<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 March 31, 2000
Commission File No. 22135
ELECTRONIC TRANSMISSION CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 0-22135 75-2578619
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
15301 Spectrum Drive
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: 11,336,178 shares as of March 31,
2000.
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PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March
2000
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 115,890
Accounts receivable 296,845
Current portion, notes receivable 109,122
Prepaid assets 23,441
-----------
Total current assets 545,298
-----------
Property and equipment, net 200,222
Other assets:
Deposits 6,749
Note receivable 48,774
-----------
$ 801,043
===========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 404,505
Notes payable and convertible debentures 55,718
Current portion, capital lease obligations 61,380
Net liabilities of discontinued operations 254,635
-----------
Total current liablilites 776,238
Long-term capital lease obligations 63,885
-----------
Total liabilities 840,123
-----------
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; 11,336,178 shares issued
and outstanding 11,337
Additional paid-in-capital 9,215,503
Accumulated deficit (9,265,920)
-----------
Total stockholders' equity (deficit) (39,080)
-----------
$ 801,043
===========
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ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Service revenues $ 618,651 $ 606,195
Cost and Expenses:
Cost of revenues 133,245 230,091
Selling, general and administrative 503,576 604,623
Depreciation and amortization 39,040 60,504
------------ ------------
Total cost and expenses 675,861 895,218
------------ ------------
Loss from operations (57,210) (289,023)
Other income (expense)
Interest income (expense), net 2,884 (7,222)
Other income 22,328 --
------------ ------------
Total other income 25,212 (7,222)
Loss from continuing operations (31,998) (296,245)
Gain (loss) from discontinued operations -- 31,662
------------ ------------
Net loss $ (31,998) $ (264,583)
============ ============
Loss per common share:
Basic $ -- $ (0.04)
============ ============
Diluted $ -- $ (0.04)
============ ============
Weighted average common shares outstanding:
Basic 11,336,178 7,461,534
============ ============
Diluted 10,819,626 6,642,928
============ ============
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ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
------------ --------------
<S> <C> <C>
Cash flows from operations:
Net loss $ (31,998) $(264,583)
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 17,900 (5,455)
Depreciation and amortization 39,040 60,504
Changes in operating assets and liabilities:
Accounts receivable-trade (22,807) (36,476)
Employee advances -- --
Prepaid expenses 21,935 24,796
Deposits and other assets -- --
Accounts payable and accrued expenses (63,676) 92,995
--------- ---------
Net cash used in operating activities (39,606) (122,517)
--------- ---------
Cash flows from investing activities:
Receipts on note receivable 25,624 --
Purchases of furniture and equipment (18,243) (777)
--------- ---------
Net cash provided (used) in investing activities 7,381 (777)
--------- ---------
Cash flows from financing activities:
Issuance of notes payable and convertible debentures -- 100,000
Payments on notes payable and convertible debentures -- (40,776)
Payments on capital leases payable (1,950) (22,267)
Issuance of common stock for cash -- 13,125
--------- ---------
Net cash provided (used) by financing activities (1,950) 50,082
--------- ---------
Net increase (decrease) in cash (34,175) (73,212)
Cash and equivalents, beginning of period 150,065 163,284
--------- ---------
Cash and equivalents, end of period $ 115,890 $ 90,072
========= =========
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ELECTRONIC TRANSMISSION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The 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.
On August 12, 1999, the Company sold all of its interest in the stock of Health
Plan Initiative, 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 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 the time. The sale of Health Plan
Initiatives, Inc. resulted in a gain of $17,097 for the Company. A&G Financial
has become a client of the Company for electronic processing for 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:
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<CAPTION>
March 31, 2000 March 31, 1999
<S> <C> <C>
Furniture $ 117,259 $ 128,407
Computer & Office Equipment 805,181 729,675
Computer Software 164,784 286,611
Leasehold Improvements 16,564 16,564
----------- -----------
$ 1,103,788 $ 1,161,257
----------- -----------
Less: accumulated depreciation (903,566) (818,582)
----------- -----------
$ 200,222 $ 342,675
=========== ===========
</TABLE>
2
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NOTE 4 - SUSBSEQUENT EVENTS
In March 2000 Robert Fortier, CEO, voluntarily reduced his salary through 2000
to $14,500 per month and agreed to receive seven per cent of retained revenues,
as defined, in excess of $100,000 per month, unless such payment causes a loss
in that month. Mr. Fortier further agreed that in no event would the combined
total of the revenue allocation and reduced fixed salary exceed the pre
voluntary reduction amount.
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
Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31,
1999.
Revenues. Revenues primarily consist of two major components,
automation and repricing. Revenues from automation services totaled $522,636 and
$258,345 for the three months ended March 31, 2000 and 1999, respectively.
Revenues from repricing totaled $96,015 and $347,850 for the three months ended
March 31, 2000 and 1999, respectively. The discontinued TPA division generated
revenues of $ 39,617 for the three months ended March 31, 1999. Automation
revenues increased as the result of ten additional clients and increase in
activity of existing clients. Repricing revenues decreased primarily as the
result of the sale of Health Plan Initiatives, Inc. and re-focus to automation.
Cost of Revenues. Cost of Revenues consist of two major components,
automation and repricing. Costs of automation services totaled $128,206 and
$85,551 for the three months ended March 31, 2000 and 1999, respectively. The
costs for the three months ended March 31, 2000 were comprised of $72,649 in
data entry personnel, $52,235 in imaging fees and $3,322 for communication
expenses. In the three months ended March 31, 1999, these costs consisted of
$51,204 in data entry personnel, $24,433 in imaging fees and $ 9,914 in
communication expenses. Costs of repricing services were made up of $5,039 and
$144,540 in third party network fees for the three months ended March 31, 2000
and 1999, respectively.
The significant reduction in the cost of repricing revenue; $5,039 in
2000 and $144,540 in 1999, is a result of two components. Following the sale of
Health Plan Initiatives, the Company no longer paid for access to health care
networks for the purpose of repricing claims. The access fees to reprice
accounted for 41.55% of repricing revenue in 1999. There were miscellaneous
access expenses of 5.25% of revenue in 2000. Secondly, repricing revenue is
currently generated from sources that do not require access charges. In certain
instances, the Company performs stand alone repricing services for a straight
fee for a customer who arranges for and pays their own access charges. More
3
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significantly, however, the majority of the repricing revenue generated for the
period through March 31, 2000, comes from out of network reimbursement
adjustments using a fee schedule developed by the Company for which no access
fees are payable and for which the Company receives a percentage of savings.
Gross Profit. Gross profit for the three months ended March 31, 2000
was $485,406 as compared to $376,104 for the three months ended March 31, 1999.
The gross profit margin for the three months ended March 31, 2000 was 78% versus
62% for 1999. Gross profit increased because of efficiency in operations and the
cost of automation revenues is less than that of repricing revenues because the
cost for the automation process is fixed and repricing revenues are impacted by
the high costs of network access fees, over which the Company has little or no
control.
Other Expenses. Selling, general and administrative costs decreased to
$503,576 for the three months ended March 31, 2000, compared to $604,623 for the
three months ended March 31, 1999. Selling, general and administrative expenses
consisted primarily of personnel costs, rent, insurance and professional fees.
For the three months ended March 31, 2000, total personnel costs were $341,000,
total rent costs were $33,341, total insurance costs were $23,567 and total
professional fees were $44,036. For the three months ended March 31, 1999, total
personnel costs were $393,395, total rent costs were $36,646, total insurance
costs were $21,920 and total professional fees were $58,060. Decrease in
selling, general and administrative cost for the period ended March 31, 2000 is
due to the sale of Health Plan Initiatives, Inc. and management's continued
monitoring of operations.
Net Loss. The Company incurred a net loss of $31,998 and $264,583 for
the three months ended March 31, 2000 and 1999 respectively. The Company expects
future periods to generate 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, 2000, the Company had cash and cash equivalents
of $115,890, and working capital deficit of $230,940. The Company has a
convertible debenture in the amount of $55,718 bearing interest at 12% per
annum. Payments of principal and interest were 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. The Company is attempting to
convert this convertible debenture into equity.
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 2000 fiscal year.
The Company continues to review its cost structure and accessing a possible
reduction in the fixed cost portion of its infrastructure. The Company intends
to increase revenues by expanding its
4
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customer base and increase service to existing customers. The Company continues
to enhance its productivity through software improvements. The Company believes
that the net proceeds from the existing liquidity sources and the anticipated
working capital provided from improved operations, will satisfy its cash
requirements for the 2000 fiscal year.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a party Defendant in a suit brought by W.
Mack Goforth, former CFO/CEO of the Company. Mr. Goforth claims he was
terminated as a result of a change in control related to the acquisition/merger
with Health Plan Initiatives, Inc. The Company terminated Mr. Goforth in
October, 1998 for reasons unrelated to the ETC/HPI transaction. It is the
position of the Company that the reasons for the termination were such that the
termination was for cause under Mr. Goforth's employment agreement with the
Company. The suit is pending in Dallas County, Texas.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of 2000.
5
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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 10, 2000 By: /s/ ROBERT FORTIER
----------------------------------
Robert Fortier, Chairman, Chief Executive
Officer, and Director (Principal Executive
Officer)
May 10, 2000 By: /s/ MICHAEL J. LOVELL
----------------------------------
Michael J. Lovell, Controller (Principal
Accounting Officer)
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ACCOUNTANTS' REVIEW REPORT
Board of Directors
of Electronic Transmission Corporation and Subsidiary:
We have reviewed the accompanying balance sheets of Electronic Transmission
Corporation and Subsidiary as of March 31, 2000, and the related statements of
income and members' equity and cash flows for the three months then ended. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the America
Institute of Certified Public Accountants. A review of interim financial
information consists principally of analytical procedures applied to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
Jackson & Rhodes P.C.
Dallas, Texas
May 5, 2000
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 115,890
<SECURITIES> 0
<RECEIVABLES> 454,741
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 545,298
<PP&E> 1,103,788
<DEPRECIATION> 903,566
<TOTAL-ASSETS> 801,043
<CURRENT-LIABILITIES> 776,238
<BONDS> 0
0
0
<COMMON> 11,337
<OTHER-SE> 9,215,503
<TOTAL-LIABILITY-AND-EQUITY> 801,043
<SALES> 618,651
<TOTAL-REVENUES> 618,651
<CGS> 133,245
<TOTAL-COSTS> 675,861
<OTHER-EXPENSES> (22,328)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,884)
<INCOME-PRETAX> (31,998)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,998)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,998)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
