SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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)
425 Broad Hollow Road
Melville, New York 11747
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 501-0466
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 ($.60 par value)
outstanding as of February 13, 1998 was 4,215,549 shares (see Note 1).
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets December 31, 1997 (unaudited),
March 31, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Operations for the three
and nine months ended December 31, 1997 (unaudited)
and 1996 (unaudited)
Consolidated (unaudited) Statements of Cash Flows for the
nine months ended December 31, 1997 and 1996
Consolidated (unaudited) Statement of Changes in
Stockholders' Equity for the nine months ended
December 31, 1997
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION
Signature page
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1997 1996
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash ........................................................... $ 1,639,739 $ 48,620 $ 179,188
Accounts Receivable
(Net of $15,132 Allowance for Doubtful
Accounts at December 31, 1997, $504,000
at March 31, 1997 and $574,910 at
December 31, 1996.) ......................................... 504,405 685,709 676,797
Inventories .................................................... 170,122 256,698 187,953
Loan Receivable ................................................ 114,560 114,560 114,560
Prepaid Expenses ............................................... 80,665 6,158 12,162
------------ ------------ ------------
TOTAL CURRENT ASSETS .............................. 2,509,491 1,111,745 1,170,660
------------ ------------ ------------
PROPERTY AND EQUIPMENT
Property and Equipment ......................................... 2,858,175 2,794,870 2,754,910
Accumulated Depreciation ....................................... (1,201,469) (778,502) (634,314)
------------ ------------ ------------
NET PROPERTY AND EQUIPMENT .............................. 1,656,706 2,016,368 2,120,596
------------ ------------ ------------
OTHER ASSETS
PCS Licenses ................................................... 22,179,120 20,423,459 19,809,324
Marketing Service Contract ..................................... 496,233 1,027,911 1,205,137
Loan Origination Fees .......................................... -- 289,876 808,287
Paging Carrier Agreement ....................................... 919,569 962,835 980,022
Deferred Private Placements Costs .............................. -- 347,971 237,243
Debt Issue Cost ................................................ 1,424,000 -- --
Security Deposits and Other Assets ............................. 194,221 190,404 226,997
Deferred Registration Costs .................................... 75,342 84,176 84,176
------------ ------------ ------------
TOTAL OTHER ASSETS .............................. 25,288,485 23,326,632 23,351,186
------------ ------------ ------------
TOTAL ASSETS .............................. $29,454,682 $ 26,454,745 $ 26,642,442
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1997 1996
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts Payable and accrued expenses........................... $ 1,321,898 $ 2,998,395 $ 2,532,343
Notes Payable - Other .......................................... 667,899 941,949 1,081,538
Current Portion of Bank Note ................................... -- 95,000 95,000
Current Portion of Obligations Under
Capital Leases ............................................... 356,766 234,885 234,885
Current Portion of Long Term Debt .............................. 15,140 8,793 8,793
Private Placement Advance ...................................... -- 1,628,254 500,000
Accrued Interest FCC Notes ...................................... 957,861 607,429 493,401
------------ ------------ ------------
TOTAL CURRENT LIABILITIES .............................. 3,319,564 6,514,705 4,945,960
------------ ------------ ------------
LONG TERM LIABILITIES
Accrued Interest FCC Notes ..................................... 957,861
Notes Payable to Stockholders .................................. 9,043 92,215 181,677
Notes Payable to FCC............................................ 16,963,365 16,482,516 16,348,771
Long Term Debt ................................................. 31,137 41,879 43,971
Obligations under Capital Leases ............................... 429,551 682,377 745,639
8% Cumulative Convertible Debentures ........................... 1,707,232 -- --
------------ ------------ ------------
TOTAL LONG TERM LIABILITIES ...................................... 20,098,189 17,298,987 17,320,058
------------ ------------ ------------
Minority Interest ................................................ 454,787 424,542 415,474
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.01 per share, 8,000,000 authorized,
4,000,000 Series B Non-Voting Convertible Shares issued and
outstanding at March 31, 1997 and December 31 1996,
respectively ................................................ -- 40,000 40,000
Preferred Stock, no par value, 45 authorized Series C
Non-voting Convertible 30 Shares issued and outstanding
at December 31, 1997......................................... -- -- --
Common Stock, par value $.60 per share, 40,000,000 authorized,
issued and outstanding, 4,215,549 at December 31, 1997 and
1,015,765 at March 31, 1997 and December 31, 1996 (Note 1) .. 2,529,331 609,460 609,460
Additional Paid-In Capital ..................................... 21,466,891 18,295,820 18,295,820
Retained (Deficit) ............................................. (16,799,080) (10,723,068) (8,978,629)
Discount on Common Stock available to Series C Preferred
Shareholders ................................................ (1,615,000) --
Subscription Receivable ........................................ -- (6,000,000) (6,000,000)
Notes Receivable arising from Common Stock Purchase
Warrants Sold .................................................. -- (5,701) (5,701)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY .............................. 5,582,142 2,216,511 3,960,950
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $ 29,454,682 $ 26,454,745 $ 26,642,442
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES
Paging & Two Way Radio .............................. $ 1,745,386 $ 984,851
Commissions ......................................... 422,428 2,114,646
Electronics ......................................... 9,614 1,994,414
----------- -----------
TOTAL SALES ................... 2,177,428 5,093,911
----------- -----------
COST OF SALES
Paging & Two Way Radio .............................. 1,087,399 445,808
Commissions ......................................... 275,562 1,961,928
Electronics ......................................... 389,275 2,067,782
----------- -----------
TOTAL COST OF SALES ................... 1,752,236 4,475,518
----------- -----------
GROSS INCOME ................... 425,192 618,393
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling ............................................. 1,380,842 1,957,925
General and Administrative .......................... 3,195,278 4,509,212
----------- -----------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ......... 4,576,120 6,467,137
----------- -----------
Interest Expense .................................... 2,497,499 165,098
Interest Income ..................................... 3,514 --
LOSS BEFORE MINORITY INTEREST, EXTRAORDINARY INCOME
AND INCOME TAXES ...................................... (6,644,913) (6,013,842)
----------- -----------
Minority Interest in Gain (Loss)
of Consolidated Subsidiaries ....................... (30,245) 55,264
----------- -----------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY INCOME...... (6,675,158) (5,958,578)
Income Taxes ........................................ -- --
----------- -----------
NET LOSS BEFORE EXTRAORDINARY INCOME................... (6,675,158) (5,958,578)
Extraordinary Income ................................ 599,146 --
----------- -----------
Net Loss $(6,076,012) $(5,958,578)
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
Before Extraordinary Income ......................... (3.81) (12.50)
----------- -----------
Extraordinary Income ................................ .34 --
=========== ===========
(Loss) per Common Share ............................. $ (3.47) $ (12.50)
----------- -----------
AVERAGE COMMON SHARES OUTSTANDING ..................... 1,753,457 476,880
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES
Paging & Two Way Radio .............................. $ 592,813 $ 353,461
Commissions ......................................... -- 307,394
Electronics ......................................... 303,140
----------- -----------
TOTAL SALES ................... 592,813 963,995
----------- -----------
COST OF SALES
Paging & Two Way Radio .............................. 351,726 95,258
Commissions ......................................... 19,831 782,015
Electronics ......................................... -- 177,493
----------- -----------
TOTAL COST OF SALES ................... 371,557 1,054,766
----------- -----------
GROSS INCOME (LOSS) .............. 221,256 (90,771)
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling ............................................. 425,890 952,588
General and Administrative .......................... 848,940 1,849,977
----------- -----------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES......... 1,274,830 2,802,565
----------- -----------
INTEREST EXPENSE ...................................... 883,955 74,396
LOSS BEFORE MINORITY INTEREST, EXTRAORDINARY INCOME
AND INCOME TAXES ..................................... (1,937,529) (2,967,732)
Minority Interest in Income (Loss)
of Consolidated Subsidiaries ....................... (15,084) 40,010
----------- -----------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY INCOME...... (1,952,613) (2,927,722)
----------- -----------
Income Taxes ........................................ -- --
----------- -----------
NET LOSS BEFORE EXTRAORDINARY INCOME................... $(1,952,613) $(2,927,722)
=========== ===========
Extraordinary Income ................................ 599,146 --
----------- -----------
Net Loss ............................................ $(1,353,467) $(2,927,722)
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
Before Extraordinary Income ......................... $ (.63) $ (6.14)
=========== ===========
Extraordinary Income ................................ $ .19 --
=========== ===========
Loss per Common Share ............................... $ (.44) $ (6.14)
=========== ===========
AVERAGE COMMON SHARES OUTSTANDING ..................... 3,107,380 476,880
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ............................................. $(6,076,012) $(5,958,578)
Adjustments to Reconcile Net Loss to
Net Cash Used By Operations:
Issue of Common Stock for Marketing Agreement ....... -- 187,500
Issuance of Common Stock for Consulting ............. 131,500 --
Issuance of Common Stock for Services ............... 327,640 --
Legal Fees Financed with Stockholder N/P ............ 80,000 --
Warrants Issued for Interest Expense ................ 59,000 --
Accrued Interest FCC Note ........................... 480,849 --
Depreciation and Amortization ........................ 738,049 2,437,028
Provision for Doubtful Amount ........................ -- 493,923
Non-cash Interest Expense............................. 2,264,143
Amortization of Service Contract ..................... 531,678
Minority Interest in Loss (Income).................... 30,245 (55,264)
Changes in:
Accounts Receivable .................................. 181,304 (169,026)
Inventories .......................................... 86,576 290,916
Prepayments .......................................... (74,507) 58,763
Accounts Payable ..................................... (1,676,497) 389,509
Accrued Interest ..................................... 1,308,293 14,000
Security Deposits and Other........................... (7,189) (74,895)
Accrued Expenses and Taxes Payable ..................... 164,726
----------- -----------
TOTAL ADJUSTMENTS .................................. 4,461,084 3,737,180
=========== ===========
NET CASH USED IN
OPERATING ACTIVITIES ................................... (1,614,928) (2,221,398)
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Unrestriction of Cash .................................. $ -- $ 1,100,000
Paging Carrier Agreements ............................ 43,266 725,580
PCS License .......................................... (1,755,661) (1,632,620)
Additions to Property and Equipment .................. (63,305) (639,501)
Payment for purchase of Threshold Communications, Inc.
net of cash acquired ............................... (158,511)
Other Assets ......................................... -- 60,882
Deferred License Costs ............................... -- (42,122)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES .................. (1,775,700) (586,292)
=========== ===========
CASH FLOWS FROM FINANCING
ACTIVITIES
Notes Receivable Arising From
Common Stock Purchase Warrants ......................... -- 53,300
Loan Receivable ....................................... -- 556,000
Stockholder Loan Receivable .......................... -- --
Purchase Warrants .................................... -- --
Deferred Private Placement Costs ..................... -- 126,901
Payment for Deferred Debenture Costs ................. (325,000) --
Payment for Deferred Registration Costs .............. -- (84,176)
Net Proceeds (Payments) of Shareholder Loans ......... 189,188 (45,571)
Proceeds of Other Loans .............................. -- 569,538
Private Placement Advance ............................ -- 500,000
Payments of Bank Loans ............................... (95,000) (1,065,000)
Proceeds from Debentures.............................. 2,399,139 2,234,376
Payments of Other Loans .............................. (774,050) 23,000
Proceeds from sale of
10% one year convertible notes ..................... 500,000 --
Principal Payments of Capital Lease Obligations ...... (130,945) (114,507)
Sale of Common Stock ................................. 627,810 181,976
Proceeds from sale of Series C Preferred Stock........ 2,595,000 --
Payments of Long Term Debt ........................... (4,395) (3,288)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ................................... 4,981,747 2,932,549
=========== ===========
NET INCREASE (DECREASE) IN CASH ........................ 1,591,119 124,859
=========== ===========
CASH, BEGINNING OF PERIOD............................... 48,620 54,329
----------- -----------
CASH, END OF PERIOD..................................... $ 1,639,739 $ 179,188
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE FOR CASH FLOWS
CASH PAID DURING THE PERIOD FOR:
Interest ............................................. $ 262,217 $ 182,298
Taxes ................................................ -- --
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Property Acquired Under Capital Lease ................ -- 1,002,573
Common Stock Issued for Payment of Loan Payable ...... 352,360
Exchange of Common Stock for Convertible Debt......... 1,908,093
Recission of Preferred Stock ......................... 6,000,000 --
Exchange of Convertible Debt for Common Stock ........ 2,600,000 --
Retirement of Warrants and Notes Receivable .......... 5,701 --
EITF D-60 Convertible Debt Valuation (Note 5H) ....... 977,000 --
SFAS No. 123 Deferred Expense for Warrants Issued
(Note 5H) ... ...................................... 447,000 --
Discount on Common Stock available to Series C
Preferred Shareholders
Under EITF D-60..................................... 1,615,000 --
Reclassification of Unamortized Debt Issue Cost
Associated with 8% Converted Debentures
upon Conversion to Common Stock..................... 312,000 --
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Additional Retained
Preferred Stock Common Stock Paid-In Earnings
Shares Amount Shares Amount Capital (Deficit)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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
$562,239 of expenses ........... -- -- 205,861 $ 123,516 $ 1,784,577 --
Issuance of common stock for
consulting services............ -- -- 50,000 30,000 101,500
Exchange of Common Stock and
Warrants into 8% Cumulative
Convertible Debentures.......... -- -- (205,861) (123,516) (1,784,577) --
Valuation of Discount of Common
Stock Available to Holders of
8% Cumulative Convertible....... -- -- -- -- 2,130,143 --
Debentures...................... -- --
Valuation of Discount of Common
Stock to Holders of 10% One
Year Promissory Notes .......... -- -- -- -- 1,617,000 --
Rescission of Series B
preferred stock ................ (4,000,000) (40,000) -- -- (5,960,000) --
Conversion of 8% cumulative
convertible debentures
into common stock .............. 2,626,708 1,576,025 1,023,975
Reclassification of Unamortized
Debt Issue Cost Associated with
8% Converted Debentures
upon conversion to common
stock....... .................. (312,000)
Issuance of Common Stock
in exchange for loans,
subsidiary stock, Series B
Preferred stock and
employment agreements .......... 523,076 313,846 366,154
Sale of Series C
preferred stock net of $405,000
of expenses .................... -- -- 2,595,000
Valuation of discount on Common
Stock available to holders of
Series C Preferred
Stock (Note 8) ................ 30 -- 1,615,000
Retirement of Note Receivable
and Warrants ................... (5,701)
Net loss ......................... -- -- -- -- -- ($ 6,076,012)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of December 31, 1997 . 30 -- 4,215,549 $ 2,529,331 $ 21,466,891 ($16,799,080)
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Notes Receivable Discount on
Arising From Common Stock
Common Stock Available to Subscription
Purchase Warrant Preferred Shareholders 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
$562,329 of expenses ........... -- -- $ 1,908,093
Issuance of Common Stock for
consulting services............. -- -- 131,500
Exchange of Common Stock and
Warrants into 8% Cumulative
Convertible Debentures.......... -- -- (1,908,093)
Valuation of Discount of Common
Stock Available to Holders of
8% Cumulative Convertible
Debentures...................... -- -- 2,130,143
Valuation of Discount of Common
Stock to Holders of 10% One
Year Promissory Notes .......... 1,617,000
Rescission of Series B
preferred stock ................ 6,000,000 --
Conversion of 8% cumulative
convertible debentures
into common stock .............. 2,600,000
Reclassification of Unamortized
Debt Issue Cost Associated with
8% Converted Debentures upon
conversion to common stock .... (312,000)
Issuance of Common Stock
in exchange for loans,
subsidiary stock, Series B
Preferred Stock and
employment agreements........... 680,000
Sale of Series C
preferred stock net of $405,000
of expenses 2,595,000
Valuation of discount on Common
Stock available to holders of
Series C Preferred
Stock (Note 8) ................ (1,615,000) --
Retirement of Note Receivable
and Warrants .................. 5,701 --
Net loss ......................... -- -- (6,076,012)
----------- --------------------- ----------- -----------
Balance as of December 31, 1997 . $ -- (1,615,000) -- $ 5,582,142
=========== ====================== =========== ===========
</TABLE>
<PAGE>
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 engaged in
the wholesale distribution of cellular telephones and related
accessories and electronic products) and Trade Zone Distributors, Inc.
(which engaged in the activation of cellular radio subscribers for
commissions), both serving the New York Metropolitan Area. The Company
no longer distributes cellular telephones and related accessories and
electronic products nor does it engage in the activation of cellular
telephones for commissions.
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.
The Company is presently inactive.
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 five states. In
February, 1997 four (4) officers and directors and the wife of a
director of the Company acquired a 24% interest in "PCN". See Note 16
as to the Company's acquisition of this 24% interest in PCN. As a
result, PCN is now 100% owned by the Company.
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"). GCE is in the
business of reselling paging air time to corporate clients. 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. On January 2, 1998, the Company purchased the remaining 49% of TCI
for a $90,000 cash payment.
On July 31, 1997 the Company's board of directors effected a 1 for 12
reverse stock split of its $.05 par value common stock. The new common
stock has a $.60 per share par value. New management has announced that
it will seek stockholder ratification of the reverse stock split at a
special meeting of stockholders expected to be held prior to the end of
the current fiscal year. All references to number of common shares for
all periods presented assumes such ratification and have been
retroactively restated for the reverse stock split.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
On August 11, 1997 the Company changed its fiscal 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
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 nine months ended
December 31, 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 as amended for the year
ended December 31, 1996.
(B) Principles of Consolidation
The consolidated financial statements include the accounts of
Electronics Communications Corp., its wholly-owned subsidiaries, Free
Trade Distributors, Inc., Trade Zone Distributors, Inc. Personal
Communications Network, Inc., and majority owned subsidiary's 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).
(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 (i) sales
of electronic goods, (ii) commissions for fees earned on sales of
cellular radio service contracts, and (iii) sales of its radio paging
and two way radio services. Sales of 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
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(E) Revenue Recognition (continued)
products are recognized when they are shipped. The Company had no
revenues from the sale of electronic goods for the quarter ended
December 31, 1997. Revenues from sales of electronic goods represented
approximately 43% of the Company's total revenue for the nine months
ended December 31, 1997.
Commissions are inclusive of fees earned for the sale of cellular
telephone service contracts and residuals received on those contracts.
Revenues and related commissions from the sale of the service contracts
are recognized at the point of activation. Revenues from residuals are
realized when approved by the cellular telephone service supplier and
are paid on customer usage for a maximum of three years.The Company had
no commission revenue for the quarter ended December 31,1997.Commission
revenue represented 32% of the Company's total revenue for the quarter
ended December 31, 1996.
The Company established a reserve of 3.5% for charge-backs on customers
that prematurely terminate cellular service. In addition to the
commissions paid by the cellular telephone supplier, the Company
receives co-op fees. Co-op fees are reimbursements of expenditures that
are approved by the cellular telephone supplier for advertising and
promotion in connection with the sale of cellular telephone 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
100% and 37% of revenues in the quarters ended, December 31, 1997 and
1996 respectively.
(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. Uninsured
balances at December 31, 1997 totalled approximately $1,250,000.
(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.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(H) Fair Value of Financial Instruments
At December 31, 1997, March 31, 1997 and December 31, 1996, the fair
values of cash, cash equivalents, accounts receivable 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 to the FCC with an
actual interest rate of 7% was adjusted to reflect an imputed interest
rate of 14% which more closely corresponds to the Company's borrowing
rate.
NOTE 2 - PRIVATE PLACEMENT OF SECURITIES AND 8% CUMULATIVE CONVERTIBLE
DEBENTURES
In April 1997, the Company sold 205,861 units consisting of an
aggregate 205,861 shares of Common Stock and Class A warrants
exercisable to purchase an additional aggregate 308,792 shares of
Common Stock at an exercise price of $60.00 per share (subsequently
reduced to $2.25 per share). The units were sold in a Private Placement
to a number of unaffiliated investors for an aggregate $2,470,334
including cash consideration of $2,061,999 and an exchange of Company
notes payable and accrued interest aggregating $408,334. The Company
incurred $562,239 of expenses in connection with the Private Placement.
All of the investors in this Private Placement subsequently exchanged
their units for Debentures in the August 1997 Private Placement
Offering hereinafter described.
On August 7, 1997, the Company consummated a Regulation S Private
Placement Offering directed to non "United States Persons" pursuant to
which the Company sold $2,500,000 principal amount of the Company's 8%
Cumulative Convertible Debentures (the "Debentures"). The principal
amount of the Debentures are convertible into shares of the Company's
common stock at the option of the holder, commencing 41 days after
issuance, at a price equivalent to a 30% discount from market based
upon the five (5) day average daily closing bid price, as reported on
NASDAQ, for the five (5) trading days immediately preceding the
applicable date of conversion. As a result of the Emerging Issues Task
Force ("EITF") Bulletin D-60, as promulgated by the Financial
Accounting Standards Board ("FASB"), the Company has recorded a finance
charge and a corresponding increase to Paid in Capital of $1,071,429
attributable to the sale of the Convertible Debentures. The Debentures
bear interest at the rate of 8% per annum payable on August 7 of each
year commencing August 7, 1998. The Debentures are redeemable and
callable for conversion under certain circumstances and are due June
30, 2000. The Company paid a placement fee equal to 10% of the gross
proceeds and a 3% non-accountable expense allowance to the Placement
Agent.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PRIVATE PLACEMENT OF SECURITIES AND 8% CUMULATIVE CONVERTIBLE
DEBENTURES - (Continued)
At the same time but separate from the Regulation S Private Placement
Offering, $2,470,334 principal amount of the Debentures were offered to
those persons who subscribed to and participated in the Company's April
1997 Private Placement of the units. Those investors were offered the
opportunity to exchange all, but not less than all, of their units for
Debentures, on a dollar for dollar basis. As a result, effective August
7, 1997, the holders of the April 1997 Private Placement units
exchanged their units for an agggregate $2,470,334 principal amount of
the 8% Convertible Debentures. The Debentures in this separate offering
are convertible at the option of the holder commencing 180 days after
issuance. As a result of the EITF Bulletin D-60, the Company has
reduced the carrying value of the Debentures and increased Paid In
Capital in the amount of $1,058,715 and recorded a finance charge of
$311,733 on the sale of these convertible debenture.
As of December 31, 1997, $2,600,000 of the Debentures had been
converted into 2,626,708 shares of the Company's common stock.
NOTE 3 - PCS LICENSES
(A) The PCS licenses were awarded in a Federal Communications
Commissions ("FCC") "C" Block Auction. The markets awarded the Company
include Elmira-Corning, New York; Bangor/Lewiston-Auburn/Waterville-
Augusta, Maine; and Burlington/Rutland-Bennington, Vermont. The Vermont
markets encompass virtually the entire 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, for which the Company qualified
under the terms of the auction. The Company deposited cash of
$2,645,220. The remaining balance is payable over the next 10 years
with 7% interest only during the first six years. On March 31, 1997,
the FCC imposed a moratorium on the payment of interest until March 31,
1998. Included in the license costs are certain legal fees incurred in
obtaining the license. Capitalized PCS interest in the amount of
$2,201,720 is included in PCS Licenses at December 31, 1997 and
represents interest capitalized in conjunction with these licenses. The
Company has not begun PCS service and will require substantial
additional financing to pay the balance of the purchase price for the
PCS licenses and to construct the system prior to initiating PCS
service. No assurance can be given that such financing will become
available. Assuming inception of PCS services, the Company will
amortize the licenses and related costs over a 40 year period.
On October 16, 1997 in an effort to bring relief to C-Block license
holders, the FCC offered three options, one of which must be chosen by
a revised date of February 26, 1998. The three options are as follows:
(1) an "Amnesty Option" permitting return of the licenses which will
result in the forfeiture of the original down payment of $2,645,220 and
the return to the Company of the previous installments paid which
amount to approximately $286,000; (2) a "Disaggregation Option"
permitting the
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PCS LICENSES - (Continued)
return of 15 megahertz of the 30 megahertz of spectrum awarded under
the licenses, back to the FCC and reducing the current note payable to
the FCC by 50%; and (3) a "Prepayment Option" permitting the exchange
of all licenses in a particular BTA for a partial reduction of the
current note payable to the FCC (equal to 70% of the total down
payments of the surrendered licenses).
(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.
NOTE 4 - CONSULTING SERVICE CONTRACT
In July 1997, the Company entered into a Consulting Agreement with an
unaffiliated financial advisory firm. Pursuant to the terms of this
agreement, the firm was hired as a financial advisory consultant to
provide promotional and specialty and management consulting services to
the Company. In consideration of the services to be performed by the
firm, the Company issued 50,000 shares to the firm pursuant to a
Registration Statement filed with the SEC on Form S-8. As of December
31, 1997, the Company had accrued $65,750 in prepaid expenses with
respect to this contract.
NOTE 5 - 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 was personally
guaranteed by the Company's former President, cross corporate
guaranteed by the Company's Free Trade Distributors, Inc. subsidiary
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. The balance of the loan wes paid in full on December 30,
1997.
(B) On February 29, 1996, the Company borrowed $134,000 pursuant to a
financing arrangement with an unaffiliated corporation. Interest was
payable at a rate of 10% in monthly installments of $1,117 per month.
As additional consideration, the Company issued the corporation 66,667
Class "A" Warrants exercisable to purchase 66,667 shares of common
stock at an exercise price of $27.00 per share (subsequently reduced to
$2.25 per share). The Company also granted 90 day registration rights
and "Piggy Back" registration rights. The outstanding balance of this
loan was $109,711 at December 31, 1996. The note was paid in March
1997. As a result of this transaction, $500,000 in loan origination
fees were recognized and amortized over the life of the loan.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE - (Continued)
(C) In connection with TCI's acquisition of GCE, the Company assumed a
$350,000 non-interest bearing note. The outstanding principal amount of
this non interest bearing note was $252,777, $281,944 and $311,111 at
December 31, 1997, March 31, 1997 and December 31, 1996, respectively,
less unamortized discount (discount is based on interest of 12%) for a
net balance of $175,443, $243,695 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 the Company 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.
(E) On September 20, 1996, the Company borrowed $500,000 for working
capital purposes from an unaffiliated private lender. In consideration
for the loan, the Company issued 16,667 shares of common stock and
"Class A" warrants exercisable to purchase 33,334 shares of common
stock at $27 per share (subsequently reduced to $2.25 per share) to the
lender. The loan bore interest at the rate of 10% per annum and was due
and payable on June 20, 1997. The Company obtained an extension of the
due date and in July, 1997, paid $125,000 of this indebtedness. The
$375,000 balance together with accrued interest of $33,334 was
exchanged by the lender for units in the Company's above described
April, 1997 Private Placement. These units were subsequently exchanged
by the lender for $408,334 in principal amount of the Company's 8%
Cumulative Convertible Debentures in connection with the Company's
August, 1997 Private Placement.
(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 $46,277, $50,852 and $52,764 at September
30, 1997, March 31, 1997 and December 31, 1996 respectively.
(G) On October 21, 1996 the Company borrowed $200,000 for working
capital purposes from an unaffiliated private lender. In consideration
for the loan, the Company isued 6,667 shares of common stock and "Class
A" warrants exercisable to purchase 13,334 shares of common stock at
$27 per share (subsequently reduced to $2.25 per share) to the lender.
The loan bore interest at the rate of 10% per annum and was due and
payable in November, 1997. The loan was secured by a lien on the
Company's receivables and equipment and was repaid in full in June,
1997.
(H) Since September 30, 1997, the Company borrowed $300,000 from one
lender and $200,000 from a lender affiliated with the Placement Agent
of the Company's August 1997 Regulation S Private Placement Offering of
debentures (See Note 2) and of its December 1997 Regulation S Private
Placement Offering of shares of its 1997 Series C Preferred Stock (see
note 8). The Company agreed to issue its 10% promissory notes to the
lenders in the principal amounts of the loans. The notes are payable
one year after the loans together with interest at a 10% annual rate
payable semi-annually in cash, or at the Company's option, in shares of
Common Stock. The note principal is convertible at the holder's option
into shares of Common Stock at a conversion price equal to the lesser
of $1.125 per share or a Conversion Formula similar to the Conversion
Formula of the Series C Preferred Stock. In accordance with EITF
Bulletin D-60, the Company has recorded a debt issue cost and a
corresponding increase to additional paid in capital of $506,000,
representing the difference between the fair market value of the
Company's common stock on the date of the loan and the conversion
price. The cost is being amortized over the life of the loan. In
addition, the Company has agreed to issue five-year warrants to the
lenders exercisable to purchase 100,000 shares of Common Stock for each
$100,000 loan (i.e., an aggregate 500,000 shares of Common Stock) at an
exercise price per share equal to 120% of the closing bid price for
such Common Stock on the trading day immediately preceding the day of a
particular loan. In accordance with Statement of Financial Accounting
Standards No 123, the Company has recorded a debt issue cost and a
corresponding increase to additional paid in capital of $1,111,000,
representing the fair value of the warrants on the date of grant. The
fair value of the warrants were estimated using the Black-Scholes
option pricing model with the following weighted-average assumptions:
the risk free interest rate of 14%, dividend yield of 0.0%, volatility
factors of the expected market price of the Corporation's common stock
of 203.1% and a weighted-average expected life of the warrants of 5
years. This cost is being amortized over the life of the loan.
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 price volatility. Because the warrants have characteristics
significantly different from those of normal publicly 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 the aforementioned warrants.
(I) In December 1997, the Company borrowed an additional $105,000 from
a director for working capital purposes. This loan was repaid out of
the net proceeds of the 1997 Series C Preferred Stock offering.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE - STOCKHOLDERS
Notes Payable - Stockholders are unsecured and payable on demand with
interest at rates from 7.5% to 10.65% per annum. See Note 16 as to the
subsequent satisfaction of these loans through the grant of options to
purchase common stock.
NOTE 7 - 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 8 - 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 was
convertible into .13 shares of the Company's common stock. These shares
were purchased by certain officers and directors of the company for
three year Promissory Notes ("Notes") bearing interest at the rate of
7% per annum. The interest was to be accrued and was not to be payable
until the securities were sold. The Notes were non-recourse, but
collateralized by the pledge of the Preferred Stock. Each share of
Preferred Stock was subject to a three year vesting period, whereby 1/3
was immediately vested, and the balance was to be vested during the
next two years as long as the aforementioned individuals remained as
either officers or directors of the Company.
In an effort to hire a new management team and secure anticipated
further financing, said officers and directors agreed to rescind this
transaction. As a result, the 4,000,000 shares of Series B Preferred
have been rescinded by the Company and are no longer deemed
outstanding (See Note 14).
On December 24, 1997, the new Board of Directors of the Company
authorized the issuance of a minimum of 20 shares and a maximum of 45
shares of Series C Preferred Stock ("Preferred Stock") at the aggregate
subscription price of $100,000 per share pursuant to an offer and sale
of such Preferred Stock in a Regulation S Private Placement Offering.
Holders of the Preferred Stock are entitled to receive a 10% cumulative
annual dividend payable semi-annually in cash, or at the Company's
option, in shares of the Company's common stock $.60 par value. The
Preferred Stock is non-voting and is convertible in whole or in part at
any time commencing fifty (50) days after issuance at the election of
the holder, into shares of common stock at an initial conversion price
equal to a 25% discount from the average closing bid price for the
common stock in the over-the-counter market for the five trading days
immediately preceding the conversion, said discount thereafter
increasing at the rate of 2% per calendar month commencing March 1,
1998 up to a maximum discount of 35% ("the Conversion Formula"). The
Company has no ability to force conversion but 24 months after issuance
of the initial Preferred Stock, any outstanding Preferred Stock will
automatically convert into shares of Common Stock based on the
Conversion Formula then in effect. The Company paid a placement fee
equal to 13% of the gross proceeds to the Placement Agent. As of
December 31, 1997 the Company issued 30 shares of Preferred Stock and
received $2,595,000, net of $405,000 in expenses. In accordance with
EITF bullentin D-60, the Company has recorded an adjustment for the
discount on Common Stock available to Preferred shareholders and a
corresponding increase to additional paid in capital of $1,615,000,
representing the value of the 35% conversion discount offered on the
Preferred Stock. This cost is being amortized over the period in which
the maximum discount will be realized, commencing with the date of the
issuance.
NOTE 9 - 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,
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. At December 31, 1996, the Company had federal net operating
loss carryforwards of approximately $5,000,000 which will expire
beginning in fiscal 2010. These losses are limited by the provisions of
Section 382 of the Internal Revenue Code due to a considered more than
50% change in ownership with the issuance of the Convertible
Subordinated Debentures in August 1997. Following such a change, the
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES - (Continued)
utilization of tax loss carryforwards is limited to the value of the
Company on the date of such change, multiplied by the Federal long-term
exempt rate (the "annual limitation"). To the extent amounts available
under the annual limitation are not used, they may be carried forward
for the remainder of 15 years from the date the losses were originally
incurred. As a result of the change in ownership, use of net operating
losses will be limited to approximately $300,000 per year subject to
certain additional limitations.
NOTE 10- EXTRAORDINARY ITEM
During the quarter ended December 31, 1997, the Company recognized
extraordinary income of $599,146 resulting from the negotiated payment
of certain trade payables.
NOTE 11- CONTINGENT LIABILITIES
(A) On December 1, 1994, the Company entered into an employment
agreement with the President of the Company for a term of five years
with an option for an additional three one year terms. The agreement
provided for annual compensation of $150,000 during the term of the
employment agreement and entitled the President to certain fringe
benefits, including automobile maintenance, disability insurance,
medical benefits and life insurance coverage. The President agreed that
during the term of his agreement and for 12 months thereafter (unless
the agreement was terminated without cause), he would be subject to
non-competition provisions. Upon termination of employment without
cause, the President would be entitled to a lump sum payment of $75,000
multiplied by the number of years of his employment by the Company. In
January 1998 this agreement was terminated (See Note 16).
(B) On June 1, 1995, the Company entered into a consulting agreement
with a corporation owned by four of the Company's legal representatives
for non-legal services. In consideration for services performed by the
consultant the Company agreed to pay $144,000 per year for five years
payable in monthly installments of $12,000. This agreement was
retroactively cancelled as of February 1, 1997. No amounts are
currently due under this contract.
(C) On May 17, 1995, the Company entered into an employment agreement
with the Executive Vice President, which was amended on October 1,
1995. The term of the agreement was for five years with an option for
additional one year terms. The agreement provided for annual
compensation of $137,500 during the term of the employment agreement
and entitled the Executive Vice President to certain fringe benefits,
including automobile maintenance, disability insurance, medical
benefits and life insurance coverage. The Executive Vice President
agreed that during the term of his agreement and for 6 months
thereafter (unless the agreement was terminated without cause), he
would be subject to non-competition provisions. Upon termination of
employment without cause, the Executive Vice President would be
entitled to a lump sum payment of $50,000 multiplied by the number of
years of his employment by the Company. In January 1998 this agreement
was terminated (See Note 16).
(D) Effective September 12, 1996, the Company entered into Employment
Agreement with the Secretary of the Company. The term of this Agreement
was for five years, at an annual salary of $75,000, plus a monthly car
allowance of $750/month. In January 1998 this agreement was terminated
(See Note 16).
(E) On October 31, 1997, the Company (by order of the Board of
Directors) entered into an employment agreement with the new president.
The term of the agreement is for forty months beginning on November 1,
1997. The agreement provides for compensation of $125,000 for the
period from November 1, 1997 to October 31, 1998 with $25,000 increases
in each of the next two annual periods. Compensation for the period
from November 1, 2000 to March 31, 2001 will be $72,917 (five months at
an annual rate of $175,000).
<PAGE>
NOTE 12 - STOCK OPTION PLAN
On October 30, 1997, the Company's Board of Directors adopted a stock
option plan reserving an aggregate 1,000,000 shares of common stock for
issuance pursuant to options which under the plan may be granted to
officers, directors and key employees and may be in the form of
Incentve Stock Options ("ISOs") or Non-Qualified Stock Options
("NQOs"). The Plan is subject to shareholder approval.
On October 30, 1997 ISOs exercisable to purchase 200,000 shares and
NQOs exercisable to purchase 445,000 shares were granted. On December
24, 1997 ISOs exercisable to purchase an additional 100,000 shares were
granted. See Note 16 as to the grant of NQOs exercisable to purchase an
additional 200,000 shares under the plan. All of the above options are
subject to shareholder approval of the plan.
NOTE 13 - OPERATING LEASE
On May 15, 1996, the Company entered into a five year operating lease
expiring May 31, 2001 for a 14,000 square foot warehouse and office
facility in Fairfield New Jersey. The Company had an option to renew
the lease for a 5 year period at an adjusted annual rent.
Minimum future rental payments under this non-cancelable operating
lease for each of the remaining years were
1997 $110,808
1998 110,808
1999 110,808
2000 110,808
2001 46,263
--------
Total Minimum Future
Rental Payments $489,495
========
In October 1997, the Company entered into an agreement of termination
of this lease with its landlord. The Company agreed to pay the landlord
the sum of $11,000 and release the security deposit of $18,500 to the
landlord. The lease between the parties was surrendered and cancelled
as of midnight on December 31, 1997. The rent for November and December
was reduced to $6,000 per month.
On December 8, 1997 the Company entered into a five year operating
lease expiring December 31, 2002 for 1,500 square feet of office space
in Melville, Long Island, New York. Minimum future rental payments
under this operating lease, including electric is $35,735.58 per annum.
<PAGE>
NOTE 14 - 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 asserted claims for antitrust, breach of
contract, tortious interference with contract and tortious interference
with prospective economic advantage and business relations. The
Complaint sought damages in excess of $3,000,000. This action was
commenced because the Company appeared to have 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, due to the withdrawal of Toshiba's
commitment based on what the Company believed was 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. The Company believed
this decision had been caused by Audiovox
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 claiming 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,
which ruling was affirmed by the U.S. Court of Appeals for the Second
Circuit October 8, 1997. New management and counsel reviewed the
possibility of successfully asserting State Law Claims and, as a
result, determined that it was advisable to resolve all claims by and
between Toshiba and the Company, including Toshiba's claim for
merchandise shipped of $379,384.54. This claim was settled on what
management believes were favorable terms for the Company. Mutual
releases were exchanged by Toshiba, Audiovox and the Company.
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
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14- PENDING LITIGATION - (Continued)
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 claimed
damages aggregating $156,284.87. This matter and outstanding
obligations of the Company to The Daily News was settled for $50,000.
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, in the United
States District Court for the southern District of Indiana,
Indianapolis Division. Brighpoint is a former supplier of the Company
and claims that the Company owed it approximately $400,000 plus
interest for merchandise delivered, consisting principally of cellular
telephones. New management and counsel, after a review of the matter,
participated in a one-day mediation in Indianapolis and resolved this
claim on what management believes were favorable terms for the Company.
A General Release was delivered to the Company.
NOTE 15- BUSINESS PLAN AND LIQUIDITY
Since September 30, 1997 the Company issued 10% one year convertible
promissory notes in the amount of $500,000 (See Note 5). The Company
issued 30 shares and 15 shares respectively on December 24, 1997, and
January 20, 1998 of Series C Preferred Stock ("Preferred Stock") (See
Note 8) and received a total of $3,897,500 after placement agent fees
and other offering expenses. The proceeds of these offerings were used
to repay past due indebtedness and a $105,000 loan made by a director
of the Company with the balance being added to working capital.
If the Company determines not to avail itself of one of the three
options with its regard to its PCS licenses offered by the Federal
Communications Commission ("FCC"), which options must be chosen by a
revised date of February 26, 1998, it will be required to pay an
interest payment of approximately $2,000,000 to the FCC on or about
March 31, 1998 (See Note 3). To date, management has not made a
decision as to which financial restructuring option, if any, the
Company will elect.
The Company's financial statements for the nine months ended December
31, 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 $(6,076,012) and $(5,958,578) for the nine
months ended December 31, 1997, and 1996 respectively. The Company has
a working capital deficiency of $1,767,934 at December 31, 1997. The
Company's financial statements for the three months ended December 31,
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 $(1,353,467) for the quarter ended December 31, 1997, $(2,927,722)
for the quarter ended December 31, 1996 and ($5,604,054) for the year
ended December 31, 1996.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15- BUSINESS PLAN AND LIQUIDITY - (Continued)
The Company has reconsidered the possible sale of its paging
operations. New management previously reported in the Company's 10-Q
for the quarter ending September 30, 1997 that it determined to sell
the assets and liabilities of its paging operations. On January 2,
1998, the Company acquired the remaining 49% of Threshold
Communications Inc. ("Threshold") for a purchase price of $90,000. On
January 22, 1998, Threshold entered into a letter of intent with Paging
Source and Mobile Partners (the "Manager") whereby the Manager will
enter into a management service agreement (the "Agreement"). The
Agreement has, among other things, performance requirements that call
for the manager to add a minimum of 4,000 subscribers per month. The
manager will bear all expenses including but not limited to equipment
costs, billing and customer service. The Manager will make fixed
payments to Threshold Communications Inc. during a ramp up period.
Beginning in February of 1999, the Manager will pay Threshold on a per
subscriber basis.
The Company is currently discussing financing options with major
wireless equipment vendors regarding the build out of a wireless
communications network that will utilize the Company's six PCS licenses
in Vermont, Maine and parts of upstate New York, Pennsylvania and New
Hampshire. Should management be successful in obtaining favorable
vendor financing, the Company would still need to raise additional
funds, which may include the issuance of equity securities, to cover
operating costs for the first several years or until such time that the
network will generate sufficient cash flows to cover all operating
costs and FCC license payments. There can be no assurance that the
Company will be able to secure favorable vendor financing or raise the
necessary funds, through the issuance of additional securities or any
other means, needed to cover operating costs and the required FCC
license payments. Furthermore, if the Company is not successful in
obtaining favorable vendor financing and raising additional capital and
the Company chooses any of the FCC's financial restructuring options
other than the amnesty option (See Note 3), the Company may be required
to surrender all of its PCS licenses and/or sell the bulk of its assets
and/or seek protection from creditors in a bankruptcy or similar
filing.
The report of the Company's independent auditors on the Company's
financial statements for each of the two years ended December 31, 1996
contains an explanatory paragraph expressing substantial doubt with
respect to the Company's ability to continue as a going concern without
obtaining additional financing or modifying operations.
NOTE 16 - SUBSEQUENT EVENTS
In January 1998, the Company entered into purported settlement
agreements with three former officer/directors, William S. Taylor, his
mother Brenda Taylor and Les Winder. Pursuant to the agreements, each
of the three individuals agreed to cancel his or her employment
agreement and proposed consulting agreement with the Company, any
rights to warrants exercisable to purchase shares of the Company's
common stock and any rights to shares of the Company's Series B
Preferred Stock. Each individual also agreed to rescind the transaction
by which he or she had purchased 6% of the stock of the Company's PCN
subsidiary for $6,000. In consideration therefor, the Company agreed,
unless required to do so by court order, to take no action to challenge
the issuance to each individual of shares of its common stock (176,923
shares to William S. Taylor, 50,000 shares to Brenda Taylor and 103,846
shares to Les Winder) pursuant to options granted to such individual by
the September 29, 1997 unanimous written consent of the Company's board
of directors. The Company issued W-2s to each of such individuals and
to the IRS for 1997 indicating in addition to any other compensation
paid to the individual by the Company in 1997, additional compensation
in an amount equal to the difference between the value of the shares
issued based upon the mean between the closing bid and asked prices for
the Company's common stock in the over-the-counter market on October 8,
1997 on the one hand, and the net amount of the loans and advances owed
by the Company to the individual (or in Mr. Winder's case, by Mr.
Winder to the Company) as indicated by the Company's books of account,
plus the $6,000 credit for rescission of the PCN stock purchase plus
legal fees paid by the individual on behalf of the Company, or the
other. The Company's books of account reflected net amounts owed by the
Company to William S. Taylor and Brenda Taylor of $109,671 and
approximately $65,000 respectively, and by Les Winder to the Company of
$11,806.24. William S. Taylor and Brenda Taylor have advised the
Company that it is their position that certain General Releases,
Indemnity and Hold Harmless Provisions adopted by the directors on
September 29, 1997 when William S. Taylor, Brenda Taylor and Les Winder
constituted three of the six members of the board of directors,
indemnifying them from any claims asserted in connection with any
action taken for or their role with the Company are in full force. It
is present management's position that such releases and hold harmless
provisions are not in effect.
On February 5, 1997, the Company entered into agreements with a
director, Robert DePalo and his wife which resulted in the rescission
by Mr. DePalo of his previous purchase for $4,000 of 4% of the stock of
the PCN subsidiary and the purchase by the Company from Ms. DePalo for
$67,000 of 2% of the stock of the PCN subsidiary which she had
purchased for $2,000 in August 1996. As a result of the agreements with
William S. Taylor, Mr. Winder and Mr. and Mrs. DePalo, PCN is now 100%
owned by the Company.
Robert DePalo pursuant to his February 5, 1996 agreement with the
Company, agreed to cancel his prior employment agreement and a prior
proposed consulting agreement with the Company, any rights to warrants
exercisable to purchase shares of the Company's common stock and any
rights to shares of the Company's Series B Preferred Stock. He also
agreed to waive any and all options he held exercisable to purchase
shares of the Company's common stock excluding (a) options granted to
him pursuant to the September 29, 1997 unanimous written consent of the
directors and exercised by him to purchase 192,308 shares of the
corporation's common stock, (b) five-year options previously granted to
him and exercisable to purchase 80,000 shares of the Company's common
stock at $2.00 per share, and (c) five-year options to purchase 150,000
shares of the Company's common stock at $2.25 per share pursuant to a
consulting agreement with the Company executed on February 6, 1998 and
hereinafter described.
Pursuant to the agreement with Mr. DePalo, the Company issued a W-2 to
him and to the IRS for 1997 indicating in addition to any other
compensation paid to him by the Company in 1997, additional
compensation in an amount equal to the difference between the value of
the 192,308 shares issued to him based upon the mean between the
closing bid and asked prices for the Company's commmon stock in the
over-the-counter market on October 8, 1997 on the one hand, and the net
amount of the loans and advances owed by the Company to Mr. DePalo as
indicated by the Company's books of account, plus a $4,000 credit for
rescission of his purchase of the PCN stock plus legal fees paid by Mr.
DePalo on behalf of the Company. The Company's books of account
reflected net amounts owed by the Company to Mr. DePalo of $198,746.
In consideration for Mr. DePalo's agreements and waivers, the Company
and Mr. DePalo executed a two-year consulting agreement pursuant to
which Mr. DePalo was retained as a consultant at an annual
salary of $75,000 and was granted five-year options pursuant to the
Company's October 30, 1997 Stock Option Plan, exercisable to purchase
150,000 shares of the Company's common stock at $2.25 per share but
subject to shareholder approval of the Plan.
On February 4, 1998 the Company granted five-year ISOs to a key
employee exercisable to purchase 50,000 shares of common share but
subject to shareholder approval of the plan.
On January 20, 1998, the Company completed its December 1997 Regulation
S Private Offering through the sale of an additional 15 shares of its
1997 Series C Convertible Preferred Stock and received $1,302,500 net
of $197,500 in expenses. (See Note 8.)
<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.
Overview
The Company currently operates a state of the art digital 900-megahertz Glenyre
satellite-based Flex paging system which covers South-Western Connecticut,
Southern New York, New Jersey and the downtown Philadelphia area. The Company
also operates a trunked two-way radio system covering New York and New Jersey.
The Company through its PCN subsidiary successfully bid, through the FCC's
C-Block auction, for six 30MHz baseband PCS licenses covering portions of New
York, Pennsylvania, Vermont, Maine, and New Hampshire. The Company is currently
discussing financing options with major wireless equipment vendors regarding the
build out of a wireless communications network that will utilize the Company's
six PCS licenses.
Results of Operations
FOR THE THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1997 AND THE THREE
MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1996
Revenues from paging and two-way radio for the three months ended December 31,
1997 were $592,813 compared to $353,461 for the three months ended December 31,
1996.
Revenue from paging and two-way radio for the nine months ended December 31,
1997 were $1,745,386 compared to $984,851 for the nine months ended December 31,
1996.
On June 28, 1996, the Company entered the paging and two-way radio business with
the acquisition of a 51% stake in Threshold Communications, a reseller of paging
air time. On January 3, 1998 the Company acquired the remaining 49% of Threshold
Communications. During May of 1997, the Company completed the build out of its
900 MHz Glenayre paging system thereby becoming a paging carrier. New paging
subscribers are now placed directly on the Company's own paging system. The
Company transmits and receives paging signals on 929.0875 MHz and 929.2625 MHz.
Commissions on activations of cellular telephones for the three months ended
December 31, 1997 were zero compared to $307,394 for the three months ended
December 31, 1996.
Commissions on activations of cellular telephones for the nine months ended
December 31, 1997 were $422,428 compared to $2,114,646 for the nine months ended
December 31, 1996.
On May 15, 1997, the Company entered into a "Settlement & Separation Agreement"
whereby the Company severed its agency relationship with NYNEX Mobile
Communications, Inc. ("NYNEX") and Bell Atlantic Mobile Communications Inc.
("Bell Atlantic") with respect to the solicitation of cellular activation's. The
contract with NYNEX and Bell Atlantic was the Company's largest source of
commission income. As a result of the Settlement and Separation Agreement, the
Company's inability to establish a profitable relationship with another cellular
carrier, a lack of available resources and continuing losses, the Company ceased
cellular phone activations.
Revenues from the sale of electronics were $9,614 for the nine months ended
December 31, 1997 reflecting the Company's exit from the business. However, the
Company, having been advised of the affirmation of its October 28, 1997
dismissal of the federal lawsuit against Toshiba and in consultation with its
new auditors and counsel, reinstated the account payable and charged cost of
sales in the amount of $379,854. This matter was settled on favorable terms for
the Company. The difference between the original account payable and the amount
paid to settle this claim is reflected on the Company's statement of operations
as an extraordinary item.
Selling General and Administrative expenses decreased approximately 45% to
$1,274,830 for the three months ended December 31, 1997 from $2,802,565 for the
three months ended December 31, 1996. Selling, General and Administrative
expenses decreased approximately 71% to $4,576,120 for the nine months ended
December 31, 1997 from $6,467,137 for the nine months ended December 31, 1996.
Included in Selling, General and Administrative expenses for the three and nine
months ended December 31, 1997 is a one-time non recurring charge to salary
expense of $327,640 which represented amounts paid to previous officers and
directors of the Company in exchange for, among other things, the rescission of
all employment agreements. The decrease in expenses is the direct result of cost
saving measures instituted by new management which includes, among other things,
layoffs, improved controls over purchasing, and the relocation of the Company's
officers.
Interest expense was $883,955 for the three months ended December 31, 1997
compared to $74,396 for the three months ended December 31, 1996. Interest
expense was $2,291,499 for the nine months ended December 31, 1997 compared to
$165,098 for the nine months ended December 31, 1996. Interest expense increased
for the three months and nine months ended December 31, 1997 as a result of
leases for office equipment and paging equipment, increased bank borrowings, the
private placement of 8% convertible debentures on August 7, 1997, and the
issuance of a total of $500,000 10% one year promissory notes. In addition, the
Company incurred a non-cash interest expense of $2,264,143 in the three and nine
months ended December 31, 1997 due to EITF Bulletin D-60 discussed more fully in
Note 2 and the subsequent amortization of deferred finance charge on the sale of
the Company's 8% convertible debentures.
For the three and nine months ended December 31, 1997, the Company recorded
$599,146 as extraordinary income. This amount represents the difference between
amounts recorded in accounts payable and amounts actually paid by the Company
through non judicial settlements with certain of the Company's creditors.
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred net losses of $1,353,467 and $2,927,722 for the three
months ended December 31, 1997 and 1996 respectively and $6,076,012 and
$5,958,578 for the nine months ended December 31, 1997 and 1996 respectively.
The Company has a working capital deficiency of $810,073 at December 31, 1997 as
compared to a working capital deficiency of $3,775,300 Included in current
liabilities is accrued interest on the FCC notes of $957,861. Since March 31,
1997 there has been a moratorium on the payment of interest until March 31,
1998. The amount recorded in the company's fianancial statements assumes that
the Company will not elect one of the three financial restructuring options
offered by the FCC. If the Company elects one of the three options more fully
discussed in Note 3 of the consolidated financial statements, the amount of
accrued interest on the FCC notes could range from no amounts due under the
amnesty option to 50% of the amount currently recorded in the current
liabilities section of the Company's consolidated financial statements or
$478,930, less the return of 50% of previous interest payments or $143,000 which
amounts to $335,930 under the disaggregation option. The total amount of accrued
interest on FCC Notes will be spread over eight quarters upon the lifting of the
moratorium. Management has not made a decision as to which financial
restructuring option, if any, the Company will elect.
Net cash used in operrating activities decreased to $1,614,928 for the nine
months ended December 31, 1997 compared to $2,221,398 for the nine months ended
December 31, 1996.
Net cash used in investing activities increased to $1,775,700 for the nine
months ended December 31, 1997 from $586,292 for the nine montbs ended December
31, 1996. The increase in investing activities is primarily the result of the
Company's investment in its PCS licenses.
Net cash provided by the financing activities increased to $4,981,747 for the
nine months ended December 31, 1997 from $2,932,549 for the nine months ended
December 31, 1996. During the three months ended December 31, 1997 the Company
issued 30 shares of new Series C Convertible Preferred Stock and received
$2,595,000 net of $405,000 in expenses. The Company also issued a total of
$500,000 10% one year convertible notes. The proceeds of these offerings were
used to repay past due indebtedness and $105,000 loan made by a director of the
company with the balance being added to working capital.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. The
Year 2000 issue affects virtually all companies and organizations. There can be
no assurance that the Company's suppliers, creditors, customers and financial
service organizations may not be adversely affected by the Year 2000 issue and
as a result, there can be no assurance as to the impact of the Year 2000 issue
on the Company.
<PAGE>
Financial Condition, Liquidity and Capital Resources
<PAGE>
Forward-Looking Statements
This quarterly report on Form 10-Q for the quarter ended December 31, 1997 as
well as other public documents of the Company contain forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
materially from those discussed in such forward-looking statements. Such
statements include, without limitation, the Company's expectation and estimates
as to future financial performance, including growth in net sales and earnings,
cash flows from operations, improved results from business consolidations, the
possibility of gains from dispositions of the Company's PCs network and the
availability of funds from the sale of additional shares of Electronic
Communications Corp. Readers are urged to consider statements which use the
terms "believes," "no reason to believe," "expects," "plans," "intends,"
"estimates," "anticipated," or "anticipates" to be uncertain and
forward-looking. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions. In addition to factors that may be described in the Company's
Commission filings, including this filing, the following factors, among others,
could cause the Company's actual results to differ materially from those
expressed in any forward-looking statements made by the Company; (I)
difficulties or delays in building out the Company PCS network; (ii) actions by
competitors, including business combinations, technological breakthroughs, new
product offerings and marketing and promotional successes; (iii) the inability
to secure capital contributions or loans from outside investors or sell assets
or additional shares of Electronic Communications Corp; (iv) effects of and
changes in current FCC rules and regulations; (v) difficulties or delays in
realizing improved results from business consolidations and in realizing gains
from the sale of certain assets held for sale; and (vi) insolvency of any
potential joint venture partners.
<PAGE>
ELECTRONICS COMMUNICATIONS CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company incorporates herein the information set forth in Note 14 to
the Financial Statements of this report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the quarter ended December 31, 1997, the Company filed two current
reports on Form 8-K as follows:
Date of Report Item
-------------- ----
October 10, 1997 (5) Other Events--Resignation of
Certain officers/directors and
filling of vacancies
October 31, 1997 (5) Other Events--Conversion of
Debentures
(7) Financial Statements--ProForma
balance sheet at September, 30,
1997
<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: February , 1998
ELECTRONICS COMMUNICATIONS CORP.
By: /s/ Joseph A. Rosio
----------------------------
Joseph A. Rosio, President
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