<PAGE> 1
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 QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission File No. 22135
ELECTRONIC TRANSMISSION CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 0-22135 75-2578619
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5025 Arapaho Road
Suite 501
Dallas, Texas 75248
(Address of principal executive offices) (ZIP Code)
(972) 980-0900
(Registrant's telephone number, including area code)
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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 9,463,608 shares as of June 30, 1999
<PAGE> 2
ELECTRONIC TRANSMISSION CORPORATION
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1999
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 69,859
Accounts receivable 970,296
Notes receivable --
Current portion, capital lease receivable --
Prepaid assets 89,518
-----------
Total current assets 1,129,673
Property and equipment, net 291,324
Investment --
Other assets 374,717
-----------
$ 1,795,714
===========
LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 1,173,128
Notes payable and convertible debentures 558,709
Current portion, capital lease obligations 19,839
Net liabilities of discontinued operations 213,769
-----------
Total current liabilities 1,965,445
Long-term capital lease obligations 121,405
-----------
Total liabilities 2,086,850
-----------
Commitments and contingencies --
Stockholder's equity (deficit):
Preferred stock --
Common stock 9,464
Additional paid-in-capital 8,264,281
Accumulated deficit (8,564,881)
-----------
Total stockholder's equity (deficit) (291,136)
-----------
$ 1,795,714
===========
</TABLE>
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<PAGE> 3
ELECTRONIC TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service revenues $ 829,409 $ 816,934 $ 1,475,220 $ 1,787,945
Cost and Expenses:
Cost of revenues $ 325,809 $ 311,112 $ 555,900 $ 754,686
Selling, general and administrative 600,606 629,438 1,213,183 1,331,167
Depreciation and amortization 74,421 99,425 134,925 166,582
------------ ------------ ------------ ------------
Total cost and expenses 1,000,836 1,039,975 1,904,008 2,252,435
------------ ------------ ------------ ------------
Loss from operations (171,427) (223,041) (428,788) (464,490)
Other income (expense)
Interest expense, net (6,712) (9,564) (13,934) (18,234)
Other income -- 62,651 -- 79,624
------------ ------------ ------------ ------------
Total other income (6,712) 53,087 (13,934) 61,390
Net income (loss) $ (178,139) $ (169,954) $ (442,722) $ (403,100)
============ ============ ============ ============
Loss per common share:
Basic $ (0.02) $ (0.06) $ (0.05) $ (0.14)
============ ============ ============ ============
Diluted $ (0.02) $ (0.06) $ (0.04) $ (0.15)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 9,463,608 2,798,838 9,222,766 2,798,838
============ ============ ============ ============
Diluted 10,507,775 2,712,384 10,301,933 2,712,384
============ ============ ============ ============
</TABLE>
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<PAGE> 4
ELECTRONIC TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operations:
Net loss $ (178,139) $ (169,954) $ (442,722) $ (403,100)
Adjustments to reconcile net loss to
net cash used in operating activities:
Issuance of common stock for interest -- -- 5,702 --
Change in net assets of discontinued operations 77,907 -- 72,452 --
Depreciation and amortization 74,421 99,425 134,925 166,582
Changes in operating assets and liabilities:
Accounts receivable-trade (350,535) 85,584 (387,011) 203,909
Employee advances -- 1,340 -- 578
Prepaid expenses (58,517) (65,158) (33,721) (91,130)
Deposits and other assets -- 7,700 -- (14,360)
Accounts payable and accrued expenses 230,053 (193,905) 323,048 (416,843)
------------- ------------- ------------- -------------
Net cash used in operating activities (204,810) (234,968) (327,327) (554,364)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Payments on capital lease receivable -- 6,842 -- 13,517
Purchases of furniture and equipment (7,706) (11,790) (8,483) (96,254)
------------- ------------- ------------- -------------
Net cash provided (used) in investing
activities (7,706) (4,948) (8,483) (82,737)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Issuance of notes payable and convertible debentures 237,224 301,159 337,224 301,159
Payments on notes payable and convertible debentures (27,950) (39,508) (68,726) (59,670)
Payments on capital leases payable (16,971) (1,089) (39,238) (18,729)
Capital contribution -- 99,906 -- 99,970
Proceeds from capital lease -- 37,066 -- 37,066
Issuance of common stock for cash -- 152 13,125 172
------------- ------------- ------------- -------------
Net cash provided (used) by financing
activities 192,303 397,686 242,385 359,968
------------- ------------- ------------- -------------
Net increase (decrease) in cash (20,213) 157,770 (93,425) (277,133)
Cash and equivalents, beginning of period 90,072 113,662 163,284 548,565
------------- ------------- ------------- -------------
Cash and equivalents, end of period $ 69,859 $ 271,432 $ 69,859 $ 271,432
============= ============= ============= =============
</TABLE>
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<PAGE> 5
ELECTRONIC TRANSMISSION CORPORATION
NOTES TO CONSOLIDATED 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.
In 1998 the Company began providing Third Party Administration services to
claims payors via its wholly owned subsidiary ETC Administrative Services, Inc.
At the end of 1998, it was decided that business would be discontinued and the
Company would focus on its core business of automating claims processing and
repricing. Since January, 1999, the Company has entered into agreements to
provide all or a portion of its core business services to four new clients and
expanded the services it provides to its primary customer, Wal-Mart.
NOTE 2 - CONSOLIDATION
Effective January 31, 1999, the Company completed the acquisition of Health Plan
Initiatives, Inc., a Texas corporation, which became a wholly owned subsidiary
of the Company. The consolidated financial statements include the accounts of
Health Plan Initiatives, Inc. since January 31, 1999. Effective December 31,
1998, the Company discontinued the operations of its Third Party Administrator
(ETC Administrative Services, Inc.). The consolidated financial statements
include the accounts related to the winding up of that business.
On August 12, 1999, the Company sold all of its interest in the stock
of Health Plan Initiatives, Inc. to A&G Financial Consultants, Inc., its
primary customer. Based on a review of the Company's current position in the
market and the belief that a sale would free-up capital to pursue expansion in
its core business of automating claims processing and repricing, the Board of
Directors believed this was in the best interests of the Company at this time.
The Company anticipates filing a Form 8-K providing more details of the
transaction.
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<PAGE> 6
NOTE 3 - OFFICE FURNITURE AND EQUIPMENT
The following is a summary of office furniture and equipment:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
-------------------- --------------------
<S> <C> <C>
Furniture $ 141,056 $ 106,111
Computer & Office Equipment 724,237 678,105
Computer Software 287,099 577,400
Leasehold Improvements 16,564 9,747
-------------------- --------------------
1,168,956 1,371,363
Less: accumulated depreciation (877,632) (574,279)
-------------------- --------------------
$ 291,324 $ 797,084
==================== ====================
</TABLE>
NOTE 4 - SUBSEQUENT EVENTS
On August 4, 1999, Scott A. Stewart resigned as President of the Company. Mr.
Stewart is a partner in the law firm of Horsley & Stewart, which provides
general corporate legal services to the Company. Mr. Stewart remains as a
director of the Company.
Effective July 31, 1999, Brian Schoonmaker, resigned as Chief Operating Officer
and Director of the Company.
NOTE 5 - FINANCING ACTIVITIES
In May 1999, the Company authorized an aggregate private offering of $600,000 of
its common stock at a price of $0.50 per share. Possible uses of the funds would
be to fund new acquisitions, pay-off existing debt and provide working capital.
On August 4, 1999, the Board of Directors increased the amount of the offering
to $800,000. As of August 4, 1999, no stock had been issued. There can be no
assurance that additional capital will be available to or obtained by the
Company.
NOTE 6 - BOARD OF DIRECTORS
Effective May 6, 1999, Scott A. Stewart was elected a Director of the Company.
Effective July 31, 1999, Brian Schoonmaker resigned as a Director of the
Company.
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<PAGE> 7
ELECTRONIC TRANSMISSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Company's Financial Statements and Notes thereto, included elsewhere herein. The
information below should not be construed to imply that the results discussed
herein will necessarily continue into the future or that any conclusion reached
herein will necessarily be indicative of actual operating results in the future.
Such discussion represents only the best present assessment of management of the
Company.
Results of Operations of the Company
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998
Revenues. Revenues from automation services totaled $536,071 and
$530,741 for the six months ended June 30, 1999 and 1998, respectively. Revenues
from repricing totaled $872,201 and $864,026 for the six months ended June 30,
1999 and 1998, respectively. The discontinued TPA division generated revenues of
$ 39,617 for the six months ended June 30, 1999 compared to$393,178 for the six
months ended June 30, 1998.
Cost of Revenues. Costs of automation services totaled $171,963 and
$338,463 for the six months ended June 30, 1999 and 1998, respectively. Costs
for the six months ending June 30, 1999, were comprised of $101,274 in data
entry personnel, $42,015 in imaging fees and $28,674 for communication expenses.
In the six months ending June 30, 1998, costs consisted of $220,395 in data
entry personnel, $94,672 in imaging fees and $18.322 in communication expenses.
Costs of repricing services were largely made up of $383,937 and $353,439 in
third party network fees for the six months ended June 30, 1999 and 1998,
respectively.
Gross Profit. Gross profit for the six months ended June 30, 1999 was
$919,320 as compared to $1,033,259 for the six months ended June 30, 1998. The
gross profit margin for the six months ended June 30, 1999 was 62% versus 58%
for 1998.
Other Expenses. Selling, general and administrative costs decreased to
$1,213,183 for the six months ended June 30, 1999, compared to $1,272,969 for
the six months ended June 30, 1998. Selling, general and administrative expenses
consisted primarily of personnel costs, rent, telephone and professional fees.
For the six months ended June 30, 1999, total personnel costs were $795,198,
total rent costs were $76,006, total telephone costs were $57,915 and total
professional fees were $101,161. For the six months ended June 30, 1998, total
personnel costs were $925,930, total rent costs were $152,700, total telephone
costs were $70,159 and total professional fees were $51,982.
Net interest expense was $13,934 for the six months ended June 30, 1999
compared to $18,234 for the six months ended June 30, 1998.
Net Loss. The Company incurred a net loss of $ 442,722 and $ 403,100
for the six months ended June 30, 1999 and 1998, 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.
For the Quarter Ended June 30, 1999, Compared to the Quarter Ended June 30, 1998
Revenues. Revenues from automation services totaled $277,726 and
$276,289 for the quarters ended June 30, 1999 and 1998, respectively. Revenues
from repricing totaled $524,351 and
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<PAGE> 8
$347,194 for the three months ended June 30, 1999 and 1998, respectively. The
Third Party Administrator division (ETC Administrative Services, Inc.) was
discontinued effective December 31, 1998 and accounted for $-0- in revenue
during the quarter ended June 30, 1999.
Cost of Revenues. Costs of automation services totaled $86,412 and
$159,636 for the quarters ended June 30, 1999 and 1998, respectively. The costs
for the second quarter of 1999 were comprised of $50,070 in data entry
personnel, $17,582 in imaging fees and $18,760 in communication expenses. In the
second quarter of 1998, these costs consisted of $105,783 in data entry
personnel, $45,157 in imaging fees and $8,563 in communication expenses. Costs
related to repricing activities were comprised primarily of costs of network
services and were largely made up of $239,397 and $131,836 in third party
network fees for the quarters ended June 30, 1999 and 1998, respectively.
Gross Profit. Gross profit for the quarter ended June 30, 1999 was
$503,600 as compared to $505,822 for the quarter ended June 30, 1998. The gross
profit margin for the quarter ended June 30, 1999, was 61% verses 62% for 1998.
Other Expenses. Selling, general and administrative costs increased to
$600,606 for the quarter ended June 30, 1999, compared to $578,859 for the
quarter ended June 30, 1998. Selling, general and administrative expenses
consisted primarily of personnel costs, rent, telephone and professional fees.
For the quarter ended June 30, 1999, total personnel costs were $398,209, total
rent costs were $39,360, total telephone costs were $26,767 and total
professional fees were $43,101. For the quarter ended June 30, 1998, total
personnel costs were $393,027, total rent costs were $108,025, total telephone
costs were $29,253 and total professional fees were $43,986.
Net interest expense decreased to $6,712 for the quarter ended
June 30, 1999 compared to $9,564 for the quarter ended June 30, 1998.
Net Loss. The Company incurred a net loss of $178,139 and $169,954 for
the quarters ended June 30, 1999 and 1998, 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
Since its inception, the Company has financed its operations, working
capital needs and capital expenditures principally through private placements of
equity securities. At June 30, 1999, the Company had cash and cash equivalents
of approximately $69,859, and a working capital deficit of approximately
$835,772. The Company has a note payable in the amount of $70,277 bearing
interest at 12% per annum. Payments of principal and interest are due and
payable monthly in the amount of $5,508 for the period January, 1999 through
October, 1999, with a final payment of $55,718 due on November 1, 1999. Health
Plan Initiatives, Inc. has a non-interest bearing note in the principal amount
of $81,869 that is presently due.
The Company has a $500,000 line of credit through Compass Bank. The
Company has an outstanding balance on the line of credit in the amount of
$300,000. Interest on the line of credit is
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<PAGE> 9
paid monthly. Health Plan Initiatives, Inc. has a line of credit with Chase Bank
in the amount of $100,000 with an outstanding balance of $100,000 on June 30,
1999.
Research and development to be performed over the next twelve months
will attempt 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 the 1999 fiscal year.
The Company is currently exploring alternatives for obtaining
additional working capital, including both debt and equity financings and the
sale of assets. In May 1999, the Company authorized an aggregate private
offering of $600,000 of its common stock at a price of $0.50 per share. Possible
uses of the funds would be to fund new acquisitions, pay-off existing debt and
provide working capital. On August 4, 1999, the Board of Directors increased the
amount of the offering to $800,000. As of August 4, 1999, no stock had been
issued. There can be no assurances that additional capital will be available to
or obtained by the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
HPI and Robert Fortier are parties to a suit, Cause No. 98-4481-F,
styled A&G Financial Consultants, Inc. et al v. Lisa Kaplan, Caroline Flipp and
Medical Claims Solutions, Inc. v. Robert Fortier, Health Plan Initiatives, Inc.,
et al v. Medical Claims Solutions, Inc., pending in the 116th Judicial District
Court of Dallas County, Texas. The suit was originally brought by A&G Financial
Services, Inc. against Medical Claims Solutions, Inc. et al (MCS) for
misappropriation of assets and trade secrets and interference with customers.
MCS filed cross-actions against A&G, Robert Fortier, HPI, and others alleging
conspiracy to steal customers of MCS. HPI was a vendor for MCS and has filed a
counterclaim against MCS for approximately $250,000.00 in past due compensation.
HPI and Mr. Fortier deny all of the allegations that have been made against
them. The stock of HPI was acquired by the Company effective January 31, 1999.
On March 10, 1999, the Company filed suit in the 134th Judicial
District Court of Dallas County, Texas. The suit is against a former employee
for overstatement of negotiated savings while working through Electra-Net. The
overstatement resulted in overcompensation of the employee because he was
compensated on a percentage of the savings he negotiated. The suit seeks
recovery of overpayments and other damages.
During the three months ended June 30, 1999, the Company was named as a
party Defendant in a lawsuit in Dallas County, Texas arising from an auto
accident involving an employee of the Company driving an automobile in the
course and scope of their employment. The Company has tendered the defense of
the suit to its insurance carrier.
During the three months ended June 30, 1999, the Company was named as a
party Defendant in a suit filed in the Judicial District Court of Dallas by W.
Mack Goforth, a former
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<PAGE> 10
Chief Financial Officer and Chief Executive Officer of the Company. Mr. Goforth
claims he was terminated as a result of a change in control related to the
acquisition of Health Plan Initiatives, Inc. The Company terminated Mr. Goforth
in October, 1998, for several reasons unrelated to the acquisition of Health
Plan Initiatives, Inc. It is the position of the Company that termination was
for cause under Mr. Goforth's employment agreement with the Company. The suit
seeks monetary damages for back pay and other sums.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended June 30, 1999, the Company authorized the
issuance of 100,000 shares of common stock and options to purchase 300,000
shares of common stock at a strike price of $0.4375 per share to Ken Andrew as
full compensation for past services of any nature and for providing investment
banking and investor relations services for an additional five years.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the quarter ended June 30, 1999, the Company did not receive any
notice of default of any of its obligation to pay any of its senior securities.
ITEM 4. SUBMISSION OF MATTERS TO SHAREHOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
On May 6, 1999 Scott A. Stewart was appointed President of the Company
and as a member of the Board of Directors. Mr. Stewart previously served on the
Board of Directors of the Company from December, 1997, until December, 1998. Mr.
Stewart is a partner in the law firm of Horsley & Stewart which provides general
corporate legal services to the Company. Mr. Stewart resigned from the position
of President as of August 4, 1999. Mr. Stewart remains on the Board of
Directors.
Effective July 31, 1999, Brian Schoonmaker resigned as Chief Operating
Officer of the Company and as a member of the Board of Directors.
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<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Financial Statements and Exhibits Page Page
<S> <C>
1. Financial Statements. The following financial statements
are submitted as a part of this report:
Balance Sheet - June 30, 1999 1
Statements of Operations - Three months ended and
Six months ended June 30, 1999 and 1998 2
Statements of Cash Flows - Three months ended and
Six months ended June 30, 1999 and 1998 3
Notes to Financial Statements 4
</TABLE>
2. Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
An amended report on Form 8-K was filed by the Company on April
15, 1999, providing audited financial information and consolidated pro
forma financial information relating to the Health Plan Initiatives,
Inc. acquisition.
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<PAGE> 12
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
August 14, 1999 By: /s/ Robert Fortier
-------------------------------
Robert Fortier, Chairman, Chief
Executive Officer, and Director
(Principal Executive Officer)
August 14, 1999 By: /s/ Michael Lovell
-------------------------------
Michael Lovell, Controller
(Principal Accounting Officer)
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<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
- -------------- -----------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 69,859
<SECURITIES> 0
<RECEIVABLES> 970,296
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,129,673
<PP&E> 1,168,956
<DEPRECIATION> 877,632
<TOTAL-ASSETS> 1,795,714
<CURRENT-LIABILITIES> 1,965,445
<BONDS> 0
0
0
<COMMON> 9,464
<OTHER-SE> 8,264,281
<TOTAL-LIABILITY-AND-EQUITY> 1,795,714
<SALES> 0
<TOTAL-REVENUES> 1,475,220
<CGS> 0
<TOTAL-COSTS> 555,900
<OTHER-EXPENSES> 1,348,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,934
<INCOME-PRETAX> (442,722)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (442,722)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.04)
</TABLE>
