or about March, 1998, with a resumption of
advertising in The Daily News at such times and in such amounts as the
Company may determine. If The Daily News is satisfied that the business
relationship has been restored to its satisfaction as at December 31,
1997, it shall waive all additional payments and the matter shall be
settled for $75,000. If for any reason The Daily News elects to
proceed, the Company retains all defenses to the payment of any amounts
in excess of $75,000.
On or about July 11, 1997 the Company was served with a Summons and
Complaint in an action entitled: Brightpoint, Inc. v. Free Trade
Distributors, Inc. and Electronics Communications Corp., pending in the
United States District Court for the southern District of Indiana,
Indianapolis Division. Brightpoint is a former supplier of the Company,
and claims that the Company owes it approximately $400,000 plus
interest for merchandise delivered, consisting principally of cellular
telephones. Prior to this suit, counsel for the Company advised the
potential claimant that the Company believes it has valid and
compelling counterclaims which equal or exceed Brightpoint's claims for
payment. The Company has not answered yet, based upon an agreement with
counsel for Brightpoint to extend such obligation to answer without
date, pending an exchange of documents, information and views, and
possible settlement discussions. However, if settlement can not be
achieved on a basis deemed to be reasonable by Management for the
Company, the Company intends to direct its counsel to deny the
essential allegations of the Complaint, and to assert counterclaims in
excess of Brightpoint's claims. Since this litigation is at its
incipient stage, it is too early to fully assess the likely outcome, or
any ability to achieve alternative resolution.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 23, 1996 the Board of Directors of the Company at a Special
Meeting of the Board of Directors authorized the issuance of an aggregate of
4,000,000 Series B Preferred Shares of the Company to Brenda Taylor (1,000,000)
and Messrs. Taylor (1,000,000), Winder (1,000,000) and DePalo (1,000,000) in
return for their personal guarantees of approximately $3,000,000 of the
Company's Subordinated Convertible Debentures. Each share of the Series B
Preferred Stock is valued at $1.50 per share and convertible into 1.50 shares of
Common Stock. The Series B Preferred Shares are payable by a three year
Promissory Note bearing interest at the rate of 7% per annum, with interest
accruing, but not payable until the securities are sold. The Promissory Notes
are immediately extended for additional one-year terms. The Series B Preferred
Shares are fully paid and non-assessable. The Promissory Notes are non-recourse,
but are collateralized by a Pledge of the Stock.
These Series B Preferred Shares are subject to a three (3) year vesting
period pursuant to which 1/3 of the shares vest immediately, and on July 23,
1997 an additional 1/3 of the shares vested on July 23, 1998, if the
aforementioned individuals are still employed by, or a director of, the Company
at such time. On July 23, 1996, the Company reserved 500,000 common shares for
issuance upon the conversion of these Series B Preferred Shares.
On November 7, 1996, at the Annual Meeting of Shareholders,
stockholders of record on October 11, 1996, voting in person and by proxy, voted
to approve "Proposal No. 2" described in the Company's Notice of Annual Meeting
and Proxy Statement, dated October 17, 1996, which ratified this action by the
Board of Directors. 139,435 votes were cast against this Proposal and 425,496
votes were cast for this Proposal.
The other two matters voted on at this annual meeting of shareholders
was "Proposal No. 1" with respect to the election of directors, pursuant to
which, of the 992,960 votes entitled to be cast at the meeting, the number of
votes listed next to the name of each director were cast in favor of his or her
election:
Taylor 773,438 DePalo 773,413
Winder 773,271 Gurian 773,468
B. Taylor 773,271 Tabankin 773,438
In addition, "Proposal No. 3," relating to the approval of the selection of
accountants for fiscal year 1997 was approved by 774,621 votes for such
ratification and 4,522 votes against.
ITEM 5. OTHER INFORMATION
The Company has consummated a "Settlement & Separation Agreement"
severing its agency relationships with NYNEX Mobile Communications, Inc.
("NYNEX") and Bell Atlantic Mobile Communications, Inc. ("Bell Atlantic") with
respect to the solicitation of cellular activations. This was the Company's
largest source of commission and other income over the past twelve months. As
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
part of this arrangement, the Company agreed to settle its claims for
commissions due for the fixed sum of $95,000, net of NYNEX's and Bell Atlantic's
agreement to waive certain payables by the Company. In addition, as part of the
Settlement and Separation Agreement, Bell Atlantic and NYNEX have agreed to
release the Company from the restrictions of certain solicitation and
non-competition provisions contained in the Company's Agency Agreements with
NYNEX and Bell Atlantic, respectively, which provisions would have precluded the
Company from soliciting prior customers and from engaging in solicitations of
activations for Personal Communications Services ("PCS") in the New York
Metropolitan Area. The Company continues to believe that PCS is the future of
wireless communications. The Company has already entered into various
preliminary agreements with respect to soliciting activations for PCS, and
cellular activations on behalf of OmniPoint and AT&T (directly or through
various agents) in the New York Metropolitan Area. By virtue of these
arrangements, the Company believes that in the next several months it will be
able to replace most or all of its prior commission income derived from its
NYNEX and Bell Atlantic Agency Agreements. During this period, the Company will
continue to experience cash flow shortfalls. Neither the OmniPoint, nor the
indirect AT&T arrangements, preclude the Company from other PCS activities,
including activation solicitations for others. Accordingly, the Company will
continue its efforts to build out and operate its own PCS system, pursuant to
its recently acquired FCC PCS Licenses, and to operate and expand its
proprietary paging system, in which capacities the Company acts, or will act, as
an FCC licensed carrier.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DATED: August 12, 1997
ELECTRONICS COMMUNICATIONS CORP.
By: /s/ William S. Taylor
----------------------------
William S. Taylor, President
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<PERIOD-END> JUN-30-1997
<CASH> 23,447
<SECURITIES> 0
<RECEIVABLES> 1,239,576
<ALLOWANCES> 508,400
<INVENTORY> 186,338
<CURRENT-ASSETS> 1,912,364
<PP&E> 2,800,394
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<COMMON> 732,976
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