U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Commission File No. 221355
ELECTRONIC TRANSMISSION CORPORATION
(Name of Small Business Issuer as Specified in Its Charter)
Delaware 75-2518619
(State of Incorporation) (I.R.S. Employer Identification No.)
5025 Arapaho Road, Suite 501 75248
Dallas, Texas (Zip Code)
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (972) 980-0900
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 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 November 7, 1997, 12,665,798 shares of the issuer's Common Stock were
outstanding.
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
PART I - FINANCIAL INFORMATION
BALANCE SHEET
(Unaudited)
ASSETS
September 30,
1997
-------------
Current Assets:
Cash $ 141,426
Accounts receivable
Trade 398,276
Employees 9,213
Shareholder 46
Current portion, capital lease
receivable 27,042
Prepaid assets 47,197
Total Current Assets 623,200
Property and Equipment, net 902,568
Other Assets:
Capital lease receivable 7,192
Goodwill, net 385,470
Deposits and other 5,450
Total Other Assets 398,112
Total Assets $1,923,880
==========
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
BALANCE SHEETS (CONTINUED)
(Unaudited)
LIABILITIES & STOCKHOLDERS' EQUITY
September 30,
1997
-------------
Current Liabilities:
Accounts payable $ 814,020
Accrued expenses 303,181
Accrued payroll and taxes 96,596
Customer deposit payable 75,531
Note payable 174,787
Current portion, capital lease
obligations 107,020
Total Current Liabilities 1,571,135
Debentures 152,500
Long-term capital lease obligations 47,037
Total Long-term Liabilities 199,537
Stockholders' equity:
Preferred stock, $1 par value,
2,000,000 shares authorized;
no shares issued and outstanding --
Common stock, $.001 par value,
15,000,000 shares authorized;
12,535,798 shares issued and outstanding 12,536
Additional paid-in-capital 5,370,041
Additional paid-in-capital - stock options 1,252,987
Accumulated deficit (6,482,356)
Total Stockholders' Equity 153,208
Total Liabilities & Stockholders' Equity $ 1,923,880
===========
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENTS OF OPERATIONS STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
Service revenues $ 355,945 $ 1,002,169 $ 570,025 $ 2,405,432
------------ ------------ ------------ ------------
Costs and Expenses:
Direct Costs $ 203,507 $ 390,197 $ 293,237 $ 1,045,930
Personnel Costs 255,670 454,991 679,762 1,178,090
Stock Compensation Expense(1) 89,162 -- 231,171 930,920
Professional Fees 148,492 33,563 515,523 303,850
General and administrative 402,223 244,817 644,580 607,597
------------ ------------ ------------ ------------
Total Costs and Expenses 1,099,054 1,123,568 2,364,273 4,066,387
------------ ------------ ------------ ------------
Loss from operations (743,109) (121,399) (1,794,248) (1,660,955)
Other Income 2,136 1,162 2,136 3,550
Income tax expense -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (740,973) $ (120,237) $ (1,792,112) $ (1,657,405)
============ ============ ============ ============
Loss per common share:
Primary and fully-diluted $ (0.07) $ (0.01) $ (0.18) $ (0.14)
============ ============ ============ ============
Weighted average common
shares outstanding:
Primary and fully-diluted 9,998,724 11,884,688 9,998,724 11,884,688
============ ============ ============ ============
(1) In June 1997, a one-time write-off of stock compensation expense of $600,266 was recognized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<S> <C> <C> <C>
Add'l.
Paid-In
Capital
Common Stock Stock Accumulated
-------------------------
Shares Amount Options Deficit Total
---------- ----------- ----------- ------------ ---------
Balance at December 31, 1996 10,949,146 $ 4,180,206 $ 322,067 $ (4,824,951) $ (322,678)
Issuance of shares for cash 28,333 28 -- -- 28
Issuance of shares for compensation 320,000 -- 166,368 -- 166,368
expense
Net loss -- -- -- (686,491) (686,491)
---------- ---------- ----------- ------------ ---------
Balance at March 31, 1997 11,297,479 $ 4,180,234 $ 488,435 $ (5,511,442) $(842,773)
---------- ----------- ----------- ------------ ----------
Issuance of shares for cash 230,000 230 -- -- 230
Stock compensation expense -- -- 764,552 -- 764,552
Issuance of shares for debt to equity 520,000 650,000 -- -- 650,000
conversion
Issuance of shares for asset purchase 400,000 500,000 -- -- 500,000
Net loss -- -- -- (850,677) (850,677)
---------- ----------- ----------- ------------ ----------
Balance at June 30, 1997 12,447,479 $ 5,330,464 $ 1,252,987 $(6,362,119) $ 221,332
========== =========== =========== =========== ==========
Issuance of shares for cash 46,666 46 -- -- 46
Issuance of shares for debenture to 41,653 52,067 -- -- 52,067
equity conversion
Net loss -- -- -- (120,237) (120,237)
----------- ----------- ----------- ------------ -----------
Balance at September 30, 1997 12,535,798 $ 5,382,577 $ 1,252,987 $(6,482,356) $ 153,208
========== =========== =========== =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<S> <C> <C>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
----------------------------- ---------------------------
1996 1997 1996 1997
---------- ---------- ---------- ----------
Cash Flows from Operations:
Net loss $ (740,973) $ (120,237) $1,792,112) $(1,657,405)
Adjustments to Reconcile Net Loss
to Net Cash Provided (Used)
by Operations:
Non-cash issuance of common
stock for services rendered -- -- -- 100,000
Non-cash compensation from
stock options 89,162 -- 231,171 830,920
Depreciation and amortization 33,009 74,462 83,330 189,100
(Increase) decrease in accounts
receivable (153,954) 224,297 (241,152) (83,794)
(Increase) decrease in employee
advances 54,290 (949) (25,088) 18,990
Decrease in advances to
to stockholders 59,929 2,481 56,770 179,069
Increase prepaid expenses (10,840) (30,751) (14,031) (31,911)
(Increase) decrease in deposits
and other assets 1,234 -- (12,241) 2,067
Increase decrease in accounts
payable 138,476 470,729 48,777 514,744
(Increase) decrease in accrued
expenses 8,040 (47,831) 114,757 174,933
Increase in client deposit -- -- -- 75,531
Increase in accrued payroll
and taxes 85,678 -- 83,997 15,164
---------- ---------- ---------- ----------
Net Cash Provided By (Used In)
Operations (435,949) 572,201 (1,465,822) 327,408
---------- ---------- ---------- ----------
Cash Flows from Investing Activities:
Capital lease receivable -- -- (64,460) --
Purchases of furniture and equipment (133,704) (482,937) (186,364) (526,595)
Proceeds on capital lease receivable 5,749 6,350 5,749 18,585
---------- ---------- ---------- ----------
Net Cash Used in Investing Activities (127,955) (476,587) (245,075) (508,010)
========== ========= ========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
<S> <C> <C>
Three Months Ended Sep. 30, Nine Months Ended Sept. 30,
---------------------------- ----------------------------
1996 1997 1996 1997
----------- ------------ ------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common 265,738 52,113 2,558,616 52,371
stock
Debenture to equity conversion -- -- (552,500) --
Debt to equity conversion -- -- (224,758) --
Proceeds from note payable -- 32,000 -- 202,000
Pay-off of line of credit -- (125,000) -- --
Proceeds from issuance of debentures -- (50,000) -- 100,000
Principal payments on note payable -- (20,511) -- (27,213)
Payments on capital leases payable (18,809) (25,583) (26,171) (55,255)
------------- ------------- ----------------- -------------
Net Cash Provided by (Used In)
Financing Activities 246,929 (136,981) 1,755,187 271,903
------------- ------------- ----------------- -------------
Net increase (decrease) in cash (316,975) (41,367) 44,290 91,301
Cash, beginning of period 476,293 182,793 115,028 50,125
------------- ------------- ----------------- -------------
Cash, end of period $ 159,318 $ 141,426 $ 159,318 $ 141,426
============= ============= ================= =============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The unaudited financial statements included herein for Electronic Transmission
Corporation (the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") and include
all adjustments which are, in the opinion of management, necessary for a fair
presentation. Certain information and footnote disclosures required by generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations.
NOTE 2 - OFFICE FURNITURE AND EQUIPMENT
The following is a summary of office furniture and equipment:
<TABLE>
<S> <C> <C>
Sept. 30, Sept. 30,
1997 1996
----------- -----------
Furniture $ 105,343 $ 65,148
Computer & Office Equipment 590,764 333,412
Computer Software 505,804 111,929
Leasehold Improvements 9,746 839
----------- -----------
1,211,657 511,328
Less: accumulated depreciation (309,089) (115,503)
----------- -----------
$ 902,568 $ 395,825
=========== ===========
In July 1997, the Company purchased hardware and licensed software in order
to begin a new division for third party administration ("TPA"). The term of
the License and Maintenance Agreement is for five years. The total cost of
the system is $441,838 and is payable in four installments beginning with
$87,500 paid upon execution, followed by $150,000 due upon installation of
computer system, $116,838 upon the earlier of set-up of system or October
31, 1997 and $87,500 due on January 1, 1998. Operations are expected to
begin in January 1998.
NOTE 3-FINANCING ACTIVITIES
The Company obtained a $125,000 line of credit in April 1997. On July 17,
1997, the $125,000 line of credit was renewed and increased to $200,000.
The principal balance of $190,000 and interest were paid-off in September
1997.
In May 1997, the Company authorized an aggregate offering of $1,000,000 of
its one-year 12% Convertible Subordinated Debentures to fund new
acquisitions, pay-off existing debts and supply future working capital. The
Debentures are due in May 1998 with interest payable semi-annually. The
holder or holders of this Debenture may, at any time prior to maturity,
convert the principal amount and the accrued interest on this Debenture
into Common Stock of the Company at
</TABLE>
<PAGE>
NOTE 3-FINANCING ACTIVITIES (Continued)
varying conversion rates of Debenture principal and/or accrued interest for one
share of Common Stock. The offering terminated on June 1, 1997 raising $150,000.
In September 1997, $50,000 in debentures plus accrued interest were converted to
41,653 shares of common stock at a conversion rate of $1.25 per share.
Under a business financing agreement with a bank, the Company has available at
September 30, 1997 a revolving credit line of $500,000 that expires September 2,
1998. Under the credit line terms, the Company sells qualified accounts
receivable invoices to the bank. The credit line is secured by accounts
receivable and a personal guarantee by the Chairman. A 20% (twenty percent)
reserve and a service charge are deducted from each invoice with the balance
going to the Company for operations. Any receivable which remains unpaid ninety
(90) days after its due date, will be repaid by the Company to the bank through
the reserve account. As of September 30, 1997, the balance outstanding on the
loan was $299,619.
NOTE 4-SUBSEQUENT EVENTS
In October 1997, Chief Financial Officer, W. Mack Goforth, was hired to begin
employment on November 3, 1997.
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OFIFINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Electronic Transmission Corporation (the "Company"), a Delaware
Corporation, is the survivor of a merger (the "Merger") of Electronic
Transmission Corporation, a Texas corporation, into ETC Transaction Corporation,
a Delaware corporation (originally incorporated in the Province of Alberta,
Canada). As ETC Transaction Corporation, the Company's predecessor, was a
dormant entity prior to the effectiveness of the Merger, the following
comparative and analysis assumes that the Merger was effective as of January 1,
1997 for the purpose of comparing the financial condition and results of
operations of ETC Transaction Corporation and the Company for the noted periods.
Effective April 1, 1997, the Company acquired the assets and business of
Electra-Net, L.C. in exchange for 400,000 shares of common stock valued at
$500,000. Electra-Net, L.C. is a company wholly-owned and operated by L. Cade
Havard the Chairman of the Board, Chief Executive Officer and President of the
Company. Electra-Net is in the business of obtaining discounts and repricing
medical claims. The revenues from Electra-Net increased revenues in the third
quarter by 320% over the first quarter 1997 revenues while only increasing costs
by 50%. The Company has not only offered this service to existing clients, but
has added seven additional clients using just the discount and repricing
services.
Results of Operations of The Company
For the Nine Months Ended September 30, 1996. For the nine months ended
September 30, 1996, the results of operations were significant in that the
Company determined the types of clients to pursue and the nature of processing
services to be provided. Management secured its first substantial clients and
began the process of implementing its system for commercial use. Although no
significant revenues were generated from the electronic transmission of data,
the process of handling claims information was established.
Direct expenses incurred for services provided during the development stage
in the third quarter of fiscal 1996 were $203,507 or 57% of total revenues for
the period. In addition to minimal revenues, the Company's lack of operating
history resulted in a reluctance by vendors to extend any credit to the Company
and any credit that was offered was on unfavorable terms. With the lack of
adequate trade credit to build its business, the Company relied on its ability
to generate additional capital through the issuance of debt and/or equity
securities to fund the operating expenses of the business.
For the Quarter Ended September 30, 1997 Compared to the Quarter Ended September
30, 1996
For the quarter ended September 30, 1996, the Company was still a
development stage enterprise. Revenues were $355,945 and net loss was $740,973.
As the Company had not begun its ongoing operations, a detailed discussion of
comparative results of operations is not meaningful.
<PAGE>
Revenues for the quarter ended September 30, 1997 were $1,002,169 and net
loss was $120,237. Principal expenses were personnel costs of approximately
$454,991 and legal and professional expenses of approximately $33,563. Legal and
professional expenses are primarily related to expenses incurred for general
corporate matters and the preparation of various SEC filings.
Operating Expenses
Direct costs for the quarter ended September 30, 1996 consisted primarily
of $73,367 in optical character recognition ("OCR") costs, $105,238 in data
entry personnel costs and $6,320 in electronic data line costs.
Management believes that it has been able to manage the relationship
between cost and revenues up to the present with income increasing at a much
faster rate than expenses given the implementation of claims processing services
and the acquisition of Electra-Net. Direct costs for the quarter ended September
30, 1997 consisted primarily of $103,280 in data entry personnel costs, $60,502
in OCR costs, $9,065 in electronic data line costs and $106,375 in network fees.
Net Loss
The Company incurred a net loss of $740,973 and $120,237 for the quarters
ended September 30, 1996 and 1997, respectively. There is a substantial
difference in loss per quarter from September 30, 1996 to September 30, 1997.
The majority of the change is due to the acquisition of Electra-Net. Since the
April 1997 acquisition, on the average, Electra-Net has contributed $442,000 per
quarter to the gross profit. The Company anticipates to incur losses in future
periods until it generates sufficient revenues from an expanded client base to
offset ongoing operating costs and expansion expenses.
Liquidity and Capital Resources
At September 30, 1997, the Company had cash and cash equivalents of
approximately $141,426, and a working capital deficit of approximately $947,935.
The material change in the working capital deficit occurring during the third
quarter, is the debt taken on to finance the purchase of hardware and software
for the start-up of a new division of Third Party Administration ("TPA"). In
April 1997, the Company obtained a $125,000 line of credit. Advances of $125,000
were made and principal plus any unpaid interest was due July 17, 1997. The
Company renewed and increased its line of credit to $200,000. The principal plus
any unpaid interest would have been due November 17, 1997, however, the entire
principal and unpaid interest were paid-off in September 1997. In its place the
Company has entered into a business finance agreement with a bank. The Company
has available as of September 30, 1997, a revolving credit line of $500,000 that
expires September 2, 1998. Under the credit line terms, the Company sells
qualified accounts receivable invoices to the bank. The bank deducts a service
charge, a 20% (twenty percent) reserve with the remaining balance being used for
working capital. The bank is repaid as the Company's clients pay their invoices.
The Company authorized the issuance of an aggregate offering of $1,000,000 of
its one-year 12% Convertible Subordinated Debentures in order to fund new
acquisitions, pay-off existing debts and for working capital. The offering
terminated on June 1, 1997 raising $150,000 in debentures. In September 1997,
one of the debenture holders converted $50,000 in debentures plus accrued
interest into 41,653 shares of common stock at a conversion rate of $1.25 per
share. In May 1997, the Company obtained a short-term loan of $170,000 to fund
working capital. Eighty-five thousand dollars of the principal amount plus
interest will be repaid in twelve monthly payments. Interest only wil be due
monthly on the remaining eighty-five thousand dollars of the principal amount,
which will be payable on May 19, 1998. The loan will incur an interest rate of
twelve percent per annum from date of funding. The lender has the option to
purchase up to 113,333 shares of common stock in the Company at a price of $1.50
per share on or before May 19, 1998.
<PAGE>
Research and development to be performed over the next twelve months will
be to enhance the current software programs used in automating clients by
increasing the speed of processing and developing value added services for
clients. It is not expected that costs associated with projected research and
development efforts will materially effect the financial condition and results
of operations of the Company for fiscal 1997.
With the acquisition of Electra-Net, which reprices and negotiates
discounts on medical claims, revenues for the third quarter have increased over
the first quarter of 1997 by 320%. The Company has not only offered this service
to existing clients, but added six additional clients in the second quarter and
four additional clients in the third quarter using just the discount and
repricing services. Electra-Net is anticipated to maintain these revenues
throughout 1997 and 1998. Management believes there will be enough working
capital for the next twelve months due to the acquisition of Electra-Net,
addition of new clients to the repricing division and to the automation
division.
The Company is in the start-up phase of a new division as a third party
administrator ("TPA"). A License and Maintenance Agreement was entered into to
purchase hardware and license software in order to run the TPA. The TPA will
process medical claims on behalf of self-insured corporations. Operations are
anticipated to begin in January 1998 and it is estimated that the TPA will add
$750,000 in revenues during 1998.
As the Company grows in the number of claims it processes, the number of
employees will also increase but not significantly. Personnel that is added to
handle the increase in volume will typically be added in the data perfection and
quality assurance departments. These are hourly employees and are readily
available in the marketplace.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Financial Statements and Exhibits Page
1. Financial Statements. The following financial statements are submitted
as a part of this report:
Balance Sheet - September 30, 1997............... 1
Statements of Operations - Three Months Ended September 30, 1997 and
1996 and Nine Months Ended September 30, 1997 and 1996....... 3
Statement of Stockholders' Equity - Quarter Ended September 30, 1997.. 4
Statements of Cash Flows - Three Months Ended September 30, 1997 and
1996 and Nine Months Ended September 30, 1997 and 1996...... 5
Notes to Financial Statements................... 7
</TABLE>
<PAGE>
2. Exhibits
None.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K for the quarter ended September 30,
1997.
<PAGE>
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 TRANSMISSION CORPORATION
<TABLE>
Signature Title Date
---------- ------- -----
<S> <C>
/s/ L. CADE HAVARD Chairman, Chief Executive November 14, 1997
---------------------
L. Cade Havard Officer, President and
Director (Principal
Executive Officer)
/s/ LOUANN C. SMITH Controller (Principal November 14, 1997
---------------------
Louann C. Smith Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001017586
<NAME> Electronic Transmission Corporation
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 141,426
<SECURITIES> 0
<RECEIVABLES> 398,276
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 623,200
<PP&E> 1,211,657
<DEPRECIATION> 309,089
<TOTAL-ASSETS> 1,923,880
<CURRENT-LIABILITIES> 1,571,135
<BONDS> 0
0
0
<COMMON> 5,382,577
<OTHER-SE> 1,252,987
<TOTAL-LIABILITY-AND-EQUITY> 1,923,880
<SALES> 0
<TOTAL-REVENUES> 2,405,432
<CGS> 0
<TOTAL-COSTS> 1,045,930
<OTHER-EXPENSES> 2,977,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,148
<INCOME-PRETAX> (1,657,405)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,657,405)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
