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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 June 30, 2000
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.)
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 June 30,
2000.
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
2000
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 56,499
Accounts receivable 296,294
Current portion, notes receivable 111,873
Prepaid assets 92,859
------------
Total current assets 557,525
Property and equipment, net 180,631
Other assets:
Deposits 6,749
Note receivable 19,753
------------
$ 764,658
============
LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 418,571
Notes payable and convertible debentures 55,718
Current portion, capital lease obligations 60,251
Net liabilities of discontinued operations 254,635
------------
Total current liabilities 789,175
Long-term capital lease obligations 63,208
------------
Total liabilities 852,383
------------
Commitments and contingencies --
Stockholder's 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 (9,318,465)
------------
Total stockholders' equity (deficit) (87,725)
------------
$ 764,658
============
</TABLE>
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ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service revenues $ 645,496 $ 829,409 $ 1,264,147 $ 1,435,603
Cost and Expenses:
Cost of revenues $ 172,200 $ 332,154 $ 305,445 $ 562,245
Selling, general and administrative 497,008 600,445 1,000,584 1,205,068
Depreciation and amortization 33,443 68,649 72,483 129,153
------------ ------------ ------------ ------------
Total cost and expenses 702,651 1,001,248 1,378,512 1,896,466
------------ ------------ ------------ ------------
Loss from operations (57,155) (171,839) (114,365) (460,863)
Other income (expense)
Interest expense, net 2,711 (6,712) 5,595 (13,934)
Other income 1,899 -- 24,227 --
------------ ------------ ------------ ------------
Total other income 4,610 (6,712) 29,822 (13,934)
Loss from continuing operations (52,545) (178,551) (84,543) (474,797)
Gain (loss) from discontinued operations -- 412 -- 32,075
------------ ------------ ------------ ------------
Net Loss $ (52,545) $ (178,139) $ (84,543) $ (442,722)
============ ============ ============ ============
Loss per common share:
Basic $ -- $ (0.02) $ (0.01) $ (0.05)
============ ============ ============ ============
Diluted $ -- $ (0.02) $ (0.01) $ (0.06)
============ ============ ============ ============
Weighted average common shares outstanding:
Basic 11,338,848 8,468,102 11,338,848 8,468,102
============ ============ ============ ============
Diluted 10,670,341 7,619,949 10,670,341 7,619,949
============ ============ ============ ============
</TABLE>
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ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operations:
Net loss $ (84,543) $ (442,722)
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 72,483 134,925
Changes in operating assets and liabilities:
Accounts receivable-trade (22,256) (387,011)
Prepaid expenses (47,483) (33,721)
Accounts payable and accrued expenses (45,710) 323,048
---------- ----------
Net cash used in operating activities (109,609) (327,327)
---------- ----------
Cash flows from investing activities:
Receipts on note receivable 51,894 --
Purchases of furniture and equipment (32,095) (8,483)
---------- ----------
Net cash provided (used) in investing activities 19,799 (8,483)
---------- ----------
Cash flows from financing activities:
Issuance of notes payable and convertible debentures -- 337,224
Payments on notes payable and convertible debentures -- (68,726)
Payments on capital leases payable (3,756) (39,238)
Issuance of common stock for cash -- 13,125
---------- ----------
Net cash provided (used) by financing activities (3,756) 242,385
---------- ----------
Net increase (decrease) in cash (93,566) (93,425)
Cash and equivalents, beginning of period 150,065 163,284
---------- ----------
Cash and equivalents, end of period $ 56,499 $ 69,859
========== ==========
</TABLE>
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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:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
<S> <C> <C>
Furniture $ 117, 260 $ 141,056
Computer & Office Equipment 811,463 724,237
Computer Software 172,355 287,099
Leasehold Improvements 16,565 16,564
------------- -------------
$ 1,117,643 $ 1,168,956
Less: accumulated depreciation (937,012) (877,632)
------------- -------------
$ 180,631 $ 291,324
============= =============
</TABLE>
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NOTE 4 - SUBSEQUENT EVENTS
In March 2000 Robert Fortier, CEO, voluntarily adjusted his salary through 2000
to $14,500 per month (from $25,000 per month) and agreed to receive seven per
cent of retained automation revenues, as defined, in excess of $100,000 per
month, unless such payment causes a loss in that month. Mr. Fortier further
offered that in no event would the combined total of the revenue allocation and
adjusted fixed salary exceed the pre adjustment 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
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999.
Revenues. Revenues consist of two components, automation and repricing.
Automation revenues totaled $1,067,877 and $563,402 for the six months ended
June 30, 2000 and 1999, respectively. Revenues from repricing totaled $196,270
and $872,201 for the six months ended June 30, 2000 and 1999, respectively. The
discontinued TPA division generated runoff revenues of $ 39,617 for the six
months ended June 30, 1999. Automation revenue increased (89.54%) as a result of
ten additional clients and an activity increase in existing clients. Repricing
revenues decreased (77.50%) primarily as the result of the sale of Health Plan
Initiatives, Inc. and a re-focus to automation services. The first six months
total revenue of $1,264,147 is down from the same period in 1999 of $1,435,603
(11.61%).
Cost of Revenues. Two elements comprise the Cost of Revenues,
automation and repricing. Costs of automation services totaled $300,406 and
$171,963 for the six months ended June 30, 2000 and 1999, respectively. For the
six months ended June 30, 2000 automation costs consisted of $160,311 for data
entry, $134,859 for imaging and $5,236 for communications. For the six months
ended June 30, 1999, these costs were $101,274 for data entry, $42,015 for
imaging and $28,674 in communication. Third party network access fees made up
of $5,039 and $390,282 the six months ended June 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 $390,282 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
44.75% of repricing revenue in 1999. There were miscellaneous access expenses of
2.57% 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
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generated for the period through June 30, 2000, comes from reimbursement
adjustments using a fee schedules developed by the Company for which no access
fees are payable.
Gross Profit. Gross profit for the six months ended June 30, 2000 was
$958,702 (up 9.8%) as compared to $873,358 for the six months ended June 30,
1999. The gross profit margin for the six months ended June 30, 2000 was 76%
versus 61% for 1999. Gross profit increased because of efficiency in operations
and the Company's re-emphasis on automation revenue, the cost of automation
revenues is less than that of repricing revenues. 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
$1,000,584 (down 16.96%) for the six months ended June 30, 2000, compared to
$1,205,068 for the six months ended June 30, 1999. Selling, general and
administrative expenses consisted primarily of personnel costs, rent, insurance
and professional fees. For the six months ended June 30, 2000, total personnel
costs were $679,054 (down 14.21%), total rent costs were $66,723 (down 12,21%),
total insurance costs were $51,941 (up 22.95%) and total professional fees were
$66,567 (down 34.19%). For the six months ended June 30, 1999, total personnel
costs were $791,604, total rent costs were $76,006, total insurance costs were
$42,245 and total professional fees were $101,161. Decrease in selling, general
and administrative cost for the period ended June 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 $84,543 and $442,722 for
the six months ended June 30, 2000 and 1999 respectively (a reduction of
$358,179 or 80.9%). 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 June 30, 2000, Compared to the Quarter Ended June 30, 1999
Revenues. Revenues consist of two components, automation and repricing.
Automation revenues totaled $545,241 and $305,058 for the quarters ended June
30, 2000 and 1999 respectively. Revenues from repricing totaled $100,255 and
$524,351 for the quarters ended June 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. and a re-focus to automation. The total
quarterly revenue of $645,496 is down from the quarterly revenue from the same
period in 1999 of $829,409 (22.17%).
Cost of Revenues. Two elements comprise the Cost of Revenues, automation
and repricing. Cost of automation services totaled $172,200 and $86,412 for the
quarters ended June 30, 2000 and 1999 respectively. The costs for the second
quarter of 2000 were comprised of $87,662 for data entry, $82,623 for imaging
and $1,915 for communications expenses. During the same period of 1999, these
costs consisted of $50,070 for data entry, $17,582 for imaging and $18,760 in
communication expenses. Third party network access fees made up of $-0- and
$245,742 for the quarters ended June 30,2000 and 1999 respectively made up the
costs of repricing revenues.
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The significant reduction in the cost of repricing revenue; $-0- in 2000
and $245,742 in 1999, is a result of the sale of Health Plan Initiatives, Inc,
and repricing revenue is currently generated from sources that do not require
access charges.
Gross Profit. Gross profit for the quarter ended June 30, 2000 was $473,296
as compared to $497,255 for the quarter ended June 30, 1999 (down 4.8%). The
gross profit margin for the quarter ended June 30, 2000 was 73% verses 60% for
1999 (up 21.7%).
Other Expenses. Selling, general and administrative costs decreased to
$497,008 for the quarter ended June 30, 2000 compared to $600,445 for the
quarter ended June 30, 1999 (down 17.23%). Selling, general and administrative
expenses consist primarily of personnel cost, rent, insurance and professional
fees. For the quarter ended June 30, 2000, total personnel cost were $338,054,
total rent costs were $33,382, total insurance cost were $28,374 and total
professional fees were $22,531. For the quarter ended June 30, 1999, total
personnel cost were $398,209, total rent cost were $39,360, total insurance cost
were $20,325 and total professional fees were $43,101.
Net Loss. The Company incurred a net loss of $52,545 and $178,139 for the
quarters ended June 30, 2000 and 1999 respectively (a reduction of $125,594 or
70.5%).
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, 2000, the Company had cash and cash equivalents
of $56,499, and working capital deficit of $231,650. 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
re-negotiate 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 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.
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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.
The Company is named as a co-defendant with Wal-Mart Stores, Inc. (a
client) and various other entities in a suit filed in the United States District
Court, Central District California by Vencor Hospitals. The Company believes it
has no liability whatsoever in this instance and that all claims will be
dropped. The Company has retained local counsel in California to protect its
interest. The Company believes this case will have no impact on earnings.
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 second quarter of 2000.
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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
August 14, 2000 By: /s/ Robert Fortier
-------------------------------------
Robert Fortier, Chairman, Chief Executive
Officer, and Director (Principal
Executive Officer)
August 14, 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 June 30, 2000, and the related statements of
income and cash flows for the three months and six 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
August 3, 2000
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1.1 Financial Data Schedule
</TABLE>
