UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 15 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ________
Commission File Number 0-13981
ELECTRONIC TELE-COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Wisconsin 39-1357760
(State of incorporation) (IRS Employer Identification No.)
1915 MacArthur Road, Waukesha, Wisconsin 53188
(Address of principal executive offices)
(262) 542-5600
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of May 10, 2004, there were outstanding 2,009,149 shares of Class A common
stock and 499,998 shares of Class B common stock. The Class B common stock,
87.9% of which is owned by affiliates, is the only voting stock. The Class B
common stock is not traded on an exchange.
ELECTRONIC TELE-COMMUNICATIONS, INC.
BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
<Table>
<Caption>
(UNAUDITED) (Note 1)
MARCH 31 December 31
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 54,830 $ 88,606
Trade accounts receivable, net 334,770 178,302
Inventories (Note 2) 847,269 963,572
Net investment in sales-type leases 192,391 238,817
Prepaid expenses and other current assets 45,413 43,533
------------ ------------
Total current assets 1,474,673 1,512,830
PROPERTY, PLANT AND EQUIPMENT, NET 113,260 136,070
NET INVESTMENT IN SALES-TYPE LEASES 38,825 62,188
GOODWILL 790,596 790,596
CAPITALIZED SOFTWARE PRODUCTION COSTS, NET (Note 3) 249,957 232,513
------------ ------------
Total Assets $ 2,667,311 $ 2,734,197
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility (Note 4) $ 108,390 $ 90,000
Accounts payable 32,825 65,971
Accrued expenses 429,968 412,130
Income taxes payable 68,937 68,462
Deferred revenue and customer deposits 99,827 53,052
Deferred gain on sale of building 88,674 88,674
------------ ------------
Total current liabilities 828,621 778,289
DEFERRED GAIN ON SALE OF BUILDING 243,853 266,021
------------ ------------
Total liabilities 1,072,474 1,044,310
STOCKHOLDERS' EQUITY:
Preferred stock, authorized 5,000,000 shares, none issued -- --
Class A common stock, authorized 10,000,000 shares,
par value $.01, issued and outstanding 2,009,149 shares 20,091 20,091
Class B common stock, authorized 10,000,000 shares,
par value $.01, issued and outstanding 499,998 shares 5,000 5,000
Additional paid-in capital 3,335,647 3,335,647
Retained earnings (deficit) (1,765,901) (1,670,851)
------------ ------------
Total stockholders' equity 1,594,837 1,689,887
------------ ------------
Total Liabilities and Stockholders' Equity $ 2,667,311 $ 2,734,197
============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
-2-
ELECTRONIC TELE-COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003 - (UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31
--------------------------------
2004 2003
------------ ------------
NET SALES $ 816,673 $ 719,944
COST OF PRODUCTS SOLD 452,386 441,351
------------ ------------
GROSS PROFIT 364,287 278,593
OPERATING EXPENSES:
General and administrative 163,835 182,079
Marketing and selling 185,893 218,214
Research and development 107,518 235,998
------------ ------------
457,246 636,291
------------ ------------
EARNINGS (LOSS) FROM OPERATIONS (92,959) (357,698)
OTHER INCOME (EXPENSE):
Interest expense (1,091) (892)
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (94,050) (358,590)
Income taxes 1,000 1,000
------------ ------------
NET EARNINGS (LOSS) $ (95,050) $ (359,590)
============ ============
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE:
Class A common $ (0.04) $ (0.14)
Class B common $ (0.04) $ (0.14)
</Table>
The accompanying notes are an integral part of these financial statements.
-3-
ELECTRONIC TELE-COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003 - (UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31
--------------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (95,050) $ (359,590)
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 54,366 53,690
(Gain) loss from sale of property, plant and equipment (22,168) (21,505)
Changes in operating assets and liabilities:
Accounts receivable (156,468) 33,115
Inventories 116,303 39,017
Net investment in sales-type leases 69,789 88,299
Prepaid expenses and other current assets (1,880) (2,126)
Accounts payable and accrued expenses (15,308) 31,820
Income taxes 475 325
Deferred revenue and customer deposits 46,775 8,841
------------ ------------
Total adjustments 91,884 231,476
------------ ------------
Net cash provided by (used in) operating activities (3,166) (128,114)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (2,929)
Proceeds from sale of property, plant and equipment -- 6,499
Capitalized software production costs (49,000) (21,150)
------------ ------------
Net cash provided by (used in) investing activities (49,000) (17,580)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings on revolving credit facility, net 18,390 127,005
------------ ------------
Net cash provided by (used in) financing activities 18,390 127,005
------------ ------------
Net increase (decrease) in cash and cash equivalents (33,776) (18,689)
Cash and cash equivalents at beginning of year 88,606 92,023
------------ ------------
Cash and cash equivalents at end of period $ 54,830 $ 73,334
============ ============
Supplemental disclosures of cash flow information:
Cash received from income tax refunds $ -- $ --
Cash paid for income taxes 525 675
Cash paid for interest expense 1,029 442
</Table>
The accompanying notes are an integral part of these financial statements.
-4-
ELECTRONIC TELE-COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 - (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company in accordance with accounting principles generally accepted in the
United States of America (GAAP) for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by GAAP for
complete financial statements. The information furnished herein reflects all
adjustments and accruals that management believes are necessary to fairly state
the operating results for the respective periods. Operating results for the
three-month period ended March 31, 2004, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2004.
The balance sheet at December 31, 2003, has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by GAAP for complete financial statements.
For further information, refer to the financial statements and footnotes thereto
included in the Company's 2003 Annual Report to Shareholders.
2. INVENTORIES
Inventories consisted of the following:
<Table>
<Caption>
MARCH 31 December 31
2004 2003
------------ ------------
Raw materials and supplies $ 372,291 $ 417,402
Work-in-process and finished goods 434,405 505,865
Maintenance and demo parts 207,328 199,556
Reserve for obsolescence (166,755) (159,251)
------------ ------------
Total inventories $ 847,269 $ 963,572
============ ============
</Table>
3. CAPITALIZED SOFTWARE PRODUCTION COSTS
Capitalized software production costs are accounted for in accordance with SFAS
No. 86, "Accounting for Computer Software to be Sold, Leased, or Otherwise
Marketed." Software production costs incurred related to internally developed
software products, enhancements, and purchased software to be sold, leased, or
otherwise marketed are capitalized once technological feasibility of the
software product has been established. Capitalization ends when the software
product is available for general release. Software production costs incurred up
to the time technological feasibility is established are considered research and
development costs and are expensed as incurred.
Capitalized software production costs are amortized on a straight-line basis
over the remaining estimated economic life of the product. Capitalized software
production costs are reported at the lower of unamortized costs or net
realizable value. The net realizable value of the capitalized software
production costs is evaluated for all periods after capitalization.
As of March 31, 2004, gross capitalized software production costs of $367,785
have been reduced by $117,828 of accumulated amortization.
-5-
ELECTRONIC TELE-COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004 - (UNAUDITED)
(CONTINUED)
4. REVOLVING CREDIT FACILITY
On December 23, 2002, the Company signed a revolving credit facility renewal
with esitec, llc, an entity controlled by affiliates of ETC. The term of the
revolving credit facility ended December 31, 2003, at which time it renewed
automatically in consecutive one-year increments, provided that either party may
terminate the revolving credit facility upon 45 days written notice. Under the
revolving credit facility, the Company can borrow up to a maximum of $200,000.
Interest is payable monthly at a rate of prime as quoted in the Wall Street
Journal, and any outstanding balances of principal and interest are due at the
end of the term. The revolving credit facility is secured by trade accounts
receivable. As of March 31, 2004, the Company had borrowings of $108,390 under
the revolving credit facility. Interest paid for borrowings on the revolving
credit facility during the three-month period ended March 31, 2004 was $1,091.
5. STOCK OPTIONS
ETC has a Nonqualified Stock Option Plan that is accounted for under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Under the plan, no compensation cost has been recognized. Had compensation
cost for this plan been determined consistent with Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," our net earnings and earnings per share would have been as follows:
<Table>
<Caption>
THREE MONTHS ENDED
--------------------------------
MARCH 31 March 31
2004 2003
------------ ------------
Net earnings as reported $ (95,050) $ (359,590)
Less employee compensation expense determined
under a fair value based method, net of
related tax effects 1,523 3,997
------------ ------------
Pro forma net earnings $ (96,573) $ (363,587)
============ ============
Basic and diluted earnings per share:
As reported:
Class A common $ (0.04) $ (0.14)
Class B common $ (0.04) $ (0.14)
Pro forma:
Class A common $ (0.04) $ (0.14)
Class B common $ (0.04) $ (0.14)
</Table>
-6-
ELECTRONIC TELE-COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ETC designs, manufactures, markets and sells digital voice information systems
and related services to the telecommunications industry and other businesses.
Its systems are sold to operating telephone companies, competitive local
exchange carriers, wireless carriers, cable companies, leading
telecommunications manufacturers, and other telecommunication companies to
provide them with revenue generating applications and informational services for
their telecommunications networks. In addition, ETC provides time weather
temperature systems and related services to telecommunications customers and
other businesses that allow them to advertise and provide informational services
to their communities.
Revenues are generated by selling and leasing equipment to customers. In
addition, ETC generates revenue by providing services to customers such as
installation, repair, maintenance, professional recording of announcements, and
weather updates.
Since the middle of 2000, ETC and the telecommunications industry have been
severely impacted by slowing economic conditions. In addition, the explosive
growth of the telecommunications industry over the approximate ten-year period
prior to the slowdown has caused over capacity in the telecommunications
industry infrastructure. These conditions have caused our customers to delay
their purchases of capital equipment for their telecommunication networks, which
has resulted in significant decreases in our sales volume. The decreased sales
volume has caused large financial losses for ETC together with significant uses
of working capital. ETC has adjusted its operations by cutting costs several
times beginning in 2001 and continuing through 2003. We are continuing to
monitor our sales levels and operations to determine if additional adjustments
are necessary to reach breakeven for profitability and cash flow.
RESULTS OF OPERATIONS
REVENUES
Net sales were $816,673 and $719,944 for the three-month periods ended March 31,
2004 and 2003, respectively, an increase of 13% between periods. Net sales for
the 2004 three-month period were comprised of equipment sales of $362,805, or
44% of total net sales, and revenues from operating leases, sales-type leases,
and services of $453,868 or 56%. Net sales for the 2003 three-month period were
comprised of equipment sales of $211,280 or 29%, and revenues from operating
leases, sales-type leases, and services of $508,664 or 71%.
The increase in net sales in the 2004 three-month period was due primarily to
higher customer demand for our interactive voice information systems, partially
offset by lower revenues from leases and services. Our customers continue to be
severely impacted by depressed economic conditions, especially in the domestic
telecommunications industry, which has adversely impacted their decisions to
purchase additional systems. However, with the modest increase in equipment
sales in the 2004 three-month period, it appears that customer demand for these
products may be showing signs of increasing. Even with this short-term increase,
however, it is not possible to predict whether the increases will continue or
the duration of depressed conditions in these customer industries. While we
continue to see an increase in quotation activity for new systems, it is not
possible to predict the success rate in turning these quotations into sales.
-7-
ELECTRONIC TELE-COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The decrease in revenues from leases and services was due primarily to lower
lease revenue from our time weather temperature systems. As older time weather
temperature systems that are leased by our customers are replaced by the sale of
newer units, lease revenues decrease as a result. It is anticipated that lease
revenue will continue to fall, but will be partially offset by revenue from
increased services provided to the time weather temperature systems that
customers purchase to replace the leased units and by sales of new time weather
temperature units.
Product pricing for our equipment remained relatively constant between years.
Inflation did not have a material impact on revenues.
GROSS PROFIT
Gross profit was 45% of net sales for the three-month period ended March 31,
2004, compared to 39% for the comparable 2003 three-month period. The increase
in the gross profit percentage for the 2004 period was due primarily to higher
sales volume over which to spread fixed manufacturing costs, a higher sales mix
of equipment versus services, and the positive effect of our cost reduction
measures that included reductions of manufacturing personnel and related costs.
It is possible that the reduced levels of manufacturing and service personnel
could hamper our ability to meet customer demand should sales volume increase in
the future. However, if this occurs we believe we could hire additional
personnel to meet our needs.
OPERATING EXPENSES
Total operating expenses were $457,246 or 56% of net sales, and $636,291 or 88%
of net sales for the three-month periods ended March 31, 2004 and 2003,
respectively. General and administrative expenses, marketing and selling
expenses, and research and development expense dollars were all significantly
lower in the 2004 three-month period due to additional staff downsizing
implemented in the first quarter of 2003 that did not take effect until the
second quarter of 2003. Cost reduction programs and staff downsizing implemented
beginning late in the first quarter of 2001 and continuing through 2003 have
reduced our workforce by approximately 60% and included all departments within
ETC.
Despite the sizeable reductions in personnel, we believe we have sufficient
staff to service our customers' needs and identify opportunities for new sales
of products and services. We also have sufficient engineers on staff to design
new products and add new features to our existing products that are intended to
increase future sales volume. However, even though new product and feature
development is continuing, it has been slowed somewhat by the staff reductions.
While our staffing levels are sufficient at the current sales volume, we will
have to add staff in the future if sales increase significantly.
OTHER INCOME AND EXPENSE
Net other expense was $1,091 and $892 for the three-month periods ended March
31, 2004 and 2003, respectively, and was related to interest expense incurred on
line of credit borrowing during the periods.
INCOME TAXES
Income tax expense was $1,000 for each of the three-month periods ended March
31, 2004 and 2003, and was related to minimum taxes due for various states.
-8-
ELECTRONIC TELE-COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NET EARNINGS AND EARNINGS PER SHARE
Net loss was $95,050 and $359,590 for the three-month periods ended March 31,
2004 and 2003, respectively. The significant decrease in net loss between
three-month periods was due primarily to the higher sales volume over which to
spread fixed costs and the resultant higher gross margin, together with the
savings from the cost reduction programs and staff downsizing.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $646,052 at March 31, 2004, compared to $734,541 at December
31, 2003. The decrease in working capital in 2004 was primarily due to the net
loss and an increase in accounts receivable from higher sales in the three-month
period ended March 31, 2004, partially offset by a decrease in inventory levels
and collection of customer payments on long-term sales-type leases. Cash used in
operating activities of $3,166 in the three-month period ended March 31, 2004,
was a result of the net loss and funding an increase in accounts receivable from
increased sales, partially offset by decreasing inventory levels via sales of
available products and decreasing sales-type leases by collecting amounts due
from customers. Cash used in operating activities of $128,114 in the comparable
2003 period was a result of the net loss, partially offset by a decrease in
inventories and collection of accounts receivable and sales-type leases.
In the three-month period ended March 31, 2004, cash provided by borrowing on a
revolving credit facility and generated internally by selling inventory and
collecting from customers of sales-type leases was used to fund the net loss and
an increase in accounts receivable. In the three-month period ended March 31,
2003, cash provided by borrowing on a revolving credit facility, a decrease in
inventories, and increased collections of accounts receivable and sales-type
leases was used to finance the net loss.
Capital expenditures were $0 and $2,929 for the three-month periods ended March
31, 2004 and 2003, respectively. In addition, the Company capitalized software
production costs incurred in the 2004 three-month period of $49,000 and in the
2003 three-month period of $21,150 related to internally developed software
products that will be sold, leased, or otherwise marketed.
Accounts receivable increased from $178,302 at December 31, 2003, to $334,770 at
March 31, 2004 due to the increase of equipment sales in the three-month period
ended March 31, 2004 and the timing of collections of the related accounts
receivable from customers. Inventories decreased from $963,572 at December 31,
2003, to $847,269 at March 31, 2004 due to sales of voice information systems
during the three-month period ended March 31, 2004 that were in stock, and our
concerted effort to keep inventory levels low to conserve cash. Net investment
in sales-type leases decreased from $301,005 at December 31, 2003, to $231,216
at March 31, 2004 due to payments received from customers on our sale-type
leases of our Audichron 410 time weather temperature systems. Another factor
contributing to the decrease in sales-type leases has been the Company's
decision to de-emphasize new sales-type lease contracts for time weather
temperature systems in favor of selling such systems directly to customers or to
third party lessors. It is expected that the cash flow generated from new sales
of time weather temperature systems will offset the decrease in cash flow
related to the declining sales-type leases.
-9-
ELECTRONIC TELE-COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
ETC has sustained substantial operating losses over the past three years. In
addition, we have used substantial amounts of working capital in our operations.
The losses and use of working capital were a result of the significant decrease
in sales caused by lower customer demand for our products. Our customers have
been severely impacted by slowing economic conditions, especially in the
domestic telecommunications industry, which adversely impacted customers' buying
decisions. Based on the above, the report of the independent auditors included
in our 2003 annual report contains a statement that there is substantial doubt
about our ability to continue as a going concern. Management's plans in regard
to these matters are covered below and are also described in Note 16 to the
financial statements in that annual report.
To address the resultant cash flow requirements caused by the decrease in sales,
ETC has reduced its workforce by over 60% beginning in 2001 and continuing into
2003 through a combination of terminations and lay-offs. To supplement cash flow
in the short-term, we entered into an agreement with an entity controlled by
affiliates of ETC for up to $200,000 of borrowing availability. As of March 31,
2004, we have borrowings of $108,390 on the revolving credit facility. It is the
affiliated entity's current position that $200,000 is the maximum that will be
made available. With the workforce reductions from 2001 to 2003 and strict
control of all costs, we have significantly reduced the sales levels necessary
to turn our operations profitable. However, we have not yet reached the sales
levels necessary to consistently achieve profitability. We will continue to
monitor our operations to determine if additional cost savings measures need to
be implemented to improve cash flow.
Management remains cautiously optimistic that market conditions and demand for
our new products will improve and that our operations will return to
profitability over the next 12 months. If our operations return to
profitability, management believes ETC can generate sufficient internal cash
flow to support our operations. In addition, assuming profitable operations,
management believes we will, at some point, be able to secure additional
financing from a bank to provide additional working capital as needed. If we are
able to increase sales volume, additional financing in the form of internally
generated cash flow and/or bank financing may be required to finance increases
in inventory and accounts receivable. However, there can be no assurance that
any or all of these items will be accomplished. Our future sales, earnings, and
cash flows are heavily dependent on overall economic conditions, especially
within the domestic telecommunications industry.
If we do not return to profitability, however, it is unlikely that we will be
able to secure such bank financing. In such case, we may be able to further
reduce costs to a level that would permit us to operate profitably by relying on
the revenue stream generated by our time/weather/temperature and services
business. This option would be used only as a last resort and would necessitate
ceasing the majority of production and research activities. The risk associated
with this strategy is that we may lose customers for a variety of reasons,
including, but not limited to, our inability to support our products, ship
products on a timely basis, or keep up to date on product technology.
Management believes that the actions described above, together with continuing
to control costs and the close monitoring of operations, provide the opportunity
for ETC to continue as a going concern.
-10-
ELECTRONIC TELE-COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
CONTRACTUAL OBLIGATIONS
ETC has contractual obligations for operating leases for its facilities in
Waukesha, Wisconsin and Norcross, Georgia. The leases end in 2007 and 2008,
respectively. Future minimum lease payments as of March 31, 2004, for the two
facilities are as follows:
<Table>
2004 $ 241,200
2005 330,800
2006 340,600
2007 350,900
2008 65,100
-----------
Total $ 1,328,600
===========
</Table>
We treat these contractual obligations as normal operating expenses and plan to
fund them with internally generated cash flow. Our ability to do this will
depend on achieving the sales levels necessary to reach cash flow breakeven.
There are no assurances that this can be accomplished.
In addition, ETC has contractual obligations for purchases of materials from
vendors used in the manufacture of our products in the amount of $23,000 for
2004. There are no purchase obligations beyond 2004. Our plan is to fund these
purchase obligations with internally generated cash flow.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes in our critical accounting policies since
the filing of our Annual Report on Form 10-KSB dated December 31, 2003. As
discussed in our annual report, the preparation of financial statements in
conformity with accounting principles generally accepted in the U.S. requires
management to make estimates and assumptions about future events that affect the
amounts reported in the financial statements and accompanying notes. Future
events and their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of judgment.
Actual results inevitably will differ from those estimates, and such differences
may be material to the financial statements.
The most significant accounting estimates inherent in the preparation of our
financial statements include estimates as to the recovery of accounts receivable
and inventory reserves, as well as those used in the determination of income
taxes and related valuation allowances, and those used in the evaluation of
goodwill and fixed assets for impairment. Various assumptions and other factors
underlie the determination of these significant estimates. The process of
determining significant estimates is fact specific and takes into account
factors such as historical experience, current and expected economic conditions,
and product mix. We reevaluate these significant factors as facts and
circumstances change.
FORWARD LOOKING INFORMATION
From time to time, information provided by ETC, statements made by its
employees, and information included in its filings with the Securities and
Exchange Commission which are not historical facts are forward-looking in nature
and relate to trends and events that may affect our future financial position
and operating results. Such forward-looking information is provided pursuant to
the Safe Harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are not guarantees of future
-11-
performance and involve a number of risks and uncertainties including, but not
limited to, improvement of conditions in our customer markets, the ability to
increase sales and control expenses, the availability of adequate working
capital and credit facilities, the ability to successfully complete development
of and bring to market new products for which there is customer demand,
technology changes, backlog, status of the economy, governmental regulations,
sources of supply, expense structure, product mix, major customers, competition,
litigation, threat of war, and other risk factors detailed in the Company's
filings of Form 10-KSB with the Securities and Exchange Commission. Investors
are encouraged to consider the risks and uncertainties included in those
filings.
ITEM 3. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures designed to ensure that
the information the Company must disclose in its filings with the Securities and
Exchange Commission is recorded, processed, summarized and reported on a timely
basis. The Company's principal executive officer and principal financial officer
have reviewed and evaluated the Company's disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act") as of the end of the period covered by
this report (the "Evaluation Date"). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures are effective in bringing to their attention on a timely
basis material information relating to the Company required to be included in
the Company's periodic filings under the Exchange Act.
There have not been any changes in the Company's internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
occurred during the Company's most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the Registrant on May 7, 2004, shareholders voted on
the election of directors for a one-year term. The Class B common stock of the
Registrant is the only class of voting securities. The Class B common stock is
not registered under the Securities Exchange Act of 1934. There was no
solicitation in opposition to the nominees proposed and there were no
abstentions or broker non-votes. Each of the nominees were elected as follows:
<Table>
<Caption>
Director Votes Votes
Name For Withheld
------------------- ------- --------
Dean W. Danner 293,018 0
Bonita M. Danner 293,018 0
Hazel Danner 293,018 0
A. William Huelsman 293,018 0
Joanne B. Huelsman 293,018 0
Conrad G. Goodkind 293,018 0
Richard A. Gabriel 293,018 0
R.W. (Johnny) Johns 293,018 0
</Table>
-12-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 Computation of Earnings Per Share
Exhibit 31.1 Certification of Chief Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Chief Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Dean W. Danner pursuant to
18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
Exhibit 32.2 Certification of Jeffrey M. Nigl pursuant to
18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K
The Company filed a Current Report of Form 8-K dated
May 4, 2004, to furnish a press release dated May 4,
2004 announcing its first quarter 2004 financial
results.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ELECTRONIC TELE-COMMUNICATIONS, INC.
/s/ Dean W. Danner
------------------------------------
Dean W. Danner
President and
Chief Executive Officer
/s/ Jeffrey M. Nigl
-----------------------------------
Jeffrey M. Nigl
Vice President, Chief Financial
Officer, Treasurer and
Principal Accounting Officer
Date: May 10, 2004
-13-
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
11 Computation of Earnings Per Share
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Dean W. Danner pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Jeffrey M. Nigl pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</Table>
-14-