UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended December 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-13981
ELECTRONIC TELE-COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1357760
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1915 MacArthur Road Waukesha, Wisconsin 53188
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (262) 542-5600
Securities registered pursuant to section 12(b) of the Act:
None.
Securities registered pursuant to section 12(g) of the Act:
Class A Common Stock, Par Value $.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting and non-voting common stock held by
non-affiliates of the Registrant as of March 1, 2002 was $141,211. As of March
1, 2002, there were outstanding 2,009,149 shares of Class A common stock and
499,998 shares of Class B common stock. The Class B common stock is the only
voting stock. 87.9% of the Class B common stock is owned by affiliates. There is
no market for the Class B common stock.
EXPLANATORY NOTE
Electronic Tele-Communications, Inc. (the "Company") has amended its Form 10-KSB
for the year ended December 31, 2001, to provide clarification of certain
disclosures. This Amendment includes revisions to Exhibit 13, the Company's 2001
Annual Report. The sections revised in this amendment include the Liquidity and
Capital Resources section of the Management's Discussion and Analysis, the
Revenue Recognition section of Note 1 to the Financial Statements regarding
Summary of Significant Accounting Policies, Note 3 to the Financial Statements
regarding Sales-Type Leases, and Note 15 to the Financial Statements regarding
Company Operations.
Except for the sections revised as listed above, no other information included
in the original report on Form 10-KSB is amended by this Amendment, and such
information is not included as part of this Amendment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $1,625,000 at December 31, 2001, compared to $2,012,000 for
2000. The decrease in working capital in 2001 was primarily due to the net loss,
partially offset by the proceeds from the sale and leaseback transaction for the
Company's building and land in Wisconsin. The decrease in working capital in
2000 was primarily due to a net loss and expenditures made for capital
equipment. Cash used by operating activities in 2001 of $545,000 was a result of
the net loss, partially offset by collections of accounts receivable and
installment sales contracts.
In 2001, repayments made on the revolving credit facility were funded by the
sale and leaseback transaction for the building and land, together with
collections of accounts receivable and installment sales contracts. In 2000,
payments made for capital expenditures and increased accounts receivable were
funded primarily by short-term borrowings.
In 2001, the large decrease in accounts receivable was the result of lower sales
in 2001 and collection of accounts receivable outstanding at the end of 2000. In
2000, the increase in accounts receivable was a result of increased sales in
December 2000 which were not yet due or paid by the end of the year.
Capital expenditures were $45,000 in 2001 and $261,000 in 2000. Capital
expenditures in 2001 consisted primarily of computer equipment upgrades. Capital
expenditures in 2000 consisted primarily of upgrades to the Company's telephone
systems, together with purchases of computer equipment and engineering
development equipment.
The Company has sustained substantial operating losses over the past six
quarters. In addition, the Company has used substantial amounts of working
capital in its operations. The losses and use of working capital were a result
of the significant decrease in sales caused by lower customer demand for the
Company's products. The Company's customers were severely impacted by slowing
economic conditions, especially in the domestic telecommunications industry,
where falling stock prices, financial losses and workforce reductions adversely
impacted customers' buying decisions. In addition, the terrorist attacks of
September 11, 2001 further slowed customers' purchasing cycles.
-2-
To address the resultant cash flow requirements caused by the decrease in sales,
the Company entered into a sale leaseback transaction in 2001 with an affiliate
for the building and associated land in Waukesha, Wisconsin which serves as the
Company's principal office and manufacturing facility. The proceeds from the
transaction were used to pay off remaining amounts outstanding under a revolving
credit facility with a bank and to fund working capital. The revolving credit
facility agreement with the bank was subsequently terminated. In addition, the
Company reduced its workforce by almost 50% during the year through a
combination of terminations and lay-offs.
As of December 31, 2001, the Company had no borrowings. Working capital was
$1,625,000, and the Company's current ratio was 3.2. With the workforce
reductions in 2001 and strict control of all costs, the Company has
significantly reduced the sales levels necessary to turn its operations
profitable. Sales increased steadily during the fourth quarter of 2001, and the
Company began shipments in December 2001 of its two new products, the Emcee and
Z-10. The order backlog increased to $561,000 as of December 31, 2001. The
Company will continue to monitor its operations to determine if additional cost
savings measures need to be implemented to improve cash flow.
To supplement cash flow in the short-term, the Company has signed an agreement
with an affiliate for up to $200,000 of borrowing availability. The Company is
optimistic that market conditions and demand for the Company's new products will
continue to improve and that the Company's operations will return to
profitability within the next 12 months. If the Company's operations become
profitable, management believes the Company can generate sufficient internal
cash flow to support its operations. In addition, management believes the
Company will be able to secure additional financing from a bank to provide
additional working capital as needed. However, there are no guarantees that any
or all of these items will be accomplished.
If the Company does not return to profitability, however, it is unlikely that it
will be able to secure such bank financing. In such a case, the Company could
further reduce costs to a level which would permit it to operate profitably by
relying on the revenue stream generated by its time/weather/temperature and
services business. However, the Company does not believe that this additional
cost cutting measure will be necessary.
The Company did not pay a dividend on Class A common stock in 2000 or 2001. If
the Company does not pay a minimum dividend of $.08 per share on Class A common
stock in 2002, or approximately $161,000, the holders of Class A common stock
will be entitled to vote in 2003.
Management believes that the actions it has taken as described above, together
with continuing to control costs and the close monitoring of operations, provide
the opportunity for the Company to continue as a going concern.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company sells and leases equipment and related services. Terms of sales and
leases are documented on purchase orders and sales agreements. There are no
multi-element contracts. Revenue from equipment sales is recognized at the time
of shipment. Revenue from operating leases of time/weather/temperature equipment
is recognized on a monthly basis as the monthly lease amount is billed to the
customer. Revenue from services is recognized when the related service is
provided. Revenue from the sale of maintenance contracts is deferred and
recognized evenly over the term of the contract.
-3-
Sales of the Company's Audichron(R) 410 interactive systems are accounted for as
sales-type leases. Revenue is recognized upon shipment of these systems to the
customer. The difference between the expected minimum payments and the revenue
recognized for each agreement is unearned revenue. The unearned revenue is
amortized over the term of each agreement using the effective interest method.
Revenue from sales-type leases, operating leases and services were approximately
59%, 30%, and 36% of total revenue in 2001, 2000 and 1999, respectively.
3. SALES-TYPE LEASES
The Company engages in sales agreements with customers for Audichron(R) 410
systems that are accounted for as sales-type leases. The agreements have varying
length terms expiring in various years through 2006.
Following is a summary of the components of the Company's net investment in
sales-type leases at December 31:
2001 2000
--------------------------------------------------------------------------------
Total minimum lease payments to be received $1,452,964 $2,147,322
Unearned revenue (419,507) (741,043)
Allowance for doubtful accounts (23,487) (23,487)
--------------------------------------------------------------------------------
Net investment in sales-type leases $1,009,970 $1,382,792
--------------------------------------------------------------------------------
Future minimum lease payments to be received under these agreements at December
31, 2001 are as follows:
Year Lease Payments
--------------------------------------------------------------------------------
2002 $ 624,596
2003 466,646
2004 292,805
2005 64,520
2006 4,397
--------------------------------------------------------------------------------
Total minimum lease payments to be received $ 1,452,964
--------------------------------------------------------------------------------
15. COMPANY OPERATIONS
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which
contemplates continuation of the Company as a going concern. However, the
Company has sustained substantial operating losses over the past six quarters.
In addition, the Company has used substantial amounts of working capital in its
operations. The losses and use of working capital were a result of the
significant decrease in sales caused by lower customer demand for the Company's
products. The Company's customers were severely impacted by slowing economic
conditions, especially in the domestic telecommunications industry, where
falling stock prices, financial losses, and workforce reductions adversely
impacted customers' buying decisions. In addition, the terrorist attacks of
September 11, 2001, further slowed customers' purchasing cycles.
To address the resultant cash flow requirements caused by the decrease in sales,
the Company entered into a sale leaseback transaction in 2001 with an
-4-
affiliate for the building and associated land in Waukesha, Wisconsin which
serves as the Company's principal office and manufacturing facility. The
proceeds from the transaction were used to pay off remaining amounts outstanding
under a revolving credit facility with a bank and to fund working capital. The
revolving credit facility agreement with the bank was subsequently terminated.
In addition, the Company reduced its workforce by almost 50% during the year
through a combination of terminations and lay-offs.
As of December 31, 2001, the Company had no borrowings. Working capital was
$1,625,000, and the Company's current ratio was 3.2. With the workforce
reductions in 2001 and strict control of all costs, the Company has
significantly reduced the sales levels necessary to turn its operations
profitable. Sales increased steadily during the fourth quarter of 2001, and the
Company began shipments in December 2001 of its two new products, the Emcee and
Z-10. The order backlog increased to $561,000 as of December 31, 2001. The
Company will continue to monitor its operations to determine if additional cost
savings measures need to be implemented to improve cash flow.
To supplement cash flow in the short-term, the Company has signed an agreement
with an affiliate for up to $200,000 of borrowing availability. The Company is
optimistic that market conditions and demand for the Company's new products will
continue to improve and that the Company's operations will return to
profitability within the next 12 months. If the Company's operations become
profitable, management believes the Company can generate sufficient internal
cash flow to support its operations. In addition, management believes the
Company will be able to secure additional financing from a bank to provide
additional working capital as needed. However, there are no guarantees that any
or all of these items will be accomplished.
If the Company does not return to profitability, however, it is unlikely that it
will be able to secure such bank financing. In such a case, the Company could
further reduce costs to a level which would permit it to operate profitably by
relying on the revenue stream generated by its time/weather/temperature and
services business. However, the Company does not believe that this additional
cost cutting measure will be necessary.
Management believes that the actions it has taken as described above, together
with continuing to control costs and the close monitoring of operations, provide
the opportunity for the Company to continue as a going concern.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to by signed on its behalf by the
undersigned thereunto duly authorized.
ELECTRONIC TELE-COMMUNICATIONS, INC.
By: /s/ Jeffrey M. Nigl
------------------------------------
Jeffrey M. Nigl
Vice President, Chief Financial
Officer, Treasurer and Principal
Accounting Officer
Date: April 18, 2002
-5-