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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 MARCH 31, 1999
Commission File No. 22135
ELECTRONIC TRANSMISSION CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
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)
</TABLE>
(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 March 31, 1999
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ELECTRONIC TRANSMISSION CORPORATION
-----------------------------------
PART I - FINANCIAL INFORMATION
------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
ASSETS
----------
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<CAPTION>
March 31, 1999
------------------
<S> <C>
Current Assets:
Cash and cash equivalents $ 90,072
Accounts receivable, Trade 617,344
Note receivable ---
Capital lease receivable 2,417
Prepaid assets 31,001
--------------
Total Current Assets 740,834
--------------
Property and Equipment, net 342,675
--------------
Other Assets 384,391
--------------
Total Assets $ 1,467,900
==============
Current Liabilities:
Accounts payable $ 944,420
Notes payable and Convertible Debentures 342,644
Current portion, capital lease obligations 27,382
Net liabilities of discontinued operations 135,862
--------------
Total Current Liabilities 1,450,308
Long-term capital lease obligations 130,835
--------------
Total Liabilities $1,581,143
--------------
Stockholders' equity:
Preferred stock, $1 par value, 2,000,000 shares
authorized; no shares issued and outstanding --
Common stock, $.001 par value, 20,000,000
shares authorized; 9,339,733 shares issued
and outstanding 9,464
Additional paid-in-capital 8,264,281
Accumulated deficit (8,386,988)
--------------
Total Stockholders' Equity (113,243)
--------------
Total Liabilities & Stockholders' Equity $1,467,900
==============
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ELECTRONIC TRANSMISSION CORPORATION
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------
(Unaudited)
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<CAPTION>
Three Months Ended March 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Service revenues $ 645,811 $ 971,011
Costs and expenses:
Costs of revenues 230,091 443,574
Selling, general and administrative 612,577 701,729
60,504 67,157
---------------- ----------------
Total Costs and Expenses 903,172 1,212,460
---------------- ----------------
Loss from operations (257,361) (241,449)
Other Income (Expense):
Interest expense, net (7,222) (8,670)
Other income - 16,973
---------------- ----------------
Total Other Income (7,222) 8,303
---------------- ----------------
Net loss $ (264,583) $ (233,146)
================ ================
Loss per common share:
Basic $ (0.03) $ (0.02)
================ ================
Diluted $ (0.03) $ (0.07)
================ ================
Weighted average common shares outstanding:
Basic 8,981,923 14,305,469
================ ================
Diluted 10,096,090 14,305,469
================ ================
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ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
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<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------------ ----------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 4,926,024 $ 4,927 $ 7,793,590 $ (7,327,080) $ 471,437
Merger with Health Plan
Initiatives, Inc. 3,538,306 3,538 293,462 - 297,000
Issuance of shares for cash 105,000 105 13,020 - 13,125
Conversion of debt 580,027 580 164,449 - 165,029
Balance due-debt conversion 50,000 50 (50) - -
Issuance of shares for services 75,000 75 - 75
Issuance of shares for non-dilution -
clause and forbearance agreement 651,751 652 (652) - -
Cancellation of shares (462,500) (463) 463 - -
Net loss - - - (247,783) (247,783)
------------ ----------- -------------- --------------- ------------
Balance at March 31, 1999 9,463,608 9,464 8,264,282 (7,574,863) 698,883
</TABLE>
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ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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<CAPTION>
1999 1998
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Cash flows from operations:
Net loss $ (264,583) $ (233,146)
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 (5,455) --
Depreciation and amortization 60,504 67,157
Changes in operating assets and liabilities:
Accounts receivable-trade (36,476) (117,625)
Employee advances -- (4,250)
Prepaid expenses 24,796 (25,972)
Deposits and other assets -- (18,572)
Accounts payable and accrued expenses 92,995 27,624
------------ ------------
Net cash used in operating activities (122,517) (304,784)
------------ ------------
Cash flows from investing activities:
Payments on capital lease receivable -- 6,674
Purchases of furniture and equipment (777) (84,464)
------------ ------------
Net cash provided (used) in investing activities (777) (77,790)
------------ ------------
Cash flows from financing activities:
Issuance of notes payable and convertible debentures 100,000 --
Payments on notes payable and convertible debentures (40,776) (25,522)
Payments on capital leases payable (22,267) (26,890)
Capital contribution -- --
Issuance of common stock for cash 13,125 83
------------ ------------
Net cash provided (used) by financing activities 50,082 (52,329)
------------ ------------
Net increase (decrease) in cash (73,212) (434,903)
Cash and equivalents, beginning of period 163,284 548,565
------------ ------------
Cash and equivalents, end of period $ 90,072 $ 113,662
============ ============
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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.
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.
NOTE 3 - OFFICE FURNITURE AND EQUIPMENT
The following is a summary of office furniture and equipment:
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<CAPTION>
March 31, 1998 March 31, 1999
-------------------- -------------------
<S> <C> <C>
Furniture $ 106,111 $ 128,407
Computer & Office Equipment 678,494 749,675
Computer Software 565,221 286,611
Leasehold Improvements 9,747 16,564
-------------------- -------------------
1,359,572 1,161,257
Less: accumulated depreciation (475,867) (818,582)
-------------------- -------------------
$ 883,705 $ 342,675
==================== ===================
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NOTE 4 - SUBSEQUENT EVENTS
On May 6, 1999, Scott A. Stewart was appointed President of the Company and
appointed 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.
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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
For the Quarter Ended March 31, 1999 Compared to the Quarter Ended March 31,
1998
Revenues. Revenues from automation services totaled $258,345 and
$255,384 for the quarters ended March 31, 1999 and 1998, respectively. Revenues
from repricing totaled $347,850 and $508,972 for the three months ended March
31, 1999 and 1998, respectively. The Third Party Administrator division (ETC
Administrative Services, Inc.) was discontinued effective December 31, 1998 and
accounted for $39,617 in revenue during the quarter ended March 31, 1999.
Cost of Revenues. Costs of automation services totaled $85,551 and
$188,827 for the quarters ended March 31, 1999 and 1998, respectively. The costs
for the first quarter of 1999 were comprised of $ 51,204 in data entry
personnel, $24,433 in imaging fees and $9,914 in communication expenses. In the
first quarter of 1998, these costs consisted of $106,311 in data entry
personnel, $49,515 in imaging fees and $9,759 in communication expenses. Costs
related to repricing activities were comprised primarily of costs of network
services and were largely made up of $144,540 and $221,603 in third party
network fees for the quarters ended March 31, 1999 and 1998, respectively.
Gross Profit. Gross profit for the quarter ended March 31, 1999 was
$415,720 as compared to $527,437 for the quarter ended March 31, 1998. The gross
profit margin for the quarter ended March 31, 1999, was 64% verses 54% for 1998.
Others Expenses. Selling, general and administrative costs decreased to
$612,577 for the quarter ended March 31, 1999, compared to $701,729 for the
quarter ended March 31, 1998. Selling, general and administrative expenses
consisted primarily of personnel costs, rent, telephone and professional fees.
For the quarter ended March 31, 1999, total personnel costs were $396,989, total
rent costs were $36,646, total telephone costs were $31,148 and total
professional fees were $58,060. For the quarter ended March 31, 1998, total
personnel costs were $527,904, total rent costs were $43,373, total telephone
costs were $40,906 and total professional fees were $7,223. Professional fees
were primarily incurred in connection with the acquisition of Health Plan
Initiatives, Inc., year-end audit and legal matters.
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Net interest expense decreased to $7,222 for the quarter ended March
31, 1999 compared to $8,670 for the quarter ended March 31, 1998.
Net Loss. The Company incurred a net loss of $264,583 and $233,146 for
the quarters ended March 31, 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 March 31, 1999, the Company had cash and cash equivalents
of approximately $90,072, and a working capital deficit of approximately
$709,474. The Company has a note payable in the amount of $84,408 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
$100,000. Interest on the line of credit is 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 $74,764 on March 31, 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. However, at this time, the Company has not entered into any
agreements to obtain additional capital and 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,
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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.
ITEM 2. CHANGES IN SECURITIES
The Company converted all of the outstanding principal and interest
($120,029) related to the indebtedness to TDC Partners, Inc. in exchange for
400,027 shares of common stock of the Company and a warrant to purchase up to
120,029 shares of common stock of the Company at a strike price of $1.00/share.
On February 16, 1999, Ken Andrew exercised 105,000 options at a strike
price of $0.125.
In January, 1999, the Company issued 50,000 and 25,000 shares of common
stock, respectively, to two new executive employees as employment incentives.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the quarter ended March 31, 1999, the Company received a notice
of default of its obligation to pay Missions Society International. Missions
Society is the holder of a convertible debenture in the original principal
amount of $100,000. Missions Society previously determined that it will not
convert this indebtedness and the Company negotiated repayment terms calling for
payments of $5,508 per month for the period January, 1999 through October, 1999
with a final payment of $55,718 due and payable on November 1, 1999. The Company
has paid all past due installments and is presently current on this obligation.
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 appointed 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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits Page
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Page
1. Financial Statements. The following financial statements
are submitted as a part of this report:
Balance Sheet - March 31, 1999 2
Statements of Operations - Quarters Ended March 31, 1999 and 1998 3
Statement of Stockholders' Equity - Quarter Ended March 31, 1999 4
Statements of Cash Flows - Quarters Ended March 31, 1999 and 1998 5
Notes to Financial Statements 6
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<CAPTION>
2. Exhibits.
<S> <C>
Exhibit Number Description of Exhibits
-------------- -----------------------
(2) Agreement and Plan of Reorganization, heretofore
filed as Exhibit (2) to the Company's Form 8-K filed with the
Securities and Exchange Commission on February 16, 1999, is
incorporated herein by reference.
(10) Employment Agreement, heretofore filed as Exhibit
(10) to the Company's Form 8-K filed with the Securities and
Exchange Commission on February 16, 1999, is incorporated
herein by reference.
(10.1) Registration Rights Agreement, heretofore filed as Exhibit
(10) to the Company's Form 8-K filed with the Securities and
Exchange Commission on February 16, 1999, is incorporated
herein by reference.
(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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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
May 14, 1999 By: /s/ Robert Fortier
---------------------------------------------
Robert Fortier, Chairman, Chief Executive
Officer, and Director (Principal Executive
Officer)
May 14, 1999 By: /s/ Brian Schoonmaker
---------------------------------------------
Brian Schoonmaker, Chief Operating Officer
(Principal Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
(2) Agreement and Plan of Reorganization, heretofore
filed as Exhibit (2) to the Company's Form 8-K filed with the
Securities and Exchange Commission on February 16, 1999, is
incorporated herein by reference.
(10) Employment Agreement, heretofore filed as Exhibit
(10) to the Company's Form 8-K filed with the Securities and
Exchange Commission on February 16, 1999, is incorporated
herein by reference.
(10.1) Registration Rights Agreement, heretofore filed as Exhibit
(10) to the Company's Form 8-K filed with the Securities and
Exchange Commission on February 16, 1999, is incorporated
herein by reference.
(27.1) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001017586
<NAME> ELECTRONIC TRANSMISSION CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 90,072
<SECURITIES> 0
<RECEIVABLES> 617,344
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 740,834
<PP&E> 1,161,257
<DEPRECIATION> 818,582
<TOTAL-ASSETS> 1,467,900
<CURRENT-LIABILITIES> 1,450,308
<BONDS> 0
0
0
<COMMON> 9,464
<OTHER-SE> 8,264,281
<TOTAL-LIABILITY-AND-EQUITY> 1,467,900
<SALES> 0
<TOTAL-REVENUES> 645,811
<CGS> 0
<TOTAL-COSTS> 230,091
<OTHER-EXPENSES> 673,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,222
<INCOME-PRETAX> (264,583)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (264,583)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
