<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 SEPTEMBER 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 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
<TABLE>
September 30,
1997
-------------
<S> <C>
Current Assets:
Cash $ 141,426
Accounts receivable
Trade 163,639
Employees 9,513
Current portion, capital lease
receivable 27,042
Prepaid assets 40,197
----------
Total Current Assets 381,817
----------
Property and Equipment, net 909,568
----------
Other Assets:
Capital lease receivable 7,192
Goodwill, net 4,053
Deposits and other 5,450
----------
Total Other Assets 16,695
----------
Total Assets $1,308,080
----------
----------
</TABLE>
1
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
September 30,
1997
-------------
<S> <C>
Current Liabilities:
Accounts payable $ 821,049
Accrued expenses 312,062
Accrued payroll and taxes 69,902
Customer deposit payable 75,531
Note payable 174,787
Current portion, capital lease
obligations 107,020
-----------
Total Current Liabilities 1,560,351
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;
11,415,798 shares issued and outstanding 11,416
Additional paid-in-capital 4,942,498
Additional paid-in-capital - stock options 1,043,287
Accumulated deficit (6,449,009)
-----------
Total Stockholders' Equity (451,808)
-----------
Total Liabilities & Stockholders' Equity $ 1,308,080
-----------
-----------
</TABLE>
2
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
----------------------- -------------------------
1996 1997 1996 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Service revenues $ 355,945 $1,002,169 $ 570,025 $ 2,226,969
---------- ---------- ----------- -----------
Costs and Expenses:
Direct Costs $ 203,507 $ 304,012 $ 293,237 $ 927,204
Personnel Costs 255,670 541,175 679,762 1,162,683
Stock Compensation Expense(1) 89,162 -- 231,171 721,220
Professional Fees 148,492 33,563 515,523 303,850
General and administrative 398,719 234,140 636,705 587,095
---------- ---------- ----------- -----------
Total Costs and Expenses 1,095,550 1,112,890 2,356,398 3,702,052
---------- ---------- ----------- -----------
Loss from operations (739,605) (110,721) (1,786,373) (1,475,083)
Other Income 1,564 1,161 1,564 3,550
Income tax expense -- -- -- --
---------- ---------- ----------- -----------
Net loss $ (738,041) $ (109,560) $(1,784,809) $(1,471,533)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Loss per common share:
Primary and fully-diluted $ (0.07) $ (0.01) $ (0.18) $ (0.12)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average common
shares outstanding:
Primary and fully-diluted 9,998,724 11,884,688 9,998,724 11,884,688
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</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>
Common Stock
----------------------- APIC Stock Accumulated
Shares Amount Options Deficit Total
---------- ---------- ---------- ----------- ---------
<S> <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)
---------- ---------- ---------- ----------- ---------
Issuance of shares for cash 46,666 46 -- -- 46
Debenture conversion 41,653 52,067 -- -- 52,067
Net loss -- -- -- (109,560) (109,560)
---------- ---------- ---------- ----------- ---------
Balance at September 30, 1997 11,415,798 $4,953,914 $1,043,287 $(6,449,009) $(451,808)
---------- ---------- ---------- ----------- ---------
---------- ---------- ---------- ----------- ---------
</TABLE>
4
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1996 1997 1996 1997
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Cash Flows from Operations:
Net loss $(738,041) $(109,560) $(1,784,809) $(1,471,533)
Adjustments to Reconcile Net Loss
to Net Cash Provided (Used)
by Operations:
Non-cash issuance of common
stock for services rendered -- -- -- 400,000
Non-cash compensation from
stock options 89,162 -- 231,171 321,220
Depreciation and amortization 33,009 64,737 83,330 169,550
(Increase) decrease in accounts
receivable (153,954) 227,279 (241,152) (31,144)
(Increase) decrease in employee
advances 54,290 (1,249) (25,088) 18,690
Decrease in advances to
to stockholders 59,928 -- 56,770 (323,311)
Increase prepaid expenses (10,840) (23,751) (14,031) (24,911)
(Increase) decrease in deposits
and other assets 1,234 -- (12,241) 2,067
Increase decrease in accounts
payable 138,404 471,682 132,701 557,032
(Increase) decrease in accrued
expenses 5,178 (174,937) 83,700 81,619
Increase in client deposit -- -- -- 75,531
Increase in accrued payroll
and taxes 85,678 -- 83,997 (119,924)
--------- --------- ----------- -----------
Net Cash Provided By (Used In)
Operations (435,952) 454,201 (1,405,652) (345,114)
--------- --------- ----------- -----------
Cash Flows from Investing Activities:
Capital lease receivable -- -- (64,460) --
Purchases of furniture and equipment (133,704) (489,937) (186,364) (575,410)
Proceeds on capital lease receivable 5,749 6,350 5,749 18,585
--------- --------- ----------- -----------
Net Cash Used in Investing Activities (127,955) (483,587) (245,075) (556,825)
--------- --------- ----------- -----------
</TABLE>
5
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
---------------------------- ---------------------------
1996 1997 1996 1997
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities:
Proceeds from issuance of common
stock 265,740 52,113 941,615 52,171
Capital contribution -- -- -- 721,537
Proceeds from note payable -- 32,000 779,575 202,000
Conversion of debenture to equity -- (50,000) -- (50,000)
Proceeds from issuance of debentures -- -- -- 150,000
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 246,931 (11,981) 1,695,019 993,240
-------- -------- ---------- --------
Net increase (decrease) in cash (316,976) (41,367) 44,293 91,301
Cash, beginning of period 476,154 182,793 114,885 50,125
-------- -------- ---------- --------
Cash, end of period $159,178 $141,426 $ 159,178 $141,426
-------- -------- ---------- --------
-------- -------- ---------- --------
</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>
Sept. 30, Sept. 30,
1997 1996
---------- ---------
<S> <C> <C>
Furniture $ 105,343 $ 65,148
Computer & Office Equipment 590,764 333,412
Computer Software 512,804 111,929
Leasehold Improvements 9,746 839
---------- ---------
1,218,657 511,328
Less: accumulated depreciation (309,089) (115,503)
---------- ---------
$ 909,568 $ 395,825
---------- ---------
---------- ---------
</TABLE>
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
7
<PAGE>
ELECTRONIC TRANSMISSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
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 in Dallas, Texas, 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.
8
<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 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
$738,041. As the Company had not begun its ongoing operations, a detailed
discussion of comparative results of operations is not meaningful.
9
<PAGE>
Revenues for the quarter ended September 30, 1997 were $1,002,169 and net
loss was $109,560. Principal expenses were personnel costs of approximately
$541,175 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 addition 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 $738,041 and $109,560 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 addition of Electra-Net. Since the
April 1997 addition, 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
$1,178,534. 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 will be due July 17, 1997. The Company renewed and increased its line
of credit to $200,000. The principal plus any unpaid interest was 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 in Dallas, Texas. 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
10
<PAGE>
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.
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, 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 addition 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.
11
<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>
(a) Financial Statements and Exhibits Page
--------------------------------- ----
<S> <C> <C>
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>
12
<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.
13
<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 (Principal
W. Mack Goforth Executive Officer)
/s/ LOUANN C. SMITH Controller (Principal March 13, 1998
- ------------------------ Accounting Officer)
Louann C. Smith
</TABLE>
14
