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                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 20549

                                    FORM 10-KSB/A
                                ---------------------

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended December 31, 1997

                             Commission file number 22135

                         ELECTRONIC TRANSMISSION CORPORATION
                    (Name of Small Business Issuer in Its Charter)

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

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

                    Issuer's telephone number: (972) 980-0900

                                ---------------------

        Securities registered pursuant to Section 12(b) of the Act:  None

           Securities registered pursuant to Section 12(g) of the 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 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.   Yes X
                                                                        ---

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and will not be contained, to the best
of the issuer's knowledge, in definitive proxy or informational 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.

     The aggregate market value of voting and non-voting common stock held by
non-affiliates of the issuer, computed by reference to the closing sales price
of such securities on July 24, 1998, was $447,705.47.

     As of August 7, 1998, 3,694,423 shares of the issuer's common stock were
outstanding.

                         DOCUMENTS INCORPORATED BY REFERENCE:

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

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                                        PART I

ITEM 1.   DESCRIPTION OF BUSINESS.

     UNLESS OTHERWISE INDICATED, ALL SHARE AND PER SHARE DATA AND INFORMATION
RELATING TO THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING IN THIS ANNUAL
REPORT HAVE BEEN ADJUSTED TO GIVE EFFECT TO A ONE-FOR-FOUR REVERSE STOCK SPLIT
OF THE COMPANY'S COMMON STOCK, PAR VALUE $.001 PER SHARE (THE "COMMON STOCK"),
EFFECTIVE JULY 1, 1998.

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"), and ETC Transaction Corporation,
a Delaware corporation (formerly known as Solo Petroleums Ltd., an Alberta,
Canada corporation and referred to herein as "ETC-Canada") in February 1997. 
ETC-Canada was originally incorporated on September 5, 1986 for the purpose of
undertaking oil and gas exploration efforts.  By 1990, revenues from oil and gas
exploration efforts had substantially declined and ETC-Canada began experiencing
financial difficulties.  As a result, ETC-Canada liquidated substantially all of
its assets and underwent a significant change in management during 1990.  
ETC-Texas was organized in December 1994 under the laws of the State of 
Texas, and initiated the business concept currently operated by the Company.

     ETC-Texas and ETC-Canada jointly filed a registration statement with the
U.S. Securities and Exchange Commission (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.  On February 11, 1997,
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 Company following 
the Merger.

     Effective April 1, 1997, the Company acquired the assets, including the
name, of Electra-Net, L.C., a Texas limited liability company.  Electra-Net,
L.C. was wholly owned and operated by L. Cade Havard, the Company's Chairman of
the Board and Chief Executive Officer at the time of the combination.  Mr.
Havard's employment with the Company ceased on February 16, 1998.  In
consideration for the assets, Mr. Havard received 100,000 shares of Common Stock
and the Company assumed certain liabilities of Electra-Net, L.C.  All shares of
Common Stock received by Mr. Havard in connection with this transaction have
been returned to the Company.  The acquired assets represent those used by the
Company's Electra-Net division to initiate its medical claims repricing service
component.

GENERAL

     The Company is a provider of claims automation, medical claims repricing
and third party administration services to the non-provider sector of the health
care industry.  These services are automated through a broad range of
application and data base information systems, which are developed by the
Company, with certain enhancements related thereto being proprietary in nature. 
The Company contracts with health care payors, self-insured companies and other
payors, such as third-party administrators ("TPAs"), to provide automation and
electronic data interchange ("EDI") services.  The Company, through its 
Electra-Net division, also contracts with various health care provider 
networks to provide medical claims repricing services to its 


                                     -2-

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clients.  With the inauguration of TPA capabilities through ETC 
Administrative Services, Inc., a wholly-owned subsidiary ("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.

CORE COMPETENCIES

     The Company's principal  service areas include (i) claims automation, (ii)
medical claims repricing services, 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)
preferred provider organizations ("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 CLAIMS REPRICING.  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.

     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.


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     As a full service TPA, 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 insurance 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 believes that new business opportunities exist with (i) PPOs;
(ii) claims processors, TPAs, and small- to medium-sized insurance companies;
and (iii) large self-insured and self-administered corporations.  The Company
believes these market segments have immediate operational needs for the
Company's automation and/or repricing products.  The Company has submitted
several proposals to potential clients in each of the afore-referenced business
sectors.  As of the date of this report, the Company has not entered into any
binding agreements to provide services to any potential client which has
received a written proposal from the Company.  By leveraging the experience
gained from the Company's existing TPA operation, the Company believes it can
now begin to focus on selling its core competencies to these segments.  The
Company has developed a business strategy focused on increasing cash flows by
extensively marketing its services to the afore-referenced segments of the
health care industry and by cross selling currently available services to its
existing clients.

     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 review 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
provides and installs, at no cost to a client, claims processing equipment (the
"Processing Equipment"), including computer, telecommunications and scanning
equipment, for use at the client's facility.  Upon termination of a contractual
relationship with a client, the Processing Equipment is returned to the Company.
Once the contractual relationship is entered into, it is the Company's intention
to initiate 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.


                                     -4-

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     ENHANCED MARKETING EFFORT.  Although the Company has utilized direct
marketing efforts to solicit customers in the past, new customers have been
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 may have to expand the range of
existing services, its distribution channels and its sales force.

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 currently generated
primarily by the Company's management group.  The Company intends to add 
full-time sales personnel.

     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 and 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 cost containment companies.  The
Company's current customer base includes four self-insured and self-administered
customers and four health care provider networks.

     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
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, respectively, for the benefit of Wal-Mart.  The Company
earned revenues of approximately $1,818,000 and $596,754 in fiscal 1997 and
1996, respectively, from Wal-Mart, which revenue amounts include fees paid for
both automation and repricing services provided to Wal-Mart.  Revenues generated
from Wal-Mart represented approximately 56% 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


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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.  The Company's ability to
develop new methodologies and to adapt to changes in the industry depends upon
its ability to produce sufficient cash flow to be able to finance its ongoing
operations.  No assurances can be given that the Company can generate cash flow
necessary to resume research and development activities which may be required to
meet the demands of the marketplace.

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 Corporation's business.  The
failure by the Corporation 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 Corporation 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 Corporation.

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 July 1998, the
Company had 35 full-time employees.  None of the Company's employees are
represented by a labor union or subject to a collective bargaining agreement. 
The Company has never experienced a work stoppage and believes that its
relationship with its employees is good.

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
aggregate of 750,000 shares of Common Stock for total consideration of
$1,500,000 or $2.00 per share.  The Purchase Agreement called for the sale and
purchase of the available shares to occur in two tranches.  On December 17,
1997, the Investors purchased an aggregate of 611,930 shares of Common Stock,
which Shares were registered in a registration statement declared effective by
the SEC on August 12, 1998, for total cash consideration of $1,223,859.50 (the
"First Closing").  The Investors, in accordance with the terms of the Purchase
Agreement, have advised the Company that they do not intend to purchase the
remaining 138,070 shares of Common Stock.


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     In connection with the First Closing, the Company committed to the
Investors 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 would be exchanged
for one share of Common Stock (the foregoing amendments to the Certificate of
Incorporation being collectively referred to herein as the "Amendments").  A
special meeting of the 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 to the Company's Certificate of
Incorporation increasing the authorized Common Stock to 20,000,000 shares was
filed with the State of Delaware on February 27, 1998, and a Certificate of
Amendment to the Company's Certificate of Incorporation effecting the Reverse
Stock Split was filed with the State of Delaware on June 16, 1998.

     On June 25, 1998, David O. Hannah, a director of the Company, purchased
100,000 restricted shares of Common Stock for an aggregate purchase price of
$100,000 or $1.00 per share.  Also on June 25, 1998, Mr. Hannah loaned to the
Company the principal amount of $100,000.  The note is due and payable on
December 25, 1998.  Furthermore, the Company is obligated to issue to Mr. Hannah
25,000 restricted shares of Common Stock in lieu of payment of cash interest on
the principal amount of the debt.  The obligation is secured by all of the
assets of the Company.  The outstanding principal balance of the obligation to
Mr. Hannah is convertible by him at any time prior to the maturity date into
restricted shares of Common Stock at a rate of one share of Common Stock for
every $2.00 of principal converted.

     On June 29, 1998, the Company executed promissory notes in the principal
amounts of $20,000 and $5,000 payable to Scott Stewart, a director of the
Company, and to David Stewart, Mr. Stewart's brother, respectively.  The notes
are due and payable on December 29, 1998.  Scott Stewart is entitled to receive
5,000 shares of Common Stock and David Stewart is entitled to receive 1,250
shares of Common Stock in lieu of cash interest on the principal amount of their
respective notes.  The obligations to the note holders are secured by all of the
assets of the Company.  The outstanding principal balances of these notes are
convertible at any time prior to the maturity date of the obligations by the
holders into shares of Common Stock at the rate of one share of Common Stock for
every $2.00 of principal converted.

     In late June and early July 1998, the Company executed two promissory notes
payable to unaffiliated third parties in the aggregate principal amount of
$45,000.  The notes are due and payable six months from the execution date.  The
holders of the notes are entitled to receive an aggregate of 10,250 shares of
Common Stock in lieu of receipt of cash interest on the principal amount of the
respective obligations.  The obligations to the note holders are secured by all
of the assets of the Company.  The outstanding principal balances of the notes
are convertible at any time prior to the maturity thereof into shares of Common
Stock at the rate of one share of Common Stock for every $2.00 of principal
converted.

     On July 9, 1998, the Company sold to an unaffiliated individual 10,000
shares of Common Stock for an aggregate purchase price of $10,000 or $1.00 per
share.

CURRENT OPERATIONS AND RELATED MATTERS

     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, 


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the Company's Chief Financial Officer, as a member of the Board of the 
Directors and to serve as Chairman thereof, as well as electing Mr. Goforth 
as Chief Executive Officer of the Company.

     On March 20, 1998, the Employment Agreement between the Company and Ann C.
McDearmon, the Company's Executive Vice President -- Director of Marketing, was
terminated.  Ms. McDearmon, in a lawsuit filed on April 20, 1998 in State
District Court of Dallas County, Texas, alleged that the Employment Agreement
was effectively terminated by the Company as a result of the change in the
Company's management in February 1998 and because of modifications to Ms.
McDearmon's work responsibilities.  Ms. McDearmon also alleged that as a result
of the termination of the employment agreement she is entitled to certain
liquidated damages identified in the agreement.  Ms. McDearmon's employment
agreement provides that should she be terminated for any reason other than for
cause she would be entitled to receive (i) 25% of all base salary ($60,000 per
year) that would have been earned from the date of termination through the
expiration of the term of the agreement (December 31, 2000); (ii) commission
payments for a period of one year from the date of termination; and (iii) free
medical insurance coverage for life.  The Company maintains that Ms. McDearmon
voluntarily terminated the employment agreement by submitting her letter of
resignation on March 20, 1998 and that she is not entitled to any additional
compensation or liquidated damages under the terms of such agreement.  The
Company intends to vigorously defend this lawsuit and does not believe that the
outcome will have a material adverse effect upon its financial condition.

     On May 7, 1998, Steven K. Arnold agreed to serve as a consultant to the
Company on an interim basis pending his formal election by the Board of
Directors as Chairman of the Board and Chief Executive Officer of the Company. 
Effective on May 28, 1998, Mr. Arnold was elected Chairman of the Board and
Chief Executive Officer of the Company.  Mr. Goforth continues to serve as the
Company's Chief Financial Officer, but resigned as a director of the Company
effective May 28, 1998.

     On July 28, 1998, the Company, each of the Company's directors, in their
individual capacity and as members of the Board of Directors, W. Mack Goforth,
the Company's Chief Financial Officer, L. Cade Havard and Sterling National
Corporation ("Sterling") entered into the Compromise Settlement Agreement and
Mutual Release (the "Settlement Agreement") for the purpose of resolving all
disputes between the Company, its directors, Mr. Havard and Sterling.  Under the
terms of the Settlement Agreement, Mr. Havard and Sterling, a corporation wholly
owned by Mr. Havard, agreed to transfer to the Company an aggregate of 462,500
shares of Common Stock.  Furthermore, Sterling agreed to assign and transfer all
of its rights and obligations as trustee under the Sterling National Corporation
Trust to the Company, thereby allowing the Company to serve as trustee for such
voting trust.  The Settlement Agreement also provides that Mr. Havard will agree
to continue to be bound by the non-competition and non-disclosure covenants of
his Amended and Restated Employment and Settlement Agreement dated December 17,
1997, except with regard to certain services to be provided by Mr. Havard for
the benefit of Electronic Data System in the worker's compensation marketplace. 
The parties to the Settlement Agreement also have agreed to release each other
from any and all claims or causes of action, whether known or unknown, which
have arisen or may arise from acts or actions undertaken by the parties prior to
July 28, 1998.

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 $7,079,297.  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


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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, SUBSTANTIAL doubt existed as to the Company's ability
to continue as a going concern.

     WORKING CAPITAL DEFICIT; LACK OF LIQUIDITY AND CAPITAL RESOURCES.  As of
December 31, 1997, the Company had total current assets of $1,179,643 and total
current liabilities of $1,742,037 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 capabilities 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. The Company does not currently maintain a bank line of credit.

     POSSIBILITY OF CONTINUED LOSSES.  The Company incurred losses of $2,470,684
for the fiscal year ended December 31, 1996 and $2,101,820 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.

     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 future demands of the marketplace.  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 CLIENT; MATERIAL CONTRACTS.  For the 12 months ended
December 31, 1997, services provided to Wal-Mart Stores, Inc. ("Wal-Mart"), the
Company's largest client, accounted for approximately 56% of revenues.  The
Company's service provider agreement with Wal-Mart expires in September 1998. 
For the twelve months ended December 31, 1997, network and repricing services
provided to Champion International accounted for approximately 12% of its
revenues.  Effective May 1, 1998, the Company ceased to provide network and
repricing services to Champion International.  The loss of Wal-Mart as a 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 


                                     -9-

<PAGE>

the terms of the Processing Agreement, IDI can only perform medical claim 
conversions for the Company or pay the Company five percent 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 May 1999.  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.

     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 automation services, 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.  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.

     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 


                                    -10-

<PAGE>

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 Steven K. Arnold, Chairman of the Board and Chief Executive Officer,
W. Mack Goforth, Chief Financial Officer, and Timothy P. Powell, Executive Vice
President -- Data Services.  The loss of the services of any of these
individuals could have a materially adverse effect on the Company.  Mr. Goforth
has entered into an employment agreement which contains non-competition
covenants.  Mr. Powell has entered into an employment agreement and 
non-competition agreement with the Company.  Mr. Arnold has entered into an 
employment agreement with the Company; however, the agreement does not 
contain any non-competition or non-solicitation covenants.  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.

     AFFILIATED TRANSACTIONS.  Certain officers, directors and related parties
have engaged in business transactions with the Company.  The Company has entered
into consulting, leasing, loan and marketing agreements, respectively, with
certain of its directors and stockholders.  Management of the Company believes
that the terms of the 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. 

     POSSIBLE DILUTION FOR FUTURE SALES OF COMMON STOCK.  The issuance of
additional shares of Common Stock or the issuance of stock upon exercise of
outstanding options or warrants or conversion of the outstanding convertible
debentures may result in dilution of the equity represented by the then
outstanding shares of Common Stock held by other stockholders.  The issuance of
additional shares of Common Stock, while potentially providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company.  The Board of
Directors could issue large blocks of Common Stock to fend off unwanted tender
offers or hostile takeovers without further stockholder approval.

     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.

     NO ASSURANCE OF ACTIVE PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE.
Although the Common Stock is quoted on The OTC Bulletin Board, there can be no
assurance that an active public market for the Common Stock will develop or be
sustained.  The trading price of the Common Stock is subject to wide
fluctuations in response to quarter to quarter variations in operating results,
announcements of innovations by the Company or its competitors, and other events
or factors.  In addition, the stock market has from time to time experienced
extreme price and volume fluctuations which affects the market price of
securities of publicly 


                                    -11-

<PAGE>

traded companies and which have often been unrelated to the operating 
performance of these companies.  Broad market fluctuations may adversely 
affect the market price of the Common Stock.

     OVER-THE-COUNTER TRADING MARKET.  As the Company's Common Stock is traded
on The OTC Bulletin Board, liquidity of the Company's securities could be
impaired, not only in the number of securities which could be bought and sold,
but also through delays in the timing of transactions, reduction in security
analysts and news media coverage of the Company and lower prices for the
Company's securities than might otherwise be attained if such securities were
listed or traded on a national or regional exchange.

     RISKS OF LOW-PRICED STOCK.  The Company's securities are traded on The OTC
Bulletin Board and are subject to Rule 15(g)-9 under the Exchange Act, which
imposes additional sales practice requirements on broker/dealers who sell
securities to persons other than established customers and accredited investors
(generally, individuals with net worths in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with their spouses).  For transactions
covered by this rule, a broker/dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale.  Consequently, such rule may adversely
effect the ability of broker/dealers to sell the Company's securities and may
adversely effect the holder's ability to sell in the secondary market.

     The SEC's regulations define a penny stock to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 or with
an exercise price of less than $5.00 per share subject to certain exceptions. 
For any transaction involving a penny stock, unless exempt, the SEC's rules
require delivery, prior to any transaction in a penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market.  Disclosure is
also required to be made about commissions to both the broker/dealer and the
registered representative in current quotations for the securities.  Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stocks.

     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").  The Company has purchased insurance on behalf of
its directors and officers, and will maintain such insurance regardless of
whether or not the Company would have the power to indemnify such person against
liability.


                                    -12-

<PAGE>

ITEM 2.   DESCRIPTION OF PROPERTY.

     The Company owns no real property.  The Company's offices are located in a
5,129 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
approximately $9,831.

ITEM 3.   LEGAL PROCEEDINGS.

     On March 20, 1998, the Employment Agreement between the Company and Ann C.
McDearmon, the Company's Executive Vice President -- Director of Marketing, was
terminated.  Ms. McDearmon, in a lawsuit filed on April 20, 1998 in State
District Court of Dallas County, Texas, alleged that the Employment Agreement
was effectively terminated by the Company as a result of the change in the
Company's management in February 1998 and because of modifications to Ms.
McDearmon's work responsibilities.  Ms. McDearmon also alleged that as a result
of the termination of the employment agreement she is entitled to certain
liquidated damages identified in the agreement.  Ms. McDearmon's employment
agreement provides that should she be terminated for any reason other than for
cause she would be entitled to receive (i) 25% of all base salary ($60,000 per
year) that would have been earned from the date of termination through the
expiration of the term of the agreement (December 31, 2000); (ii) commission
payments for a period of one year from the date of termination; and (iii) free
medical insurance coverage for life.  The Company maintains that Ms. McDearmon
voluntarily terminated the employment agreement by submitting her letter of
resignation on March 20, 1998 and that she is not entitled to any additional
compensation or liquidated damages under the terms of such agreement.  The
Company intends to vigorously defend this lawsuit and does not believe that the
outcome will have a material adverse effect upon its financial condition.  Other
than the foregoing, the Company is not currently a party to any litigation.

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.  On February 25, 1998, a Special Meeting of
stockholders was held for the purpose of approving the Amendments to the
Company's Certificate of Incorporation.

                                     PART II

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

     PRICE RANGES.  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, which prices have been adjusted to reflect the Reverse
Stock Split.  The table reflects inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.

<TABLE>
                                                      High      Low
                                                     ------    ------ 
                    <S>                              <C>       <C>
                    April 4 - June 30, 1997          $14.00    $5.00
                    July 1 - September 30, 1997      $5.76     $3.00
                    October 1 - December 31, 1997    $4.52     $2.12
                    January 1 - March 31, 1998       $2.76     $1.00
                    April 1 - July 24, 1998          $1.24     $0.13
</TABLE>


                                    -13-

<PAGE>

     HOLDERS.  As of August 7, 1998, there were 340 stockholders of record. 
Securities Transfer Corporation, 16910 Dallas Parkway, Suite 100, Dallas, Texas,
is the transfer agent for the Common Stock.

     DIVIDENDS.  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.  Although no such restrictions presently exist, the Company
may be limited in its ability to pay dividends on common equity as a result of
restrictions imposed by law or by credit agreements.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

     The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the 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 limited scale of the
Company's operations prior to 1996, the results of operations from period to
period are not necessarily comparative.

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 incorporated as Solo Petroleums Ltd. ("Solo") on
September 5, 1986 for the purpose of undertaking oil and gas exploration
efforts.  In 1987, Solo completed a public offering of common stock as a Junior
Capital Pool Company under the policies of the Alberta Stock Exchange (the
"ASE") and the Alberta Securities Commission.  Solo common stock was
subsequently listed for trading on the ASE under the trading symbol "SOP".  By
1990, revenues from oil and gas exploration efforts had substantially declined
and Solo began experiencing financial difficulties.  As a result, Solo
liquidated substantially all of its assets and underwent a significant change in
management during 1990.  Since Solo had no significant assets or operations, its
principal potential for profits came solely from operations received in a
merger.  On March 21, 1996, Solo changed its name to ETC-Canada.  On May 19,
1996, prior to the Merger, ETC-Canada sold 519,717 shares of its common stock in
a private placement offering.  ETC-Canada then loaned the $779,575 offering
proceeds (the "ETC-Texas Note") to fund its marketing and product development
efforts and costs associated with the Merger.  Since ETC-Canada had no
significant assets, except for the ETC-Texas Note, 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 claims automation, medical
claims repricing and third party administration services to the non-provider
sector of the health care industry.  Such services are automated through a broad
range of applications and data base information systems.  In order to provide
such services, the Company contracts with health care payors, self-insured
companies and other payors, such as TPAs, for automation and EDI services.  The
Company, through its Electra-Net division, also contracts with various health
care provider networks to provide cost containment services to its customers.


                                    -14-

<PAGE>

     In January 1998, the Company, through ETC Services, initiated its TPA
component to service its existing clients.  The Company, through ETC Services,
provides a continuum of services to self-insured corporate customers 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, fund its ongoing operating expenses or service development activities.
At December 31, 1997, the Company had cash and cash equivalents of approximately
$548,565 and a working capital deficit of approximately $562,394.

     The Company plans to alleviate its current financial problems through
private offerings of debt or equity securities, borrowings and increased profits
from operations.  Furthermore, the Company has reviewed its cost structure and
accomplished a reduction in the fixed cost portion of its infrastructure.  In
April 1998, the Company substantially reduced its personnel costs and in June
1998, successfully negotiated with the landlord of its corporate office a
reduction of approximately $96,000 in annual rental expenditures.  Software
improvements have also been implemented that management believes will enhance
productivity.  Also, additional research and development expenditures are not
anticipated at this time.  The Company also believes that new business
opportunities exist with (i) PPOs; (ii) claims processors, TPAs and small- to
medium-sized insurance companies; and (iii) large self-insured and 
self-administered corporations.  The Company believes these market segments 
have immediate operational needs for the Company's automation and/or 
repricing products.  The Company has submitted several proposals to potential 
clients in each of the afore-referenced business sectors.  As of the date of 
this report, the Company has not entered into any binding agreements to 
provide services to any potential client which has received a written 
proposal from the Company.  By leveraging the experience gained from the 
Company's existing TPA operation, the Company believes it can now begin to 
focus on selling its core competencies to these segments.

     In fiscal 1996 and 1997, Wal-Mart accounted for approximately 64% and 56%
of the Company's revenues, respectively.  The Wal-Mart contract expires in
September 1998.  The Company is currently negotiating a renewal of this
agreement.  The failure to renew the Wal-Mart contract will have a material
adverse effect on the Company's financial condition.

     At June 30, 1998, the Company had eight clients including self-insured
companies and medical provider networks.  The Company experienced a reduction in
the number of clients it served as a result of the decision to no longer provide
worker's compensation claims processing services and the loss of certain network
repricing clients.  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 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.


                                    -15-

<PAGE>

RESULTS OF OPERATIONS OF THE COMPANY

CONSOLIDATED FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 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 200% 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 56% of total revenues.  The Company's client base during
the period grew from two to four self-insured/self-administered clients and from
zero to four health care provider networks.

     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.  The start-up and research and
development costs recorded for the year ended December 31, 1996 were comprised
primarily of personnel costs and consulting fees.  These costs differ from
sales, general and administrative costs as they were incurred directly for the
development of the business and services prior to the Company becoming an
operating entity.  The Company no longer incurs research and development costs
as a long-term contract with Wal-Mart was executed, given that prior to the
execution of this long-term contract the Company was categorized as a
Developmental Stage Enterprise as planned principal operations had commenced,
but there had been no significant revenue generated.  In addition, the Company
had been, until late 1996, devoting most of its efforts to activities such as
financial planning, raising capital and development of services.

     Sales, general and administrative costs increased to $3,509,125 for the
fiscal year ended December 31, 1997, compared to $826,285 for the fiscal year
ended December 31, 1996.  The Company issued stock options to employees which
are considered compensatory.  Compensation costs were expensed over the vesting
periods of 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 were 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 


                                    -16-

<PAGE>

80,000 shares of Common Stock for services for a total expense of $400,000, 
and 65,656 shares of Common Stock for a total expense of $65,656, 
respectively.

     Sales, general and administrative expenses consisted primarily of personnel
costs, rent, telephone and professional fees.  Total personnel costs for fiscal
1997 were $1,847,187, 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, general corporate matters
and computer consulting.

     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 $2,101,820 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 ($0.97) and ($1.43) 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 $823,636
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.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 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.

     COST OF REVENUES.  Direct costs in fiscal 1996 were $568,474, consisting
primarily of $324,466 in data entry personnel costs, $151,383 in imaging fees
and $28,469 in communication expenses.  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.  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.


                                    -17-

<PAGE>

     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.

LIQUIDITY AND CAPITAL RESOURCES

     Since its inception, the Company has financed its operations, working
capital needs and capital expenditures principally through private placements of
equity securities.  Cash and cash equivalents at December 31, 1997 were
$548,565, and the Company had a working capital deficit of $562,394.  The
Company has a note payable in the amount of $99,881 bearing interest at 12% per
annum.  Payments of $7,553 including interest are due monthly, with the
remaining balance plus interest due upon maturity on May 19, 1998.  The note is
collateralized by an option to purchase 28,333 shares of Common Stock at $6.00
per share.  The Company is in default on this obligation, but is presently in
negotiations with the lender to restructure the terms of the afore-referenced
obligation.  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 $5.00 per common share including principal and
accrued interest.  The Company is presently in default on this obligation but
believes it will be able to settle this matter with the debenture holder on
mutually acceptable terms.

     The Company signed the Purchase Agreement on December 17, 1997 in which it
agreed to sell to the Investors up to an aggregate of 750,000 shares of Common
Stock for total proceeds of $1,500,000.  The First Closing occurred on
December 17, 1997 with an issuance of 611,930 shares of Common Stock for
$1,223,859.50 in proceeds.  Proceeds from the First Closing have been used for
working capital.  The Investors have elected not to purchase any additional
shares of Common Stock available under the terms of the Purchase Agreement.

     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 has implemented a strategy for
reducing the fixed cost portion of its infrastructure, which included a
reduction in personnel costs and rental expenditures.  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 report, the Company has not entered into any such consulting
agreements.  Additionally, software improvements have been implemented that
management believes will enhance productivity.  The Company has no planned
material working capital expenditures over the next 12-month period.  The
Company believes that by continuing to reduce the fixed costs associated with
its infrastructure, through capital raised from private debt or equity
financings and through implementation of its marketing strategy it may be able
to satisfy its cash requirements for the next 12 months.  However, there can no
assurances given that any liquidity sources can be found or that working capital
will be provided from improved operations to satisfy the Company's cash
requirements for this period.

YEAR 2000 MODIFICATIONS

     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 


                                    -18-

<PAGE>

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.

     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.

     The Company does not anticipate that it will have to enhance its existing
operational software or develop additional software systems during fiscal 1998. 
As such, the Company does not believe that SOP 98-1, ACCOUNTING FOR COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE will have any material
effect upon its financial statements for periods beginning after December 15,
1998.

ITEM 7.   FINANCIAL STATEMENTS.

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


                                    -19-

<PAGE>

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

     There were no changes in or disagreements with the Company's independent
accounts regarding accounting related financial disclosure.

                                       PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

     The following is a list of the names, ages and dates of service of each of
the Company's directors and executive officers:

<TABLE>
                                                                           Year First
                                                                        Elected Director
      Name           Age                   Position                        or Officer
----------------    ----    ----------------------------------------    ----------------
<S>                 <C>     <C>                                         <C>
Steven K. Arnold     51     Chairman of the Board of Directors and 
                              Chief Executive Officer                         1998

W. Mack Goforth      53     Chief Financial Officer                           1997

Timothy P. Powell    40     Executive Vice President -- Data Services 
                              and Director                                    1995

Dennis Barnes        41     Director                                          1997

Michael Eckstein     50     Director                                          1996

David O. Hannah      73     Director                                          1995

Scott A. Stewart     43     Director                                          1997
</TABLE>


     STEVEN K. ARNOLD has served as the Company's Chairman and Chief Executive
Officer since May 28, 1998.  Mr. Arnold has 19 years of senior management
experience in the healthcare, systems and insurance industries.  From October
1997 to May 1998, he served as an independent management consultant.  From
January 1997 to October 1997, he served as a Managing Director, Global Human
Resources, of Price Waterhouse.  From 1992 to December 1996, he served as
President of Care Systems Corporation and President of IHDS Corp., a 
wholly-owned third party administrator.  Prior to joining Care Systems 
Corporation, Mr. Arnold was President, Chief Executive Officer and co-founder 
of IntelliMed, Inc. which later merged into OccuSystems, a Nasdaq listed 
company.  Previously, he was Executive Vice President of Heritage Health 
Systems, a managed care holding company that owned and managed HMOs, PPOs and 
related companies.  In addition, Mr. Arnold was President and Chief Executive 
Officer of APT General Partnership, a joint venture formed to build a managed 
health care company that would develop, market and manage two fundamental 
product types: (1) health benefit plans and related lines of insurance 
business and (2) PPO and/or multi-option products and management services to 
local health provider organizations.  Mr. Arnold was also employed in 
executive capacities with Blue Cross & Blue Shield of Wisconsin.  In that 
capacity, he served as the Chief Executive Officer of the holding companies 
that included United Wisconsin Services (now a NYSE listed company), Compcare 
Health Services Insurance, Dentacare, Take Control, Inc., and Greater 
Marshfield Community Healthplan.  Mr. Arnold also spent eight years with 
Cigna in various management positions.

     W. MACK GOFORTH has served as Chief Financial Officer of the Company since
November 1997.  From February 1996 to October 1997, Mr. Goforth worked for
Electronic Data Systems Corp. as a Manager in the 


                                    -20-

<PAGE>

Global Purchasing Group.  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 AND COMMITTEES

     The Company does not presently compensate its directors for serving in such
a capacity or attending either Board or Committee meetings.


                                    -21-

<PAGE>

     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 charged with reviewing
the annual audit and meeting with independent accountants to review internal
controls and financial management practices.  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 meeting on 11 occasions during such period.  No
committee meetings were held as matters usually addressed at the committee level
were acted upon by the entire Board of Directors.

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 its 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 or 10% of their total annual salary for the referenced periods.


                                    -22-

<PAGE>

                                  SUMMARY COMPENSATION TABLE

<TABLE>
                                                          Annual Compensation        Long-Term Compensation       
                                                       ------------------------    ----------------------------   
                                                                                            Awards
                                                                                   ----------------------------   
                                                                                                   Securities     
                                                                   Other Annual     Restricted     Underlying     
                Name/Title                     Year    Salary(1)   Compensation    Stock Awards    Options/SARs   
------------------------------------------     ----    ---------   ------------    ------------    ------------   
<S>                                            <C>     <C>         <C>             <C>             <C>
L. Cade Havard, former Chairman of the         1997    $158,000       $ - 0 -          - 0 -          70,000      
   Board, Chief Executive Officer and          1996    $184,000       $ - 0 -          - 0 -           - 0 -      
   President(2)                                1995    $ 96,736       $ - 0 -          - 0 -         100,000      

W. Mack Goforth, Chief Financial               1997    $ 25,000       $ - 0 -          - 0 -          50,000      
   Officer and former Chairman of the
   Board and Chief Executive Officer(3)(4)
Timothy P. Powell, Executive Vice              1997    $101,500       $ - 0 -          - 0 -           - 0 -      
   President -- Data Services                  1996    $ 73,000       $ - 0 -          - 0 -           - 0 -      
                                               1995    $ 41,450       $ - 0 -          - 0 -           - 0 -      

Ann C. McDearmon, former Executive             1997    $134,399       $ - 0 -          - 0 -          62,500      
   Vice President -- Director of               1996    $ 73,281       $ - 0 -          - 0 -           - 0 -      
   Marketing(5)                                1995    $ 24,500       $ - 0 -          - 0 -           - 0 -      
</TABLE>

------------------------------
(1)  No bonuses were paid or accrued during the referenced periods.
(2)  Mr. Havard's employment with the Company ceased on February 16, 1998.
(3)  Mr. Goforth became employed on October 14, 1997 and is entitled to
     base compensation of $150,000 per year.
(4)  Mr. Steven K. Arnold became Chairman of the Board and Chief Executive
     Officer on May 28, 1998.
(5)  Ms. McDearmon's employment with the Company ceased March 20, 1998.

EMPLOYMENT AGREEMENTS

   On May 1, 1998, the Company and Steven K. Arnold, Chairman of the Board and
Chief Executive Officer, entered into a Consulting/Employment Agreement (the
"Agreement").  Under the terms of the Agreement, Mr. Arnold agreed to serve the
Company as an independent consultant until such time as the Company would have
in place director and officer liability insurance.  The term of the Agreement is
for three years commencing on May 1, 1998.  Under the consulting arrangement,
Mr. Arnold was paid a consulting fee of $20,833.34 each month plus a monthly
vehicle allowance of $750.  On May 28, 1998, upon the binding of the director
and officer liability insurance, Mr. Arnold was elected Chairman of the Board
and Chief Executive Officer.  Under the Agreement, Mr. Arnold is entitled to
receive as compensation for services rendered base salary ("Base Salary") at a
rate of Two Hundred Fifty Thousand and No/100 Dollars ($250,000) per year
payable in accordance with the Company's established payroll procedures.  During
all or a portion of the twelve (12) month period commencing on the employment
date, twenty-eight percent (28%) of such Base Salary (the "Deferred Portion")
shall be deferred until the Company and Mr. Arnold mutually agree that the
Company's cash flow is sufficient to support the payment of the Deferred
Portion.  Mr. Arnold is entitled to a monthly vehicle allowance of $750.  Mr.
Arnold is entitled to participate in all benefits plans, including stock option
plans, provided by the Company on the same basis as other executive officers of
the Company.  Furthermore, Mr. Arnold is entitled to four weeks of paid
vacation.  Mr. Arnold also received options to purchase 454,398 of Common Stock
at a price of $.052 per share.  These options vest at a rate of one-third at
employment date, one-third at December 31, 1998 and one-third at December 31,
1999.  Mr. Arnold shall automatically be granted additional options (carrying a
purchase price of the dollar amount per share on the date of such issuance) to
purchase that number of shares of Common Stock which, when added to the number
of shares into which the options may be converted immediately prior to such
issuance, shall equal ten percent (10%) of the outstanding shares of Common
Stock of the Company on a fully diluted basis.  The Agreement may be terminated
by the Company without cause, in which event Mr. Arnold is entitled to receive 
his Base Salary and benefits provided by the Company to Mr. Arnold for the
remainder of the term then in effect.  The Agreement may also be terminated by
the Company for cause at any time the Board of Directors determines 


                                    -23-

<PAGE>

Mr. Arnold 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. Arnold is terminated for cause, he shall be entitled to receive any 
accrued but unpaid Base Salary and bonus compensation.  All available options 
can be exercised on the date this Agreement is terminated without cause.  The 
Agreement does not contain any non-competition or non-solicitation covenants.

   On October 14, 1997, the Company and W. Mack Goforth, the Chief Financial
Officer of the Company, 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 50,000 shares of Common Stock at a
price of $4.25 per share.  These options vest at a rate of 12,500 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.  The term of the Agreement was extended by the Board
of Directors to March 31, 2003.

   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.  Upon termination of the
Agreement, Mr. Powell 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 


                                    -24-

<PAGE>

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.  
The term of the Agreement was extended by the Board of Directors to March 31, 
2003.

STOCK OPTIONS

   FISCAL 1997.  During fiscal 1997, W. Mack Goforth and Ann C. McDearmon, the
former Executive Vice President -- Director of Marketing of the Company,
received options to purchase 50,000 shares of Common Stock at $4.25 per share
and 62,500 shares of Common Stock at $5.00 per share, respectively.  Mr.
Goforth's options vest at a rate of 12,500 options per year beginning October
1998.  L. Cade Havard, the former Chairman of the Board, Chief Executive Officer
and President of the Company, exercised options to purchase an aggregate of
180,000 shares of Common Stock during fiscal 1997.  Mr. Havard's remaining
options to purchase 70,000 shares of Common Stock, at a purchase price of $5.00
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 12,500 shares of
Common Stock, at an exercise price of $6.00 per share, to an employee of the
Company.  This option terminated upon said employee's resignation from the
Company on May 1, 1998.

                                   OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
                                                                          Percent of Total
                                                Number of Securities    Options/SARs Granted    Exercise or
                                                 Underlying Options/       to Employees in      Base Price
                    Name                           SARs Granted (#)           Fiscal 1997          ($/Sh)
     ---------------------------------------    ---------------------   --------------------    ------------ 
     <S>                                        <C>                     <C>
     L. Cade Havard, former Chairman of the
       Board, Chief Executive Officer and
       President                                       200,000                   61.5%              $5.00  
     W. Mack Goforth, Chief Financial Officer           50,000                   15.4%              $4.25  
     Timothy P. Powell, Executive Vice
       President -- Data Services                        -0-                      -0-                -0-  
     Ann C. McDearmon, former Executive
       Vice President -- Director of Marketing          62,500                   19.2%              $5.00  
</TABLE>


                                  AGGREGATED FISCAL YEAR-END OPTION VALUES

<TABLE>
                                                 Number of Securities Underlying       Value of Unexercised       
                                                       Unexercised Options             In-the-Money Options       
                                                        At Fiscal Year-End               At Fiscal Year-End       
                                                 -------------------------------    ---------------------------   
                     Name/Title                    Exercisable   Unexercisable      Exercisable   Unexercisable   
     -----------------------------------------   --------------  ---------------    ------------  -------------   
     <S>                                           <C>           <C>                <C>           <C>
     L. Cade Havard, former Chairman of the
       Board, Chief Executive Officer and
       President                                      70,000        -0-                $  -0-        $  -0-  
     W. Mack Goforth, Chief Financial Officer          -0-         50,000                N/A           N/A   
     Timothy P. Powell, Executive Vice
       President -- Data Services                      -0-          -0-                   -0-           -0-  
     Ann C. McDearmon, former Executive Vice
       President -- Director of Marketing             62,500        -0-                $  -0-         $ -0-  
</TABLE>


     RECENT GRANTS.  In March 1998, W. Mack Goforth and Timothy P. Powell each
received options to purchase 50,000 shares of Common Stock at $1.00 per share,
which options are exercisable immediately.  


                                    -25-
<PAGE>

Furthermore, the terms of the options to purchase 50,000 shares of Common 
Stock granted to Mr. Goforth under his employment agreement were modified to 
adjust the exercise price of such options from $4.25 per share to $1.00 per 
share.

     In May 1998, Mr. Arnold, pursuant to the terms of his employment agreement,
received options to purchase 454,398 shares of Common Stock at an exercise price
of $0.52 per share.  The options vest at a rate of one-third on the date of
employment, one-third on December 31, 1998 and one-third on December 31, 1999.

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 August 1, 1998, with respect to each director,
executive officer and beneficial owner of more than 10% of the Common Stock and
all corporate officers and directors as a group.

<TABLE>
                                                               Amount of     Percent of    
                        Name and Address                       Beneficial    Outstanding   
                    of Beneficial Owner(1)(2)                  Ownership     Common Stock  
          -----------------------------------------------      ----------    ------------- 
          <C>                                                  <C>           <C>
          Steven K. Arnold(3)(4)                                151,466           3.9
          W. Mack Goforth(5)                                     50,000           1.3
          Timothy P. Powell(3)(6)                               161,667           4.2
          Dennis Barnes(3)                                       11,446           *
          Michael Eckstein(3)                                    25,000           *
          David O. Hannah(3)(7)                                 359,578           9.6
          Scott A. Stewart(3)(8)                                 30,584           *
          All executive officers and directors as a group
            (7 persons as to the Company)                       789,741          19.2
          Special Situations Private Equity Fund, L.P.(9)       407,953          11.0
          Special Situations Cayman Fund, L.P.(9)               203,977           5.5
          L. Cade Havard(10)                                    254,257           6.9
          Electronic Transmission Corporation(11)               462,500          12.5
</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)  Includes options to purchase 151,466 shares of Common Stock at an exercise
     price of $0.52 per share.
(5)  Includes options to purchase 50,000 shares of Common Stock at an exercise
     price of $1.00 per share.
(6)  Represents options to purchase 111,667 shares of Common Stock from the
     Sterling National Corporation Trust.  The options are fully vested and have
     an exercise price of $.004 per share.  Also includes options to purchase
     50,000 shares of Common Stock at an exercise price of $1.00 per share.
(7)  Includes the 50,000 shares of Common Stock issuable upon conversion by 
     Mr. Hannah of the principal amount of the $100,000 note payable of the 
     Company to Mr. Hannah.
(8)  Includes the 10,000 shares of Common Stock issuable upon conversion by 
     Mr. Stewart of the principal amount of the $20,000 note payable of the 
     Company to Mr. Stewart.
(9)  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.
(10) Includes (i) 125,054 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) 1,556 shares of Common Stock issued in the name of
     Sterling, of which Mr. Havard is the sole stockholder; and (iii) 62,500
     shares of Common Stock issued in the name of Anneal O. Havard, the wife 

                                    -26-
<PAGE>

     of L. Cade Havard.  Under the terms of the Settlement Agreement, Mr. And 
     Mrs. Havard returned an aggregate of 462,500 shares of Common Stock to the
     Company.
(11) The Company, as a result of the Settlement Agreement with Mr. Havard and
     Sterling, currently holds 462,500 shares of Common Stock in its treasury.

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 991,275
shares of ETC-Texas common stock.  Sterling is currently in the business of
factoring accounts receivable, and is the record owner of 1,556 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 March 31, 1998, 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
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.  Mr. Eckstein has agreed to only accept commission
based compensation under this agreement.  It is anticipated that the Company
will enter into a modified consulting agreement with Mr. Eckstein within the
next 90 days.

     On April 1, 1996, Solo issued 50,278 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 2.00
per share or (ii) purchase, at a per share price of $2.00, the number of shares
of Common Stock equal to the purchase price of the equipment divided by 2.00
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. The
Company is currently negotiating a restructuring of the Lease Agreement.


                                    -27-

<PAGE>

     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 issued to Mr.
Mers 30,000 shares of Common Stock and agreed to compensate him 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.

     On June 25, 1998, David O. Hannah, a director of the Company, purchased
100,000 restricted shares of Common Stock for an aggregate purchase price of
$100,000 or $1.00 per share.  Also on June 25, 1998, Mr. Hannah loaned to the
Company the principal amount of $100,000.  The note is due and payable on
December 25, 1998.  Furthermore, the Company is obligated to issue to Mr. Hannah
25,000 restricted shares of Common Stock in lieu of payment of cash interest on
the principal amount of the debt.  The obligation is secured by all of the
assets of the Company.  The outstanding principal balance of the obligation to
Mr. Hannah is convertible by him at any time prior to the maturity date into
restricted shares of Common Stock at a rate of one share of Common Stock for
every $2.00 of principal converted.

     On June 29, 1998, the Company executed promissory notes in the principal
amounts of $20,000 and $5,000 payable to Scott Stewart, a director of the
Company, and to David Stewart, Mr. Stewart's brother, respectively.  The notes
are due and payable on December 29, 1998.  Scott Stewart is entitled to receive
5,000 shares of Common Stock and David Stewart is entitled to receive 1,250
shares of Common Stock in lieu of cash interest on the principal amount of their
respective notes.  The obligations to the note holders are secured by all of the
assets of the Company.  The outstanding principal balances of these notes are
convertible at any time prior to the maturity of the obligations by the holders
into shares of Common Stock at the rate of one share of Common Stock for every
$2.00 of principal converted.


                                    -28-

<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  The following documents are filed as part of this Report:

     (1)  FINANCIAL STATEMENTS:                                            Page
                                                                           ---- 
          Independent Auditor's Report                                      F-1

          Consolidated Balance Sheets at December 31, 1997 and 1996.        F-2

          Consolidated Statements of Operations for the years ended 
          December 31, 1997 and 1996.                                       F-3

          Consolidated Statements of Stockholders' Equity for the 
          years ended December 31, 1997 and 1996.                           F-4

          Consolidated Statements of Cash Flows for the years ended 
          December 31, 1997 and 1996.                                       F-5

          Notes to Financial Statements, December 31, 1997 and 1996.        F-6

     (2)  EXHIBITS:

     NUMBER    DESCRIPTION
     ------    ----------- 
        23.1   Consent of Simonton Kutac & Barnidge, L.L.P.
        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 750,000 shares of Common Stock.


                                    -29-

<PAGE>

                                 S I G N A T U R E S

     In accordance with Section 13 or 15(d) of the Exchange Act, the issuer has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  ELECTRONIC TRANSMISSION CORPORATION


Date: August 14, 1998             By: /s/ Steven K. Arnold
                                     ------------------------------------------
                                      Steven K. Arnold, Chairman of the Board
                                      and Chief Executive Officer

     In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons on behalf of the issuer and in the
capacities and on the dates indicated.

<TABLE>
         SIGNATURE                       TITLE                      DATE
         ---------                       -----                      ---- 
<S>                         <C>                                 <C>
   /s/ Steven K. Arnold     Chairman of the Board and Chief     August 14, 1998
--------------------------  Executive Officer
Steven K. Arnold

  /s/ W. Mack Goforth       Chief Financial Officer and Chief   August 14, 1998
--------------------------  Accounting Officer
W. Mack Goforth

  /s/ Timothy P. Powell     Executive Vice President -- Data    August 14, 1998
--------------------------  Services and Director
Timothy P. Powell

  /s/ Dennis Barnes         Director                            August 14, 1998
--------------------------
Dennis Barnes

  /s/ Michael Eckstein      Director                            August 14, 1998
--------------------------
Michael Eckstein

  /s/ David O. Hannah       Director                            August 14, 1998
--------------------------
David O. Hannah

  /s/ Scott Stewart         Director                            August 14, 1998
--------------------------
Scott Stewart
</TABLE>


                                    -30-
<PAGE>

                             INDEPENDENT AUDITORS' REPORT

To the Board of Directors
of Electronic Transmission Corporation and Subsidiary:

We have audited the accompanying consolidated balance sheets of Electronic 
Transmission Corporation and Subsidiary, a Delaware corporation, as of 
December 31, 1996 and 1997, and the related consolidated statements of 
operations, stockholders' equity and cash flows for the years then ended.  
These consolidated financial statements are the responsibility of the 
Company's management.  Our responsibility is to express an opinion on these 
consolidated 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 consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of Electronic Transmission Corporation and Subsidiary 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 consolidated 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 $2,101,820 
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 $7,079,297 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 can raise sufficient new capital and 
increase its 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 consolidated financial statements do not include any adjustments that 
might result from the outcome of this uncertainty.

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

January 30, 1998,
except for Note 18 as to which the date is February 16, February 27,
March 20, May 7, and July 1, 1998 for paragraphs two, three, 
four, five and six, respectively, and except for Note 15 as to which 
the date is June 24, 1998, for paragraph seven.

                                       F-1

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                             CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                             December 31,
                                                    --------------------------
                                                        1996           1997   
                                                    -----------    -----------
<S>                                                   <C>          <C>        
                                       ASSETS
Current Assets:
  Cash and cash equivalents                         $    50,125    $   548,565
  Accounts receivable                                   264,559        582,575
  Current portion, capital lease receivable              25,095         27,723
  Prepaid assets                                         15,286         20,780
                                                    -----------    -----------
     Total Current Assets                               355,065      1,179,643
                                                    -----------    -----------
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    $ 2,054,531
                                                    -----------    -----------
                                                    -----------    -----------

                         LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued liabilities          $   567,188    $ 1,161,070
  Notes payable and convertible debentures                   --        478,727
  Current portion, capital lease obligations             95,206        102,240
                                                    -----------    -----------
     Total Current Liabilities                          662,394      1,742,037

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      1,767,624
                                                    -----------    -----------

Stockholders' Equity:
  Preferred stock, $1 par value, 2,000,000 shares 
     authorized; no shares issued and outstanding            --             --
  Common stock, no par and $0.001 par value,
     respectively; 15,000,000 and 20,000,000 
     shares authorized, respectively; 1,788,401 
     and 3,506,506 shares issued and outstanding, 
     respectively                                     2,475,637          3,507
  Additional paid-in-capital                            322,067      7,362,697
  Accumulated deficit                                (3,774,013)    (7,079,297)
                                                    -----------    -----------
     Total Stockholders' Equity                        (976,309)       286,907
                                                    -----------    -----------
     Total Liabilities & Stockholders' Equity       $   918,974    $ 2,054,531
                                                    -----------    -----------
                                                    -----------    -----------
</TABLE>

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

                                       F-2

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF OPERATIONS 

<TABLE>
                                                        For the Years Ended
                                                           December 31,
                                                    --------------------------
                                                        1996          1997    
                                                    -----------    -----------
<S>                                                    <C>         <C>
Service revenues                                    $   831,323    $ 3,249,492
                                                    -----------    ------------
Costs and Expenses:
  Costs of revenues                                     568,474      1,682,083
  Selling, general and administrative                   826,285      3,509,125
  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      5,461,394
                                                    -----------    ------------

Loss from operations                                 (2,540,580)    (2,211,902)

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)    (2,211,082)

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

Loss before extraordinary item                       (2,470,684)    (2,175,082)

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

Net loss                                            $(2,470,684)   $(2,101,820)
                                                    -----------    ------------
                                                    -----------    ------------
Loss per common share:
  Basic                                             $     (1.43)   $     (0.97)
                                                    -----------    ------------
                                                    -----------    ------------
  Diluted                                           $     (1.43)   $     (0.99)
                                                    -----------    ------------
                                                    -----------    ------------
Weighted average common shares outstanding:
  Basic                                               1,726,648      2,240,181
                                                    -----------    ------------
                                                    -----------    ------------
  Diluted                                             1,726,648      2,187,881
                                                    -----------    ------------
                                                    -----------    ------------
</TABLE>

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

                                       F-3

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
                                          Common Stock            Additional
                                    ------------------------       Paid-In     Accumulated               
                                     Shares        Amount           Capital      Deficit         Total   
                                    ---------    -----------      ----------   -----------    -----------
<S>                                 <C>          <C>              <C>          <C>            <C>        
Balance at December 31, 1995        1,539,553    $ 1,494,023       $     --    $(1,303,329)   $   190,694

Issuance of shares for cash           183,192        718,989             --             --        718,989
Issuance of shares for services        65,656        262,625             --             --        262,625
Compensation expense                       --             --        322,067             --        322,067
Net loss                                   --             --              -     (2,470,684)    (2,470,684)
                                    ---------    -----------     -----------    -----------    -----------

Balance at December 31, 1996        1,788,401      2,475,637        322,067     (3,774,013)      (976,309)

Merger with ETC 
  Transaction Corporation             501,786      1,704,569             --     (1,050,938)       653,631
Conversion of Electronic 
  Transmission Corporation
  Stock on 1 for 1.25 Basis           447,100             --             --             --             --
Reclass for par value $0.001               --     (4,177,468)     4,177,468             --             --
Conversion of debentures               18,538             19         84,549             --         84,568
Issuance of shares for cash           670,681            670      1,233,324             --      1,233,994
Issuance of shares for services        80,000             80        399,920             --        400,000
Capital contribution                       --             --        721,733             --        721,733
Compensation expense                       --             --        423,636             --        423,636
Deemed dividend                            --             --             --       (152,526)      (152,526)
Net loss                                   --             --             --     (2,101,820)    (2,101,820)
                                    ---------    -----------     ----------    -----------    -----------
Balance at December 31, 1997        3,506,506    $     3,507     $7,362,697    $(7,079,297)   $   286,907
                                    ---------    -----------     ----------    -----------    -----------
                                    ---------    -----------     ----------    -----------    -----------
</TABLE>


                                       F-4

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                         For the Years Ended  
                                                             December 31,
                                                      ------------------------
                                                         1996          1997   
                                                      ---------    -----------
<S>                                                   <C>          <C>        
Cash Flows from Operations:
Net loss                                            $(2,470,684)  $ (2,101,820)
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        423,636
  Depreciation and amortization                         111,420        270,186
  Increase in accounts receivable-trade                (229,298)      (320,308)
  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 Used by Operating Activities               (1,647,134)    (1,002,050)
                                                    -----------   ------------ 

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
  Net proceeds under factoring agreement                     --        228,757
  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      1,844,357
                                                    -----------   ------------ 

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>


                                       F-5

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED 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 include the accounts of the Company 
and ETC Administrative Services, Inc., a Texas corporation and wholly owned 
subsidiary.  All intercompany accounts and transactions have been 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 AND EXPENSE RECOGNITION -- The Company recognizes revenue when 
services are performed.  Expenses are recognized in the period in which 
incurred.

The Company is engaged in a marketing strategy of utilizing a 90-day review 
period for new clients.  These agreements allow for a 90-day review period 
for processing claims with no long-term contracts and the Company has been 
successful in providing the service at a per claim fee.  Revenues earned and 
expenses incurred are recognized for the 90-day review services in the period 
services are provided.

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. NOTE 1 - SIGNIFICANT ACCOUNTING 
POLICIES AND BACKGROUND (CONTINUED)

                                       F-6

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             DECEMBER 31, 1996 AND 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

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:
<TABLE>
                                           Estimated     
                                          Useful Lives   
                                          ------------
          <S>                             <C>         
          Office furniture                   5 years
          Computer and office equipment      3 years
          Computer software                  3 years
          Leasehold improvements             5 years
</TABLE>
Certain claims processing and imaging equipment are furnished to customers 
for off-site use at the customer's facility.  This equipment is recorded at 
adjusted cost basis as computer and office equipment on the Company's 
financial statement.  Maintenance, other repairs and significant improvements 
are accounted for in accordance with the aforementioned policies.

Whenever events or changes in circumstances indicate that the carrying amount 
of an asset may not be recoverable, the Company evaluates whether changes 
have occurred that would require revision of the remaining estimated useful 
lives of the equipment or render 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.  Future cash 
flows are the future cash inflows expected to be generated by an asset less 
the future cash outflows expected to be necessary to obtain those inflows.  
If an impairment loss is recognized, it is measured as the amount by which 
the carrying amount of the asset exceeds the fair value of the asset.  The 
fair value of an asset is the amount at which the asset could be bought or 
sold in a current transaction between willing parties, that is, other than in 
a forced or liquidation sale.  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. 

                                       F-7

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             DECEMBER 31, 1996 AND 1997

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BACKGROUND (CONTINUED)

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.  

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 issued incentive stock options. 
Compensation costs arising from such options 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 vesting 
period of 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. ("Solo"). ETC Transaction 
Corporation was incorporated as Solo Petroleums Ltd. on September 5, 1986 for 
the purpose of undertaking oil and gas exploration efforts. In 1987, Solo 
completed a public offering of common stock as a Junior Capital Pool Company 
under the policies of the Alberta Stock Exchange (the "ASE") and the Alberta 
Securities Commission. Solo common stock was subsequently listed for trading 
on the ASE under the trading symbol "SOP". By 1990, revenues from oil and gas 
exploration efforts had substantially declined and Solo began experiencing 
financial difficulties. As a result, Solo liquidated substantially all of its 
assets and underwent a significant change in management during 1990. Since 
Solo had no significant assets or operations, its principal potential for 
profits came solely from operations it may receive in a merger. On March 21, 
1996, Solo changed its name to ETC Transaction Corporation.


A special meeting of the shareholders of ETC was held on January 31, 1997, at 
which time shareholders approved and ratified 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 in accordance with SAB Topic 2:A., with ETC as the acquirer. 

                                       F-8

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             DECEMBER 31, 1996 AND 1997

NOTE 2 - MERGER (CONTINUED)


ETC Transaction Corporation is the surviving corporation of the merger. The 
type and number of common shares outstanding at December 31, 1997 represent 
those of ETC Transaction Corporation.  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.  The financial statements as of and for the year 
ended December 31, 1996, represent the financial position, operations and 
cash flows of Electronic Transmission Corporation prior to merger with ETC 
Transaction Corporation and prior to the aforementioned name change by ETC 
Transaction Corporation.


ETC Transaction Corporation was a non-operating entity with the following 
summary balance sheet on the date of the merger:

<TABLE>
<S>                                                     <C>
Current Assets:
  Cash                                                $       142
  Accrued interest receivable                              27,800
                                                      -----------
     Total Current Assets                                  27,942

  Note receivable - ETC                                   779,575
                                                      -----------
     Total Assets                                     $   807,517
                                                      -----------
                                                      -----------
Current Liabilities:
  Accounts payable                                         26,991
  Accrued expenses                                         50,970
  Loan payable                                             23,425
  Short-term debentures                                    52,500
                                                      -----------
     Total Current Liabilities                            153,886

  Common Stock                                          1,704,569
  Accumulated deficit                                  (1,050,938)
                                                      -----------

     Total Liabilities & Stockholders Equity          $   807,517
                                                      -----------
                                                      -----------
</TABLE>


On May 15, 1996, prior to the merger, ETC Transaction Corporation sold 
519,717 shares in a private placement offering of common stock. ETC 
Transaction Corporation then loaned the $779,575 offering proceeds to ETC to 
fund its marketing and product development efforts and costs associated with 
the Merger. The note receivable recorded by ETC Transaction Corporation was 
eliminated against the related note payable recorded by ETC (see Note 15) at 
the date of merger.  No cash was involved in eliminating the note receivable 
from ETC.  On the transaction date, the ETC Transaction Corporation 
accumulated deficit of $1,050,938 was recorded in the acquirer's financial 
statements as an increase in accumulated deficit. 


                                       F-9

<PAGE>


                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             DECEMBER 31, 1996 AND 1997


NOTE 2 - MERGER (CONTINUED)

The merger was effected by ETC Transaction Corporation issuing 1.25 
pre-reverse stock split shares for each issued and outstanding common share 
in ETC.  At the date of merger, ETC had 7,153,601 pre-reverse stock split 
shares issued and outstanding and accordingly, the merger resulted in the 
issuance of 8,942,002 pre-reverse stock split shares in ETC Transaction 
Corporation for all of the issued and outstanding common shares of Electronic 
Transmission Corporation.  At the date of merger, ETC Transaction Corporation 
had 2,007,144 pre-reverse stock split shares issued and outstanding.  
Accordingly, the effect of the merger resulted in the surviving entity having 
10,949,146 pre-reverse stock split shares issued and outstanding at February 
11, 1997.


Giving effect to the reverse stock split (see Note 18), the merger was 
effected by ETC Transaction Corporation issuing 1.25 post-reverse stock split 
shares for each issued and outstanding post-reverse stock split common share 
in ETC.  At the date of merger, ETC had 1,788,401 post-reverse stock split 
shares issued and outstanding and accordingly, the merger resulted in the 
issuance of 2,235,501 post-reverse stock split shares in ETC Transaction 
Corporation for all of the issued and outstanding common shares of Electronic 
Transmission Corporation.  At the date of merger, ETC Transaction Corporation 
had 501,786 post-reverse stock split shares issued and outstanding.  
Accordingly, the effect of the merger resulted in the surviving entity having 
2,737,287 post-reverse stock split shares issued and outstanding at February 
11, 1997.


The following schedule represents the 1996 proforma effect of the combined 
entities had the transaction occurred January 1, 1996:
<TABLE>
                                                       ETC
                                                   Transaction      Proforma      Proforma
                                       ETC         Corporation     Adjustments    Combined
                                  -----------      -----------     -----------   -----------
<S>                                <C>             <C>             <C>           <C>        
Revenue                           $   831,323      $        --     $        --   $   831,323
Costs and expenses                 (3,371,903)              --              --    (3,371,903)
                                  -----------      -----------     -----------   -----------
Loss from operations               (2,540,580)              --              --    (2,540,580)
Other income (expense)                 69,896           17,559              --        87,455
                                  -----------      -----------     -----------   -----------
Income (loss) before 
  extraordinary item               (2,470,684)          17,559              --    (2,453,125)
Extraordinary item                         --               --              --            --
                                  -----------      -----------     -----------   -----------
Net income (loss)                 $(2,470,684)     $    17,559     $        --   $(2,453,125)
                                  -----------      -----------     -----------   -----------
                                  -----------      -----------     -----------   -----------
Income (loss) per share:
  Basic and diluted                                                                    (0.96)
                                                                                 -----------
                                                                                 -----------
Weighted average common 
  shares outstanding (post-
  reverse stock split):
  Basic and diluted                                                                2,559,395
                                                                                 -----------
                                                                                 -----------
</TABLE>


                                       F-10

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED 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 $2,101,820 during the years 
ended December 31, 1996 and 1997, respectively.  Cash used by operating 
activities for the same periods aggregated $1,647,134 and $1,002,050, 
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 new capital and 
increase its customer base. 

Management plans to mitigate the going concern issues by marketing its 
services to (i) PPOs; (ii) claims processors, TPAs and small- to medium-size 
insurance companies; and (iii) large self-insured and self-administered 
corporations 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:
<TABLE>
                                                December 31,    
                                        ---------------------------
                                            1996           1997 
                                        ------------   ------------   
     <S>                                <C>            <C>
     Accounts receivable - trade        $    236,356   $    578,870   
     Employee receivables                     28,203          3,041   
     Accounts receivable - other               --               664   
                                        ------------   ------------   
                                        $    264,559   $    582,575   
                                        ------------   ------------   
                                        ------------   ------------   
</TABLE>

                                       F-11

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             DECEMBER 31, 1996 AND 1997

NOTE 4 - ACCOUNTS RECEIVABLE (CONTINUED)

In September 1997, the Company entered into an agreement whereby the Company 
has the right to factor certain receivables, with recourse, to a financial 
institution from time to time until September 1998.  The maximum amount of 
receivables that can be factored to 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.   The terms of the factoring agreement allow the Company to 
maintain effective control over the receivables and therefore the agreement 
is recorded as a secured borrowing in accordance with Statement of Financial 
Accounting Standards No. 125, "Accounting for Transfers and Servicing of 
Financial Assets and Extinguishments of Liabilities".  During the year ended 
December 31, 1997, the Company received $1,080,806 from the factoring of 
receivables.  The factoring obligation 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 
factoring of receivables recorded as interest expense in 1997 amounted to 
$38,500.

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:

<TABLE>
                                               Capital
                                               Leases 
                                             -----------
     <S>                                     <C>
     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 
                                             -----------
                                             -----------
</TABLE>

                                       F-12

<PAGE>


                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             DECEMBER 31, 1996 AND 1997

NOTE 6 - OFFICE FURNITURE AND EQUIPMENT

The following is a summary of office furniture and equipment:

<TABLE>
                                               December 31,   
                                          ---------------------
                                            1996         1997  
                                          --------     --------
     <S>                                  <C>          <C>
     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
                                         ---------   ----------
                                         ---------   ----------
</TABLE>

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:

<TABLE>
                                                 December 31,   
                                            ---------------------
                                              1996        1997   
                                            --------   ----------
     <S>                                    <C>        <C>
     Accounts payable                       $221,315   $  247,325
     Accrued expenses:
       Deferred rent                          71,522       67,032
       Computer software acquisition costs        --      204,338
       Legal and professional                 46,660      233,779
       Other                                  10,066       91,123
     Accrued payroll and taxes               189,825      315,440
     Accrued interest payable                 27,800        2,033
                                            --------   ----------
                                            $567,188   $1,161,070
                                            --------   ----------
                                            --------   ----------
</TABLE>

                                       F-13

<PAGE>

                 ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             DECEMBER 31, 1996 AND 1997

NOTE 8 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES 

The following is a summary of notes payable:

<TABLE>
                                                             December 31,    
                                                        ---------------------
                                                          1996         1997  
                                                        --------     --------
<S>                                                     <C>          <C>
Obligation due under factoring agreement (see Note 4)   $   --       $ 228,757

Note payable to corporation, interest at 12.0%, 
$7,553 principal including interest due monthly,  
remaining balance plus interest due upon maturity 
at May 19, 1998; collateralized by option to purchase 
28,333 shares of common stock at $6.00 per share
(see Note 12).                                              --         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 $5.00 per common share including principal and 
accrued interest.                                           --         100,000
                                                        --------      --------
                                                        $   --        $478,727
                                                        --------      --------
                                                        --------      --------
</TABLE>
Under an agreement with Ironwood Leasing Ltd. 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 2.5 common shares of ETC Transaction Corporation 
stock for each one U.S. dollar of debenture.  In December 1997, the Company 
issued 8,125 shares of common stock on a $4-for-1 post-reverse stock split 
share basis in full settlement of the agreements.  The remaining $20,000 in 
debentures were paid in cash to the holders in full settlement.  

                                       F-14

<PAGE>

              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 8 - NOTES PAYABLE AND CONVERTIBLE DEBENTURES (CONTINUED) 

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 $5.00 per common share including principal and accrued interest. 
On September 22, 1997, the holder converted $52,067 of principal and interest
into 10,413 of common stock.

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:

<TABLE>
       For the Years Ending                      Capital       Operating
          December 31,                           Leases         Leases
       --------------------                     --------      ----------
<S>                                            <C>           <C>
             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
                                               ----------
                                               ----------
</TABLE>

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:           

<TABLE>
                                              December 31,   
                                        ----------------------
                                           1996         1997 
                                        ----------   ---------
<S>                                     <C>          <C>
     Computer & Office Equipment        $  182,053   $ 198,801
     Less:  accumulated depreciation      (21,044)     (84,520)  
                                        ----------   ----------
                                        $  161,009   $ 114,281   
                                        ----------   ----------
                                        ----------   ----------
</TABLE>

                                      F-15
<PAGE>
              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 9 - LEASE OBLIGATIONS PAYABLE (CONTINUED)

In April 1996, the Company entered into an equipment lease agreement and 
stock option agreement with Ironwood  Leasing Ltd. (a related party) which is 
recorded as a capital lease by the Company.  Principals of Ironwood Leasing, 
Ltd. are also stockholders of ETC, including a director of ETC.  The master 
lease agreement is for a term of five years beginning April 23, 1996 through 
April 23, 2001 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 master 
lease agreement amounted to $9,954 expiring in December 1999.

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 $5.00 
per share or, ii) purchase, at $5.00 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 5.00, 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 $5.00 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 $2.00 per share; therefore, the leasing company 
has the option to purchase common stock at this price as discussed in Note 12.

Because this transaction was with other than employees, it was accounted for 
using the fair value method under SFAS 123, "Accounting for Stock-based 
Compensation."  Using the fair market method, the fair value of the options 
granted in this transaction was based on the fair value of the services 
received.  Compensation expense recognized in conjunction with these options 
for the year ended December 31, 1996 and 1997, was not material.

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.

                                      F-16
<PAGE>
              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


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:

<TABLE>
            For the Years Ending
                December 31,                  Expiring
            ---------------------           -----------
<S>                                         <C>
                   2010                     $   880,000
                   2011                       2,006,000
                   2012                       1,633,000
                                            -----------

                   Total                    $ 4,519,000
                                            -----------
                                            -----------
</TABLE>

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.

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

<TABLE>
                                            1996         1997
                                         ----------   ----------
<S>                                      <C>          <C>
Currently payable                         $    --     $      --   
Deferred                                       --       (36,000)  
                                         ----------   ----------
                                                     
Federal income tax expense (benefit)      $    --     $ (36,000)  
                                         ----------   ----------
                                         ----------   ----------
</TABLE>

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 that was wholly owned and controlled by ETC's 
Chairman of the Board, Chief Executive Officer, and President at the time of 
the combination.  The individual no longer holds those titles and is 
currently only a shareholder. 

                                      F-17
<PAGE>
              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997

NOTE 11 - BUSINESS COMBINATION (CONTINUED)

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

<TABLE>
<S>                                                      <C>
     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
                                                         --------
                                                         --------
</TABLE>

The excess of the consideration over the related party predecessor cost (net 
liabilities assumed) is treated as a reduction of equity (i.e., a deemed 
dividend).  Goodwill resulting from market value adjustments to assets and 
liabilities of the entity was not recorded since this transaction was 
consummated with a related party, and that 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. 

                                      F-18
<PAGE>
              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997

NOTE 12 - STOCK OPTIONS (CONTINUED)

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

<TABLE>
                                           Year ended                    Year ended
                                        December 31, 1996             December 31, 1997
                                       -------------------          ---------------------
                                                  Weighted                       Weighted
                                                   Average                       Average
                                                  Exercise                       Exercise
Stock Options                          Shares      Price            Shares        Price
-------------                         --------    --------          -------      -------
<S>                                   <C>         <C>              <C>           <C>
Outstanding, beginning of period      167,750      $0.004           172,917       $0.004
Granted                                65,000      $0.004           350,000       $4.572
Exercised                             (29,583)     $0.004           (58,750)      $0.160
Forfeited/expired                     (31,250)     $0.004          (216,250)      $3.120
                                      --------                      -------
Outstanding, end of period            172,917      $0.004           247,917       $3.832
                                      --------                      -------
                                      --------                      -------

Options exercisable, end of period      4,583      $0.004           185,417       $3.576
                                      --------                      -------
                                      --------                      -------
</TABLE>

The following table summarizes information about stock options granted during
the years ended

<TABLE>
                                      December 31, 1996            December 31, 1997
                                   -----------------------      ----------------------
                                   Weighted       Weighted      Weighted      Weighted
                                    Average       Average       Average       Average
                                     Fair         Exercise        Fair        Exercise
                                     Value         Price         Value         Price
                                   --------      --------       --------      --------
<S>                                <C>           <C>            <C>           <C>
Option price = fair market value    $0.000        $0.000         $4.924        $4.924
Option price < fair market value    $4.000        $0.004         $4.000        $0.400
Total                               $4.000        $0.004         $4.856        $4.572
</TABLE>

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

<TABLE>
                                    Options Outstanding                              Options Exercisable
                     ----------------------------------------------------   --------------------------------------
                        Options       Weighted Average
                     Outstanding at      Remaining       Weighted Average   Options Exercisable   Weighted Average
 Exercise Prices        12/31/97      Contractual Life    Exercise Price        at 12/31/97        Exercise Price
-------------------------------------------------------------------------   --------------------------------------
<S>                  <C>              <C>                <C>                <C>                   <C>
$0.000 to $ .004        52,917        Term of Employ          $ .004               52,917              $ .004
$0.005 to $4.252        50,000        Term of Employ          $4.252                    0              $4.252
$4.253 to $5.00        132,500        Term of Employ          $5.000              132,500              $5.000
$5.001 to $6.00         12,500        Term of Employ          $6.000                    0              $6.000
                     ---------                                                  ---------
                       247,917                                $3.832              185,417              $3.576
                     ---------                                                  ---------
                     ---------                                                  ---------
</TABLE>

                                      F-19
<PAGE>
              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 12 - STOCK OPTIONS (CONTINUED)

Fair value for the stock underlying stock options and stock warrants was 
determined, prior to the Company trading on the over-the-counter market, 
using information available from other stock sale transactions at or near the 
grant date.  In management's opinion, these transactions between willing 
parties included the best information available at the time of grant to 
estimate the market value of the common stock of the Company.  No quoted 
market prices existed due to the non-public status of the Company.  Fair 
values for the stock underlying stock options and stock warrants subsequent 
to becoming publicly traded consisted of quoted market prices as listed in 
stock-trading business journals.  These fair values were used to determine 
the compensatory components of the stock options and stock warrants granted 
during the years ended December 31, 1996 and 1997.  The Company's common 
stock became publicly traded in April 1997.

Compensation costs will be recognized as an expense over the vesting period 
of 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.  

Using the fair value method, the fair value of each option grant is estimated 
on the date of grant using the Black-Scholes option pricing model with the 
following weighted-average assumptions used for grants in 1997: dividend 
yield of 0.0 percent; expected volatility of 40.0 percent; risk free interest 
rates of 5.0 percent; expected lives of two years.  Using the fair value 
method, the fair value of each option grant is estimated on the date of grant 
using the Binomial Method with the following weighted-average assumptions 
used for grants in 1996: dividend yield of 0.0 percent; risk free interest 
rates of 4.5 percent; expected lives of three years.  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 in 1997 would have been $2,392,318.  Basic and diluted 
loss per share would have been $(1.09) and $(1.13) in 1997, respectively.  In 
1996, net loss and loss per share data would have not been significantly 
changed using the fair value method. 

                                    F-20
<PAGE>
                                      
              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997

NOTE 12 - STOCK OPTIONS (CONTINUED)

As discussed in Note 8, the Company issued 28,333 options to purchase common 
stock at $6.00 per share to a corporation as collateral to secure a note 
payable. The Company accounted for this transaction using the "intrinsic 
value based method" of accounting for stock options.  The exercise price of 
the stock options on the date of grant is equal to fair market value of the 
underlying common stock.  The fair value was determined based upon available 
market quotes on the date of grant.  No compensation expense was recognized 
in conjunction with these options for the year ended December 31, 1997.  The 
options expire on May 19, 1998. 

Under an agreement with a leasing company discussed in Note 9, the leasing 
company has 52,652 options to purchase common stock at $2.00 per share.  
These options have no fixed maturity.

Of 100,000 stock options granted in 1995 to a shareholder, and officer of the 
Company, 50,000 were rescinded and forfeited in 1997.  The Company and 
shareholder, by mutual agreement, elected to rescind the stock options and 
return all rights under the agreement.  The financial statements of the 
Company only include compensation expense for shares vested prior to the 
rescission. The compensation expense adjustment due to the rescission was 
recorded as a 1997 adjustment, and, net of the adjustment, no compensation 
expense was recognized in 1997 from these stock options.

Total compensation expense of $339,600 was measured at the date of grant of 
the 100,000 options.  The Company used the straight-line method to recognize 
stock-based compensation expense for these options over their three year 
vesting period, even though the options vested on various dates during that 
period. This method was not materially different than the method prescribed 
by APB 25: ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.  Stock-based 
compensation expense of $199,800 was recognized in 1996 under these options.  
The remaining $199,800 of compensation expense will not be recognized by the 
Company due to the rescission.  Because the Company recognized stock-based 
compensation expense using the straight-line method, and 50,000 of the 
100,000 stock options granted in 1995 were rescinded in 1997, no adjustment 
is necessary in the period of forfeiture to reverse stock-based compensation 
recognized in previous periods. 

                                      F-21
<PAGE>

              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 13 - STOCK WARRANTS

Effective June 1, 1996, the Company issued 55,000 stock warrants to a 
shareholder which expired on June 15, 1997, and allowed the holder of each 
warrant to purchase one share of common stock at a price of $6.00 per share. 
Fair value of the stock underlying the warrants issued was determined based 
upon the selling price to a willing buyer at or near the date of grant.  In 
management's opinion, these transactions included the best information 
available at the time of grant to estimate the fair value of the common stock 
of the Company.  The warrants issued to the shareholder were for services 
rendered for consulting in obtaining equity capital and marketing the 
Company's common stock and were accounted for under SFAS 123, "Accounting for 
Stock Based Compensation".  Using the fair value method, the fair value of 
the warrants issued was based on the fair value of the services received.  
Compensation expense recorded was not material.  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 130,000 stock warrants to 
shareholders which expire on February 28, 2004, and allow the holder of each 
warrant to purchase one share of common stock at a price of $5.00 per share. 
Fair value of the stock underlying the warrants issued was determined based 
upon the selling price to a willing buyer at or near the date of grant.  In 
management's opinion, these transactions included the best information 
available at the time of grant to estimate the fair value of the common stock 
of the Company.  The warrants issued to the shareholder were for services 
rendered for consulting in obtaining equity capital and marketing the 
Company's common stock and were accounted for under SFAS 123, "Accounting for 
Stock Based Compensation."  The fair value of the warrants was estimated 
using the Binomial Method with the following assumptions: dividend yield 
0.0%; risk free interest rate of 8%; expected lives of two years.  
Compensation expense of $96,200 was recognized in 1997.  As of December 31, 
1997, no warrants have been exercised.

Effective June 1, 1997, the Company issued 5,750 stock warrants to 
shareholders which expire on June 1, 1998, and allow the holder of each 
warrant to purchase one share of common stock at a price of $6.00 per share.  
Fair value was determined based on quoted market prices.  The warrants issued 
to shareholders were for services rendered for consulting in obtaining equity 
capital and marketing the Company's common stock and were accounted for under 
SFAS 123, "Accounting for Stock Based Compensation."  The fair value of the 
warrants was estimated on the date of grant using the Black-Scholes option 
pricing model with the following weighted-average assumptions: dividend yield 
0.0%; expected volatility 40.0%; risk-free interest rate 5.0%; expected lives 
of one year. Compensation expense of $6,212 was recognized in 1997.  As of 
December 31, 1997, no warrants have been exercised.


                                      F-22
<PAGE>

              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 14 - CUSTOMER CONCENTRATION

For the years ended December 31, 1996 and 1997, revenues from one customer 
amounted to approximately 64% and 56% of total revenues.  For the years ended 
December 31, 1996 and 1997, revenues from a separate customer amounted to 
approximately 0% 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.  During the years ended December 31, 1996 and 1997, the Company 
incurred expenses under this agreement amounting to $12,985 and $19,872, 
respectively.

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.  The former Chairman of the Board, Chief Executive Officer and 
shareholder of ETC is the sole officer, director and shareholder of SNC.

At December 31, 1996, the Company had 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-23
<PAGE>

              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 15  - RELATED PARTY TRANSACTIONS (CONTINUED)

On May 2, 1997, Elaine Boze resigned as the Company's General Counsel and 
member of the Board of Directors.  The Company and Ms. Boze entered into a 
Severance Agreement and General Release whereas she received a $25,000 
separation payment which was charged to expense.  Ms. Boze was also entitled 
to a continuation of her healthcare benefits until such time as Ms. Boze 
becomes employed by an entity providing similar benefits.  The Company paid 
$1,120 in 1997 for maintenance and continuation of her healthcare benefits.

On January 18, 1996, ETC entered into a consulting agreement with Michael 
Eckstein, a director of the Company, pursuant to which Mr. Eckstein agreed to 
assist ETC in identifying and placing under contract TPAs, preferred provider 
organizations and other managed care companies which may be 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. In June 24, 1998, Mr. Eckstein agreed to receive only 
commission based compensation under the terms of the agreement.  During the 
years ended December 31, 1996 and 1997, the Company expensed $37,500 and $0, 
respectively, under this consulting agreement.

Effective May 1, 1996, Roy W. Mers ("Mers") resigned from his position as 
President and director of ETC.  As a consequence to his resignation, ETC and 
Mers entered into a Settlement Agreement whereas Mr. Mers received 30,000 
shares of common stock valued at $4.00 per share for total compensation of 
$120,000 (see Note 16).  Pursuant to the agreement, ETC agreed to compensate 
Mers for his future efforts in assisting ETC in obtaining financing for its 
business ventures.  The agreement terminated on August 1, 1997 with no 
additional compensation being paid or due to Mers since no services were 
performed by him subsequent to his resignation.

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. 

                                      F-24
<PAGE>

              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 16 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED) 

During the year ended December 31, 1996, the Company issued an aggregate of 
65,656 shares of common stock for services rendered at $4.00 per share in the 
total amount of $262,625.  These shares were comprised of 2,656 shares issued 
to Mr. Dennis Barnes, a director and shareholder of the Company, in exchange 
for his efforts in assisting the Company in obtaining equity financing from 
third parties. Additionally, 20,000 shares were issued to Ms. Ann Mooney, a 
shareholder of the Company, in exchange for her efforts in marketing the 
Company's services.  The Company issued 30,000 to Mr. Roy Mers, former 
President of the Company, in connection with his severance package (See Note 
15).  The remaining 13,000 shares were issued to third parties for services 
rendered including 3,000 shares issued to an individual for a business 
valuation of the Company and 5,000 each issued to two separate individuals 
for their efforts in marketing the Company's services in 1996.

During the year ended December 31, 1997, the Company issued an aggregate of 
80,000 shares of common stock for services rendered at $5.00 per share in the 
total amount of $400,000.  These shares were comprised of 12,500 shares 
issued to two separate third parties (total of 25,000 shares) for services 
rendered for public relations.  Additionally, the Company issued the 
remaining 55,000 shares to a separate third party for services rendered in 
connection with assisting the Company in raising equity capital. 

Fair value of the common stock issued for services were determined based upon 
recent sales to willing parties at or near the date of issuance.  In 
management's opinion, fair value on the date of issuance of common stock and 
compensation cost recognized in the financial statements is commensurate with 
the cost of the services provided to the Company in 1996 and 1997. 



                                      F-25
<PAGE>

              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


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>

                                               For the year ended December 31, 1996
                                            -------------------------------------------
                                                Loss           Shares         Per Share
                                            (Numerator)     (Denominator)       Amount
                                            -----------     -------------     ---------
<S>                                         <C>             <C>               <C>
Net loss                                    $(2,470,684)      1,726,648        $(1.43)
Less: extraordinary item                             --             --         -------
                                            ------------    ------------       -------

Loss before extraordinary item              $(2,470,684)
BASIC EARNINGS PER SHARE
Loss available to common stockholders       $(2,470,684)      1,726,648        $(1.43)
EFFECT OF DILUTIVE SECURITIES                                                  -------
Employee stock options                               --              --        -------
                                            ------------    ------------
DILUTED EARNINGS PER SHARE                                                                                              

Loss available to common stockholders 
  plus assumed conversions                   (2,470,684)      1,726,648        $(1.43)
                                            ------------    ------------       -------
                                            ------------    ------------       -------
</TABLE>

<TABLE>

                                                For the year ended December 31, 1997
                                              -----------------------------------------
                                                  Loss           Shares       Per Share
                                               (Numerator)    (Denominator)    Amount
                                              ------------    -------------   ---------
<S>                                           <C>             <C>             <C>
Net loss                                      $(2,101,820)      2,240,181      $(0.94)
Less: extraordinary item                          (73,262)             --     ---------
                                              -----------     -------------   ---------
                                                                              
Loss before extraordinary item                $(2,175,082)
BASIC EARNINGS PER SHARE
Loss available to common stockholders         $(2,175,082)      2,240,181      $(0.97)
                                                                              ---------
EFFECT OF DILUTIVE SECURITIES                                                 ---------
12% convertible debentures                          5,077          (5,129)
Warrants                                               --         (27,852)
Employee stock options                                 --          (6,677)
Non-employee options                                   --         (12,642)
                                              ------------    -------------
DILUTED EARNINGS PER SHARE                        
Loss available to common stockholders 
  plus assumed conversions                     (2,170,005)      2,187,881      $(0.99)
                                              ------------    -------------   ---------
                                              ------------    -------------   ---------
</TABLE>

                                      F-26
<PAGE>

              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 17 - EARNINGS PER SHARE (Continued)

The following is a summary of loss per share data:

<TABLE>
                                         For the Years Ended
                                            December 31,
                                       ----------------------
                                        1996            1997
                                       -------        -------
<S>                                    <C>            <C>
Basic loss per share:
  Loss before extraordinary item       $(1.43)        $(0.97)
  Extraordinary item                     0.00           0.03
                                       -------        -------
  Net loss                             $(1.43)        $(0.94)
                                       -------        -------
                                       -------        -------

Diluted loss per share:
  Loss before extraordinary item       $(1.43)        $(0.99)
  Extraordinary item                     0.00           0.03
  Effect of dilutive securities          0.00           0.02
                                       -------        -------
  Net loss                             $(1.43)        $(0.94)
                                       -------        -------
                                       -------        -------
</TABLE>

Options to purchase 172,917 shares of common stock at $0.004 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 185,417 
shares of common stock at $0.004 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 correction of an error in recording the 
Electra-Net business combination (see Note 11) during those quarters.  The 
transaction is properly recorded in these annual financial statements. 

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. 

On February 27, 1998, the Company amended its Certificate of Incorporation with
the State of Delaware by increasing the authorized common stock from 15,000,000
to 20,000,000. 

                                      F-27
<PAGE>

              ELECTRONIC TRANSMISSION CORPORATION AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         DECEMBER 31, 1996 AND 1997


NOTE 18 - SUBSEQUENT EVENTS (CONTINUED)

On March 20, 1998, the Employment Agreement between the Company and Ann C. 
McDearmon, the Company's Executive Vice President - Director of Marketing, 
was terminated.  Ms. McDearmon, in a lawsuit filed on April 20, 1998 in State 
District Court of Dallas County, Texas, alleged that the Employment Agreement 
was effectively terminated by the Company as a result of the change in the 
Company's management in February 1998 and because of modifications to Ms. 
McDearmon's work responsibilities.  Ms. McDearmon has also alleged that as a 
result of the termination of the employment agreement she is entitled to 
certain liquidated damages identified in the agreement.  The Company 
maintains that Ms. McDearmon voluntarily terminated the employment agreement 
by submitting her letter of resignation on March 20, 1998 and that she is not 
entitled to any additional compensation or liquidated damages under the terms 
of such agreement. The Company intends to vigorously defend this lawsuit and 
does not believe that the outcome will have a material adverse effect upon 
its financial condition.

On May 7, 1998, Steven K. Arnold agreed to serve as a consultant to the 
Company on an interim basis pending his formal election by the Board of 
Directors as Chairman of the Board and Chief Executive Officer of the 
Company.  Effective May 28, 1998, Mr. Arnold was elected Chairman of the 
Board and Chief Executive Officer of the Company.  Mr. Goforth has agreed to 
continue to serve as the Company's Chief Financial Officer.

The Board of Directors authorized a 1-for-4 reverse stock split of the 
company's $0.001 par value common stock to be effective on July 1, 1998.  As 
a result of the split, the Company' issued and outstanding shares decreased 
to 3,560,506 shares, and additional paid-in capital increased by $10,519.  
All references in the accompanying financial statements to the number of 
common shares and per-share amounts for 1996 and 1997 have been restated to 
reflect the stock split. 

                                      F-28