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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 September 30, 2000
Commission File No. 22135
ELECTRONIC TRANSMISSION CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
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<S> <C> <C>
Delaware 0-22135 75-2578619
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
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15301 Spectrum Drive
Suite 501
Addison, Texas 75001
(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: 11,349,678 shares as of September 30,
2000.
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
September 30,
2000
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ASSETS
Current assets:
Cash and cash equivalents $ 74,974
Accounts receivable 303,312
Current portion, notes receivable 113,745
Prepaid assets 72,040
---------------
Total current assets 564,071
Property and equipment, net 154,111
Other assets:
Deposits 6,749
---------------
$ 724,931
===============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 411,108
Notes payable and convertible debentures 47,718
Current portion, long-term debt 124,389
Net liabilities of discontinued operations 254,635
---------------
Total current liablilites 837,850
Long-term debt 115,520
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Total liabilities 953,370
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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: 11,349,678 shares issued
and outstanding 11,350
Additional paid-in-capital 9,219,390
Accumulated deficit (9,459,179)
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Total stockholders' equity(deficit) (228,439)
---------------
$ 724,931
===============
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ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service revenues $ 691,820 $ 654,344 $ 1,955,967 $ 2,089,947
Cost and Expenses:
Cost of revenues $ 213,799 $ 139,471 $ 519,244 $ 701,716
Selling, general and administrative 470,926 562,758 1,471,510 1,767,826
Depreciation and amortization 28,427 44,214 100,910 173,367
------------ ------------ ------------ ------------
Total cost and expenses 713,152 746,443 2,091,664 2,642,909
------------ ------------ ------------ ------------
Loss from operations (21,332) (92,099) (135,697) (552,962)
Other income (expense)
Interest expense, net (1,104) (10,179) 4,491 (24,113)
Legal settlement expense (118,279) -- (118,279) --
Other income -- 95,169 24,227 95,169
------------ ------------ ------------ ------------
Total other income (expense) (119,383) 84,990 (89,561) 71,056
Loss from continuing operations (140,715) (7,109) (225,258) (481,906)
Gain (loss) from discontinued operations -- -- -- 32,075
------------ ------------ ------------ ------------
Net Loss $ (140,715) $ (7,109) $ (225,258) $ (449,831)
============ ============ ============ ============
Loss per common share:
Basic $ (0.01) $ -- $ (0.02) $ (0.05)
============ ============ ============ ============
Diluted $ (0.01) $ -- $ (0.02) $ (0.06)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 11,342,485 9,307,426 11,342,485 9,307,426
============ ============ ============ ============
Diluted 10,221,441 8,505,447 10,221,441 8,505,447
============ ============ ============ ============
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ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
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Nine Months Ended
September 30,
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2000 1999
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Cash flows from operations:
Net loss $(225,258) $(449,831)
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 72,452
Depreciation and amortization 100,910 179,139
Changes in operating assets and liabilities:
Accounts receivable-trade (29,274) (155,178)
Prepaid expenses (26,664) (23,797)
Legal settlement payable 118,279 --
Accounts payable and accrued expenses (57,073) 58,483
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Net cash used in operating activities (101,180) (313,030)
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Cash flows from investing activities:
Receipts on note receivable 69,775 64,000
Purchases of furniture and equipment (34,002) (96,757)
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Net cash provided (used) in investing activities 35,773 (32,757)
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Cash flows from financing activities:
Issuance of notes payable and convertible debentures -- 388,920
Payments on notes payable and convertible debentures (8,000) (435,717)
Payments on capital leases payable (5,584) (51,391)
Issuance of common stock for cash 3,900 613,125
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Net cash provided (used) by financing activities (9,684) 514,937
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Net increase (decrease) in cash (75,091) 169,150
Cash and equivalents, beginning of period 150,065 122,039
--------- ---------
Cash and equivalents, end of period $ 74,974 $ 291,189
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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. 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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September 30, September 30,
2000 1999
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Furniture $ 117,260 $ 141,056
Computer & Office Equipment 813,370 736,565
Computer Software 172,355 161,315
Leasehold Improvements 16,565 16,564
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$1,119,550 $1,055,500
Less: accumulated depreciation (965,439) (822,989)
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$ 154,111 $ 232,511
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NOTE 4 - SUBSEQUENT EVENTS
On August 25, 2000 the Board of Directors voted to remove Robert Fortier
from the position as Chairman of the Board and place Mr. Fortier on
administrative leave from his duties as Chief Executive Officer. Mr. Fortier
remains as a Director of the Company.
On September 7, 2000 the Board of Directors voted to terminate Mr.
Fortier for cause under his employment contract. In addition, the Board of
Directors voted to bring suite against Mr. Fortier, alleging fraud in connection
with the sale of Health Plan Initiatives, Inc., a company owned by Mr. Fortier,
to Electronic Transmission Corporation in January, 1999. Mr. Fortier remains as
a Director of the Company.
On October 14, 2000, the Company settled a lawsuit filed by a former
officer of the Company. The settlement calls for the Company to pay the former
officer an aggregate of $132,000 in varying payments through February 2003. The
Company has accrued the present value of these payments to $118,279 and has
reflected that amount as other expense in the accompanying statement of
operations for the three and nine months ended September 30, 2000.
NOTE 5- BOARD OF DIRECTORS
On August 31, 2000, Mr. Richard Hershey and Mr. Duncan Macdonald resigned
from the Board of Directors citing increased personal and professional demands
on their time.
On September 27, 2000, Mr. John Bassett of Houston, Texas was elected a
Director of the Company.
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
Nine Months Ended September 30, 2000 Compared to the Nine Months Ended September
30, 1999.
Revenues. Revenues consist of two components, automation and repricing.
Automation revenues totaled $1,666,013 and $1,033,385 for the nine months ended
September 30, 2000 and 1999, respectively. Revenues from repricing totaled
$289,954 and $1,056,562 for the nine months ended September 30, 2000 and 1999,
respectively. The discontinued TPA division generated runoff revenues of $39,617
for the nine months ended September 30, 1999. Automation revenues increased
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(61.22%) as the result of ten additional clients and an activity increase in
existing clients. Repricing revenues decreased (72.56%) primarily as the result
of the sale of Health Plan Initiatives, Inc. The first nine months total
revenues of $1,955,967 is down from the same period in 1999 of $2,089,947
(6.41%).
Cost of Revenues. Two elements comprise the Cost of Revenues, automation
and repricing. Costs of automation services totaled $514,205 and $302,575 for
the nine months ended September 30, 2000 and 1999, respectively. For the nine
months ended September 30, 2000 automation costs consisted of $262,595 for data
entry, $214,244 for imaging, $28,412 for cost of equipment sold and $8,954 for
communications. For the nine months ended September 30, 1999, these costs were
$165,780 for data entry, $61,032 for imaging, $30,291 for cost of equipment sold
and $45,472 in communication. Third party network access fees made up of $5,039
and $399,141 for the nine months ended September 30, 2000 and 1999, respectively
made up the repricing cost of revenues.
The significant reduction in the cost of repricing revenue; $5,039 in 2000
and $399,141 in 1999, is a result of two factors. Following the sale of Health
Plan Initiatives, the Company no longer paid for access to health care networks
for the purpose of repricing claims. These access fees accounted for 37.78% of
repricing revenue in 1999. There were miscellaneous access expenses of 1.74% of
revenue in 2000. Secondly, repricing revenue is currently generated from
internal sources and on a transaction basis that does not require access
charges. The majority of repricing revenue generated for the period through
September 30, 2000 comes from reimbursement adjustments using fee schedules
developed by the Company for which no access fees are payable.
Gross Profit. Gross profit for the nine months ended September 30, 2000 was
$1,436,723 (up 3.5%) as compared to $1,388,231 for the nine months ended
September 30, 1999. The gross profit margin for the nine months ended September
30, 2000 was 73.5% versus 66.4% for 1999. Gross profit increased because of
efficiency in operations.
Other Expenses. Selling, general and administrative costs decreased to
$1,471,510 (down 16.76%) for the nine months ended September 30, 2000, compared
to $1,767,826 for the nine months ended September 30, 1999. Selling, general and
administrative expenses consisted primarily of personnel costs, rent, insurance
and professional fees. For the nine months ended September 30, 2000, total
personnel costs were $1,043,975 (down 10.91%), total rent costs were $99,177
(down 14.20%), total insurance costs were $79,733 (up 59.48%) and total
professional fees were $107.341 (down 18.93%). For the nine months ended
September 30, 1999, total personnel costs were $1,175,372, total rent costs were
$115,592, total insurance costs were $49,997 and total professional fees were
$132,408. Decrease in selling, general and administrative cost for the period
ended September 30, 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 $225,258 and $449,831 for the
nine months ended September 30, 2000 and 1999 respectively (a reduction of
$224,573 or 49.92%). The Company expects future periods to generate sufficient
revenues from an expanded client base to offset ongoing operating costs and
expansion expenses.
For the Quarter Ended September 30, 2000, Compared to the Quarter Ended
September 30, 1999.
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Revenues. Revenues consist of two components, automation and repricing.
Automation revenues totaled $598,136 and $469,983 for the quarters ended
September 30, 2000 and 1999 respectively. Revenues from repricing totaled
$93,684 and $184,361 for the quarters ended September 30, 2000 and 1999
respectively. Automation revenues increased as the result of additional clients
and increase in activity of existing clients. Repricing revenues decreased
primarily as the result of the sale of Health Plan Initiatives, Inc. The total
quarterly revenue of $691,820 is up from the quarterly revenue from the same
period in 1999 of $654,344 (5.73%).
Cost of Revenues. Two elements comprise the Cost of Revenues, automation
and repricing. Cost of automation services totaled $213,799 and $130,612 for the
quarters ended September 30,2000 and 1999 respectively. The cost for the third
quarter of 2000 were comprised of $102,285 for data entry, $79,385 for imaging,
$28,412 for cost of equipment sold and $3,717 in communication expenses. During
the same period of 1999, these costs consisted of $64,506 for data entry,
$19,017 for imaging, $30,291 for cost of equipment sold and $16,798 in
communication expenses. Third party network access fees made up of $-0- and
$8,859 for the quarters ended September 30,2000 and 1999 respectively made up
the cost of repricing revenues.
Gross Profit. Gross profit for the quarter ended September 30, 2000 was
$478,021 as compared to $514,873 for the quarter ended September 30, 1999 (down
7.16). The gross profit margin for the quarter ended September 30, 2000 was 69%
verses 79% for 1999 (down 12.6%).
Other Expenses. Selling, general and administrative costs decreased to
$470,926 for the quarter ended September 30, 2000 compared to $562,758 for the
quarter ended September 30, 1999 (down 16.32%). Selling, general and
administrative expenses consist primarily of personnel cost, rent, insurance and
professional fees. For the quarter ended September 30, 2000, total personnel
cost were $328,921, total rent costs were $32,454, total insurance cost were
$27,792 and total professional fees were $40,774. For the quarter ended
September 30, 1999, total personnel cost were $380,174, total rent cost were
$41,745, total insurance cost were $15,752 and total professional fees were
$31,247.
Net Loss. The Company incurred a net loss of $140,715 and $7,109 for the
quarters ended September 30, 2000 and 1999 respectively (an increase of
$133,606).
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, 2000, the Company had cash and cash
equivalents of $74,974, and working capital deficit of $273,779. The Company has
a convertible debenture in the amount of $47,718 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 has re-negotiated
payment terms of this convertible debenture.
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
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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 customer base and increase service to
existing customers. The Company continues to enhance its productivity through
software and work flow 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
On September 11, 2000 the Company filed suit in the 96th Judicial District
Court of Tarrant County, Texas (Civil File No. 96-184499-00) against Mr. Fortier
alleging among other things, that Mr. Fortier made misrepresentations regarding
the financial condition and business prospects of Health Plan Initiatives
("HPI"), a company he owned, when the Registrant acquired that company effective
January 31, 1999. The Company is seeking a return of the approximate 3.7
millions shares issued to Mr. Fortier as consideration in that transaction and
the recovery of compensation paid Mr. Fortier.
On September 11, 2000 Robert Fortier filed a suit against Scott Stewart,
and Tim Powell, Ken Andrew and the Company as nominal defendants, in the 95th
District Court, Dallas County, Texas, Cause No. 00-7127. The suit seeks to
prevent alleged actions by the Defendants in impairing Mr. Fortier's rights as a
shareholder, not conducting business in accordance with the Company's bylaws and
damages against Mr. Stewart for interfering with the Company's obligations under
the agreement to purchase HPI. On October 18, 2000 this suit was abated and Mr.
Fortier filed, as a counter claim, his same allegations in the Tarrant County
suit brought by the Company.
On October 26, 2000 an Agreed Order Granting Temporary Injunctions was
entered in the case pending in Tarrant County which prohibited Mr. Fortier from
selling his approximately 3.7 million shares of Company stock and the Company,
Stewart and Powell from (i) taking any action to cancel Mr. Fortier's stock,
(ii) preventing performing his duties as a director of the Company, and (iii)
diverting his mail. All parties are prohibited from attempting to remove any
director except by a proper shareholders' meeting, destroying or falsifying
records, and communicating with one side to the other, except in Board meetings
or through counsel.
The Company has settled the suit filed in the 101st Judicial District Court
for Dallas County in July 1999 (Cause No. 99-05248-E) by W. Mack Goforth, a
former officer of the Company. The settlement calls for the Company to pay Mr.
Goforth $132,000 over approximately two years. Under certain circumstances such
as the failure of the Company to make the payments or if a bankruptcy
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proceeding is filed and Mr. Goforth is required to return any of the payments,
then the Company's obligation is to repay a $600,000 promissory note.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1.1 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on September 12, 2000, under item #5 -
Other Events.
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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
November 13, 2000 By: /s/ Timothy Powell
------------------------------------
Timothy Powell, President and Director
(Principal Executive Officer)
November 13, 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 sheet of Electronic Transmission
Corporation and Subsidiary as of September 30, 2000, and the related statements
of operations and cash flows for the three months and nine 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
November 9, 2000
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INDEX TO EXHIBITS
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EXHIBIT
NO. DESCRIPTION
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27.1.1 Financial Data Schedule
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