<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 SEPTEMBER 30, 1999
COMMISSION FILE NO. 22135
ELECTRONIC TRANSMISSION CORPORATION
(Exact Name of Small business Issuer as Specified in Its Charter)
<TABLE>
<CAPTION>
Delaware 0-22135 75-2578619
<S> <C> <C>
(State of other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
<TABLE>
<S> <C>
15301 Spectrum Dr.
Suite 501
Addison, Texas 75001
(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: 10,963,608 shares as of September 30,
1999.
<PAGE> 2
ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------
ASSETS
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 291,189
Accounts Receivable 336,624
Notes Receivable 259,582
Current Portion, Capital Lease Receivable --
Prepaid Assets 79,594
-------------------
Total Current Assets 966,989
-------------------
Property and Equipment, Net 232,511
Other Assets 6,749
-------------------
$ 1,206,249
===================
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 469,437
Notes Payable and Convertible Debentures 92,197
Current Portion, Capital Lease Obligations 9,907
Net Liabilities of Discontinued Operations 213,769
-------------------
Total Current Liabilities 785,310
Long Term Capital Lease Obligations 119,184
-------------------
Total Liabilities 904,494
-------------------
Commitments and Contingencies --
Stockholders' Equity (Deficit):
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; 10,963,608 Shares Issued
And Outstanding 10,965
Additional Paid-In-Capital 8,862,781
Accumulated Deficit (8,571,991)
Accumulated Other Comprehensive Income --
-------------------
Total Stockholders' Equity (Deficit) 301,755
-------------------
$ 1,206,249
===================
</TABLE>
2
<PAGE> 3
ELECTRONIC TRANSMISSION CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS END
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service Revenues $ 654,344 $ 722,962 $ 2,129,564 $ 2,510,907
Cost and Expenses
Cost of Revenues 139,471 321,731 695,371 1,076,416
Selling, General and Administrative 562,758 576,982 1,775,941 1,908,149
Depreciation and Amortization 44,214 99,315 179,139 265,897
----------- ----------- ----------- -----------
Total Cost and Expense 746,443 998,028 2,650,451 3,250,462
----------- ----------- ----------- -----------
Loss from Operations (92,099) (275,066) (520,887) (739,555)
Other Income (Expense)
Interest Expense, Net (10,179) (28,794) (24,113) (50,219)
Gain - Sale of Subsidiary 95,169 -- 95,169 --
Other Income -- 612 -- 83,426
----------- ----------- ----------- -----------
Total Other Income 84,990 (28,182) 71,056 33,207
Net Income (Loss) $ (7,109) $ (303,248) $ (449,831) $ (706,348)
=========== =========== =========== ===========
Loss Per Common Share:
Basic $ (0.00) $ (0.11) $ (0.05) $ (0.28)
=========== =========== =========== ===========
Diluted $ (0.00) $ (0.20) $ (0.05) $ (0.47)
=========== =========== =========== ===========
Weighted Average Common Shares Outstanding
Basic $ 9,307,426 $ 2,556,054 $ 9,307,426 $ 2,556,054
=========== =========== =========== ===========
Diluted $ 8,505,447 $ 1,490,410 $ 8,505,447 $ 1,490,410
=========== =========== =========== ===========
</TABLE>
3
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ELECTRONIC TRANSMISSION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operations:
Net Loss $(449,831) $(706,348)
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 72,452 --
Depreciation and Amortization 179,139 265,897
Changes in Operating Assets and Liabilities:
Accounts Receivable-Trade (155,178) 153,700
Employee Advances -- 1,686
Prepaid Expenses (23,797) (96,460)
Deposits and Other Assets -- (12,200)
Accounts Payable and Accrued Expenses 58,483 (341,864)
--------- ---------
Net Cash Used in Operating Activities (313,030) (735,589)
--------- ---------
Cash Flows from Investing Activities:
Payments on Capital Lease Receivable -- 20,531
Purchases of Furniture and Equipment (96,757) (104,232)
--------- ---------
Net Cash Provided (Used) in Investing Activities (96,757) (83,701)
--------- ---------
Cash Flows from Financing Activities:
Issuance of Notes Payable and Convertible Debentures 388,920 348,340
Payments on Notes Payable and Convertible Debentures (435,717) (119,821)
Payments on Capital Leases Payable (51,391) (21,461)
Payments Received on Note Receivable 64,000 --
Proceeds from Capital Lease -- 37,495
Issuance of Common Stock for Cash 613,125 152,642
--------- ---------
Net Cash Provided (Used) by Financing Activities 578,937 397,195
--------- ---------
Net Increase (Decrease) in Cash 169,150 (422,095)
Cash and Equivalents, Beginning of Period 122,039 548,565
--------- ---------
Cash and Equivalents, End of Period $ 291,189 $ 126,470
========= =========
</TABLE>
4
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ELECTRONIC TRANSMISSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
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
claim 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 concentrated its business on (6)
new clients and the enhancements of its relationship with existing clients, in
particular, 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 interest of the Company at this time. A&G
Financial has become a client of the Company for electronic processing of the
Health Plan Initiatives business. On August 12, 1999, the Company filed a Form
8-K providing more details on the transaction.
NOTE 3 - OFFICE FURNITURE AND EQUIPMENT
The following is a summary of office furniture and equipment:
<TABLE>
<CAPTION>
Sept. 30, 1999 Sept. 30,1998
---------------------- ----------------------
<S> <C> <C>
Furniture $ 141,056 $ 106,111
Computer & Office Equipment 736,565 678,105
Computer Software 161,315 578,561
Leasehold Improvements 16,564 16,562
---------------------- ----------------------
1,055,500 1,379,339
Less: Accumulated Depreciation (822,989) (673,594)
---------------------- ----------------------
$ 232,511 $ 705,745
====================== ======================
</TABLE>
5
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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.
On September 9, 1999, Timothy Powell, Executive Vice President and Chief
Technology Officer (Board Member) was appointed President of the Company while
maintaining his role as Chief Technology Officer.
NOTE 5 - FINANCING ACTIVITIES
In May 1999, the Company authorized an aggregate private equity offering of
$600,000 of its common stock at a price of $0.50. On August 4, 1999, the Board
of Directors increased the amount of the offering to $800,000 at a price of
$0.50 for an investment from $25,000 to $200,000; $0.40 for an investment from
$200,001 to $300,000; and $0.25 for an investment from $300,001 and over. The
price is paid based upon each tier as it is reached and not all at the rate for
the last tier. As of October 31, 1999, 1,500,000 shares have been issued and
$600,000 raised through this private placement. These funds have been used to
pay-off existing debt ($300,000) and provide working capital. 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.
6
<PAGE> 7
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 the management of
the Company.
Results of Operations of the Company
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended September
30, 1998
Revenues. Revenues primarily consist of two major components, automation
and repricing. Revenues from automation services totaled $964,302 and $776,181
for the nine months ended September 30, 1999 and 1998, respectively. Revenues
from repricing totaled $1,056,562 and $1,225,723 for the nine months ended
September 30, 1999 and 1998, respectively. The discontinued TPA division
generated revenues of $39,617 for the nine months ended September 30, 1999
compared to $509,004 for the nine months ended September 30, 1998.
Cost of Revenues. Cost of Revenues primarily consists of two major
components, automation and repricing. Costs of automation services totaled
$272,284 and $504,798 for the nine months ended September 30, 1999 and 1998,
respectively. Costs for the nine months ended September 30, 1999, were comprised
of $165,780 in data entry personnel, $61,032 in imaging fees and $45,472 for
communication expenses. In the nine months ending September 30, 1998, costs
consisted of $311,277 in data entry personnel, $132,833 in imaging fees and
$33,233 in communication expenses. Costs of repricing services were largely made
up of $392,796 and $514,486 in third party network fees for the nine months
ended September 30, 1999 and 1998, respectively.
Gross Profit. Gross profit for the nine months ended September 30, 1999 was
$1,434,193 as compared to $1,434,491 for the nine months ended September 30,
1998. The gross profit margin for the nine months ended September 30, 1999 was
67% versus 57% for 1998.
Other Expenses. Selling, general and administrative costs decreased to
$1,775,941 for the nine months ended September 30, 1999, compared to $1,908,149
for the nine months ended September 30, 1998. Selling, general and
administrative expenses consisted primarily of personnel costs, rent, telephone
and professional fees. For the nine months ended September 30, 1999, total
personnel costs were $1,175,372, total rent costs were $117,751, total telephone
costs were $88,984 and total professional fees were $132,408. For the nine
months ended September 30, 1998, total personnel costs were $1,091,170, total
rent costs were $149,854, total telephone costs were $95,216 and total
professional fees were $138,035.
Net Interest. Net interest expense was $24,113 for the nine months ended
September 30, 1999 compared to $50,219 for the nine months ended September 30,
1998.
Net Loss. The Company incurred a net loss of $449,831 and $706,348 for the
nine months ended September 30, 1999 and 1998, respectively. The Company expects
to incur
7
<PAGE> 8
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 September 30, 1999, Compared to the Quarter Ended
September 1998
Revenues. Revenues primarily consist of two major components, automation
and repricing. Revenues from automation services totaled $428,231 and $235,954
for the quarters ended September 30, 1999 and 1998, respectively. Revenues from
repricing totaled $184,361 and $305,735 for the three months ended September 30,
1999 and 1998, respectively. The Third Part Administration Division (ETC
Administrative Services, Inc.) was discontinued effective December 31, 1998 and
accounted for $0.00 in revenue during the quarter ended September 30, 1999.
Cost of Revenues. Cost of Revenues primarily consists of two major
components, automation and repricing. Costs of automation services totaled
$100,321 and $142,014 for the quarters ended September 30, 1999 and 1998,
respectively. The costs for the third quarter of 1999 were comprised of $64,506
in data entry personnel, $19,017 in imaging fees and $16,798 in communication
expenses. In the third quarter of 1998, these costs consisted of $89,602 in data
entry personnel, $38,161 in imaging fees and $9,855 in communication expenses.
Costs related to repricing activities were comprised primarily of costs of
network services and were largely made up of $8,859 and $160,672 in third party
network fees for the quarters ended September 30, 1999 and 1998, respectively.
Gross Profit. Gross profit for the quarter ended September 30, 1999 was
$514,873 as compared to $401,231 for the quarter ended September 30, 1998. The
gross profit margin for the quarter ended September 30, 1999 and 1998, was 79%
versus 56% for 1998.
Other Expenses. Selling, general and administrative costs decreased to
$562,758 for the quarter ended September 30, 1999, compared to $576,982 for the
quarter ended September 30, 1998. Selling, general and administrative expenses
consisted primarily of personnel costs, rent, telephone and professional fees.
For the quarter ended September 30, 1999, total personnel costs were $380,174,
total rent costs were $41,745, total telephone costs were $31,069, and total
professional fees were $31,247. For the quarter ended September 30, 1998, total
personnel costs were $325,325, total rent costs were $29,511, total telephone
costs were $25,057, and total professional fees were $86,062.
Net Interest. Net interest expense decreased to $10,179 for the quarter
ended September 30, 1999 compared to $28,794 for the quarter ended September 30,
1998.
Net Loss. The Company incurred a net loss of $7,109 and $303,248 for the
quarters ended September 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.
Overall results of operations for the nine months and quarter ended
September 30, 1999, have improved as the result of: 1) expanded marketing
efforts resulting in additional automation clients and increased services
provided to Wal-Mart; 2) discontinuing of Third Party Administration Services;
3) the sale of subsidiary, Health Plan Initiatives; and 4) management's
continued monitoring of operations resulting in overall cost reductions.
8
<PAGE> 9
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 September 30, 1999, the Company had cash and cash
equivalents of approximately $291,189, and working capital of approximately
$181,679. The Company has a note payable in the amounts of $55,718 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 1, 1999 through
October 1999, with a final payment of $55,718 due on November 1, 1999. This note
is in the process of being negotiated to an equity conversion. The Company had a
$500,000 line of credit through Compass Bank. The $300,000 outstanding balance
was retired with proceeds of the private equity offering.
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
development efforts will materially effect the financial condition and results
of operations of the Company for the 2000 fiscal year.
The Company is in the process of securing additional working capital
through equity financing. To date, $600,000 has been raised through a private
equity placement and an additional $100,000 - $150,000 is expected prior to the
closing of the offering on November 22, 1999.
With the securing of additional working capital raise through the private
equity offering, the sale of HPI and continued management scrutiny of
operations, the company's liquidity position has improved and should be adequate
until additional clients are generated and become operational.
ITEM 1 - LEGAL PROCEEDINGS
Robert Fortier, current Chief Executive Officer and Director, is a party to
a suit, Cause No. 98-4481-F, styled A&G Financial Consultants, Inc. et al v.
Lisa Kaplan, Carline 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, Health Plan Initiations, Inc. (HPI), and others alleging conspiracy to
steal customers of MCS. HPI was sold to A&G effective August 12, 1999, which
reverts this lawsuit to involving Mr. Fortier only and should not have an impact
on ETC.
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 for the Company. 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.
Ann C. McDearmon v. Electronic Transmission Corporation, District Court,
Dallas County, Texas CA No. DV 98-3216-H. This lawsuit was filed by the
Plaintiff, Ann C. McDearmon ("McDearmon"), against the Company in the 160th
Judicial District Court of Dallas County, Texas on April 21, 1998. In this
action, McDearmon alleges that the Company
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<PAGE> 10
breached the employment agreement McDearmon had with the Company. McDearmon's
employment terminated March 20, 1998. The Company has disputed that an event has
occurred under McDearmon's employment agreement that would entitle her to the
liquidated damages she has claimed in this action. McDearmon's Original Petition
does not specify the amount of damages McDearmon seeks to recover in the
lawsuit.
Timothy Powell and the Company are named as Defendants in an action pending
in Dallas County, Texas arising from an automobile accident involving Mr. Powell
while on company business. The case is being defended by the Company's and Mr.
Powell's insurance carrier.
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 Chief Financial Officer
and Chief Executive Officer of the Company. Mr. Goforth claims he was terminated
as a result of a change of 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.
Should the Company be required to pay damages as a result of any
litigation, the payment of such damage award may have a material adverse effect
upon its financial condition and results of operations.
ITEM 2 - CHANGES IN SECURITIES
During the quarter ended September 30, 1999, the Company sold 1,500,000
shares from a private equity offering to a limited number of accredited
investors as provided by Rule 506, Regulation D.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
During the quarter ended September 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
Not applicable.
10
<PAGE> 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on August 12, 1999, under item
#2-Disposition of Assets and item #7-pro forma financial statements
for Electronic Transmission Corporation.
11
<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
November 12, 1999 By: /s/ ROBERT FORTIER
-------------------------------------
Robert Fortier, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
November 12, 1999 By: /s/ MICHAEL J. LOVELL
------------------------------------
Michael J. Lovell, Controller
(Principal Accounting Officer)
12
<PAGE> 13
INDEX OF 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 291,189
<SECURITIES> 0
<RECEIVABLES> 596,206
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 966,989
<PP&E> 1,055,500
<DEPRECIATION> 822,989
<TOTAL-ASSETS> 1,206,249
<CURRENT-LIABILITIES> 785,310
<BONDS> 0
0
0
<COMMON> 10,965
<OTHER-SE> 8,862,781
<TOTAL-LIABILITY-AND-EQUITY> 1,206,249
<SALES> 0
<TOTAL-REVENUES> 2,129,564
<CGS> 0
<TOTAL-COSTS> 695,371
<OTHER-EXPENSES> 1,955,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,113
<INCOME-PRETAX> (4,498,317)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,498,317)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
