ELECTRONIC TRANSMISSION CORP /DE/, 10KSB, 1998-03-27

ELECTRONIC TRANSMISSION CORP /DE/
10KSB, 1998-03-27
MISC HEALTH & ALLIED SERVICES, NEC

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

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

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

Commission File No. 22135

ELECTRONIC TRANSMISSION CORPORATION

(Name of Small Business Issuer in Its Charter)

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

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

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

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

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

Common Stock, $.001 par value per share
(Title of Class)
-------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No
-- --

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

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

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

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

Documents Incorporated By Reference

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

<PAGE>

ITEM 1. DESCRIPTION OF BUSINESS.

Organization

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

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

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

General

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

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

Recent Financings

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

<PAGE>

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

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

Service Areas

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

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

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

<PAGE>

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

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

Business Strategy

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

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

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

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

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

<PAGE>

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

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

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

Research and Development

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

Sales and Marketing

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

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

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

Customers

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

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

<PAGE>

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

Competition

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

Regulatory Matters

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

Employees

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

<PAGE>

Risk Factors

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

ITEM 2. DESCRIPTION OF PROPERTY.

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

<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

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

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

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

PART II

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

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

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

Holders.

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

Dividend Policy.

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

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion should be read in conjunction with the
Company's Financial Statements and Notes thereto, included elsewhere herein. The
information below should not be construed to imply that the results discussed
herein will necessarily continue into the future or that any conclusion reached
herein will necessarily be indicative of actual operating results in the future.
Such discussion represents only the best present assessment of management of the
Company. Because of the Company's recent acquisitions and the limited scale of
the Company's operations prior to 1996, the results of operations from period to
period are not necessarily comparative.

<PAGE>

Overview

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

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

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

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

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

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

<PAGE>

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

Results of Operations of the Company

Year Ended December 31, 1996 Compared to 1995

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

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

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

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

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

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

Year Ended December 31, 1997 Compared to 1996

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

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

<PAGE>

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

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

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

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

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

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

Liquidity and Capital Resources

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

<PAGE>

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

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

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

Year 2000 Modifications

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

Other Matters

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

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

<PAGE>

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

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

ITEM 7. FINANCIAL STATEMENTS.

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

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

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

PART III

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

Directors and Executive Officers

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

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

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

<PAGE>

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

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

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

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

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

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

Director Compensation Meetings and Committees of the Board of Directors

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

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

<PAGE>

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

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

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

Compliance with Section 16(a) of the Exchange Act

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

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

ITEM 10. EXECUTIVE COMPENSATION.

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

<TABLE>

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

</TABLE>

<PAGE>

Employment Agreements and Related Matters

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

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

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

<PAGE>

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

Stock Options

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

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

<TABLE>

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

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

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

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

</TABLE>

<PAGE>

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

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

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

</TABLE>

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

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

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

<PAGE>

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

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

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

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

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

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

<PAGE>

<TABLE>

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

(a) Financial Statements and Exhibits Page

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

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

</TABLE>

2. Exhibits

Exhibit Number Description of Exhibits
27.1 Financial Data Schedule

(b) Reports on Form 8-K.

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

<PAGE>

SIGNATURES

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

ELECTRONIC TRANSMISSION CORPORATION

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

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

<TABLE>

<S> <C>

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

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

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

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

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

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

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

</TABLE>

<PAGE>

INDEPENDENT AUDITORS' REPORT

January 30, 1998

To the Board of Directors
of Electronic Transmission Corporation:

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

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

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

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

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

F-1

<PAGE>

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

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

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

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

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

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

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

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

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

</TABLE>

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

F-2

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

F-3

<PAGE>

<TABLE>
<CAPTION>
ELECTRONIC TRANSMISSION CORPORATION
-----------------------------------

STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------

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

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

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

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

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

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

</TABLE>

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

F-4

<PAGE>

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

STATEMENTS OF CASH FLOWS
------------------------

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

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

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

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

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

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

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

</TABLE>

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

F-5

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

F-6

<PAGE>

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

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

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

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

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

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

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

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

F-7

<PAGE>

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

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

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

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

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

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

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

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

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

F-8

<PAGE>

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

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

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

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

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

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

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

The following is a summary of accounts receivable:

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

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

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

F-9

<PAGE>

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

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

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

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

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

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

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

The following is a summary of office furniture and equipment:

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

F-11

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F-12

<PAGE>

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

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

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

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

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

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

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

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

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

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

F-13

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net Liabilities Assumed $ 152,526

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

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

F-14

<PAGE>

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

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

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

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

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

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

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

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

<TABLE>

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

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

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

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

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

</TABLE>

F-15

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

F-16

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

F-17

<PAGE>

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

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

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

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

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

Non-cash investing and financing activities include the following:

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

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

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

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

<TABLE>

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

</TABLE>

F-18

<PAGE>

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

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

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

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

<TABLE>

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

</TABLE>

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

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

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

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

F-19

</LEGEND>
<CIK> 0001017586
<NAME> Electronic Transmission Corporation
<MULTIPLIER> 1
<CURRENCY> US DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 548,565
<SECURITIES> 0
<RECEIVABLES> 353,818
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 950,886
<PP&E> 1,275,109
<DEPRECIATION> 408,711
<TOTAL-ASSETS> 1,825,774
<CURRENT-LIABILITIES> 1,513,280
<BONDS> 0
0
0
<COMMON> 14,026
<OTHER-SE> 272,881
<TOTAL-LIABILITY-AND-EQUITY> 1,825,774
<SALES> 0
<TOTAL-REVENUES> 3,249,492
<CGS> 0
<TOTAL-COSTS> 1,682,083
<OTHER-EXPENSES> 3,676,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,328
<INCOME-PRETAX> (2,108,666)
<INCOME-TAX> 36,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 73,262
<CHANGES> 0
<NET-INCOME> (1,999,404)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.24)

</TABLE>