<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
Commission File No. 22135
ELECTRONIC TRANSMISSION CORPORATION
(Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 75-2578619
(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 August 8, 1997, 12,472,479 shares of the issuer's Common Stock were
outstanding.
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
PART I - FINANCIAL INFORMATION
BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
June 30,
1997
-----------
<S> <C>
Current Assets:
Cash $ 182,793
Accounts receivable
Trade 390,918
Employees 8,263
Current portion, capital lease
receivable 26,377
Prepaid assets 16,446
-----------
Total Current Assets 624,797
-----------
Property and Equipment, net 483,356
-----------
Other Assets:
Capital lease receivable 14,207
Goodwill, net 5,066
Deposits and other 5,450
-----------
Total Other Assets 24,723
-----------
Total Assets $ 1,132,876
-----------
-----------
</TABLE>
1
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
June 30,
1997
-----------
<S> <C>
Current Liabilities:
Accounts payable $ 349,367
Accrued expenses 361,999
Accrued payroll and taxes 69,902
Customer deposit payable 75,531
Note payable 163,298
Line of credit 125,000
Current portion, capital lease
obligations 106,270
-----------
Total Current Liabilities 1,251,367
Debentures 202,500
Long-term capital lease obligations 73,370
-----------
Total Long-term Liabilities 275,870
-----------
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;
11,327,479 shares issued and outstanding 11,327
Additional paid-in-capital 4,990,474
Additional paid-in-capital - stock options 943,287
Accumulated deficit (6,339,449)
-----------
Total Stockholders' Equity (394,361)
-----------
Total Liabilities & Stockholders' Equity $ 1,132,876
-----------
-----------
</TABLE>
2
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ -----------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service revenues $ 190,340 $ 912,026 $ 214,080 $ 1,224,800
------------ ------------ ------------ ------------
Costs and Expenses:
Direct Costs $ 83,458 $ 438,454 $ 89,731 $ 623,192
Personnel Costs 224,989 331,005 424,092 721,507
Stock Compensation Expense(1) 76,967 554,852 142,009 621,220
Professional Fees 262,192 71,234 367,032 270,287
General and administrative 138,898 193,487 237,985 352,955
------------ ------------ ------------ ------------
Total Costs and Expenses 786,504 1,589,032 1,260,849 2,589,161
------------ ------------ ------------ ------------
Loss from operations (596,164) (677,006) (1,046,769) (1,364,361)
Other Income -- 1,525 -- 2,389
Income tax expense -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (596,164) $ (675,481) $ (1,046,769) $ (1,361,972)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Loss per common share:
Primary and fully-diluted $ (0.05) $ (0.06) $ (0.10) $ (0.12)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common
shares outstanding:
Primary and fully-diluted 10,944,102 11,550,253 10,944,102 11,550,253
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
(1) In June 1997, a one-time write-off of stock compensation expense of
$554,852 was recognized.
3
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
Add'l.
Paid-In
Common Stock Capital
-------------------------- Stock Accumulated
Shares Amount Options Deficit Total
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 7,153,601 $2,475,637 $ 322,067 $(3,774,013) $(976,309)
Merger with ETC Transaction Corp. 2,007,144 1,704,569 -- (1,050,938) 653,631
Conversion of ETC Shares 1,788,401 -- -- -- --
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 30,000 30 -- -- 30
Stock compensation expense -- -- 554,852 -- 554,852
Capital contribution -- 721,537 -- -- 721,537
Deemed dividend -- -- -- (152,526) (152,526)
Net loss -- -- -- (675,481) (675,481)
---------- ---------- ---------- ----------- ---------
Balance at June 30, 1997 11,327,479 $4,901,801 $1,043,287 $(6,339,449) $(394,361)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
</TABLE>
4
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ----------------------------
1996 1997 1996 1997
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Cash Flows from Operations:
Net loss $ (596,164) $ (675,481) $ (1,046,769) $ (1,361,972)
Adjustments to Reconcile Net Loss
to Net Cash Provided (Used)
by Operations:
Non-cash issuance of common
stock for services rendered -- 333,632 -- 400,000
Non-cash compensation from
stock options 76,967 221,220 142,009 321,220
Depreciation and amortization 37,696 53,146 50,321 104,812
Increase in accounts receivable (69,396) (205,084) (87,198) (258,423)
(Increase) decrease in employee
advances (73,356) (2,768) (79,378) 19,939
(Increase) decrease in advances
to stockholders 25,327 (581,653) (3,160) (323,312)
(Increase) decrease in prepaid
expenses 5,156 (3,845) (3,191) (1,160)
(Increase) decrease in deposits
and other assets 2,297 -- (13,475) 2,067
Increase (decrease) in
accounts payable (43,790) (56,641) (5,700) 85,350
Increase in accrued expenses 86,774 61,380 78,522 131,556
Increase in client deposit -- 75,531 -- 75,531
Increase (decrease) in accrued
payroll and taxes 12,000 (133,471) (1,681) (119,924)
----------- ----------- ------------ ------------
Net Cash Used in Operations (536,489) (914,034) (969,700) (924,316)
----------- ----------- ------------ ------------
Cash Flows from Investing Activities:
Purchases of furniture and equipment (52,057) (77,489) (117,110) (85,474)
Proceeds on capital lease receivable -- 8,225 -- 12,236
----------- ----------- ------------ ------------
Net Cash Used in Investing Activities (52,057) (69,264) (117,110) (73,238)
----------- ----------- ------------ ------------
</TABLE>
5
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
1996 1997 1996 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 237,500 30 675,875 58
Capital Contribution -- 721,537 -- 721,537
Proceeds from capital lease -- 16,747 -- 16,747
Proceeds from note payable 779,575 170,000 779,575 170,000
Proceeds from line of credit -- 125,000 -- 125,000
Proceeds from issuance of debentures -- 150,000 -- 150,000
Principal payments on note payable -- (6,702) -- (6,702)
Payments on capital leases payable (5,868) (23,498) (7,371) (46,418)
----------- ----------- ------------ ------------
Net Cash Provided by Financing
Activities 1,011,207 1,153,114 1,448,079 1,130,222
----------- ----------- ------------ ------------
Net increase in cash 422,661 169,816 361,269 132,668
Cash, beginning of period 53,493 12,977 114,885 50,125
----------- ----------- ------------ ------------
Cash, end of period $ 476,154 $ 182,793 $ 476,154 $ 182,793
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
6
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
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>
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
Furniture $105,343 $ 44,869
Computer & Office Equipment 500,919 254,631
Computer Software 113,642 78,124
Leasehold Improvements 8,816 --
-------- --------
728,720 377,624
Less: accumulated depreciation (245,365) (82,494)
-------- --------
$483,355 $295,130
-------- --------
-------- --------
</TABLE>
NOTE 3 - STOCK OPTIONS
Compensation costs will be recognized as an expense over the periods of
employment attributable to the options at an amount equal to the excess of
the fair market value of the stock at the date of measurement over the amount
the employee must pay. The measurement date is generally the grant date. On
June 15, 1997, the Board of Directors unanimously passed a resolution
accelerating the vesting of certain stock options. Therefore, stock
compensation costs totalling $554,852 were recognized as expense during the
quarter ended June 30, 1997. Had compensation cost for the Company's
stock-based compensation been determined on the fair value at the grant dates
for awards with the method of FASB Statement 123, the Company's net loss and
loss per share would have been unchanged.
7
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 4-BUSINESS COMBINATION
Effective April 1, 1997, the Company completed a business combination with
Electra-Net, L.C. ("Electra-Net") by assuming their net liabilities.
Electra-Net, L.C. is a company wholly owned and controlled by ETC's former
Chairman of the Board, Chief Executive Officer, President and shareholder.
The transaction was accounted for using the purchase method as follows:
<TABLE>
<S> <C>
Assets Acquired:
Cash $ 2,065
Accounts receivable 76,061
Computer hardware 20,908
----------
Total assets $ 99,034
----------
Liabilities Assumed:
Accounts payable $ 15,711
Loans payable 235,849
----------
Total liabilities $ 251,560
----------
Net Liabilities Assumed $ 152,526
Consideration Paid:
Cash $ --
----------
Total consideration --
----------
Dividend paid to shareholder $ 152,526
----------
----------
</TABLE>
Treatment of the excess consideration (net liabilities assumed) for the
business is accounted for as a deemed dividend in accordance with generally
accepted accounting principles. Goodwill was not recorded since this
transaction was consummated with a related party and this treatment would have
constituted a step-up in basis. The transaction is reflected in the financial
statements on the date the transaction occurred (April 1, 1997), in accordance
with generally accepted accounting principles.
The accompanying financial statements include the operations of Electra-Net for
the period from April 1, 1997 through June 30, 1997.
8
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 5-FINANCING ACTIVITIES
The Company obtained a $125,000 line of credit in April 1997 of which principal
and interest are due July 17, 1997. Accrued interest is payable on a monthly
basis, beginning May 17, 1997, at a variable interest rate not to exceed 18% per
annum. Interest will be calculated from the date of each advance until
repayment of each advance or maturity, whichever occurs first.
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 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.
Also in May 1997, the Company obtained a short-term working capital loan of
$170,000. Eighty-five thousand dollars of the principal amount plus interest
will be repaid in twelve monthly payments. Interest only will be due monthly on
the remaining eighty-five thousand dollars of the principal amount, which will
be due 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.
NOTE 6-BOARD OF DIRECTORS
Effective June 1, 1997, Rick Snyder, Director of the Company, resigned to pursue
other business interests. The resignation was not a result of any dispute or
disagreement between Mr. Snyder and the Company. Mr. Dennis Barnes was
elected Director until the next annual stockholder's meeting.
NOTE 7-SUBSEQUENT EVENTS
On July 17, 1997, the $125,000 line of credit was renewed and increased to
$200,000. The principal and any unpaid interest is due on November 17, 1997
and bears interest at eleven percent per annum.
In July 1997, the Company entered into a contract to purchase hardware and
license 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 due upon execution, followed by $150,000 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 September 1997.
9
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 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 completed a business combination with
Electra-Net, L.C. ("Electra-Net") by assuming their net liabilities.
Electra-Net, L.C. is a company wholly-owned and operated by L. Cade Havard
the former 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
by 349% over the first quarter 1997 revenues while only increasing costs by
34%. The Company has not only offered this service to existing clients, but
has added six additional clients using just the discount and repricing
services.
RESULTS OF OPERATIONS OF THE COMPANY
FOR THE SIX MONTHS ENDED JUNE 30, 1996. For the six months ended June 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 second quarter of fiscal 1996 were $83,458 or 44% 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 JUNE 30, 1997 COMPARED TO THE QUARTER ENDED JUNE 30, 1996
For the quarter ended June 30, 1996, the Company was still a development
stage enterprise. Revenues were $190,340 and net loss was $596,164. As the
Company had not begun its ongoing operations, a detailed discussion of
comparative results of operations is not meaningful.
10
<PAGE>
Revenues for the quarter ended June 30, 1997 were $912,026 and net loss was
$675,481. Principal expenses were personnel costs of approximately $438,886,
stock compensation costs of $554,852 and legal and professional expenses of
approximately $71,234. Stock compensation expense increased due to an election
by the Board of Directors to accelerate the vesting of certain stock options.
This will be a one-time expense. 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 June 30, 1996 consisted primarily of
$17,349 in optical character recognition ("OCR") costs, $50,014 in data entry
personnel costs and $13,321 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 of $438,454 for the quarter
ended June 30, 1997 consisted primarily of $128,803 in data entry personnel
costs, $68,345 in OCR costs, $9,017 in electronic data line costs and $207,434
in network fees.
NET LOSS
The Company incurred a net loss of $596,164 and $675,481 for the quarters
ended June 30, 1996 and 1997, respectively. The Company expects 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 June 30, 1997, the Company had cash and cash equivalents of
approximately $182,793, and a working capital deficit of approximately $626,570.
In April 1997, the Company obtained a $125,000 line of credit. Advances of
$125,000 were made and principal plus any unpaid interest will be due July 17,
1997. Subsequent to the quarter ended June 30, 1997, the Company renewed and
increased its line of credit. The line of credit was increased to $200,000.
The principal plus any unpaid interest will be due November 17, 1997 and bears
an interest rate of eleven percent per annum. 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 May 1997, the Company obtained a short-term loan for $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
11
<PAGE>
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.
The Company believes that the Merger has had and will continue to have a
positive effect on its liquidity and capital resources. The Merger provides the
Company with greater capital resources and liquidity through the availability of
public markets and financing opportunities; however, its results of operations
will be only marginally improved as ETC Transaction Corporation had no
significant operations.
The Company has continued to expand its client base by adding new claims
automation and repricing clients.
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 addition of Electra-Net, the revenues have increased over the
first quarter of 1997 by 349%. The Company has not only offered this service to
existing clients, but has added six additional clients using just the discount
and repricing services. Electra-Net is anticipated to maintain these revenues
throughout 1997. Due in large part to the addition of Electra-Net, Management
believes that there will be enough working capital for the next twelve months.
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. It is estimated
that the TPA will add $100,000 in revenues during 1997 and $750,000 in revenues
during 1998. Operations are anticipated to begin in September 1997.
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.
12
<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
(a) Financial Statements and Exhibits Page
--------------------------------- ----
1. Financial Statements. The following financial statements are
submitted as a part of this report:
Balance Sheet - June 30, 1997 1
Statements of Operations - Three Months Ended June 30, 1997 and 1996
and Six Months Ended June 30, 1997 and 1996 3
Statement of Stockholders' Equity - Quarter Ended June 30, 1997 4
Statements of Cash Flows - Three Months Ended June 30, 1997 and 1996
and Six Months Ended June 30, 1997 and 1996 5
Notes to Financial Statements 7
13
<PAGE>
2. Exhibits
--------
Not applicable.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K for the quarter ended June 30,
1997.
14
<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> <C>
/s/ W. MACK GOFORTH Chairman, Chief Executive March 13, 1998
- ----------------------- Officer, and Director
W. Mack Goforth (Principal Executive Officer)
/s/ LOUANN C. SMITH Controller (Principal March 13, 1998
- ----------------------- Accounting Officer)
Louann C. Smith
</TABLE>
15
