U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  FORM 10 - KSB
                                ----------------

                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                            Commission File No. 22135

                       ELECTRONIC TRANSMISSION CORPORATION

                 (Name of Small Business Issuer in Its Charter)

                  Delaware                            75-2578619
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

    5025 Arapaho Road, Suite 501                         75248
                   Dallas, Texas                       (Zip Code)
(Address of Principal Executive Offices)

         Issuer's Telephone Number, Including Area Code: (972) 980-0900
                            ------------------------

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, $.001 par value per share
                                (Title of Class)
                            -------------------------
     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 of 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
                                                                        --   --

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of the  issuer's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     The  issuer's  revenues for its fiscal year ended on December 31, 1997 were
$3,249,492.

     As of March 27, 1998,  14,109,358  shares of the issuer's common stock were
outstanding.

     The aggregate  market value of the voting and non-voting  common stock held
by  non-affiliates  of the issuer,  computed by reference to the average bid and
asked prices of such common stock on March 27, 1998, was $ 7,495,596.

                       Documents Incorporated By Reference

     No  documents,  other than  certain  exhibits,  have been  incorporated  by
reference in this report.


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ITEM 1. DESCRIPTION OF BUSINESS.

Organization

     Electronic Transmission Corporation, a Delaware corporation (the "Company")
is the surviving entity of the merger (the "Merger") of Electronic  Transmission
Corporation, a Texas corporation ("ETC-Texas") into ETC Transaction Corporation,
a Canadian  corporation  ("ETC-Canada") as continued into the state of Delaware,
during the first  quarter of 1997.  ETC-Texas  was  organized in December  1994.
ETC-Canada was  originally  incorporated  as Solo  Petroleums  Ltd.  ("Solo") in
September  1986.  ETC-Canada  was  inactive  from 1992  until  late 1995 when it
reorganized  its  affairs in  preparation  of the Merger.  In March  1996,  Solo
changed its name to  ETC-Canada  and effected a  one-for-five  consolidation  of
capital  of  the   outstanding   shares  of  common  stock  to  facilitate   the
effectiveness of the Merger.

     ETC-Texas and ETC-Canada  jointly filed a  registration  statement with the
SEC to register the shares of stock  issuable to the  stockholders  of ETC-Texas
under  the  terms of the  Merger,  subject  to  approval  of the  Merger  by the
stockholders   of  the  respective   companies.   The  Merger  was  approved  by
stockholders  of ETC-Texas  and  ETC-Canada on January 31, 1997 and February 11,
1997, respectively.  ETC-Canada, the surviving corporation,  then continued into
Delaware and changed its name to Electronic Transmission  Corporation,  with the
stockholders of ETC-Texas  receiving 1.25 shares of ETC-Canada  common stock for
every one share of  ETC-Texas  common  stock  outstanding  as of the time of the
Merger.  The  business  operations  of  ETC-Texas  were  assumed by the survivor
following the Merger.

     All  references to the Company in this Annual Report on Form 10-KSB include
the  Company's   predecessors,   ETC-Texas  and  ETC-Canada,   unless  otherwise
indicated.

General

     The Company is in the business of providing  process and systems  solutions
to the non-provider  sector of the health care industry.  Process  solutions are
automated  through  a broad  range  of  application  and data  base  information
systems. Information systems include software solutions developed by the Company
and are  proprietary  in nature.  The Company  believes  that its  software  and
process  solutions  provide  state-of-the-art  methodology and technology to its
customers. In order to provide the process solutions, the Company contracts with
health care payors, self-insured companies and other payors, such as third party
administrators  ("TPAs"), for automation and electronic data interchange ("EDI")
services. The Company also contracts with various health care provider networks,
through its Electra-Net  division,  to provide cost containment  services to its
clients.  With the inauguration of TPA capabilities  through ETC  Administrative
Services, a Texas corporation ("ETC Services"), its wholly owned subsidiary, the
Company can provide a continuum of services to a self-insured corporate customer
beginning with the scanning of the health care  provider's  claim and concluding
with the payment to the health care provider.

     The Company's  revenues are generated by different methods for each segment
of its  business.  The Company is paid a set price for scanning  and  automating
each health care provider  claim.  Additionally,  the Company is paid a specific
percentage of the "savings" generated by its re-pricing activities. TPA services
are charged on a set price for each  customer  employee  that is serviced by the
Company.

Recent Financings

     On December  17,  1997,  the Company  entered  into a  Securities  Purchase
Agreement  (the  "Purchase  Agreement")  pursuant  to which  Special  Situations
Private   Equity  Fund,   L.P.  and  Special   Situations   Cayman  Fund,   L.P.
(collectively,  the  "Investors")  obtained  the  right  to  purchase  up  to an


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aggregate of 3,000,000  shares of common  stock,  par value $.001 per share (the
"Common Stock"),  for total  consideration of $1,500,000 or $0.50 per share. The
Purchase  Agreement  calls for the sale and purchase of the available  shares to
occur in two  tranches.  On  December  17,  1997,  the  Investors  purchased  an
aggregate of 2,447,719 shares of Common Stock,  for total cash  consideration of
$1,223,859.50  (the "First  Closing").  The Investors may purchase the remaining
552,281 shares of Common Stock (the "Second  Closing") upon the  satisfaction by
the  Company  of the  conditions  identified  below  as  well as  certain  other
conditions which may be required by the Investors.

     The Second  Closing is  contingent  in part upon the  Company's  ability to
effect  amendments to its  Certificate of  Incorporation  for the purpose of (i)
increasing its authorized  Common Stock from 15,000,000 to 20,000,000 shares and
(ii) undertaking a reverse stock split (the "Reverse Stock Split") whereby every
four  shares of  outstanding  Common  Stock will be  exchanged  for one share of
Common Stock (the foregoing  amendments to the Certficate of Incorporation being
collectively  referred to herein as the  "Amendments").  The Company must effect
the Reverse Stock Split by August 15, 1998 unless the last reported bid price on
The OTC Bulletin  Board of a share of Common Stock has exceeded $5.00 on each of
the 10 trading days  immediately  preceding August 1, 1998. A special meeting of
stockholders  was held on February  25, 1998 at which time the  Amendments  were
approved by the requisite vote of the Company's stockholders. The Certificate of
Amendment  increasing the authorized Common Stock to 20,000,000 shares was filed
with the State of Delaware on February 27, 1998.

Service Areas

     The Company's  principal service areas include (i) claims automation,  (ii)
cost containment, and (iii) TPA, each of which is discussed below:

     Claims Automation  Services.  The Company provides  automation  services of
healthcare  claims for (i)  self-insured  companies  that  administer  their own
healthcare  plans and pay their own medical  claims,  (ii) TPAs that  administer
healthcare plans and pay medical claims for self-insured companies,  (iii) PPOs,
and (iv) other managed care organizations that offer discounts on medical claims
and who  reprice  those  claims to reflect  discounts  offered by  providers  to
payors.  The  claims  automation  process  electronically  captures  and  stores
electronic  images of scanned paper  documents.  The Company scans more than one
million  claims per year for clients,  the  majority of which are received  from
self-insured  employers.  Utilizing its existing work flow process and available
imaging technology,  the Company processes  standardized claim forms by scanning
these forms at the client's facility, with the scanned data being transmitted to
the Company's imaging center. The two primary sources for the standardized claim
forms are from the physicians  (HCFA's) and from health care  facilities such as
clinics and hospitals (UB's). Once received at the Company's imaging center, the
data is processed using an optical character  recognition  process.  The Company
then stores all available data from the scanned claim forms in proprietary  data
bases  maintained  by the Company,  manually  reviews  certain  portions of each
claim,  and  transmits  the  claim  information  to a medical  provider  network
(including  Electra-Net)  or to a payor  (including  ETC Services) for repricing
adjudication and/or payment.

     Medical Provider  Network  Services.  The Company,  through its Electra-Net
division, provides medical provider network services to its clients. Electra-Net
is made up of over 40 regional and national networks,  PPO's (Physician Provider
Organization),  PHOs  (Physician  Hospital  Organizations),   IPAs  (Independent
Physician  Associations),  and other  provider  groups that have joined with the
Company  in  providing  true EDI claims  processing  in the  managed  care area.
Nationally,  the number of provider  networks with true EDI capabilities is very
small  resulting  in  difficulties  for  payors  looking  to  reduce  costs  and
streamline their operations.  The Company's integrated solution has dramatically
reduced  the time and  effort  required  by payors to process  repriced  medical
claims. Currently Electra-Net has access to over 384,000 provider contracts that
can be repriced  electronically,  making it, what management believes to be, one
of the broadest coverage networks in the country.

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     Third Party  Administration.  The need for TPA  services  has  dramatically
increased given that  approximately 65% of nationwide group medical insurance is
provided through self-insured benefits, where the employer elects to self-insure
a percentage of the risk rather than pay a fully insured  premium.  The portion,
if any,  which the  employer  elects not to  self-insure  is placed as stop loss
coverage  with  a  reinsurance  carrier.   Self-insured  benefit  plans  can  be
administered  either by the  insurance  company  who  underwrites  the stop loss
coverage,   self-administered  by  the  employer,  or  administered  by  a  TPA.
Approximately  50% of  self-insured  employers  elect to use a TPA to administer
their benefit plan.

     As a full service TPA, the Company,  through ETC Services,  offers standard
administration   services,   including,   but  not  limited  to,  marketing  the
reinsurance,  writing plan documents,  processing  medical,  dental,  vision and
disability claims and ensuring compliance with federal and state mandates.  With
the electronic  data, the Company can reprice  electronically  all of the claims
prior  to  being  loaded  into  the   Company's   licensed   claims  system  for
auto-adjudication. The electronic claims environment increases accuracy, reduces
processing  time, and decreases  staffing needs.  The Company believes that both
the brokerage community,  which represents  employers,  and reinsurance carriers
acknowledge the benefits of the totally  automated  claims process system of ETC
Services.

Business Strategy

     The Company's current business strategy is to (i) continue to increase cash
flows by extensively  marketing its services to the  non-provider  sector of the
health care industry,  (ii) enhance existing client  relationships by offering a
broader  range of  services,  and (iii)  concentrate  research  and  development
activities within a limited number of core areas.

     The following are key elements of the Company's strategy:

     Two Tiered Customer  Contracts.  The Company  typically  enters into 90-day
service  provider  agreements  which are  cancelable by either the client or the
Company at any time. During this 90-day period,  the Company evaluates the needs
of the client,  develops a tailored claims processing  system,  initiates claims
processing  procedures  for the  client's  analysis  and  determines  its  costs
associated  with the services  provided to the client.  Upon  expiration  of the
90-day  period,  the Company will  typically  enter into a long-term  agreement,
generally  for a term of two  years.  The terms of the  extended  contract  will
provide  services that are developed and custom designed to fit the needs of the
client during the 90-day review  period.  The pricing of these services is based
on the Company's current pricing schedules and its cost estimates developed from
on-site review of the customer's  requirements.  The Company utilizes the 90-day
review  process,  which is risk free to the client,  as a proving ground for its
services  thereby  allowing it to enter into more lucrative  long-term  provider
contracts.  The Company  believes that long-term  contracts  provide benefits to
both  itself  and its  clients.  Clients  are able to realize  the cost  savings
associated  with the processing of medical claims through an electronic  medium,
while  long-term  contracts add stability to the Company's  revenue base and may
deter  potential  competition.  After the  expiration  of the initial  term of a
long-term  contract,  the term of the  contract  continues  in effect  until the
Company or the client notifies the other of its desire to terminate.

     Rapid Installation and Enhanced Processing Capability. The Company installs
claims processing equipment, including computer, telecommunications and scanning
equipment,  for use at the client's facility. Once the contractual  relationship
is entered into, the Company  generally  initiates  claims  processing  services
within 20 days of the date that an  agreement is reached.  The Company  believes
its ability to rapidly install a processing  system at a client's  location with
minimal disruption gives it a significant advantage in the marketplace.

     Enhanced  Marketing  Effort.  Although  the  Company  has  utilized  direct
marketing  efforts to solicit  customers in the past,  new  customers  have been


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generated through  referrals from a small number of existing clients.  Since the
Company's  areas of  service  have grown and been  enhanced,  the  Company  will
supplement  its  direct  sales  force in the  future.  The sales  force  will be
compromised  of employees of the Company and outside sales  personnel  with whom
the Company will have entered into specific  marketing  agreements.  The Company
believes that to be  successful in the future,  it will have to expand the range
of existing services, its distribution channels and its sales force.

     Professional  Services.  The Company currently  provides system and process
review and design,  installation and integration services to its customers.  The
Company  does not  currently  charge the  customer  for these  services.  As the
Company's services become more customized and are expanded, the Company believes
that it will be able to generate a revenue stream from this activity.

     Vendors.  The Company  currently  furnishes  the  customer  with an imaging
system that is  comprised of hardware,  software  and certain  other  peripheral
devices  free of charge.  The  Company  is  considering  becoming a value  added
reseller ("VAR") for the components of the imaging system. As a VAR, the Company
would be able to enhance its profit  margins on the  provision of these  systems
without increasing its cost of sales.

Research and Development

     All of the Company's computer systems are Year 2000 compliant.  The Company
believes that to be  successful  in the future,  its products must remain on the
leading  edge of  technology.  The  Company  continually  evaluates  new imaging
components  including imaging software  (optical  character  recognition  (OCR))
capabilities. Additionally, the Company is continually enhancing its proprietary
software used in the provision of the services to its  customers.  The Company's
research and  development  activities are based in part upon its efforts to make
enhancements to existing service components in response to recommendations  made
by its clients.

Sales and Marketing

     The Company  currently  markets its services directly through its own sales
organization.  The Company's  services are focused towards medium to large (more
than 100 employees)  businesses and institutions.  Sales are generated primarily
by the Company's sales force, currently comprised of three sales personnel.  The
Company intends to increase sales personnel staffing.

     The  Company's  sales  professionals  are  supported  by a team of computer
network  technicians.  These  technicians  support the clients during the system
installation  process  and after the sale,  provide  the  clients  with  repair,
maintenance  and support  services to maintain the onsite scanning  systems,  if
applicable.

     Referrals from existing clients and vendors,  particularly Wal-Mart Stores,
Inc.  ("Wal-Mart")  and Capp Care ("Capp  Care"),  are a  significant  source of
prospective clients and establish credibility with potential clients.  In fiscal
1997,  revenues  related to vendor referrals were responsible for $573,921 (17%)
of the  Company's  revenue.  There  are no  contractual  requirements  for  such
referrals and they could cease at any time.

Customers

     The Company  markets its  processing  services  primarily  to  self-insured
companies, TPAs and other provider networks or other cost containment companies.
The   Company's   current   customer   base   includes   13   self-insured   and
self-administered  customers,  one health  care  provider  network  and five TPA
customers.

     Under the terms of its existing  agreement  with  Wal-Mart,  the Company is
obligated to provide electronic medical claims processing and repricing services
for a term ending in September  1998.  The Company will receive  $1.00 per claim

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processed for the first 50,000 claims  processed in a given month,  which amount
will be reduced by $.10 for every  additional  50,000  claims  processed in that
month.  Once 150,000  claims have been  processed in a given month,  the Company
will  receive  $.75 per  additional  claim  processed  during said month.  As of
December  31, 1997 and 1996,  the Company  processed  approximately  789,300 and
611,250 medical claims for the benefit of Wal-Mart, resulting in revenues to the
Company  of  approximately  $1,818,000  and  $596,754,  respectively.   Revenues
generated from Wal-Mart  represented  approximately 54% and 64% of the Company's
revenues as of December 31, 1997 and 1996 respectively.

Competition

     The   non-provider   sector  of  the  health  care  industry  is  intensely
competitive  and is  characterized  by companies  that  provide both  electronic
automation  and  paper  processing  solutions.  There  are  participants  in the
industry that provide  discount and  repricing  services and TPA services in the
market currently served by the Company. The Company's  competition in the market
for  electronic  claims   processing,   discount  and  repricing   services  and
adjudication and payment services is primarily concentrated in certain insurance
companies,   TPAs  or  management  services  organizations  which  have  greater
financial  and  technical  resources  and longer  operating  histories  than the
Company.  The Company also believes that its  processing  methodology  is easily
duplicated.  However,  management  of the Company  believes  that the  Company's
competitors,  while  each  providing  segments  of the  services  offered by the
Company,  do not offer the  interconnected  array of  services  provided  by the
Company.  The Company  believes  that it  possesses a  competitive  advantage by
offering its claims  automation,  discounting and repricing services in a format
that connects payors,  payees and service providers.  The service methodology of
the Company will allow it to compete  against more  established  companies  with
much greater financial and technical resources.  However,  there are no barriers
which would  prohibit the Company's  competitors  from  modifying  their current
services to emulate those offered by the Company.  In addition,  the Company may
face  substantial  competition  from new  entrants  into the  electronic  claims
processing industry.  The Company's ability to compete successfully with current
and potential  competitors will depend to a significant extent on its ability to
continue  developing   processing   methodologies  which  are  superior  to  its
competitors,  to adapt to  changes in the  marketplace  and  produce  sufficient
profits to be able to finance its ongoing operations.

Regulatory Matters

     The  Company  is not  subject to any  direct  federal  or state  government
regulation because of the nature of its business. There can be no assurance that
federal or state  authorities will not in the future impose  restrictions on its
activities that might adversely  effect the Company's  business.  The failure by
the  Company  to obtain or retain any  applicable  licenses,  certifications  or
operational  approvals  could  adversely  effect  its  existing  operations  and
professional  performance.  There can be no  assurance  that in the  future  the
Company  will  be  able  to  acquire  all the  necessary  licenses,  permits  or
approvals,  if  any,  necessary  to  conduct  its  business  or that  the  costs
associated with complying with laws and regulations  affecting its business will
not have a materially adverse effect on the Company.

Employees

     Effective  January 1, 1998, the Company  canceled a Staff Leasing  Services
Agreement with E3 Group,  Inc., an employee leasing  company.  The Staff Leasing
Services  Agreement  had been in effect since January 1996. As of March 9, 1998,
the Company had 59 full-time  employees and seven part-time  employees.  None of
the  Company's  employees  is  represented  by a labor  union  or  subject  to a
collective  bargaining  agreement.  The  Company  has never  experienced  a work
stoppage and believes that its employee relations are good.


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Risk Factors

     Accumulated Deficit and Independent  Accountants' Report Referring to Going
Concern  Uncertainties.  Since  inception,  the Company has incurred losses from
operations,  and as of December 31, 1997 the Company had an accumulated  deficit
of  $6,976,881.  This history of recurring  losses  indicates that the Company's
continuation  as a going  concern is  dependent  upon its  ability  to  generate
sufficient  cash  flows to meet its  obligations  on a timely  basis,  to obtain
additional financing or capital and ultimately to attain profitable  operations.
The Company's independent  accountants,  in their report regarding the Company's
financial  statements for the fiscal year ended  December 31, 1997,  stated that
since the Company had a history of losses since  inception and had a significant
working capital deficit,  doubt existed as to the Company's  ability to continue
as a  going  concern.  See  "Management's  Discussion  and  Analysis  or Plan of
Operation."

     Working Capital  Deficit;  Lack of Liquidity and Capital  Resources.  As of
December 31, 1997,  the Company had total  current  assets of $950,886 and total
current  liabilities  of $1,513,280  resulting in a working  capital  deficit of
$562,394.  The ability of the Company to sustain  its  working  capital,  and to
obtain the necessary  capital resources to fund future costs associated with its
operations  and  expansion  plans  is  dependent  upon:  (i)  improving   claims
processing  operations through cost reductions and increased market penetration;
(ii) entering into  long-term  claims  processing  contracts  with  self-insured
companies,   TPAs  and  management  services  organizations;   (iii)  successful
development  and marketing of its claims  repricing and successful  expansion of
its  existing  service  components;  and (iv) its  ability  to link the  various
medical claims processing  activities of payees and payors.  Even if the Company
achieves some success with its operational  strategy,  there can be no assurance
that it will be able to  generate  sufficient  revenues  to sustain  its working
capital and have funds  available for growth.  To achieve all of its objectives,
the Company may be required  to raise  additional  working  capital in the short
term by issuing debt and/or equity securities. If the Company is unable to raise
additional  capital as needed,  it could be forced to limit its expansion plans.
See "Management's Discussion and Analysis or Plan of Operation".

     Possibility of Continued Losses.  The Company incurred losses of $2,470,684
for the fiscal year ended  December 31, 1996 and  $1,999,404 for the fiscal year
ended  December  31, 1997.  In addition to the  historical  losses,  the Company
expects to have continued losses in the short term. See "Management's Discussion
and Analysis or Plan of Operation".

     Dependence on Quality of Claims  Processing and Third Party  Administration
Services. Substantially all of the Company's revenues are currently derived from
providing process and systems solutions to the non-provider sector of the health
care industry.  There can be no assurances that processing methodology will meet
the demands of the marketplace in the future.  The Company's  future success and
financial  performance  will  depend  in part upon its  ability  to  provide  an
expanding  product  line  that  will  meet  the  functionality  required  by its
customers through the linkage of payees,  health care cost containment companies
and payors of medical  claims.  There can be no assurance  that the Company will
successfully  implement  electronic  processing  applications that will meet the
requirements  of health care  providers  and payors and thereby  achieve  market
acceptance.  The  Company's  future  success and financial  performance  is also
dependent  upon its  ability  to develop  its TPA  business  component.  Despite
significant  capital  expenditures  by the Company,  there can be no  assurances
given  that  the  Company  will be able to  successfully  penetrate  the  highly
competitive  TPA  market.  Failure  to  either  meet the  needs of  health  care
providers  and  payors  with  regard  to  claims   processing   services  or  to
successfully develop and market its TPA component will have a materially adverse
effect upon the business operations of the Company.

     Dependence on Major Clients;  Material  Contracts.  For the 12 months ended
December 31, 1997, services provided to Wal-Mart,  the Company's largest client,
accounted for approximately 54% of revenues.  For the identical period,  network
and  repricing  services  provided  to  Champion  International   accounted  for


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approximately  12% of its  revenues.  The loss of  either  client  could  have a
materially  adverse  effect on the Company  and its  business.  No other  client
accounted for as much as 10% of net revenue for the referenced period.

     The  Company  is  a  party  to  a  Processing  Agreement  (the  "Processing
Agreement")  with Imaged  Data,  Inc.  ("IDI")  pursuant  to which IDI  provides
electronic claims conversion  functions for the Company.  Under the terms of the
Processing  Agreement,  IDI can only perform  medical claim  conversions for the
Company or pay the Company 30% of gross revenues generated by IDI as a result of
medical claims conversions done for the benefit of third parties. The Processing
Agreement is subject to  automatic  one year  renewals  with the next renewal to
occur in November 1998.  Although the Company  currently has a good relationship
with IDI and the Company has no reason to believe  otherwise,  no assurances can
be given  that IDI will  agree  to an  extension  of the term of the  Processing
Agreement.  The loss of IDI's conversion  services could have a material adverse
effect on the financial condition and results of operations of the Company.  The
Company is,  however,  aware of other  providers  of  services  similar to those
performed  by IDI,  but no assurance  can be given that such  services  could be
contracted for on mutually acceptable terms.

     Consolidation and Uncertainty in the Health Care Industry. Consolidation of
the payor and  provider  segments  of the health care  industry  could erode the
Company's  customer base and reduce the size of its target market.  In addition,
the resulting  enterprises could have greater bargaining power, which could lead
to price  erosion of the  Company's  services.  The reduction in the size of the
Company's target market or the failure of the Company to maintain adequate price
levels  could  have a  materially  adverse  effect  on the  Company's  business,
financial condition and results of operations.  The health care industry also is
subject to change by  political,  economic and  regulatory  influences  that may
affect the  procurement  of contracts  and the operation of health care industry
participants.  During the past  several  years,  the United  States  health care
industry has been subject to an increase in  governmental  regulation and reform
proposals.  These reforms may increase governmental  involvement in health care,
lower  reimbursement  rates, and otherwise change the operating  environment for
the  Company's  customers.  The  failure  of  the  Company  to  retain  adequate
processing  efficiency  or price  levels  as a result of  legislative  or market
driven reforms could have a materially adverse effect on the Company's business,
financial conditions and results of operations.

     Effect of Government  Regulation.  The Company is not currently  subject to
any direct federal or state government  regulation  because of the nature of its
business.  There can be no assurance that federal or state  authorities will not
in the future impose  restrictions on its activities that might adversely effect
the  Company.  The  failure by the  Company  to obtain or retain any  applicable
licenses,  certifications  or operational  approvals could adversely  effect its
existing operations and professional performance. There can be no assurance that
in the future the Company  will be able to acquire all the  necessary  licenses,
permits or  approvals,  if any,  necessary  to conduct its  business or that the
costs associated with complying with laws and regulations affecting its business
will not have a materially adverse effect on the Company.

     Proprietary  Rights,  Risk  of  Infringement.  The  Company  will  rely  on
nondisclosure and other contractual provisions to protect its proprietary rights
and trade secrets.  The Company has registered its service mark in the States of
Texas,  Maryland and Arkansas.  There can be no assurance that measures taken by
the Company to protect its  intellectual  property  will be adequate or that the
Company's   competitors  will  not  independently   develop  services  that  are
substantially  equivalent  or superior to those of the Company.  There can be no
assurance  that third parties will not assert  infringement  claims  against the
Company in the future or that a license or similar  agreement  will be available
on reasonable terms in the event of an unfavorable  ruling on any such claim. In
addition, any such claim may require the Company to incur substantial litigation
expenses  or subject  the Company to  significant  liabilities  and could have a
materially  adverse  effect on the Company's  business,  financial  condition or
results of operations.

     Dependence on Key Personnel.  The Company is dependent upon the efforts and
ability of W. Mack Goforth,  Chairman of the Board,  Chief Executive Officer and


                                       8


<PAGE>

Chief Financial Officer, and Timothy P. Powell, Executive Vice President -- Data
Services.  The loss of the services of either of these  individuals could have a
materially adverse effect on the Company. Each of the foregoing has entered into
employment and  non-competition  agreements with the Company.  In addition,  the
Company's  future  growth will be  dependent  to a  significant  degree upon its
ability to attract and retain additional skilled management personnel.

     Conflicts of Interest. Certain officers, directors and related parties have
engaged in business  transactions with the Company. The Company has entered into
consulting, marketing and leasing agreements,  respectively, with certain of its
directors and stockholders. Management of the Company believes that the terms of
transactions  with  officers,  directors  and  related  parties  were  or are as
favorable as those that could have been obtained from unaffiliated parties under
similar  circumstances.  It is the Company's policy that transactions between it
and its  affiliates  will be on terms no less  favorable  than could be obtained
from  unaffiliated   third  parties  and  be  approved  by  a  majority  of  the
disinterested members of the Board of Directors.

     Payment of  Dividends.  The  Company  has never  declared  or paid any cash
dividends on its capital stock.  It is anticipated  that future  earnings of the
Company will be retained to finance the continuing  development of its business.
The payment of any future  dividends  will be at the  discretion of the Board of
Directors  of the Company  and will depend  upon,  among  other  things,  future
earnings,   the  success  of  business   activities,   regulatory   and  capital
requirements,  the  general  financial  condition  of the  Company  and  general
business conditions.

     Potential   Anti-Takeover   Effects  of  Delaware   Law,   Certificate   of
Incorporation and Bylaws.  Certain  provisions of Delaware law applicable to the
Company  could  delay or make more  difficult  mergers,  tender  offers or proxy
contests  involving  the  Company.  In  addition,  the Board of Directors of the
Company may issue shares of preferred stock without stockholder approval on such
terms as the Board of Directors may determine.  The rights of all the holders of
Common Stock will be subject to, and may be adversely effected by, the rights of
the  holders  of any  preferred  stock  that may be  issued  in the  future.  In
addition,  the Company's  Bylaws  eliminate the right of  stockholders to act by
written  consent  without  a  meeting  and  eliminate  cumulative  voting in the
election of directors.  All of the foregoing  could have the effect of delaying,
deferring  or  preventing a change in control of the Company and could limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock.

     Limitation  of Liability  and  Indemnification  of Officers and  Directors.
Pursuant to the  Company's  Bylaws,  directors  and  officers are not liable for
monetary  damages for breach of  fiduciary  duty,  except in  connection  with a
breach of the duty of loyalty,  for acts or omissions not in good faith or which
involve intentional  misconduct or a knowing violation of the law.  Furthermore,
the Bylaws  provide  that the Company may  indemnify  its  directors,  officers,
employees  or  agents  to the full  extent  permitted  by the  Delaware  General
Corporation  Law (the  "DGCL"),  and the Company  has the right to purchase  and
maintain insurance on behalf of any such person whether or not the Company would
have the power to indemnify such person against the liability.

     Year 2000  Modifications.  All of the Company's  computer  systems are year
2000 compliant.

ITEM 2. DESCRIPTION OF PROPERTY.

     The Company owns no real property. The Company's principal executive office
is located in a 12,176 square foot office facility in Dallas,  Texas.  The lease
for the Company's  offices  expires  September 30, 2001 and provides for monthly
rental payments of $15,662.



                                       9


<PAGE>


ITEM 3. LEGAL PROCEEDINGS.

     The Company is not currently a party to any litigation.  Should the Company
become a party to any litigation pursuant to which the Company would be required
to pay  damages,  the payment of such damage  award may have a material  adverse
effect upon its financial condition and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     There were no  matters  submitted  during the fourth  quarter of the fiscal
year covered by this report to a vote of security holders,  through solicitation
of proxies or otherwise.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .

     The Company's Common Stock began trading on The OTC Bulletin Board on April
4, 1997 under the symbol "ETSM". The following table sets forth the high and low
bid information for the Common Stock as reported on The OTC Bulletin Board.  The
table  reflects  inter-dealer  prices,  without  retail  mark-up,  mark-down  or
commission, and may not necessarily represent actual transactions.

                                               High      Low
                                               -----     -----
     April 4 - June 30, 1997                   $3.50     $1.25
     July 1 - September 30, 1997               $1.44     $0.75
     October 1, 1997 - December 31, 1997       $1.13     $0.53
     January 1, 1998 - March 9, 1998           $0.69     $0.38

Holders.

     As of March 9, 1998,  there were  approximately  351 record  holders of the
Common Stock.

Dividend Policy.

     The Company has not previously  paid any cash dividends on its Common Stock
and does not anticipate or contemplate  paying  dividends on the Common Stock in
the foreseeable future. It is the present intention of management to utilize all
available funds for the development of the Company's business. In addition,  the
Company may not pay any dividends on common equity unless and until all dividend
rights on outstanding  preferred  stock, if any, have been  satisfied.  The only
other  restrictions  that limit the ability to pay dividends on common equity or
that are likely to do so in the future, are those restrictions imposed by law or
by certain credit agreements.

ITEM 6. 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.  Because of the Company's recent  acquisitions and the limited scale of
the Company's operations prior to 1996, the results of operations from period to
period are not necessarily comparative.



                                       10


<PAGE>

Overview

     The Company is the survivor of the Merger of ETC-Texas  into  ETC-Canada in
the first  quarter of 1997.  The  Company and all of its  predecessors  received
going concern audit opinions for the fiscal years ended December 31, 1995,  1996
and 1997.

     ETC-Canada was inactive from 1992 until it reorganized  its affairs in 1995
in preparation of the Merger.  In March 1996,  ETC-Canada  changed its name from
Solo to ETC-Canada and effected a one-for-five  consolidation  of capital of the
outstanding  shares of  common  stock to  facilitate  the  effectiveness  of the
Merger. In June 1996, ETC-Canada  consummated a private offering of common stock
for  aggregate  proceeds of $779,575  which it loaned to ETC-Texas to facilitate
the  Merger.  Since  ETC-Canada  had no  significant  assets and was  relatively
inactive  during the period prior to the Merger,  management of the Company does
not believe that a discussion of ETC-Canada's financial condition and results of
operations would be relevant. Therefore, any references to activity prior to the
Merger are activities of ETC-Texas, unless otherwise specifically referenced.

     The Company is in the business of providing  process and systems  solutions
to the non-provider  sector of the health care industry.  Process  solutions are
automated  through  a broad  range  of  application  and data  base  information
systems. Information systems include software solutions developed by the Company
and are proprietary in nature.  In order to provide the process  solutions,  the
Company  contracts  with health care payors,  self-insured  companies  and other
payors,  such as  TPAs,  for  automation  and EDI  services.  The  Company  also
contracts with various health care provider  networks,  through its  Electra-Net
division, to provide cost containment services to its customers.

     In January  1998,  the Company,  through ETC  Services,  initiated  its TPA
component to service its existing clients. Through ETC Services, the Company can
provide a continuum of services to a self-insured  corporate  customer beginning
with the scanning of the health care  provider's  claim and concluding  with the
payment to the health care provider.

     The Company's  revenues are generated by different methods for each segment
of its  business.  The Company is paid a set price for scanning  and  automating
each health care provider  claim.  Additionally,  the Company is paid a specific
percentage  of the "savings"  generated by its  re-pricing  activities.  The TPA
services are charged on a set price for each customer  employee that is serviced
by the Company.

     The  Company  has not  generated  sufficient  revenues  during its  limited
operating history to repay its outstanding indebtedness,  pay its existing trade
accounts  or  fund  its  ongoing  operating  expenses  or  service   development
activities.  The  Company  plans to  alleviate  its current  financial  problems
through private offerings of debt or equity securities, borrowings and increased
profits from operations. The Company has historically been able to raise capital
through the private sales of its Common Stock. At December 31, 1997, the Company
had cash and cash  equivalents of  approximately  $548,565 and a working capital
deficit of  approximately  $562,394.  Management  believes  that  cash,  working
capital and available credit facilities are sufficient to fund operations of the
Company  through  the  close  of its  fiscal  year  ending  December  31,  1998.
Significant additional research and development expenditures are not anticipated
at this time.

     At December 31,  1997,  the Company had 19 clients  including  self-insured
companies  and medical  provider  networks.  The Company  expended  considerable
effort and resources,  including hiring  personnel with extensive  experience in
paying  medical  claims,  to develop its current work flow  process.  Additional
resources  were devoted to (i) defining the exact  services  that were needed by
the market  segment and (ii)  developing,  testing and  ultimately  implementing


                                       11


<PAGE>

these services.  While expensive and time consuming,  these  activities serve as
the basis on which the  business of the  Company  will  operate.  As the Company
expands its customer base, additional  computer  equipment and personnel will be
required and added.  Such expansion will be funded by the revenues  derived from
operations  and other  funding  sources  that the  Company may find from time to
time.

Results of Operations of the Company

Year Ended December 31, 1996 Compared to 1995

     Revenues.  During the fiscal year ended  December 31, 1996,  revenues  were
$831,323 as compared  to $66,612 for fiscal  1995.  The Company did not have any
ongoing operations during fiscal 1995.

     During  fiscal  1996,  the Company  entered  into an  agreement  to provide
electronic  medical claims processing and repricing  services for Wal-Mart.  For
the fiscal year ended December 31, 1996, revenues produced by the agreement were
approximately  $596,754 or approximately 64% of revenues.  Loss of Wal-Mart as a
client  would  have a  materially  adverse  effect on the  Company's  results of
operations,  and might require the Company to temporarily reduce staff,  curtail
operations and delay expansion plans.

     Cost of  Revenues.  Direct costs in fiscal 1996 were  $568,474,  consisting
primarily  of  $324,466  in data  entry  personnel  costs,  $151,383  in optical
character  recognition  costs and $28,469 in electronic data line costs.  Direct
costs in fiscal 1995 were $40,764.

     Gross  Profit.  Gross  profit for fiscal  1996 was  $262,849 as compared to
$25,848 in fiscal 1995. The gross profit margin for fiscal 1996 was 31.6% versus
38.8% for fiscal 1995.

     Other  Expenses.  As the Company  continued to develop,  its start-up costs
declined.  The start-up  costs incurred in fiscal 1996 were $395,866 or 42.1% of
the  $939,347  incurred  in fiscal  1995.  Likewise,  research  and  development
expenses continued to increase. Research and development expenses in fiscal 1996
increased  to  $1,469,858  from  $179,830.  Sales,  general  and  administrative
expenses in fiscal 1996 were  $826,285  compared to zero in fiscal  1995.  Total
other expenses in fiscal 1996 were $2,803,429  verses $1,159,941 in fiscal 1995.
Total  expenses in fiscal 1996  included  $1,254,094  in personnel  costs verses
$521,472 in fiscal 1995. Total expenses in fiscal 1996 also included $693,541 in
legal and professional  fees primarily  related to expenses  incurred in seeking
and  identifying   suitable  merger   candidates,   general  corporate  matters,
preparation  of the merger  agreement  and related  documents  pertaining to the
Merger,  and the audit,  accounting  and legal fees for the  preparation  of the
joint proxy statement/prospectus used in connection with the Merger.

     Net Loss. The Company incurred a net loss of $2,470,684  verses  $1,093,329
for the fiscal years ended December 31, 1996 and 1995, respectively. The Company
has  approximately  $2,886,000  in tax loss carry  forwards  generated  by these
losses.

Year Ended December 31, 1997 Compared to 1996

     Revenues. Revenues from automation services totaled $1,286,251 and $797,154
for the fiscal years ended  December 31, 1997 and 1996,  respectively.  With the
initiation  of the  Electra-Net  division  in April 1997,  revenues  for network
services  totaled  $1,788,997  for the fiscal year ended  December 31, 1997. The
addition of  Electra-Net  caused total  revenues to increase 300% when comparing
revenues of $312,774 for the first quarter ended March 31, 1997 and $912,026 for
the second  quarter  ended June 30, 1997.  The Company's  workers'  compensation
division  had  revenues  totaling  $174,243  in fiscal  1997,  with  fiscal 1996
revenues of $34,169 based on four months of operations.

     For the fiscal year ended  December  31,  1996,  fees paid by Wal-Mart  for
automation  services were  approximately 64% of total revenues.  In fiscal 1997,
Wal-Mart   accounted  for  54%  of  total  revenues,   which   demonstrates  the
diversification and growth of the Company's client base during the period.


                                       12


<PAGE>


     Cost of Revenues. Cost of automation services totaled $763,700 and $568,474
for the fiscal years ended December 31, 1997 and 1996, respectively. These costs
for fiscal 1997 were comprised of $457,471 in data entry personnel,  $247,767 in
imaging fees and $36,386 for communication expenses. In fiscal 1996, these costs
consisted  of $324,466  in data entry  personnel,  $151,383 in imaging  fees and
$28,469 in communication expenses. Cost of network services were largely made up
of $579,739 in third party network fees. Cost of workers'  compensation services
were  comprised  primarily  of  personnel  costs of $65,772  and $25,000 for the
fiscal years ended December 31, 1997 and 1996, respectively.

     Gross  Profit.  Gross profit for fiscal 1997 was  $1,567,409 as compared to
$262,849  for fiscal  1996.  The gross  profit  margin for fiscal 1997 was 48.3%
verses 31.6% for fiscal 1996.

     Other Expenses.  The Company,  in the fourth quarter of 1996,  emerged from
the development stage with the signing of the long-term  contract with Wal-Mart.
Therefore, no start-up costs or research and development costs were recorded for
the fiscal year ended December 31, 1997. Sales, general and administrative costs
increased to $3,406,709 for the fiscal year ended December 31, 1997, compared to
$826,285 for the fiscal year ended  December  31,  1996.  The Company has issued
stock options to employees which are considered compensatory. Compensation costs
were expensed over the periods of employment  attributable  to the options at an
amount  equal  to the  excess  of the fair  market  value  of the  Common  Stock
underlying such options on the date of grant over the exercise price thereof. In
June 1997, the Company  elected to vest all employee stock options and recognize
compensation  expense for all outstanding  options.  Compensation costs totaling
$321,220 and $322,067 was  recognized  as expense  during the fiscal years ended
December 31, 1997 and 1996, respectively. During the fiscal years ended December
31,  1997 and 1996,  the  Company  issued  320,000  shares  of Common  Stock for
services for a total expense of $400,000 and 262,625  shares of Common Stock for
a total expense of $262,625, respectively.

     Sales, general and administrative expenses consisted primarily of personnel
costs,  rent,  telephone and professional fees. Total personnel costs for fiscal
1997 were  $1,744,771,  rent of $178,212,  telephone of $95,814 and professional
fees of $326,561.  Professional  fees were incurred due to the  preparation  and
filing of a registration  statement,  year-end audit, legal matters and computer
consulting.

     Net  interest  expense  increased  to  $87,328  for the  fiscal  year ended
December  31, 1997  compared to $34,230 for the fiscal year ended  December  31,
1996. The increase is primarily related to the Company's issuance of convertible
debentures and the factoring of its accounts receivable during fiscal 1997.

     Net Loss. The Company reported a net loss of $1,999,404 for the fiscal year
ended  December 31, 1997 as compared to a net loss of $2,470,684  for the fiscal
year ended  December 31, 1996 or ($.23) and ($.36) basic  earnings per share for
fiscal 1997 and fiscal 1996,  respectively.  For the fiscal years ended December
31, 1997 and 1996, the Company  incurred  non-cash  employee stock  compensation
expense  and  stock  for  consulting  services  expense  totaling  $721,220  and
$584,692,   respectively,   as  discussed  above.  Such  compensation   expenses
materially  increased the Company's net loss for the referenced  periods.  It is
not  anticipated  that the Company will incur  similar  expense  items in future
periods.

Liquidity and Capital Resources

     Since inception,  the Company has financed its operations,  working capital
needs and capital expenditures  principally through private placements of equity
securities.  Cash and cash  equivalents at December 31, 1997 were $548,565.  The
Company  has a note  payable  of  $121,654  bearing  interest  at 12% per annum.
Principal  of $7,553  including  interest  is due  monthly,  with the  remaining
balance  plus  interest  due  upon  maturity  on  May  19,  1998.  The  note  is


                                       13


<PAGE>

collateralized  by an option to purchase 113,333 shares of Common Stock at $1.50
per share.  The Company also has a $28,316 bank loan bearing  interest at 10.5%.
Principal of $1,484  including  interest is due monthly,  with the note maturing
September 15, 1998.  The bank loan is  collateralized  by certain  equipment.  A
subordinated  convertible  debenture of $100,000  payable to a  corporation  was
issued in 1997. The debenture  bears an interest rate of 12% per annum,  payable
semi-annually with principal due upon maturity at May 12, 1998. The debenture is
convertible at $1.25 per common share including principal and accrued interest.

     The Company signed the Purchase  Agreement on December 17, 1997 in which it
agreed to sell to the Investors up to an aggregate of 3,000,000 shares of Common
Stock for total proceeds of $1,500,000.  The First Closing  occurred on December
17, 1997 with an issuance of 2,447,719 shares of Common Stock for  $1,223,859.50
in proceeds. The Second Closing, if consummated,  will result in the issuance of
an additional  552,281  shares of Common Stock.  Proceeds from the First Closing
have been used for working capital.

     The  Company's  independent  auditors  have  included a paragraph  in their
report to the Company's  Board of Directors and  stockholders  which states that
the  Company's  loss  from  operations  and  working  capital  deficiency  raise
substantial doubt about its ability to continue as a going concern.  The Company
is currently  reviewing its cost structure and accessing a possible reduction in
the fixed cost portion of its infrastructure.  If in the first quarter of fiscal
1998 revenues do not significantly  increase as compared to the identical period
for  fiscal  1997,  the  Company  will take  steps to reduce  fixed  costs to be
proportionate  with  revenues.  The Company also intends to increase its current
sales force by entering into marketing  agreements  with certain  consultants to
provide  additional  clients  and  increase  revenues.  As of the  date  of this
Prospectus,  the Company has not entered  into any such  consulting  agreements.
Additionally, the Company continues to enhance its productivity through software
improvements.  The Company plans no material working capital  expenditures  over
the next 12-month  period.  The Company  believes that the net proceeds from the
second tranche of the Purchase Agreement, the existing liquidity sources and the
anticipated working capital provided from improved operations,  will satisfy its
cash requirements for the next 12 months.

Year 2000 Modifications

     All of the Company's computer systems are year 2000 compliant.

Other Matters

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 requires  companies with complex capital  structures that have publicly held
common  stock or common  stock  equivalents  to present  both basic and  diluted
earnings per share ("EPS") on the face of the income statement. The presentation
of basic EPS  replaces the  presentation  of primary EPS  currently  required by
Accounting  Principles  Board  Opinion  No.  15 ("APB  No.  15").  Basic  EPS is
calculated as income  available to common  stockholders  divided by the weighted
average number of common shares  outstanding  during the period.  Diluted EPS is
calculated  using the "if converted"  method for convertible  securities and the
treasury stock method for options and warrants as prescribed by APB No. 15. This
statement is effective  for financial  statements  issued for interim and annual
periods  ending  after  December 15,  1997.  The Company  adopted SFAS 128 as of
December 31, 1997 for the period ended  December 31, 1997 and all prior periods.
The  adoption  of SFAS 128 has not had a  significant  impact  on the  Company's
reported EPS to date.

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 129,  Disclosures of  Information  About
Capital  Structure  ("SFAS  129") which  establishes  standards  for  disclosing
information  about  an  entity's  capital  structure.  The  disclosures  are not
expected to have a significant impact on the consolidated  financial  statements
of the Company.  SFAS 129 is effective  for  financial  statements  ending after
December 15, 1997.


                                       14


<PAGE>


     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 130, Reporting  Comprehensive Income ("SFAS
130") which  established  standards for reporting and  displaying  comprehensive
income and its components (revenues,  expenses,  gains and losses) in a full set
of general purpose financial  statements.  SFAS 130 requires that all items that
are  required to be  recognized  under  accounting  standards as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same  prominence as other  financial  statements.  SFAS 130 is effective for
years  beginning  after  December  15, 1997.  The Company does not  anticipate a
material impact to its consolidated  financial  statements upon adoption of this
standard.

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  131,  Disclosures  About  Segments  of an
Enterprise and Related Information ("SFAS 131") which establishes  standards for
the way public business  enterprises are to report  information  about operating
segments in annual financial statements and requires those enterprises to report
selected  information  about  operating  segments in interim  financial  reports
issued to  shareholders.  It also  establishes  the  related  disclosures  about
products and services,  geographic areas and major customers.  SFAS 131 replaces
the "industry  segment" concept of Financial  Accounting  Standard No. 14 with a
"management approach" concept as the basis for identifying  reportable segments.
SFAS 131 is effective  for  financial  statements  for periods  beginning  after
December 15, 1997. The Company expects additional  disclosures will be required,
but  otherwise  does  not  anticipate  a  material  impact  to its  consolidated
financial statements upon adoption of this standard.

ITEM 7. FINANCIAL STATEMENTS.

     The financial  information required by this Item is found beginning at page
F-1.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE.

     There were no changes in or  disagreements  with  accountants or accounting
and financial disclosure.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
        WITH SECTION 16 OF THE EXCHANGE ACT.

Directors and Executive Officers

     The  following  table  sets forth the names and ages of the  directors  and
executive officers of the Company.

Name                Age    Position
----                ---    --------
W. Mack Goforth     53     Chairman of the Board of Directors, Chief Executive
                           Officer and  Chief Financial Officer
Timothy P. Powell   40     Executive Vice President - Data Services and Director
Dennis Barnes       41     Director
Michael Eckstein    50     Director
David O. Hannah     73     Director
Scott A. Stewart    43     Director

     W. Mack Goforth has served as Chief Financial  Officer of the Company since
November 1997 and Chairman of the Board of Directors and Chief Executive Officer
since February 16, 1998.  From February 1996 to October 1997, Mr. Goforth worked
for Electronic Data Systems Corp. as a Manager in the Global  Purchasing  Group.


                                       15


<PAGE>

From September 1994 to January 1996, Mr. Goforth was a  self-employed  financial
consultant performing due diligence procedures for individuals seeking companies
to purchase and working with fiduciaries associated with bankrupt entities. From
April 1989 to August  1994,  Mr.  Goforth was  employed by MCorp as its Managing
Director  --  Accounting  and  Control.  Mr.  Goforth is a graduate  of Southern
Methodist University and is licensed in the State of Texas as a Certified Public
Accountant.

     Timothy P. Powell has served as Executive  Vice  President -- Data Services
and as a director  of the Company  since  February  1995.  From 1981 to February
1995, Mr. Powell served as a self-employed  computer  consultant for individuals
and corporations.  Mr. Powell contracted  consulting  projects with independent,
governmental  organizations and Fortune 1000 companies, and provided services in
system  design,   implementation,   applications   development  and  procurement
specifications.

     Dennis Barnes has served as a director of the Company since June 1997.  Mr.
Barnes is the Founder,  President and Chief  Executive  Officer of Barnes Health
Group, Inc., a Dallas-based health care development company. Mr. Barnes has more
than 12 years senior  management  experience in health care, and served as Chief
Executive  Officer of Texas Back  Institute,  one of the largest  free  standing
spine clinics in the United  States,  from 1994 to 1996.  From 1992 to 1994, Mr.
Barnes  served as Vice  President  of  Rehabilitation  Services  for Texas  Back
Institute.  Prior to joining Texas Back  Institute,  Mr. Barnes was co-owner and
managing  partner of Independent  Rehabilitation  Ventures from 1990 to 1992. Mr
Barnes has served as  President  of PRIDE  USA,  a  Dallas-based  rehabilitation
company   and  Chief   Executive   Officer  of  MDC   America   Corporation,   a
multidisciplinary  health care company.  He currently serves as the President of
the Board of Directors of Athletes  Working for a Better Texas,  a  Dallas-based
not-for profit company.  Mr. Barnes obtained  Bachelors and Masters degrees from
Midwestern  State  University  and  completed  the  course  work for a Ph.D.  in
Clinical Psychology from the University of Texas Southwestern  Medical School in
Dallas, Texas.

     Michael  Eckstein  has served as a director  of the Company  since  January
1996. Mr. Eckstein is the President of EDI For Healthcare,  a Pennsylvania based
technology company specializing in systems,  networking and EDI applications for
health  care  and  insurance  industries.  Mr.  Eckstein's  personal  experience
includes  over 20  years of  designing  and  implementing  data  processing  and
information  management solutions for health care providers and payors. He is an
active member of the ANSI  Standards  Committee for EDI Insurance and Healthcare
Applications,  and  participates  in  numerous  EDI  initiatives  including  the
National  Information  Infrastructure  task  force for health  care and  medical
applications.

     David O.  Hannah has served as a director  of the  Company  since  February
1995.  For the  proceeding  five years,  Mr.  Hannah has  managed  his  personal
investments. Mr. Hannah has spent most of his professional career in real estate
development,  with expertise in the purchase and  development of real estate for
leasing to commercial entities.

     Scott A.  Stewart has served as a director of the  Company  since  December
1997.  For the past 20 years,  Mr. Stewart has been a partner in the law firm of
Horsley & Stewart,  Dallas,  Texas. Mr. Stewart obtained his Juris Doctorate Law
degree from Southern Methodist University in 1978 and is a Board Certified civil
and personal injury trial lawyer.

Director Compensation Meetings and Committees of the Board of Directors

     The Company does not presently compensate its directors for serving in such
a capacity or  attending  either  Board or  Committee  meetings.  Each  director
currently holds office until the next annual meeting of stockholders and until a
successor  has been elected and  qualified or until his earlier  resignation  or
removal.

     The Board of Directors has created an Audit  Committee  and a  Compensation
Committee;  however,  at the present time,  all Board related  matters are acted
upon by the members as a whole.  The Audit  Committee is to be composed of three


                                       16


<PAGE>

members,  one of which  shall  be  independent  director,  and is  charged  with
reviewing the annual audit and meeting with  independent  accountants  to review
internal controls and financial management practices. The Compensation Committee
is to be composed of three members,  the majority of which are to be independent
directors.  The Compensation Committee is charged with recommending to the Board
of Directors the compensation for key employees.

     The Board of Directors met on five occasions during calendar 1997 and acted
on unanimous consent in lieu of meetings on 11 occasions during such period.

     None of the directors is a party to any material pending legal  proceedings
nor have  there been any legal  proceedings  during the last five years that are
material to an evaluation of the ability or integrity of any of the Directors or
anyone nominated to become a director of the Company.

Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the  Securities  Exchange  Act, as amended (the  "Exchange
Act"), requires directors,  executive officers and persons who own more than ten
percent  of  a  registered  class  of  the  Company's  equity  securities  ("10%
holders"), to file with the Securities and Exchange Commission (the SEC) initial
reports of  ownership  and reports of changes in  ownership  of Common Stock and
other equity securities of the Company. Directors,  officers and 10% holders are
required by SEC  regulation  to furnish  the  Company  with copies of all of the
Section 16(a) reports they file.

     Based  solely on a review of reports  furnished  to the  Company or written
representations  from it's  directors and executive  officers  during the fiscal
year ended December 31, 1997, all Section 16(a) filing  requirements  applicable
to its directors, officers and 10% holders for such year were complied with.

ITEM 10. EXECUTIVE COMPENSATION.

     The  following  Summary  Compensation  Table  sets  forth,  for  the  years
indicated,  all cash  compensation  paid,  distributed  or accrued for services,
including  salary and bonus  amounts,  rendered in all  capacities to the listed
current and former executive officers of the Company. No other executive officer
of  the  Company,  or  any  predecessor   entity,   received  salary  and  bonus
compensation in excess of $100,000 in the referenced  fiscal years,  nor did any
executive  officer  receive  perquisites  or other personal  benefits  exceeding
either $50,000 of 10% of their total annual salary for the referenced periods.

<TABLE>

<S>                                                                              <C>                 <C>

                                                    Summary Compensation Table
                                                                                                      Securities
                                                             Other Annual         Restricted          Underlying
Name/Title                        Year       Salary/Bonus    Compensation         Stock Awards        Options/SARs
----------                        ----       ------------    ------------         ------------        ------------
W. Mack Goforth, Chairman of      1997            $25,000           $-0-                 -0-               200,000
  the Board, Chief Executive
  Officer Financial Officer(1)
Timothy P. Powell, Executive      1997           $101,500           $-0-                 -0-                 -0-
  Vice President-Data Services    1996           $ 73,000           $-0-                 -0-                 -0-
                                  1995           $ 41,450           $-0-                 -0-                 -0-
L. Cade Havard, former Chairman   1997           $158,000           $-0-                 -0-                 -0-
  of The Board, Chief Executive   1996           $184,000           $-0-                 -0-                 -0-
  Officer and President(2)        1995           $ 96,736           $-0-                 -0-                 -0-
Ann C. McDearmon, former          1997           $134,399           $-0-                 -0-                 -0-
  Executive Vice President-       1996            $73,281           $-0-                 -0-                 -0-
  Director of Marketing(3)        1995            $24,500           $-0-                 -0-                 -0-
-----------------------------
(1)  Mr.  Goforth became  employed on  October,14,  1997 and is entitled to base
     compensation of $150,000 per year.
(2)  Mr. Havard's employment with the Company ceased on February 16, 1998.
(3)  Ms. McDearmon  resigned as Executive Vice President - Director of Marketing
     effective March 20, 1998.

</TABLE>

                                       17

<PAGE>

Employment Agreements and Related Matters

     On October 14, 1997,  the Company and W. Mack Goforth,  the Chairman of the
Board,  Chief  Executive  Officer and Chief Financial  Officer,  entered into an
Employment and Settlement  Agreement (the  "Agreement").  Under the terms of the
Agreement, Mr. Goforth agreed to serve the Company for a term of five years from
November 1, 1997.  As  compensation  for services to be rendered by Mr.  Goforth
under the terms of the  Agreement,  he is entitled to receive a base salary (the
"Base  Salary")  at a rate of One  Hundred  Fifty  Thousand  and No/100  Dollars
($150,000) per year payable in accordance with the Company's established payroll
procedures.  Mr.  Goforth is  entitled  to  participate  in all  benefit  plans,
including stock option plans, provided by the Company on the same basis as other
executive officers of the Company.  Furthermore, Mr. Goforth is entitled to four
weeks of paid vacation.  Mr. Goforth also received  options to purchase  200,000
shares of Common Stock at a price of $1.0625 per share.  These options vest at a
rate of 50,000  per year  beginning  October  31,  1998.  The  Agreement  may be
terminated by the Company  without cause, in which event Mr. Goforth is entitled
to receive one year's Base Salary and any options that would have vested in that
year  will be  accelerated  as full  and  final  satisfaction  of the  Company's
obligations  to Mr.  Goforth.  If Mr.  Goforth is  terminated  after a change in
control,  Mr. Goforth will be entitled to the amounts due through the end of the
contract and all non-vested  options will become vested.  The Agreement may also
be  terminated  by the  Company  for  cause at any time the  Board of  Directors
determines  Mr.  Goforth has been  convicted of a felony or has engaged in gross
malfeasance or willful  misconduct in performing his duties under the Agreement.
In the event,  Mr.  Goforth is  terminated  for cause,  he shall be  entitled to
receive any accrued but unpaid salary and bonus  compensation.  If Mr. Goforth's
employment is terminated without cause, Mr. Goforth has the right to include any
shares  purchased  pursuant  to the  exercise  of  the  options  granted  in the
Agreement in the next registration  statement filed by the Company with the SEC.
Upon termination of the Agreement,  Mr. Goforth has agreed,  for a period of two
(2) years  thereafter,  not to solicit for his own benefit,  any business of the
same  or  similar  nature  to  any  business  conducted  by the  Company  or any
subsidiary  during the term of the  Agreement  from any entities  with which the
Company conducted business during the term of the Agreement.

     On March 1, 1995,  the  Company  and  Timothy  P.  Powell,  Executive  Vice
President  -  Data   Services,   entered  into  an  Employment   Agreement  (the
"Agreement").  Under the terms of the  Agreement,  Mr. Powell agreed to serve in
the capacity of Executive  Vice  President - Data  Services of the Company for a
term of three years ending December 31, 1998. As compensation for services to be
rendered  by Mr.  Powell  under the terms of the  Agreement,  he is  entitled to
receive a base salary (the "Base Salary") at a rate of Seventy-two  Thousand and
No/100  Dollars  ($72,000)  per year payable in  accordance  with the  Company's
established  payroll  procedures and commission  based  compensation  related to
client  originations.  Effective  September  1997, Mr.  Powell's Base Salary was
increased  to $120,000.  Mr.  Powell is entitled to  participate  in all benefit
plans,  including stock option plans,  provided by the Company on the same basis
as other executive officers of the Company.  Furthermore, Mr. Powell is entitled
to three weeks of paid vacation.  The Agreement may be terminated by the Company
without  cause,  in which  event Mr.  Powell is  entitled  to receive 25% of all
salary  due for the  remainder  of the  Agreement.  The  Agreement  may  also be
terminated  by the  Company  for  cause  at any  time  the  Board  of  Directors
determines  Mr.  Powell has been  convicted  of a felony or has engaged in gross
malfeasance or willful  misconduct in performing his duties under the Agreement.
In the event Mr. Powell is terminated for cause, he shall be entitled to receive
any accrued but unpaid salary and bonus compensation.

     On February 16, 1998, the Board of Directors of the Company  terminated the
Amended and Restated Employment  Agreement,  dated December 17, 1997, of L. Cade
Havard,  the former Chairman of the Board, Chief Executive Officer and President
of the Company.  The decision to terminate  the agreement was based in part upon
the inability of the Board of Directors  and Mr.  Havard to resolve  differences
regarding  the Company's  ongoing  management  and  operational  philosophy.  On
February 16, 1998,  Mr. Havard  resigned  from the Board of  Directors.  Also on
February 16, 1998, the Board of Directors elected W. Mack Goforth, the Company's
Chief Financial  Officer,  as a member of the Board of Directors and to serve as
Chairman thereof,  as well as electing Mr. Goforth as Chief Executive Officer of
the Company.

                                       18

<PAGE>

     On March 20, 1998, Ann C. McDearmon, Executive Vice President - Director of
Marketing,  submitted her resignation effective immediately,  under the terms of
her  Employment   Agreement  dated  March  1,  1997.  Ms.  McDearmon  cited  her
disagreement  over the engagement of consultants to review the operations of ETC
Services and other philosophical reasons as the basis for her decision to resign
as an officer of the Company.  Existing  personnel  will be utilized to fill the
responsibilities vacated by Ms. McDearmon.

Stock Options

     During fiscal 1997, W. Mack Goforth and Ann C. McDearmon  received  options
to purchase 200,000 shares of Common Stock at $1.06 per share and 250,000 shares
of Common Stock at $1.25 per share, respectively.  Mr. Goforth's options vest at
a rate of 50,000  options  per year  beginning  October  1998.  Ms.  McDearmon's
options are fully vested,  with none having been  exercised  during fiscal 1997.
The  options  issued  to Ms.  McDearmon  expired  upon  the  termination  of her
employment with the Company.  L. Cade Havard,  the former Chairman of the Board,
Chief  Executive  Officer and  President  of the Company,  exercised  options to
purchase an aggregate of 720,000  shares of Common Stock during fiscal 1997. Mr.
Havard's  remaining  options to purchase  280,000  shares of Common Stock,  at a
purchase  price of $1.25 per share,  were canceled upon the  termination  of Mr.
Havard's employment agreement in February 1998.

     During fiscal 1997, the Company  granted  options to purchase 50,000 shares
of Common Stock,  at an exercise price of $1.50 per share, to an employee of the
Company.  The option vests over the period  commencing June 1998 and ending June
2000 and  expires  upon the  termination  of the  holder's  employment  with the
Company.

<TABLE>

<S>                                                                             <C>                    <C>        
                     Options/SAR Grants in Last Fiscal Year

                                     Number of Securities         Percent of Total Options/             Exercise of
                                      Underlying Options/              SARs Granted to                   Base Price
          Name/Title                   SARs Granted (#)           Employees in Fiscal 1997                 ($/Sh)
          ----------                   ----------------           ------------------------                 ------
W. Mack Goforth, Chairman of the            200,000                         15.4%                          $1.06
  Board, Chief Executive Officer
  And Chief Financial Officer
Timothy P. Powell, Executive Vice             -0-                            -0-                            -0-
  President - Data Services
L. Cade Havard, former Chairman of          800,000                         61.5%                          $1.25
  the Board, Chief Executive
  Officer and President
Ann C. McDearmon, former                    250,000                         19.2%                          $1.25
  Executive Vice President-
  Director of Marketing


                                         Aggregated Fiscal Year-End Option Values
                                        Number of Securities Underlying
                                                 Options/SARs                   Percent of Total            Exercise or
                                                  Granted (#)               Options/SARs Granted to         Base Price
            Name/Title                  Exercisable        Unexercisable    Employees in Fiscal 1997          ($/Sh)
            ----------                  -----------        -------------    ------------------------          ------

W. Mack Goforth, Chairman of  the           -0-               200,000                 N/A                       N/A
  Board, Chief Executive Officer
  and Chief Financial Officer
Timothy P. Powell, Executive Vice           -0-                 -0-                   -0-                       -0-
  President - Data Services
L. Cade Havard, former Chairman           280,000               -0-                   $-0-                     $-0-
  of  the Board , Chief Executive
  Officer and President
Ann C. McDearmon, former Executive        250,000               -0-                   $-0-                     $-0-
  Vice President-Director of          
  Marketing

</TABLE>

                                       19

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table provides certain  information  based on the outstanding
securities of the Company as of March 23, 1998,  with respect to each  director,
each  beneficial  owner of more than 10% of the the Company Common Stock and all
corporate officers and directors of the Company as a group.

<TABLE>
<S>                                                                             <C>   <C>        

             Name and Address                           Amount of             Percent of Oustanding
        Of Beneficial Owner (1)(2)                 Beneficial Ownership          Common Stock
        --------------------------                 --------------------          ------------
     W. Mack Goforth (3)                                   -0-                      -0-
     Timothy P. Powell (3)(4)                            446,666                    3.0
     Dennis Barnes (3)                                    45,782                     *
     Michael Eckstein (3)                                100,000                     *
     David O. Hannah (3)                                 738,813                    5.2
     Scott A. Stewart (3)                                 62,337                     *
     All executive officers and directors as a         1,393,598                    9.9
       group
     (6 persons as to the Company)
     Special Situations Private Equity Fund,           2,000,000                   13.8
     L.P.(5)(6)
     Special Situations Cayman Fund, L.P.(5)(7)        1,000,000                    7.0
     L. Cade Havard (8)                                2,867,028                   20.3

</TABLE>

-------------------
    *Indicates less than 1%.
(1)  A person is deemed to be the  beneficial  owner of  securities  that can be
     acquired  by  such  person  within  60  days  following  the  date  of this
     Prospectus  upon the  exercise  of options  or  warrants.  Each  beneficial
     owner's  percentage  ownership is  determined  by assuming  that options or
     warrants  that are held by such  person  (but not  those  held by any other
     person)  and  which  are  exercisable  within 60 days from the date of this
     Prospectus  have  been  exercised.  Unless  otherwise  noted,  the  Company
     believes  that  all  persons  named  in the  table  have  sole  voting  and
     investment  power with respect to all common shares  beneficially  owned by
     them.
(2)  Unless otherwise indicated, the address of each beneficial owner identified
     is: c/o the Company, 5025 Arapaho Road, Suite 501, Dallas, Texas 75248.
(3)  Director of the Company.
(4)  Represents  options to  purchase  446,666  shares of Common  Stock from the
     Sterling National  Corporation Trust. The options are fully vested and have
     an exercise price of $.001 per share.
(5)  Special  Situations Private Equity Fund, L.P. and Special Situations Cayman
     Fund,  L.P. are affiliated  entities  managed through  investment  advisors
     principally owned by Austin W. Marxe and David M. Greenhouse.
(6)  Includes  the right to purchase  368,188  shares of Common  Stock under the
     terms of the Purchase Agreement.
(7)  Includes  the right to purchase  184,093  shares of Common  Stock under the
     terms of the Purchase Agreement.
(8)  Includes  (i)  500,214  shares  of Common  Stock  issued in the name of Mr.
     Havard's  minor  children over which Mr. Havard  exercises  sole voting and
     investment  power;  (ii) 6,224 shares of Common Stock issued in the name of
     Sterling,  of which Mr.  Havard is the sole  stockholder  and (iii) 500,000
     shares of Common Stock issued in the name of Anneal O. Havard,  the wife of
     L. Cade Havard.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     In early 1995,  ETC-Texas  purchased  certain  assets of Sterling  National
Corporation ("Sterling"), a company wholly owned and operated by L. Cade Havard,
the former Chairman of the Board,  Chief Executive  Officer and President of the
Company,  in  exchange  for a cash  payment  of  $210,000  and the  issuance  of
3,965,100  shares of  ETC-Texas  common  stock.  Sterling  is  currently  in the
business of  factoring  accounts  receivable,  and is the record  owner of 6,224
shares of Common Stock.  There are no current  arrangements  between the parties
and none are presently contemplated.

     On December 12, 1995,  ETC-Texas  entered into a marketing  agreement  (the
"Marketing  Agreement") with MS3. Rick Snyder,  the principal owner of MS3, is a
former director of the Company. Under the terms of the Marketing Agreement,  MS3
is to assist the Company in  identifying  and bringing  under  contract  clients
requiring  claims  processing  services.  As of December 31, 1997,  MS3 was owed
$32,857 under the Marketing Agreement.

     On January 18, 1996,  ETC-Texas  entered into a consulting  agreement  with
Michael  Eckstein,  a director of the  Company,  pursuant to which Mr.  Eckstein
agreed to assist  ETC-Texas in  identifying  and placing  under  contract  TPAs,
preferred  provider  organizations and other managed care companies which may be


                                       20

<PAGE>

able to utilize the Company's  claims  processing  services.  Under the terms of
this agreement,  Mr.  Eckstein is entitled to receive  compensation on a monthly
basis  equal to $3,500 and  commissions  equal to 8% of the "gross  income  from
revenue,"  as defined in the  agreement,  realized by the Company  from  clients
generated by Mr. Eckstein.

     On April 1, 1996, Solo issued 201,112 shares of its common stock to L. Cade
Havard,  the then Chairman of the Board and Chief Executive  Officer of Solo, in
satisfaction of $201,112 of debt owed by Solo to Mr. Havard.

     The Company is a party to an  equipment  lease and stock  option  agreement
(the "Lease  Agreement"),  dated April 23, 1996,  with Ironwood  Leasing Ltd., a
Texas corporation ("Ironwood"). Principals of Ironwood, including Dennis Barnes,
a director of the Company, are also stockholders of the Company. Under the terms
of the Lease Agreement,  the Company leases certain scanning equipment necessary
to scan paper claims and convert them into electronically  transmittable  claims
data information. Under the Lease Agreement, the Company has granted to Ironwood
the option to either (i) sell to the Company all the equipment referenced in the
Lease  Agreement  in exchange  for the number of shares of Common Stock equal to
the  purchase  price  for  said  equipment  divided  by 1.25  per  share or (ii)
purchase,  at a per share price of $1.25,  the number of shares of Common  Stock
equal to the purchase price of the equipment divided by 1.25 whereby the Company
may in turn  purchase the  equipment  referenced  in the Lease  Agreement at the
expiration of the lease term for $1.00.  On June 20, 1996,  Ironwood  waived the
escrow  requirements  imposed  pursuant  to the Lease  Agreement  for the period
ending June 30, 1996. Ironwood further agreed that the Company would not have to
comply with the escrow  provisions of the Lease  Agreement until the Company had
received 30 days written notice from Ironwood. The Lease Agreement is for a term
of five years and automatically renews for consecutive one-year periods unless a
party thereto  notifies the other of its intent to terminate the Lease Agreement
90 days prior to the end of the renewal term.

     Effective May 1, 1996,  Roy W. Mers ("Mers")  resigned from his position as
President and director of ETC Texas.  As a consequence to his  resignation,  ETC
Texas and Mers entered into a Settlement Agreement the obligations of which were
assumed  by  the  Company.  Pursuant  to  the  agreement,  ETC-Texas  agreed  to
compensate  Mers for his efforts in assisting  ETC-Texas in obtaining  financing
for its business  ventures.  The agreement  terminated on August 1, 1997 with no
compensation being paid to Mr. Mers.

     Effective April 1, 1997, the Company completed a business  combination with
Electra-Net,  L.C. ("Electra-Net") by assuming its net liabilities.  Electra-Net
is a limited  liability  company  wholly owned and controlled by L. Cade Havard.
Mr. Havard  received shares of Common Stock as additional  consideration  in the
transaction.  In December 1997,  Mr. Havard  returned all shares of Common Stock
received in the  transaction,  pending a review by the Board of Directors of the
appropriateness  of the consideration  paid. After a review of the nature of the
business  combination,  it was  determined  by the Board that Mr. Havard was not
entitled to any additional consideration.

     On May 2, 1997, the Company and Elaine Boze, the Company's  General Counsel
and a member of the Board of Directors,  entered into a Severance  Agreement and
General Release (the "Severance Agreement") whereby Ms. Boze resigned as General
Counsel  and a  director  of the  Company.  Under  the  terms  of the  Severance
Agreement,  Ms. Boze received a $25,000  separation payment and is entitled to a
continuation  of her health care  benefits  until such time as Ms. Boze  becomes
employed by an entity  providing  similar  benefits.  In  consideration  for the
foregoing,   Ms.   Boze   agreed   to   non-competition,   confidentiality   and
non-solicitation covenants which expire on May 2, 1999.



                                       21


<PAGE>

<TABLE>

<S>                                                                             <C>             <C>   

ITEM 13. EXHIBITS AND REPORTS ON FORM 10-K.

(a)  Financial Statements and Exhibits Page

     1.   Financial Statements. The following financial statements are submitted
          as part of this report:

          Independent Auditor's Report.......................................................... F-1
          Balance Sheet-December 31, 1997 and 1996.............................................. F-2   
          Statements of Operations-Years Ended December 31, 1997 and 1996....................... F-3
          Statements of Stockholders' Equity-Years Ended December 31, 1997 and 1996............. F-4
          Statement of Cash Flows-Years Ended December 31, 1997 and 1996........................ F-5
          Notes to Financial Statements......................................................... F-6

</TABLE>

     2.   Exhibits

             Exhibit Number                          Description of Exhibits
                  27.1                               Financial Data Schedule


(b)  Reports on Form 8-K.

     On December 30, 1997 the Company filed a Corrective  Report on Form 8-K for
     the purpose of reporting  consummation of the financing contemplated by the
     Purchase  Agreement whereby the Investors acquired the right to purchase up
     to 3,000,000  shares of Common  Stock.  See  "Management's  Discussion  and
     Analysis or Plan of Operation".



















                                       22

<PAGE>



                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or  Section  15(d)  of the
Securities  Exchange Act of 1934,  the Registrant has duly caused this report to
be signed on its behalf by the  undersigned  thereunto duly  authorized on March
27, 1998.

                                     ELECTRONIC TRANSMISSION CORPORATION

                                     By  /s/ W. Mack Goforth
                                     -------------------------------------------
                                     W. Mack Goforth
                                     Chairman of the Board, Chief Executive
                                     Officer and Chief Financial Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

<TABLE>

<S>                                                                             <C>    

       Signature                        Title                                Date
       ---------                        -----                                ----

/s/ W. MACK GOFORTH          Chairman of the Board, Executive Vice         March 27, 1998
-------------------------    President and Chief Financial Officer
    W. Mack  Goforth         



/s/ TIMOTHY P. POWELL        Executive Vice President - Data Services      March 27, 1998
--------------------------   and Director
     Timothy P. Powell       


/s/ DENNIS E. BARNES         Director                                      March 27, 1998
--------------------------
     Dennis E. Barnes


/s/ DAVID O. HANNAH          Director                                      March 27, 1998
--------------------------
     David O. Hannah


/s/ MICHAEL G. ECKSTEIN      Director                                      March 27, 1998
--------------------------
     Michael G. Eckstein


/s/ SCOTT A. STEWART         Director                                      March 27, 1998
--------------------------
     Scott A. Stewart


</TABLE>




                                       23

<PAGE>


                                                       
                                             INDEPENDENT AUDITORS' REPORT

January 30, 1998

To the Board of Directors
of Electronic Transmission Corporation:

We have  audited the  accompanying  balance  sheets of  Electronic  Transmission
Corporation,  a Delaware corporation,  as of December 31, 1996 and 1997, and the
related  statements of operations,  stockholders'  equity and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of  Electronic  Transmission
Corporation  as of December 31, 1996 and 1997, and the results of operations and
its cash flows for the years then ended in conformity  with  generally  accepted
accounting principles.

As described in Note 3, the accompanying financial statements have been prepared
assuming  that the Company  will  continue as a going  concern.  The Company has
experienced net losses of $2,470,684 and $1,999,404 for the years ended December
31, 1996 and 1997, respectively. Additionally, the Company's current liabilities
exceeded  its  current  assets by  $562,394  and had an  accumulated  deficit of
$6,976,881 at December 31, 1997. These conditions raise  substantial doubt about
the  Company's  ability  to  continue  as a going  concern.  Management's  plans
regarding those matters are also described in Note 3. Unless the Company obtains
an increased  customer base, it will not be able to meet its obligations as they
come due and it will be unable to execute its  long-term  business  plan.  These
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

Simonton, Kutac & Barnidge, L.L.P.
Houston, Texas

                                       F-1

<PAGE>

<TABLE>
<CAPTION>

                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------
                                 BALANCE SHEETS
                                 --------------
<S>                                                                             <C>      <C>    <C>   
                                                                                         December 31,
                                                                            ------------------------------------
                                                                                  1996                  1997
                                     ASSETS                                 ----------------     ---------------
                                     ------

Current Assets:
    Cash and cash equivalents                                               $         50,125     $        548,565
    Accounts receivable                                                              264,559              353,818
    Current portion, capital lease receivable                                         25,095               27,723
    Prepaid assets                                                                    15,286               20,780
                                                                            ----------------     ----------------
       Total Current Assets                                                          355,065              950,886
                                                                            ----------------     ----------------


Property and Equipment, net                                                          521,576              866,398
                                                                            ----------------     ----------------

Capital lease receivable                                                              27,723                   --
Deposits and other                                                                    14,610                8,490
                                                                            ----------------     ----------------
                                                                                      42,333                8,490
                                                                            ----------------     ----------------


Total Assets                                                                $        918,974     $      1,825,774
                                                                            ================     ================


                       LIABILITIES & STOCKHOLDERS' EQUITY
                       ----------------------------------
Current Liabilities:
    Accounts payable and accrued liabilities                                $        567,188      $     1,161,070
    Notes payable and convertible debentures                                              --              249,970
    Current portion, capital lease obligations                                        95,206              102,240
                                                                            ----------------      ---------------
       Total Current Liabilities                                                     662,394            1,513,280

Note payable - ETC Transaction Corporation                                           779,575                   --
Due to shareholder                                                                   339,208                   --
Long-term capital lease obligations                                                  114,106               25,587
                                                                            ----------------      ---------------
       Total Liabilities                                                           1,895,283            1,538,867
                                                                            ----------------      ---------------

Stockholders' Equity:
    Preferred stock, $1 par value, 2,000,000 shares
       authorized; no shares issued and outstanding                                       --                   --
    Common stock, $0.001 par value, 15,000,000
       shares authorized; 7,153,601 and 14,026,024
       shares issued and outstanding, respectively                                 2,475,637                14,026
    Additional paid-in-capital                                                       322,067             7,249,762
    Accumulated deficit                                                           (3,774,013)           (6,976,881)
                                                                            ----------------      ----------------
       Total Stockholders' Equity                                                   (976,309)              286,907
                                                                            ----------------      ----------------

Total Liabilities & Stockholders' Equity                                    $        918,974      $      1,825,774
                                                                            ================      ================

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                       F-2

<PAGE>

<TABLE>
<CAPTION>

                      ELECTRONIC TRANSMISSION CORPORATION
                      -----------------------------------
                            STATEMENTS OF OPERATIONS
                            ------------------------

<S>                                                                             <C>              <C>     

                                                                                      For the Years Ended
                                                                                         December 31,
                                                                            --------------------------------------
                                                                                   1996                 1997
                                                                            ----------------      ----------------
Service revenues                                                            $        831,323      $      3,249,492
                                                                            ----------------      ----------------

Costs and Expenses:
    Costs of revenues                                                                568,474             1,682,083
    Selling, general and administrative                                              826,285             3,406,709
    Depreciation and amortization                                                    111,420               270,186
    Start-up costs                                                                   395,866                    --
    Research and development                                                       1,469,858                    --
                                                                            ----------------      ----------------
       Total Costs and Expenses                                                    3,371,903             5,358,978
                                                                            ----------------      ----------------

Loss from operations                                                              (2,540,580)           (2,109,486)

Other Income (Expense):
    Interest expense, net                                                            (34,230)              (87,328)
    Other income                                                                     104,126                88,148
                                                                            ----------------      ----------------
       Total Other Income                                                             69,896                   820
                                                                            ----------------      ----------------
Loss before income tax expense and
    extraordinary item                                                            (2,470,684)           (2,108,666)

Income tax benefit                                                                        --                36,000
                                                                            ----------------      ----------------

Loss before extraordinary item                                                    (2,470,684)           (2,072,666)

Extraordinary item - extinguishment of debt, net of
    applicable income taxes of $36,000                                                    --                73,262
                                                                            ----------------      ----------------

Net loss                                                                    $     (2,470,684)     $     (1,999,404)
                                                                            ================      ================

Loss per common share:
       Basic                                                                $         (0.36)      $         (0.23)
                                                                            ===============       ===============
       Diluted                                                              $         (0.36)      $         (0.24)
                                                                            ===============       ===============

Weighted average common shares outstanding:
       Basic                                                                       6,906,593             8,960,723
                                                                            ================      ================
       Diluted                                                                     6,906,593             8,751,524
                                                                            ================      ================
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-3



<PAGE>

<TABLE>
<CAPTION>
                      ELECTRONIC TRANSMISSION CORPORATION
                      -----------------------------------
  
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                       ----------------------------------

<S>                                                                             <C>          <C>               <C> 

                                                                              
                                                Common Stock                   Additional       
                                        --------------------------------        Paid-In          Accumulated
                                             Shares          Amount             Capital           Deficit           Total
                                        --------------    --------------   ---------------    --------------   ---------------

Balance at December 31, 1995                 6,158,210    $    1,494,023   $            --    $   (1,303,329)  $       190,694

Issuance of shares for cash                    732,766           718,989                --                --           718,989
Issuance of shares for services                262,625           262,625                --                --           262,625
Compensation expense                                --                --           322,067                --           322,067
Net loss                                            --                --                 -        (2,470,684)       (2,470,684)
                                        --------------    --------------   ---------------        ----------        ----------

Balance at December 31, 1996                 7,153,601         2,475,637           322,067        (3,774,013)         (976,309)

Merger with ETC
   Transaction Corporation                   2,007,144         1,704,569                --        (1,050,938)          653,631
Conversion of Electronic
   Transmission Corporation
   Stock on 1 for 1.25 Basis                 1,788,401                --                --                --                --
Reclass for par value $0.001                        --        (4,169,257)        4,169,257                --                --
Conversion of debentures                        74,153                74            84,494                --            84,568
Issuance of shares for cash                  2,682,725             2,683         1,231,311                --         1,233,994
Issuance of shares for services                320,000               320           399,680                --           400,000
Capital contribution                                --                --           721,733                --           721,733
Compensation expense                                --                --           321,220                --           321,220
Deemed dividend                                     --                --                --          (152,526)         (152,526)
Net loss                                            --                --                --        (1,999,404)       (1,999,404)
                                        --------------    --------------   ---------------    --------------   ---------------

Balance at December 31, 1997                14,026,024    $       14,026   $     7,249,762    $   (6,976,881)  $       286,907
                                        ==============    ==============   ===============    ==============   ===============

</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------
                                              
                            STATEMENTS OF CASH FLOWS
                            ------------------------
                                                                                 

<S>                                                                             <C>           <C>   
                                                                                    For the Years Ended
                                                                                         December 31,
                                                                           -----------------------------------
                                                                                1996                 1997
Cash Flows from Operations:                                                --------------      ------------
Net loss                                                                   $   (2,470,684)     $  (1,999,404)
Adjustments to Reconcile Net Loss to
  Net Cash Provided (Used) by Operations:
    Non-cash issuance of common stock for services rendered                       262,625            400,000
    Non-cash compensation from stock options                                      322,067            321,220
    Depreciation and amortization                                                 111,420            270,186
    Increase in accounts receivable-trade                                        (229,298)           (91,551)
    Decrease (increase) in employee advances                                      (22,469)            25,162
    Increase in prepaid expenses                                                  (11,531)            (5,493)
    Decrease (increase) in deposits and other assets                              (10,174)             2,067
    Increase (decrease) in accounts payable                                       172,020            (14,485)
    Increase in accrued expenses                                                  120,395            240,260
    Increase in accrued payroll and taxes                                          80,695            125,615
    Increase (decrease) in accrued interest payable                                27,800            (46,870)
                                                                           --------------      -------------

   Net Cash Provided (Used) by Operating Activities                            (1,647,134)          (773,293)
                                                                           --------------      --------------

Cash Flows from Investing Activities:
    Payments on capital lease receivable                                           11,642             25,095
    Purchases of furniture and equipment                                         (312,580)          (368,962)
                                                                           --------------      -------------

   Net Cash Used in Investing Activities                                         (300,938)          (343,867)
                                                                           --------------      -------------

Cash Flows from Financing Activities:
    Issuance of convertible debentures                                                 --            150,000
    Payments on convertible debentures                                                 --            (20,000)
    Proceeds from notes payable                                                   779,575            202,000
    Payments on notes payable                                                          --            (52,030)
    Payments on capital leases payable                                            (37,202)           (98,231)
    Net proceeds (payment) of shareholder loans                                   421,949           (521,866)
    Capital contribution                                                               --            721,733
    Issuance of common stock for cash                                             718,990          1,233,994
                                                                           --------------      -------------

   Net Cash Provided by Financing Activities                                    1,883,312          1,615,600
                                                                           --------------      -------------

Net increase (decrease) in cash                                                   (64,760)           498,440
Cash and equivalents, beginning of period                                         114,885             50,125
                                                                           --------------      -------------
Cash and equivalents, end of period                                        $       50,125      $     548,565
                                                                           ==============      =============


</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-5


<PAGE>


                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Electronic   Transmission   Corporation   ("ETC"  or   "Company"),   a  Delaware
corporation,   provides   services  to  self-insured   companies,   third  party
administrators  that pay claims for  self-insured  companies  and other  medical
provider  networks  or  cost  containment   companies   providing   services  to
self-insured  companies.  The Company's  automation  capabilities  encompass the
entire workflow  process  involved in processing and paying  healthcare  claims.
Additionally,  the Company provides third party administrative services which it
will operate through its wholly owned  subsidiary in 1998.  Revenues are derived
primarily from commerce within the United States.

Effective  February  11,  1997,  ETC  completed  a  merger  with  and  into  ETC
Transaction Corporation, formerly known as Solo Petroleums Ltd. The merger is in
effect a reverse  acquisition and is accounted for as a recapitalization of ETC,
with ETC as the acquirer (see Note 2). Effective  February 11, 1997, the name of
ETC Transaction Corporation was changed to Electronic Transmission  Corporation,
with the Certificate of  Incorporation  being duly amended to reflect the change
of name.

Consolidation  -- The  financial  statements  do not include the accounts of ETC
Administrative  Services, Inc., a Texas corporation and wholly owned subsidiary,
which  did  not  become  active  until  January  1998.  Upon  activation  of the
subsidiary, all intercompany accounts and transactions will be eliminated.

Development  stage -- ETC was in the development stage until the last quarter of
1996,  as it had no  significant  revenues.  In the last  quarter,  a  long-term
contract  was  executed  with a  large  national  self-insured  corporation  and
operations  commenced.  Start-up costs incurred  during the period of developing
ETC's  business  plan are  expensed  as incurred in  accordance  with  generally
accepted  accounting  principles.  Research and  development  costs incurred are
expensed  as  incurred  in  accordance   with  generally   accepted   accounting
principles.

Revenue  recognition  --  The  Company  recognizes  revenue  when  services  are
performed.

Cash and cash  equivalents -- For purposes of the statements of cash flows,  the
Company  considers  any  short-term  cash  investments  with a maturity of three
months or less to be a cash equivalent.

Accounts  receivable -- The Company's trade  receivables arise from sales in the
normal  course  of  business.  ETC uses the  allowance  method  to  account  for
uncollectible  accounts;  in management's  opinion, all accounts are collectible
and no allowance is necessary at December 31, 1996 and December 31, 1997.



                                      F-6

<PAGE>


                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------
                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND (Continued)
------------------------------------------------------------------

Office  furniture,  equipment and leasehold  improvements  -- Office  furniture,
equipment and leasehold improvements are stated at cost. Maintenance and repairs
are charged to operating expense. Costs of significant improvements and renewals
are capitalized.  Depreciation is provided on the  straight-line  basis over the
following useful lives:
                                                                     Estimated
                                                                    Useful Lives
                                                                    ------------
              Office furniture                                         5 years
              Computer and office equipment                            3 years
              Computer software                                        3 years
              Leasehold improvements                                   5 years

Periodically,  the Company  evaluates  whether  changes have occurred that would
require  revision of the  remaining  estimated  useful lives of the equipment or
rendered the value of the  equipment  not  recoverable.  The  recoverability  is
evaluated by estimating the future cash flows expected to result from use of the
asset and its  eventual  disposition.  Equipment  as of December 31, 1997 is not
considered to be impaired.

Income  taxes -- ETC  utilizes  the asset and  liability  approach to  financial
accounting  and  reporting  for  income  taxes.  Deferred  income tax assets and
liabilities  are  computed  annually  for  differences   between  the  financial
statement and tax basis of assets and liabilities that will result in taxable or
deductible  amounts in the future based on enacted tax laws and rates applicable
to the periods in which the  differences  are expected to affect taxable income.
Valuation  allowances  are  established  when  necessary to reduce  deferred tax
assets to the amount  expected  to be  realized.  Income tax  expense is the tax
payable or refundable  for the period plus or minus the change during the period
in deferred tax assets and liabilities.

Loss per share -- Loss per common share was calculated by dividing the Company's
net loss by the weighted average common shares outstanding. Certain common stock
equivalents were excluded from the calculation, as such inclusion would have had
an anti-dilutive effect.

Fair value of financial  instruments -- The carrying value of cash,  receivables
and accounts payable  approximates fair value due to the short maturity of these
instruments.  The carrying value of short and long-term debt  approximates  fair
value based on discounting the projected cash flows using market rates available
for similar maturities.  None of the financial  instruments are held for trading
purposes.







                                      F-7


<PAGE>

                      ELECTRONIC TRANSMISSION CORPORATION
                      -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------
                          
                           December 31, 1996 and 1997
                           --------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------------

Use of estimates and assumptions -- Management uses estimates and assumptions in
preparing its financial  statements.  Those estimates and assumptions affect the
reported amounts of assets and liabilities,  the disclosure of contingent assets
and  liabilities,  and the  reported  amounts of revenues and  expenses.  Actual
results could vary from the estimates that were used.

Stock-based  compensation  -- The Company has an  incentive  stock  option plan.
Compensation  costs  arising  from the plan will be recorded as an expense.  The
measurement  date for determining  compensation  costs is the date of the grant.
Compensation cost is the excess, if any, of the quoted market price of the stock
at date of grant  over the amount the  employee  must pay to acquire  the stock.
Compensation  cost is  recognized  as an expense  over the period of  employment
attributable to the option.  The Company measures  compensation  costs using the
"intrinsic value based method" of accounting for stock issued to employees.

Reclassifications  - Certain  amounts for the year ended December 31, 1996, have
been  reclassified  to conform  with the  December  31, 1997  presentation.  The
reclassifications  have no effect on net income for the year ended  December 31,
1996.

NOTE 2 - MERGER
---------------

Effective  February  11,  1997,  ETC  completed  a merger  with ETC  Transaction
Corporation,  formerly known as Solo  Petroleums Ltd. The merger was effected by
ETC Transaction  Corporation issuing 1.25 shares for each issued and outstanding
common share in ETC. At the date of merger,  ETC had 7,153,601 shares issued and
outstanding and  accordingly,  the merger resulted in the issuance of 10,949,146
shares in ETC  Transaction  Corporation  for all of the issued  and  outstanding
common shares of Electronic Transmission  Corporation.  A special meeting of the
shareholders of ETC was held on January 31, 1997, at which time the shareholders
ratified and  approved  the terms and  conditions  of the Merger  Agreement  and
authorized the Board of Directors of ETC to effect the merger.  ETC  Transaction
Corporation  held its annual  meeting on February  11,  1997,  at which time the
shareholders  ratified  and approved  both the  Continuance  of ETC  Transaction
Corporation  into the State of Delaware and the Merger  Agreement and authorized
the Board of Directors to effect the merger. ETC and ETC Transaction Corporation
executed  the merger  transaction  as a  reorganization  within  the  meaning of
Section  368(a) of the Internal  Revenue Code of 1986,  as amended (the "Code").
ETC and ETC  Transaction  Corporation  did not  recognize  any gain or loss as a
result of the  merger.  The  merger is in  effect a reverse  acquisition  and is
accounted for as a recapitalization of ETC, with ETC as the acquirer.  Effective
February  11,  1997,  the name of ETC  Transaction  Corporation  was  changed to
Electronic Transmission Corporation, with the Certificate of Incorporation being
duly amended to reflect the change of name.



                                      F-8


<PAGE>


                      ELECTRONIC TRANSMISSION CORPORATION
                      -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 3 - GOING CONCERN AND CONTINUED OPERATIONS
-----------------------------------------------

The financial  statements  have been prepared on the assumption that the Company
will continue as a going  concern.  The financial  statements do not include any
adjustments  to  reflect  the  possible  effects  on  the   recoverability   and
classification  of assets or classification of liabilities which may result from
the inability of the Company to continue as a going concern. ETC sustained a net
operating loss of $2,470,684 and $1,999,404  during the years ended December 31,
1996 and 1997,  respectively.  Cash used by  operating  activities  for the same
periods  aggregated  $1,647,134  and $773,293,  respectively.  Additionally,  at
December 31, 1997,  ETC's  current  liabilities  exceeded its current  assets by
$562,394.  ETC's  continued  existence  depends upon the success of management's
efforts to raise sufficient capital and increase its customer base.

Management  plans to mitigate the going concern issues by marketing its services
to large  self-insured  companies  to  expand  its  customer  base and  increase
profitability.  Management  believes  that it will be  successful  in generating
sufficient cash to support its  operations.  There can be no degree of assurance
that the Company will be successful  in raising  additional  working  capital or
executing its business plan to the extent that it will be profitable.

NOTE 4 - ACCOUNTS RECEIVABLE
----------------------------

The following is a summary of accounts receivable:

                                                      December 31,
                                               ---------------------------
                                                   1996           1997
                                               ------------    -----------
         Accounts receivable - trade           $    236,356    $   350,113
         Employee receivables                        28,203          3,041
         Accounts receivable - other                     --            664
                                               ------------    -----------

                                               $    264,559    $   353,818
                                               ============    ===========

In September 1997, the Company entered into an agreement whereby the Company has
the right to sell certain receivables, with recourse, to a financial institution
from time to time  until  September  1998.  The  maximum  amount of  outstanding
receivables  owned by the  financial  institution  at any time is $500,000.  The
receivables  are discounted at 2.75% of the face value of the  receivables.  The
financial institution retains 20% of the face amount of outstanding  receivables
in a cash reserve account in the name of the Company. The Company is required to
repurchase any receivables  sold, which are in arrears more than ninety days, at
the receivables amount net of unearned interest.  During the year ended December
31,  1997,  the  Company  received  $1,080,806  from  the  sale of  receivables.
Receivables  which were outstanding  under the agreement at year-end amounted to
$228,757.  Required cash reserves included in cash and cash equivalents amounted
to $45,751 at December 31, 1997.  Discounts on the sale of receivables  recorded
as an expense in 1997 amounted to $38,500.


                                       F-9


<PAGE>

                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 5 - CAPITAL LEASE RECEIVABLE
---------------------------------

The  Company,  as lessor,  has entered into a  non-cancelable  lease for service
equipment.  Future minimum lease payments  receivable  under the  non-cancelable
lease at December 31, 1997 are as follows:
                                                             Capital
                                                             Leases
                                                        ----------------
    Total minimum lease payments during the
        years ended December 31, 1998                   $         29,248

    Less: amount representing interest                            (1,525)
                                                        ----------------
    Present value of minimum lease payments             $         27,723
                                                        ================


NOTE 6 - OFFICE FURNITURE AND EQUIPMENT
--------------------------------------

The following is a summary of office furniture and equipment:

                                                               December 31,
                                                       ------------------------
                                                            1996          1997
                                                        ---------     ---------
                  Furniture                             $ 104,349     $ 105,473
                  Computer & Office Equipment             458,178       615,521
                  Computer Software                        92,836       544,368
                  Leasehold Improvements                    8,791         9,747
                                                        ---------     ---------
                                                          664,154     1,275,109
                  Less:  accumulated depreciation        (142,578)     (408,711)
                                                        ---------     ---------
                                                        $ 521,576     $ 866,398
                                                        =========     =========

Depreciation expense was $110,405 and $266,133 for 1996 and 1997, respectively.

NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------

The following is a summary of accounts payable and accrued liabilities:

                                                               December 31,
                                                        -----------------------
                                                            1996          1997
                                                        ---------    ----------
                  Accounts payable                      $ 221,315    $  247,325
                  Accrued expenses                        128,248       596,272
                  Accrued payroll and taxes               189,825       315,440
                  Accrued interest payable                 27,800         2,033
                                                        ---------    ---------

                                                        $ 567,188    $1,161,070
                                                        =========    ==========
                                      F-10

<PAGE>


                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 8 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES
-------------------------------------------------

The following is a summary of notes payable: 
<TABLE>
<S>                                                                                  <C>  <C>      <C>     

                                                                                          December 31,
                                                                                     -------------------------
                                                                                       1996          1997
                                                                                     ---------      ----------
Note  payable to  corporation,  interest at 12.0%,  $7,553  principal  including
interest due monthly,  remaining  balance plus interest due upon maturity on May
19, 1998; collateralized by option to purchase 113,000 shares of common stock at
$1.50 per share.                                                                     $      --      $  121,654

Note payable to bank, interest at 10.5%, $1,484 principal including interest due
monthly,  maturing  September 15, 1998;  collateralized by certain equipment and
assignment of officer's life insurance policy.                                              --          28,316

Subordinated  convertible  debenture  payable to corporation,  interest at 12.0%
payable semi-annually,  principal due upon maturity at May 12, 1998, convertible
at $1.25 per common share including principal and accrued interest.                         --         100,000
                                                                                     ---------       ---------

                                                                                     $      --       $ 249,970
                                                                                     =========       =========
</TABLE>

Under an agreement with a leasing company discussed in Note 9, the Company has a
$500,000  line of  credit of which  funding  is based on the  leasing  companies
ability to provide funds. As of December 31, 1997, the Company has made no draws
under this agreement.

During 1991 and 1992, ETC  Transaction  Corporation  (formerly Solo  Petroleums,
Ltd.) issued  $52,500 in short-term  convertible  debentures  which were due 180
days from issuance bearing an interest rate of 20%. The debentures  provided for
the holder to receive ten common shares of ETC Transaction Corporation stock for
each one U.S.  dollar of debenture.  In December 1997, the Company issued 32,500
shares of common  stock on a  $1-for-1  share  basis in full  settlement  of the
agreements. The remaining $20,000 debentures were paid in cash to the holders in
full settlement.

On  May  14,  1997,  the  Company  issued  $50,000  in  short-term  subordinated
convertible  debentures  which  were  due  in  one  year.  The  debentures  were
convertible at $1.25 per common share including  principal and accrued interest.
On September 22, 1997,  the holder  converted  $52,067 of principal and interest
into 41,653 of common stock.


                                      F-11


<PAGE>


                      ELECTRONIC TRANSMISSION CORPORATION
                      -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 9 - LEASE OBLIGATIONS PAYABLE
----------------------------------

The  Company,  as lessee,  has entered into  various  non-cancelable  leases for
service  equipment,  vehicles,  and  office  facilities.  Future  minimum  lease
payments under non-cancelable leases at December 31, 1997 are as follows:

            For the Years Ending                    Capital         Operating
                December 31,                        Leases           Leases
         --------------------------               ------------    ------------

                    1998                          $   110,095     $  183,680
                    1999                               26,487        189,375
                    2000                                   --        195,071
                 Thereafter                                --        149,507
                                                  -----------     -------------

    Total minimum lease payments                      136,582     $  717,633
                                                                  ==============
        Less: amount representing interest             (8,755)
                                                  -----------

    Present value of minimum lease payments           127,827
        Less: current portion                        (102,240)
                                                  -----------

    Long-term capital lease obligation            $    25,587
                                                 ============

Rent expense  during the years ended  December  31, 1996 and 1997 for  operating
leases was $122,544  and  $173,494,  respectively,  and is included in operating
expenses.

The cost of assets  subject to capital leases  included in office  furniture and
equipment is as follows:

                                                          December 31,
                                                    ----------------------
                                                     1996         1997
                                                    ---------    ---------

     Computer & Office Equipment                    $ 182,053    $ 198,801
     Less:  accumulated depreciation                  (21,044)     (84,520)
                                                    ---------    ---------
                                                    $ 161,009    $ 114,281
                                                    =========    =========

In April 1996, the Company  entered into an equipment  lease agreement and stock
option  agreement with a leasing company which is recorded as a capital lease by
the Company. The agreement is for a term of five years and allows the Company to
lease  certain  equipment  for amounts  specified in the  agreement  with rental
payments  due on the first of each  month.  As of  December  31,  1997,  monthly
payments  required  under the lease  agreement  amounted  to $9,954  expiring in
December 1999.



   
                                  F-12


<PAGE>

                      ELECTRONIC TRANSMISSION CORPORATION
                      -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 9 - LEASE OBLIGATIONS PAYABLE (Continued)
----------------------------------------------

At any time during the term of the agreement,  the leasing company has the right
to i) sell to ETC any or all of the  equipment  in  exchange  for the  number of
shares of ETC common stock, or stock of any company with which ETC merges,  that
is equal to the purchase  price of the equipment  divided by $1.25 per share or,
ii) purchase, at $1.25 per share, the number of shares of ETC stock, or stock of
the merged  company,  equal to the purchase  price of the  equipment  divided by
1.25,  and give ETC the option to purchase the equipment at the end of the lease
for $1.00; provided,  that if ETC issues, agrees to issue or grants an option to
purchase  ETC stock to any other  person  for a price less than $1.25 per share,
the price  payable to the leasing  company  will be reduced to such lower price.
During  December  1997,  the Company  sold common  stock at a price of $0.50 per
share; therefore, the leasing company has the option to purchase common stock at
this price as discussed in Note 12.

The leasing company agreement contains certain  restrictive  covenants which (i)
required ETC to escrow all accounts  received which were derived from the use of
this  equipment,  less third party  costs,  through  March 31, 1996 or until any
class of stock became registered with the Securities and Exchange  Commission or
otherwise  became  publicly  traded,  or the funds in escrow  equaled  the total
purchase price of the equipment, and (ii) restricted ETC from issuing additional
securities before ETC merged with a public company. ETC was in violation of each
of these covenants and has obtained a waiver from the leasing company  releasing
ETC from any claims under the escrow requirement and violations  relating to the
issuance of securities.

NOTE 10 - INCOME TAXES
----------------------

ETC has net operating loss  carryforwards of  approximately  $4,519,000 that are
available to offset any future  income tax  liability.  The net  operating  loss
carryforwards expire as follows:

        For the Years Ending      
           December 31,                              Expiring
        ---------------------                       ----------
              2010                                  $  880,000
              2011                                   2,006,000
              2012                                   1,633,000
                                                    ----------
              Total                                 $4,519,000
                                                    ==========

Deferred income taxes result from the book versus tax accounting  difference for
net  operating  loss  carryforwards,  accrued  payroll  and  stock  option-based
compensation.  The Company has  deferred tax assets  amounting to  approximately
$1,115,000  and  $1,627,000  at December  31, 1996 and 1997,  respectively.  The
realization of the benefits from these deferred tax assets appears uncertain due
to going concern questions. Accordingly, a valuation allowance has been recorded
which offsets the deferred tax assets at December 31, 1996 and 1997.


                                      F-13


<PAGE>


                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 10 - INCOME TAXES (Continued)
---------------------------------

The  components of the  provision for federal  income taxes are as follows as of
December 31:

                                                     1996             1997
                                                 --------------   --------------

Currently payable                                $           --   $          --
Deferred                                                     --         (36,000)
                                                 --------------   -------------

Federal income tax expense (benefit)             $           --   $     (36,000)
                                                 ==============   =============

Deferred  tax benefit  results  from the  difference  in  extraordinary  gain on
extinguishment  of debt which  reduced  the  benefit of the net  operating  loss
carryforwards  and  decreased  the  valuation  allowance  recorded  against  the
deferred tax assets.

NOTE 11 - BUSINESS COMBINATION
------------------------------

Effective  April 1, 1997,  the  Company  completed a business  combination  with
Electra-Net,   L.C.   ("Electra-Net")   by  assuming   their  net   liabilities.
Electra-Net,  L.C. is a company  wholly  owned and  controlled  by ETC's  former
Chairman  of  the  Board,  Chief  Executive   Officer,   President  and  current
shareholder.

The transaction was accounted for using the purchase method as follows:

         Assets Acquired:
                  Cash                                      $           2,065
                  Accounts receivable                                  76,061
                  Computer hardware                                    20,908
                                                            -----------------
                            Total assets                    $          99,034
                                                            -----------------

         Liabilities Assumed:
                  Accounts payable                          $          15,711
                  Loans payable                                       235,849
                                                            -----------------
                            Total liabilities               $         251,560
                                                            -----------------

         Net Liabilities Assumed                            $         152,526

         Consideration Paid:
                  Cash                                      $              --
                                                            -----------------
                  Total consideration                                      --
                                                            -----------------

         Dividend paid to shareholder                       $         152,526
                                                            =================



                                      F-14


<PAGE>


                      ELECTRONIC TRANSMISSION CORPORATION
                      -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 11 - BUSINESS COMBINATION (Continued)
-----------------------------------------

Treatment of the excess consideration (net liabilities assumed) for the business
is accounted for as a deemed  dividend in  accordance  with  generally  accepted
accounting  principles.  Goodwill was not recorded  since this  transaction  was
consummated  with a related party and this  treatment  would have  constituted a
step-up in basis.  The  transaction is reflected in the financial  statements on
the date the transaction  occurred (April 1, 1997), in accordance with generally
accepted accounting principles.

NOTE 12 - STOCK OPTIONS
-----------------------

The Company has issued  various  stock options to employees of the Company which
are considered compensatory. Vesting varies by employee agreement ranging from 2
to 5 years.  The contractual  life of outstanding  stock options at December 31,
1997 is the term of employment of the holder.

A summary of the status of employee stock options is set forth below:

<TABLE>

<S>                                                                             <C>      <C>         <C>    


                                                      Year ended                            Year ended
                                                    December 31, 1996                     December 31, 1997
                                          ----------------------------------      -------------------------
                                                               Weighted                               Weighted
                                                                Average                                Average
                                                               Exercise                               Exercise
Stock Options                                  Shares            Price               Shares             Price
-------------                             -------------        --------           -------------       --------
Outstanding, beginning of period                 675,000        $0.001                  691,667        $0.001
Granted                                          260,000        $0.001                1,400,000        $0.990
Exercised                                       (118,333)       $0.001                 (234,999)       $0.040
Forfeited/expired                               (125,000)       $0.001                 (865,000)       $0.780
                                          -------------                           -------------
Outstanding, end of period                       691,667        $0.001                  991,668        $0.740
                                          ==============                          =============

Options exercisable, end of period                18,333        $0.001                  741,668
                                          ==============                          =============

Weighted average fair value of
    options granted during the year       $         1.12                          $        0.85
                                          ==============                          =============

The following table summarizes information about fixed stock options outstanding
at December 31, 1997:

Range of exercise prices                                     $0.001 to $1.50 per common share
Weighted average exercise price                              $0.74 per common share


</TABLE>



                                      F-15


<PAGE>


                      ELECTRONIC TRANSMISSION CORPORATION
                      -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 12 - STOCK OPTIONS (Continued)
----------------------------------

Compensation  costs  will be  recognized  as an  expense  over  the  periods  of
employment  attributable  to the options at an amount equal to the excess of the
fair market  value of the stock at the date of  measurement  over the amount the
employee  must pay. The  measurement  date is generally  the grant date.  Future
compensation  expense to be recorded in  subsequent  periods as of December  31,
1996 and 1997,  was $555,897  and $0,  respectively.  During  1997,  the Company
elected  to rescind  specific  compensatory  stock  options of an officer of the
Company. Accordingly,  compensation costs associated with these options were not
expensed  due to the  officer  retroactively  forfeiting  any  rights  under the
original option agreement.  Effective June 30, 1997, the Company elected to vest
all  employee  stock  options  and  recognize   compensation   expense  for  all
outstanding  options.  Compensation  cost  totalling  $322,067  and $321,220 was
recognized  as  expense  during  the years  ended  December  31,  1996 and 1997,
respectively.  Had compensation cost for the Company's stock-based  compensation
been  determined on the fair value at the grant dates for awards with the method
of FASB  Statement 123, the Company's net loss and loss per share would not have
been significantly changed.

As discussed in Note 8, the Company  issued 113,333  options to purchase  common
stock at $1.50  per  share  to a  corporation  as  collateral  to  secure a note
payable. The options expire on May 19, 1998.

Under an  agreement  with a leasing  company  discussed  in Note 9, the  leasing
company has 210,608 options to purchase  common stock at $0.50 per share.  These
options have no fixed maturity.

NOTE 13 - STOCK WARRANTS
------------------------

Effective  June 1, 1996, the Company issued 220,000 stock warrants which expired
on June 15,  1997,  and allowed the holder of each warrant to purchase one share
of common  stock at a price of $1.50 per share.  As of  December  31,  1996,  no
warrants had been  exercised.  This  agreement  was  superceded by the following
agreement dated February 28, 1997.

Effective  February 28, 1997,  the Company  issued  520,000 stock warrants which
expire on February  28,  2004,  and allow the holder of each warrant to purchase
one share of common  stock at a price of $1.25 per  share.  As of  December  31,
1997, no warrants have been exercised.

Effective June 1, 1997, the Company issued 23,000 stock warrants which expire on
June 1, 1998,  and allow the holder of each  warrant  to  purchase  one share of
common stock at a price of $1.50 per share. As of December 31, 1997, no warrants
have been exercised.



                                      F-16



<PAGE>

                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 14 - CUSTOMER CONCENTRATION
--------------------------------

For the year ended  December 31, 1996,  revenues  from one customer  amounted to
approximately  64% of total  revenues.  For the year ended  December  31,  1997,
revenues  from two  customers  amounted  to  approximately  56% and 13% of total
revenues, respectively.

Trade  accounts  receivable  included  $76,395  and  $86,717  relating  to these
customers at December 31, 1996 and 1997, respectively.

NOTE 15  - RELATED PARTY TRANSACTIONS
-------------------------------------

In December 1995, the Company entered into an agreement with a marketing firm to
assist in obtaining and servicing customers. A member of the marketing firm is a
former member of the Board of Directors.  Compensation for services  rendered to
the Company  will be paid through  November  1997.  At December  31,  1997,  the
Company was indebted to the former director in the amount of $32,857.

On May 15,  1996,  the  Company  executed a note  payable of  $779,575  with ETC
Transaction  Corporation  of which the proceeds were used as working  capital to
fund  its  post-merger  business  plan.  The  note  payable  to ETC  Transaction
Corporation and related accrued  interest of $27,800  eliminated upon completion
of the merger.

As of December 31, 1996 and 1997,  the Company had a payable of $339,207 and $0,
respectively,  to Sterling  National  Corporation  ("SNC")  for working  capital
loans.  SNC is  wholly-owned  and operated by the former  Chairman of the Board,
Chief Executive Officer and shareholder of ETC.

At December 31, 1996, the Company has a trade  receivable due from  Electra-Net,
L.C., a company  wholly-owned  and operated by the former Chairman of the Board,
C.E.O.  and majority  shareholder of ETC. The receivable of $103,026  relates to
administrative fees for providing computer processing for medical claims.

The Company had an agreement to purchase  equipment  from SNC. The  relationship
exists  through  SNC's  purchase  contract  with an equipment  wholesaler  which
allowed  SNC to  purchase  equipment  at a  significant  discount.  The  Company
recorded the  equipment  purchases at SNC's cost.  As of December 31, 1997,  the
agreement had been cancelled. During the years ended December 31, 1996 and 1997,
the Company purchased equipment totaling $127,709 and $20,291, respectively.






                                      F-17



<PAGE>


                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------

NOTE 16 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
----------------------------------------------------------

During the years ended  December 31, 1996 and 1997,  the Company paid $9,021 and
$79,202 for interest, respectively. During the years ended December 31, 1996 and
1997, the Company made no payments for income taxes.

Non-cash investing and financing activities include the following:

The Company acquired assets valued at $246,513 and $16,747 through capital lease
obligations during the year ended December 31, 1996 and 1997, respectively.  The
Company  disposed of assets with a carrying  value of $64,460  through a capital
lease receivable during the year ended December 31, 1996.

During the years ended  December 31, 1996 and 1997,  the Company  issued 262,625
common stock shares for services rendered at $1 per share in the total amount of
$262,625.  During the year ended  December 31, 1997,  the Company issued 320,000
common stock shares for services rendered at $1.25 per share in the total amount
of $400,000.

NOTE 17 - EARNINGS PER SHARE
----------------------------

The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted earnings per share computations:

<TABLE>

<S>                                                                             <C>         <C>     

                                                           For the year ended December 31, 1996
                                                     -------------------------------------------------
                                                           Loss              Shares          Per Share
                                                        (Numerator)       (Denominator)       Amount
                                                     --------------    ----------------     ----------
Loss before extraordinary item                       $   (2,470,684)            
Basic earnings per share
Loss available to common stockholders                $   (2,470,684)         6,906,593      $   (0.36)
                                                                                            ==========
Effect of dilutive securities
Employee stock options                                           --                 --
                                                     --------------     --------------
Diluted earnings per share
Loss available to common stockholders
    plus assumed conversions                         $  (2,470,684)          6,906,593)     $   (0.36)
                                                     =============      ==============      =========

</TABLE>





                                      F-18




<PAGE>

                       ELECTRONIC TRANSMISSION CORPORATION
                       -----------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                          -----------------------------

                           December 31, 1996 and 1997
                           --------------------------


NOTE 17 - EARNINGS PER SHARE (Continued)
---------------------------------------

<TABLE>

<S>                                                                             <C>              <C>       

                                                               For the year ended December 31, 1997
                                                     --------------------------------------------------------
                                                           Loss                  Shares            Per Share
                                                        (Numerator)           (Denominator)          Amount
                                                     ----------------       ----------------      -----------
Loss before extraordinary item                       $     (2,072,666)             
Basic earnings per share
Loss available to common stockholders                $     (2,072,666)             8,960,723      $    (0.23)
                                                                                                  ==========
Effect of dilutive securities
12% convertible debentures                                      5,077                (20,517)
Warrants                                                           --               (111,406)
Employee stock options                                             --                (26,707)
Non-employee options                                               --                (50,569)
                                                     ----------------       ----------------
Diluted earnings per share
Loss available to common stockholders
    plus assumed conversions                         $  (2,067,589)                8,751,524      $    (0.24)
                                                     ================       ================      ===========

</TABLE>

Options  to  purchase  691,667  shares of common  stock at $0.001 per share were
outstanding  at December 31, 1996,  but were not included in the  computation of
diluted  earnings per share  because the options had an  antidilutive  effect on
earnings per share. As of December 31, 1997,  options to purchase 741,668 shares
of common  stock at $0.001 per share were  outstanding  but were not included in
the  computation  of diluted  earnings  per share  because  the  options  had an
antidilutive effect on earnings per share.

NOTE 18 - SUBSEQUENT EVENTS
---------------------------

The Company is in the process of amending its June 30, 1997,  and  September 30,
1997,  quarterly  financial  statement  filings with the Securities and Exchange
Commission to reflect the  rescission  of certain  common stock and stock option
agreements in the fourth quarter of 1997. The financial  statements  reflect the
rescission of these agreements at December 31, 1997.

On February 16, 1998, L. Cade Havard, the Company's Chairman of the Board, Chief
Executive  Officer and  President,  was  terminated  by the  Company's  Board of
Directors. The Board of Directors appointed W. Mack Goforth, the Company's Chief
Financial Officer, as its Chief Executive Officer and Chairman of the Board.









                                      F-19