<PAGE>
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                                   FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
(Mark One)
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                                       OR
 
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
 
        FOR THE TRANSITION PERIOD FROM ______________ TO ______________
 
                        COMMISSION FILE NUMBER 001-13875
 
                            ------------------------
 
                      ADVANCED COMMUNICATIONS GROUP, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                              <C>
                   DELAWARE                                        76-0549396
        (State or other jurisdiction of                 (IRS Employer Identification No.)
        incorporation or organization)
 
          390 SOUTH WOODS MILL ROAD,                                  63017
        SUITE 150, ST. LOUIS, MISSOURI                             (Zip Code)
   (Address of principal executive offices)
</TABLE>
 
       Registrant's telephone number, including area code (314) 205-8668
          Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<S>                                              <C>
              Title of each class                   Name of each exchange on which registered
         $.0001 PAR VALUE COMMON STOCK                    NEW YORK STOCK EXCHANGE, INC.
</TABLE>
 
          Securities registered pursuant to Section 12(g) of the Act:
                                      NONE
                                (Title of class)
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by references in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
 
    The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based upon the closing price of such stock on March 18, 1999 as
reported by the New York Stock Exchange, was approximately $64.3 million.
 
    The number of shares outstanding of the registrant's Common Stock as of
March 18, 1999 was approximately 19,859,262 shares.
 
                            ------------------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE
 
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<PAGE>
                                     INDEX
 
                                     PART I
 
<TABLE>
<S>        <C>                                                                           <C>
Item 1.    Business....................................................................          3
Item 2.    Properties..................................................................          7
Item 3.    Legal Proceedings...........................................................          8
Item 4.    Submission of Matters to a Vote of Security Holders.........................          8
 
                                             PART II
 
Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters...          8
Item 6.    Selected Financial Data.....................................................         10
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
             Operations................................................................         11
Item 8.    Financial Statements and Supplementary Data.................................         17
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial
             Disclosure................................................................         34
 
                                             PART III
 
Item 10.   Directors and Executive Officers of the Registrant..........................         34
Item 11.   Executive Compensation......................................................         36
Item 12.   Security Ownership of Certain Beneficial Owners and Management..............         39
Item 13.   Certain Relationships and Related Transactions..............................         40
 
                                             PART IV
 
Item 14.   Exhibits, Financial Statements Schedules and Reports on Form 8-K............         40
</TABLE>
 
                                       2
<PAGE>
                                     PART I
 
    THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. WHEN USED IN
THIS FORM 10-K THE WORDS "ANTICIPATES," "INTENDS," "PLANS," "BELIEVES,"
"EXPECTS," "ESTIMATES" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS, INCLUDING, BUT NOT LIMITED TO, THE
COMPANY'S PROJECTIONS AND ESTIMATES REGARDING CASH FLOWS, CAPITAL EXPENDITURES
AND PLANNED SERVICE OFFERINGS, ARE BASED UPON MANAGEMENT'S BELIEFS, AS WELL AS
ON ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT, AND
INVOLVE VARIOUS RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE
COMPANY'S CONTROL. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF THE
COMPANY. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER INCLUDE, BUT ARE NOT
LIMITED TO, THOSE FACTORS IDENTIFIED IN "ITEM 7 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--FACTORS THAT MAY
AFFECT FUTURE RESULTS AND FINANCIAL CONDITION" IN THIS FORM 10-K.
 
ITEM 1.  BUSINESS
 
    The following section describes the Company's current businesses, plans for
future business and its strategy. Successful execution of these plans are
contingent upon satisfying many factors, including among many items, the
Company's ability to obtain adequate financing to implement the strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and"--Factors That May Affect
Future Results and Financial Condition." The Company continues to explore a
variety of financiang possibilities including the sale of certain assets or
businesses and opportunities to raise private equity.
 
GENERAL
 
    Advanced Communications Group, Inc. ("Advanced Communications" or the
"Company") is a regional competitive local exchange carrier ("CLEC") that
provides integrated communications services to business and residential
customers located in the Midwestern region of the United States. The Company's
integrated communications services include local, long distance, Internet
access, cellular and enhanced voice and data services. Advanced Communications
focuses primarily on small to medium-sized businesses in Kansas, Minnesota,
Nebraska, North Dakota, Oklahoma, South Dakota and Texas. As of December 31,
1998, Advanced Communications had over 125,000 local access lines in services
and provided integrated communications services to over 60,000 customers. The
Company also publishes yellow pages directories in certain Texas, Oklahoma and
California markets that have over 40,000 advertising customers. In 1998,
Advanced Communications distributed 3.4 million copies of yellow pages
directories in 23 markets.
 
    Advanced Communications currently owns and operates telecommunications
networks that include six digital switches in Kansas, Oklahoma, South Dakota and
Texas and plans to install four additional switches in Texas, Minnesota and
Kansas in 1999. The Company is also in the process of installing its first Class
5 switch in Wichita, KS. Advanced Communications' local exchange network
architecture is designed to allow it to provide services to customers within a
targeted 350-mile radius of each switch location. The Company has selected a
number of central office locations of the incumbent local exchange carriers
("ILECs") for interconnection with its local exchange switches through physical
collocation of its transmission electronics in the ILEC central offices and at
the Company's own interconnection locations, or points of presence. In areas in
which Advanced Communications does not currently have network equipment, it
resells the communications services of providers such as Southwestern Bell
Telephone Company, US West Communications, Inc. and others. Advanced
Communications has entered into comprehensive local exchange resale agreements
with Southwestern Bell, US West, affiliates of GTE Corporation and Sprint
Corporation covering each of the states in which the majority of its customers
are currently located. The Company has also entered into agreements with several
interexchange carriers to provide switching and network transmission services
for its long distance traffic and have agreements to resell cellular service in
 
                                       3
<PAGE>
selected markets. These agreements allow Advanced Communications to offer
bundled local and long distance telecommunications services without incurring
substantial expenditures for the construction of network facilities.
 
    Advanced Communications completed its initial public offering in February
1998, at which time it acquired six telecommunications service providers, a
yellow pages publisher, two telephone equipment sales and maintenance companies
and its predecessor company, which was organized in 1996. For the year ended
December 31, 1998, the Company had pro forma revenues of $114.2 million and pro
forma earnings before interest, income taxes, depreciation, amortization and
stock-based compensation ("EBITDA") of $.4 million.
 
EXISTING PRODUCTS AND SERVICES
 
    As of December 31, 1998, Advanced Communications was providing local, long
distance, Internet access, cellular and other enhanced telecommunications
services to over 60,000 business and residential customers in its markets.
Advanced Communications currently provides its local services on a resale basis
through Southwestern Bell, US WEST and GTE. The Company also publishes yellow
pages directories serving 23 market areas in Texas, Oklahoma, and California
with over 40,000 advertising customers.
 
    LOCAL SERVICES.  Advanced Communications primarily offers local dial tone,
private line service and value-added services such as call waiting, caller ID
and voice mail, on a resale basis through Southwestern Bell, US WEST and GTE.
The Company intends to continue to purchase local telephone services from ILECs
on a wholesale basis and resell such services to business and residential
customers. As of December 31, 1998, Advanced Communications was authorized to
resell local service in Iowa, Kansas, Minnesota, Montana, Nebraska, North
Dakota, Oklahoma, South Dakota, Texas and Wyoming. Advanced Communications is
also seeking authorization to resell local services in Arkansas, Colorado and
Missouri. The Company intends to seek facilities-based CLEC certification in its
targeted states and in contiguous states. Advanced Communications plans to
deploy its own switching platforms and transmission facilities using owned and
leased trunking capacity and leased unbundled network elements and DS-1 services
to interconnect to its customers as the demand for its services justifies such
expenditures.
 
    ONE PLUS LONG DISTANCE SERVICES.  Advanced Communications offers traditional
outbound switched services which allow customers to make long distance calls by
dialing "1" plus the area code and phone number. Customers choose Advanced
Communications as their long distance provider by placing an order with the
Company.
 
    LONG DISTANCE DEDICATED SERVICES.  For certain high volume customers,
Advanced Communications offers a dedicated access line which bypasses the ILEC.
The Company's switch is directly connected to the end users instead of switching
through an ILEC. The customer's per minute rates are lower and ILEC originating
access fees are eliminated.
 
    TOLL FREE 800/888/877 SERVICES.  Advanced Communications offers toll-free
service so that calls are paid by the party receiving the call.
 
    CELLULAR SERVICES.  Advanced Communications offers cellular service on a
resale basis to customers in Idaho, Iowa, Minnesota, Montana, Nebraska, North
Dakota and South Dakota. The Company typically offers cellular service as part
of a comprehensive package of telecommunications services to its business and
residential customers.
 
    YELLOW PAGES PUBLISHING.  Advanced Communications' yellow pages business
derives its revenue primarily from the sale of advertising space in its
directories. During the year ended December 31, 1998, the Company produced and
distributed approximately 3.4 million copies of yellow pages directories in 23
markets in Oklahoma, Texas and California, including in many of the Company's
target telecommunications markets. Advanced Communications is preparing to enter
into one new market in 1999 and one new
 
                                       4
<PAGE>
market in 2000. The Company continuously evaluates whether to publish additional
directories in contiguous markets.
 
PLANNED PRODUCTS AND SERVICES
 
    ENHANCED SERVICES.  Advanced Communications' planned network design and
technology will permit it to offer a full range of enhanced services to
complement its basic switched local and long distance services. The demand for
these value-added, higher margin services, including the demand for high speed
data transmission services, is being driven primarily by the significant growth
in Internet usage and the growing complexity of the telecommunications
requirements of the Company's customers. Advanced Communications will have the
capability to provide an integrated turnkey solution to all of its customers'
voice, data and video transmission requirements, including the following
enhanced services: internet access, web hosting and enhanced internet business
services, transparent LAN services, and frame relay.
 
    WHOLESALES SERVICES.  Advanced Communications intends to offer its local and
Internet access services on a wholesale basis to selected Internet service
providers. The Internet service providers will be able to obtain additional
network capacity by accessing the Company's switches, which would help eliminate
some of the congestion produced by the rapid growth of Internet users.
 
BUSINESS STRATEGY
 
    Advanced Communications believes that the Telecommunications Act of 1996, by
opening the local exchange markets to competition, and the ongoing deregulation
of the telecommunications industry, have created significant opportunities for
CLECs such as the Company that can offer bundled communications services at
lower prices than the ILECs. Advanced Communications' original and present
business strategy is to establish a loyal customer base by focusing on
underserved business customers in smaller markets and providing them with
bundled local and long distances services that are billed on a single statement.
The Company then plans to deploy digital switching platforms with local and long
distance capability and lease fiber trunking capacity to connect its switches
with its transmission equipment collocated in the ILEC central offices. The key
components of Advanced Communications' business strategy include the following:
 
    CONCENTRATE ON SMALLER REGIONAL MARKETS.  Advanced Communications focuses
its marketing and expansion activities on small to mid-sized cities in the
Midwestern United States. These cities present the Company with attractive
opportunities since the ILECs have placed a lower priority on defending their
market share and installing advanced network infrastructure in these smaller
markets. The regional concentration of Advanced Communications' targeted market
also permits the Company to penetrate the potential customer base in a
cost-efficient manner and enables it to achieve the necessary collocations and
rapidly interface with the ILECs. This is an important competitive advantage, as
customers often choose a provider based on the speed with which new services can
be installed and provided.
 
    TARGET CUSTOMERS WITH MULTIPLE SERVICE REQUIREMENTS.  The Company's primary
targeted customer base of small and medium-size businesses seek cost effective
solutions for all of their telecommunications needs. Advanced Communications
believes these customers have been generally neglected by the ILECs, who tend to
focus on larger business customers and do not have marketing and customer
service programs designed specifically to address the needs of small to medium
sized businesses. Advanced Communications offers these customers "one-stop
shopping" by integrating all of its services, including bundled third-party
services, and providing them with a single sales contact and one easy-to-read
billing statement.
 
    CAPITALIZE ON LOCAL PRESENCE TO GAIN MARKET SHARE.  Advanced Communications'
experienced, local sales team and technical support staff are able to provide
its customers with personalized communications solutions. The Company believes
this gives it a competitive advantage in its target markets, over the ILECs who
generally do not have significant local sales and technical personnel in those
markets. Advanced
 
                                       5
<PAGE>
Communications expects to strengthen brand awareness by tailoring its marketing
programs and advertising campaigns in each local market.
 
    TARGET ESTABLISHED CUSTOMER BASE FOR CROSS-SELLING.  Advanced Communications
believes that its established base of long distance and yellow page customers
represents a substantial untapped customer base for cross-selling its services,
as only a small portion of such customers currently subscribe to its other
services. The Company believes that their familiarity with its brand name and
the potential discounts associated with comprehensive service packages will make
these customers highly receptive to the Company's cross-selling efforts.
 
    EXPAND GROSS MARGINS THROUGH COST-EFFICIENT DEPLOYMENT OF NETWORK
FACILITIES.  Once the Company has a sufficient customer base and traffic volume
in a certain area on a reselling basis to justify investing in its own
facilities, the Company will install its own switches and transmission equipment
using a network architecture that minimizes the extent of investment. The
Company plans to cost effectively access its customers on a broad geographic
area by interconnecting in ILEC central offices, leasing local and intercity
transmission capacity and acquiring network capacity from the ILECs in the form
of unbundled loops and DS-1 service. Adding its own digital switching platforms
to leased bandwidth provides the technology typically used in more developed
commercial areas in offering enhanced services to our targeted smaller markets.
The Company also plans to deploy packet-based switching platforms, which, along
with its circuit-based switches, will enable the Company to offer a flexible,
comprehensive service package. If a particular market justifies the additional
investment, the Company will collocate in additional ILEC central offices,
establish additional point of presence locations for its transmission equipment
and construct its own "last mile" transport to selected customers. The Company
believes this incremental approach will result in lower initial capital
expenditures will allow the Company to penetrate a broad geographic area served
by multiple ILEC end offices and enter new markets more quickly, and reduces the
costs associated with building its own system -- all of which should contribute
to improved gross margins.
 
    PROVIDE HIGHER MARGIN ENHANCED SERVICE OFFERINGS.  The Company believes that
its network design and technology will allow it to deliver an integrated package
of enhanced services to complement its basic switched voice transmission
services. These services, certain of which it offers currently on a resale
basis, include:
 
    - enhanced local features such as conference calling, speed dialing, call
      waiting, voice mail, call forwarding, caller ID, last number redial and
      return calling;
 
    - Advanced Intelligent Network services such as end-user time-of-day routing
      and local number portability;
 
    - Internet services for both retail customers and Internet Service
      Providers, including dedicated and dial-up high speed Internet access, Web
      page design and support, and Web server hosting;
 
    - high speed ATM and frame relay digital packet-switched data transmission
      and video transport services; and
 
    - LAN to LAN interconnect services.
 
    ENHANCE SERVICE DELIVERY CAPABILITIES WITH INSTALLATION OF NEW OPERATIONAL
SUPPORT SYSTEM.  Advanced Communications plans to install a computerized back
office system to facilitate organized, efficient order management, service
provisioning, trouble management, billing and collection and customer service.
Until this system is operational, the Company plans to enter into an agreement
with a service bureau to handle its back office functions. The system Advanced
Communications is installing is scalable and flexible to support its expected
future back office requirements. When installed, this system will:
 
    - minimize the time to initiate local and long distance services for new
      customers internally and through the ILEC;
 
                                       6
<PAGE>
    - provide detailed and customized customer billing information;
 
    - respond quickly to customers' needs and information requests; and
 
    - monitor and analyze traffic, financial and operating trends.
 
    The Company intends to actively negotiate arrangements to "electronically
bond" its platform with its trading partner's, including ILECs and other service
providers, to expedite electronic flow-through order processing. Advanced
Communications has engaged an experienced team of engineering and information
technology professionals to develop these back office systems, which will give
it a competitive advantage over companies using legacy systems.
 
    INCREASE SIZE AND PRODUCTIVITY OF DIRECT TELECOMMUNICATIONS SALES FORCE AND
CUSTOMER CARE ORGANIZATION.  Advanced Communications intends to recruit and
retain a motivated, experienced direct local sales force and customer care
representatives. Advanced Communications has implemented a 100% commission-based
compensation system for its sales force. The Company has expanded its
telecommunications sales force from 45 people at February 1, 1998 to over 200 in
24 offices in seven states at December 31, 1998. Advanced Communications has
also expanded its customer care organization from approximately 160
representatives at February 1, 1998 to approximately 250 representatives at
December 31, 1998.
 
    LEVERAGE ESTABLISHED DIRECTORIES BUSINESS.  Advanced Communications'
existing yellow pages directories business provides consistent cash flow to fund
a portion of its capital and operating requirements. The Company intends to
leverage its established market positions in its directories business through
joint marketing its directories and telecommunications services, in order to
increase brand awareness and attract new customers to its telecommunications
services. Advanced Communications continues to use the opening sections of many
of its directories as a product catalog to showcase its communications services.
The Company's strategy for its directories business is to publish new
directories and make selective acquisitions. Advanced Communications intends to
target markets that are contiguous to its existing markets and use its
established sales infrastructure, brand name recognition and existing
advertising customers and readership, to minimize the costs associated with
launching new directories.
 
    LEVERAGE PROVEN MANAGEMENT TEAM.  Advanced Communications' senior management
team is comprised of proven, experienced telecommunications executives with
in-depth knowledge of local and long distance exchange services, particularly in
its current markets. Richard O'Neal, the acting Chief Executive Officer, founded
Great Western Directories, Inc., one of the largest independent publishers of
yellow pages, which was acquired by the Company in its initial public offering.
James F. Cragg, the President and Chief Operating Officer, has held executive
positions with MCI, Snyder Communications and, most recently, Brooks Fiber
Properties, Inc. The Company's Chief Financial Officer, William H. Zimmer III,
spent over 15 years at Cincinnati Bell, where he served in various senior
management capacities. Other key members of the Company's management team have
significant experience in network operations, sales and marketing, billing and
collection, back office support systems and finance.
 
EMPLOYEES
 
    At December 31, 1998, the Company had 1,020 employees. Of these, 348 were in
its yellow pages publishing operations and 672 were in its telecommunications
operations.
 
ITEM 2. PROPERTIES
 
    The Company owns office buildings in Amarillo and Longview, Texas and leases
office space for its customer service centers in Dallas, Texas; Oklahoma City,
Oklahoma; Wichita, Kansas; Sioux Falls, South Dakota. The Company also leases
its Corporate Headquarters in St. Louis, Missouri, as well as various sales
offices throughout its geographic territory. The leases for these offices expire
at various times through January 2008.
 
                                       7
<PAGE>
    The Company may lease or purchase additional space for general office use or
to house network switching equipment in connection with the expansion of its
business.
 
ITEM 3. LEGAL PROCEEDINGS
 
    During the fourth quarter of 1998, the lawsuit filed against Great Western
Directories, Inc. ("Great Western") one of the Company's wholly owned
subsidiaries, and Mr. Richard O'Neal, President of Great Western, President of
the Company's Directories Services Group, the Company's acting Chief Executive
Officer and a director, by Brenda Baldwin, was settled and the lawsuit was
dismissed. The plaintiff in the action alleged violation of Section 10b of the
Securities Exchange Act of 1934 and Rule 10b-5 and violation of the Texas
securities laws. Under the terms of the settlement, neither Mr. O'Neal nor the
Company was required to pay any money to the plaintiff.
 
    As is the case with many companies, the Company faces exposure to actual or
potential claims and lawsuits involving its business and assets. The Company is
currently party to a number of lawsuits consisting of ordinary, routine
litigation incidental to the business of the Company. The Company believes that
any liabilities resulting from such claims should not have a material adverse
effect on the Company's financial position, liquidity or results of operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    The Company did not submit any matter to a vote of its stockholders during
the quarter ended December 31, 1998.
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
  STOCKHOLDER MATTERS
 
(A) PRINCIPAL MARKET
 
    The Company's common stock is traded on the New York Stock Exchange under
the symbol "ADG". The Company is authorized to issue 180,000,000 shares of
Common Stock, par value $.0001 per share and 20,000,000 shares of preferred
stock, par value $.0001 per share. At March 18, 1999, 19,859,262 shares of
Common Stock and 142,857 shares of Series A Redeemable Convertible Preferred
Stock were outstanding.
 
(B) STOCK PRICE AND DIVIDEND INFORMATION
 
<TABLE>
<CAPTION>
                                    MARKET PRICE
                                --------------------     DIVIDENDS
 YEAR ENDED DECEMBER 31, 1998     HIGH        LOW        PER SHARE
------------------------------  ---------  ---------  ---------------
<S>                             <C>        <C>        <C>
1st Quarter (from February 18,
  1998)                         $   17.00  $   12.69            --
2nd Quarter                         16.00       6.63            --
3rd Quarter                         12.94       4.88            --
4th Quarter                          7.19       3.00            --
</TABLE>
 
    No dividends have been paid on the Common Stock since the Company's
inception. It is the Company's current intention to retain its earnings, if any,
to finance the expansion of its business and for general corporate purposes and
the Company expects that it will not pay any dividends for the foreseeable
future. The Company's revolving credit facility restricts dividend payments and
any new credit facility which the Company may obtain for working capital
requirements in the foreseeable future may also place limitations on the payment
of dividends (except for dividends payable in Common Stock and certain preferred
stock). The Company is exploring alternatives with respect to credit facilities.
 
                                       8
<PAGE>
(C) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
 
    As of March 18, 1999, there were 161 owners of record of the Common Stock.
On that date, the closing price of the Common Stock on the NYSE was $4.88.
 
(D) RECENT SALES OF UNREGISTERED SECURITIES
 
    On November 16, 1998, the Company acquired by merger all of the issued and
outstanding capital stock of Telecom Resources, Inc. ("TRI") from the
shareholders of TRI for 477,538 shares of common stock of the Company at a per
share price of $4.29 per share. TRI was a privately held company, the capital
stock of which was held by a limited number of stockholders. The shares of
Company common stock issued by the Company to the TRI shareholders as merger
consideration, were not registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to the exemption from registration afforded by
Section 3(B) and 4(2) of the Securities Act.
 
    In support of the applicability of the aforementioned exemption from
registration, each person receiving the unregistered shares of Company common
stock represented to the Company that: (i) such person, by reason of such
person's business or financial experience, could be reasonably assumed to have
the capacity to protect his/her own interest in connection with the transaction,
(ii) such person was familiar with the operations and business of TRI, it
subsidiaries and the Company and had an opportunity to review the financial
statements, business plan, books and records of both TRI and the Company and to
meet with and ask questions of and receive answers from the officers and
directors and other senior executives and representatives of each company, (iii)
that such person fully understood the nature and risks of his/her investment in
the Company common stock and could afford a total loss of the investment, (iv)
such person's investment in the Company Common Stock was not disproportionate to
his/her other investments or his/her net worth, and (v) the aquisition of the
Company common stock in connection with the merger transaction was solely for
such person's own account for investment purposes and not for the account of any
other person and not with a view to or for sale in connection with any
distribution, assignment or resale of the Company common stock.
 
                                       9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                            PRO FORMA (UNAUDITED)                       ACTUAL
                                         ----------------------------  -----------------------------------------
                                           YEAR ENDED DECEMBER 31,       YEAR ENDED DECEMBER 31,    INCEPTION TO
                                         ----------------------------  ---------------------------  DECEMBER 31,
                                             1998           1997           1998           1997          1996
                                         -------------  -------------  -------------  ------------  ------------
<S>                                      <C>            <C>            <C>            <C>           <C>
Revenues:
  Telecommunications...................  $      66,853  $      46,045  $      59,638  $    --        $   --
  Directory............................         47,336         43,247         38,090       --            --
                                         -------------  -------------  -------------  ------------  ------------
    Total revenues.....................        114,189         89,292         97,728       --            --
Operating costs:
  Cost of services.....................         71,466         50,435         62,162       --            --
  Selling, general and administrative
    expenses...........................         42,274         30,705         37,933         2,071          649
  Depreciation and amortization........         10,862          9,306          9,720             3       --
  Stock-based compensation.............          1,760            870          1,760           870       --
                                         -------------  -------------  -------------  ------------  ------------
  Loss from operations.................        (12,173)        (2,024)       (13,847)       (2,944)        (649)
Other income (expense):
  Interest expense.....................         (1,955)          (775)        (1,845)         (256)         (10)
  Equity in loss of KINNET.............           (577)          (854)          (491)      --            --
  Loss on sale of KINNET...............         (2,399)      --               (2,399)      --            --
  Other................................            873            253            844       --            --
                                         -------------  -------------  -------------  ------------  ------------
Loss before income taxes...............        (16,231)        (3,400)       (17,738)       (3,200)        (659)
Income tax expense (benefit)...........         (5,555)         2,177         (6,459)      --            --
                                         -------------  -------------  -------------  ------------  ------------
      Net loss.........................  $     (10,676) $      (5,577) $     (11,279) $     (3,200)  $     (659)
                                         -------------  -------------  -------------  ------------  ------------
                                         -------------  -------------  -------------  ------------  ------------
Basic and diluted loss per share.......  $        (.54) $        (.28) $        (.61) $       (.39)  $     (.08)
                                         -------------  -------------  -------------  ------------  ------------
                                         -------------  -------------  -------------  ------------  ------------
Weighted average common
  shares outstanding...................     19,646,001     19,615,865     18,593,947     8,230,006    8,227,736
                                         -------------  -------------  -------------  ------------  ------------
                                         -------------  -------------  -------------  ------------  ------------
</TABLE>
 
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                    --------------------------------
                                                                                       1998       1997       1996
                                                                                    ----------  ---------  ---------
                                                                                             (IN THOUSANDS)
<S>                                                                                 <C>         <C>        <C>
Cash and cash equivalents.........................................................  $   13,734  $  --      $      33
Working capital (deficit).........................................................         761     (5,239)      (689)
Total assets......................................................................     214,368      2,695         92
Total debt, including current portion.............................................      35,158      3,141        575
Redeemable convertible preferred stock............................................       1,122     --         --
Stockholders' equity (deficit)....................................................     131,584     (2,544)      (632)
</TABLE>
 
                                       10
<PAGE>
ITEM 7.MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
       OPERATIONS
 
GENERAL
 
    On February 18, 1998, the Company completed its initial public offering
(IPO). In connection with the IPO, the Company simultaneously acquired nine
operating companies and a 49% interest in KIN Network, Inc. (KINNET)
(collectively, the Acquired Companies or the Acquisitions). Prior to February
1998, the Company had not conducted any operations other than those relating to
the IPO and the Acquisitions. Consequently, the actual financial statements
included herein relate only to the parent company prior to February 18, 1998,
but include the results of the Acquired Companies for the period February 18,
1998 to December 31, 1998. Certain pro forma operating information is presented
for comparative purposes as if the IPO and the Acquisitions had occurred on
January 1, 1997.
 
    The pro forma operating information does not purport to represent the
results of operations of the Company that would have actually occurred if the
IPO and the Acquisitions had in fact occurred on the date stated above. Since
the Acquired Companies were not under common control or management, historical
combined results of operations may not be comparable to, or indicative of,
future performance. The pro forma Consolidated Statements of Operations reflect
the historical results of operations of the Acquired Companies and were derived
from the respective Acquired Companies' financial statements.
 
    The following table sets forth, for the periods presented, certain pro forma
information relating to the operations of the Company, expressed as a percentage
of revenues, excluding stock-based compensation expense:
 
<TABLE>
<CAPTION>
                                                                         PRO FORMA
                                                                    YEAR ENDED DECEMBER
                                                                             31
                                                                    --------------------
                                                                      1998       1997
                                                                    ---------  ---------
<S>                                                                 <C>        <C>
Telecommunications revenues.......................................       58.5%      51.6%
Directory revenues................................................       41.5       48.4
                                                                    ---------  ---------
          Total revenues..........................................      100.0      100.0
Cost of services..................................................       62.6       56.5
Selling, general and administrative expenses......................       37.0       34.4
Depreciation and amortization.....................................        9.5       10.4
                                                                    ---------  ---------
          Income (loss) from operations...........................       (9.1)%      (1.3)%
                                                                    ---------  ---------
                                                                    ---------  ---------
</TABLE>
 
RESULTS OF OPERATIONS
 
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998, COMPARED
TO THE YEAR ENDED DECEMBER 31, 1997
 
    Pro forma revenues for the year ended December 31, 1998 increased 27.9% to
$114.2 million from $89.3 million in 1997. Pro forma revenues from
telecommunication services were $66.9 million and 58.5% of pro forma total
revenues, compared to $46.0 million and 51.6% of total pro forma revenues in
1997. The $20.8 million, or 45.2%, increase in telecommunications revenues is
due primarily to increased local service revenue as the Company implemented
aggressive sales and marketing of local services in addition to long distance
services. Pro forma local service revenue in 1998 was $20.4 million compared to
$1.6 million in 1997. At December 31, 1998, the Company had approximately
125,000 local access lines in service compared to 18,000 at December 31, 1997.
 
    Pro forma directory revenues for the year ended December 31, 1998 increased
9.5% to $47.3 million from $43.2 million in 1997. The Company distributed
twenty-three directories in 1998 and twenty-four directories in 1997. Two
directories, which accounted for $.9 million of revenue in 1997, were
discontinued
 
                                       11
<PAGE>
in 1998. This decrease in revenue was offset by $2.6 million of revenue for
another directory that was recognized in 1998 but not in 1997 because the timing
of distribution resulted in no revenue in 1997. The Company does not recognize
revenue from a directory until a directory is substantially delivered. Excluding
the impact of these nonrecurring directories, pro forma revenues from recurring
directories increased 5.7%.
 
    Pro forma cost of services for the year ended December 31, 1998 increased to
$71.5 million from $50.4 million in 1997, an increase of 41.7%. Pro forma cost
of services as a percentage of pro forma total revenues was 62.6% in 1998
compared to 56.5% in 1997. The higher cost percentage in 1998 is due to the mix
of services provided as the telecommunications segment represents a larger
portion of services. Telecommunication cost of service was $49.4 million, or
73.8% of telecommunications revenues for the year ended December 31, 1998,
compared to pro forma cost of telecommunications services of $29.7 million, or
64.5% of pro forma telecommunications revenues in 1997. The higher cost of
providing telecommunications service in gross dollars is due to the increase in
local service. The increase in operating costs of the telecommunications segment
as a percentage of telecommunications revenues in 1998 is due to higher volume
of lower margin local service. Local service revenue accounted for 17.9% of
revenues in 1998 compared to 1.8% in 1997. When the Company is able to deploy
its own local switching facilities, the Company expects to transition its resale
customers to its own switch-based facilities. The Company believes that it will
be able to achieve higher gross margins by providing telecommunications services
on its own network than it can currently obtain by reselling the services of the
incumbent providers. The lower gross margin of the telecommunications segment in
1998 is partially offset by higher gross margins of the directory segment. The
cost of directory services in 1998 was $22.1 million, or 46.7% of directory
revenue, compared to directory costs of $20.8 million, or 48.0% of directory
revenue, in 1997. The lower cost of directory services as a percentage of sales
is due to incremental advertising revenues from recurring directories exceeding
the direct incremental cost associated with those revenues.
 
    Pro forma selling, general and administrative expenses for the year ended
December 31, 1998, increased to $42.3 million from $30.7 million in 1997. The
increase in gross dollars is due primarily to the direct costs associated with
the higher sales volume. As a percentage of total revenues, pro forma selling
and administrative costs were 37.0% in 1998, and 34.4% in 1997. The expense rate
increased in 1998 due to general and administrative costs associated with the
Company's new organization structure as a public company. The Company expects
that its selling, general and administrative costs will increase as the Company
undertakes more aggressive sales and marketing programs to develop its
businesses.
 
    Pro forma depreciation and amortization was approximately $10.9 million in
1998, compared to $9.3 million in 1997. Pro forma depreciation and amortization
includes approximately $8.3 million of amortization in both periods relating to
intangible assets resulting from the Acquisitions. The Company expects that its
depreciation and amortization will continue to increase as the Company
implements its strategy of installing its own network and facilities.
 
    Stock-based compensation expense of $1.8 million was recognized in the year
ended December 31, 1998, compared to $.9 million in 1997. This expense relates
to 300,000 stock options issued in December 1997. The options vested equally
over a three-month period from the date of the grant. These amounts represent
the total compensation expense based on the estimated fair market value of the
options on the date of the grant and the exercise price.
 
    Pro forma interest expense was approximately $2.0 million in 1998 compared
to $.8 million in 1997. The increase in interest expense is due to borrowings
under the Company' revolving credit agreement used for general corporate
purposes including financing 1998 capital expenditures.
 
    Pro forma 1998 results include a $2.4 million loss relating to the Company's
sale of its entire 49% interest in KINNET back to the original owner of KINNET
for $10.0 million in cash, 225,000 shares of the Company's common stock, valued
at $0.9 million, and the indefeasible right to use (IRU) certain network
facilities of KINNET valued at $7.0 million. The sale of the KINNET stock
resulted in a $2.4 million loss
 
                                       12
<PAGE>
due to the tax impact associated with this sale. This tax impact is considered a
component of other income (expense) rather than a component of income tax
expense. The effect of this transaction allowed the Company to realize the
benefit of net operating losses.
 
    Pro forma income tax benefit was $5.6 million in 1998 compared to $2.2
million income tax expense in 1997. The decrease is due to higher operating
losses in 1998 than in 1997.
 
    Pro forma net loss was $10.7 million, or $.54 per share, in 1998, compared
to pro forma net loss of $5.6 million, or $.28 per share, in 1997. The increase
in net loss includes the effect of the following items: a loss on the sale of
KINNET of $2.4 million, a tax credit of $1.2 million from eliminating a
valuation allowance relating to the realization of future income tax benefits
and stock-based compensation expense of $1.8 million. Excluding these items, pro
forma net loss for the year ended December 31, 1998, would have been $8.3
million, or $.42 per share, compared to net loss of $5.0 million, or $.25 per
share, in 1997. The increase in net loss excluding these items is due primarily
to the increase in local service business as this product has lower margins than
the Company's other services. Also impacting the higher net loss in 1998 is the
aforementioned increase in selling and administrative costs.
 
    Pro forma earnings before interest, taxes, depreciation, amortization,
equity interest in KINNET and stock-based compensation expense (EBITDA) was
positive $.4 million for the year ended December 31, 1998, a decrease from $8.2
million in 1997. The decrease is primarily due to lower earnings from the
telecommunications operations in 1998, offset partially by higher earnings from
the Company's directory publishing segment. EBITDA is a measure commonly used in
the telecommunications industry and is presented to assist in understanding the
Company's operating results and is not intended to represent cash flow or
results of operations in accordance with generally accepted accounting
principles. EBITDA may not be comparable to similarly titled disclosures of
other companies or could be defined differently.
 
    The Company did not complete the Acquisitions until February 18, 1998;
therefore, actual results include only the activity of the Acquired Companies
from February 18, 1998 to December 31, 1998. For the year ended December 31,
1998, actual loss from operations was $13.8 million and net loss was $11.3
million, or $.61 per share. Excluding the loss on sale of KINNET of $2.4
million, the benefit from the valuation allowance reversal of $1.2 and the
stock-based compensation expense of $1.8 million, the Company had a net loss of
$9.0 million, or $.48 per share. The Company had no operating revenues in 1997
and was engaged principally in activities relating to the IPO.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The Company's working capital at December 31, 1998 was $.8 million and its
ratio of current assets to current liabilities was 1.02.
 
    On February 18, 1998, the Company completed its IPO and simultaneously
acquired nine operating companies and a 49% interest in another company. Cash
proceeds from the offering, net of offering costs, were $99.9 million. Of this
amount, $84.1 million was used to pay the cash portion of the purchase price of
the acquired companies, $3.6 million was used to retire debt of the Company and
the Acquired Companies, and $1.75 million was paid to a stockholder of the
Company for a five-year non-compete agreement. Consequently, available cash
remaining from the offering was approximately $10.5 million.
 
    When the initial public offering occurred the Company was engaged in
negotiating a line of credit facility for $25.0 million with a financial
institution. The amount of such a facility with the residual cash from the
offering, was considered adequate to cover the costs of integrating the
Company's operations and providing for its initial working capital needs. In
August 1998, the Company finalized its arrangements with the financial
institution for a $25.0 million, one-year revolving credit facility and, at
December 31, 1998, had drawn down $17.0 million against this facility.
 
    From the date of the initial public offering on February 18, 1998, through
December 31, 1998, the Company experienced an after-tax use of cash in
operations of $8.8 million. This is due primarily to start-
 
                                       13
<PAGE>
up costs included in selling, general and administrative expense and line
acquisition costs related to the Company's growing local access business. During
this period, the Company also invested $16.7 million in additional property and
equipment, including the development of integrated back-office systems and
furniture, fixtures and computer equipment for its 24 sales offices. Because of
its net use of cash in operations, the Company used $17.0 million from the CIBC
credit facility to finance these additions to property and equipment.
 
    Management recognized that additional sources of cash would be required to
implement the Company's BUILD SMART strategy for capital expenditures, to effect
further acquisitions, and to re-finance the one-year CIBC credit facility. On a
forward-looking basis, the Company's capital expenditure budget calls for
spending approximately $226.0 million over the five-year period beginning in
1999. This plan calls for expenditures of approximately $58.0 million in 1999,
$54.0 million in 2000, $44.0 million in 2001, $37.0 million in 2002, and $33.0
million in 2003. Substantially all of these expenditures will be for the
deployment of cost-efficient network facilities. Assuming these capital
expenditures were financed with a combination of high yield debt, bank debt and
equipment financing, management estimates that the Company's cash from
operations will turn positive in 2002. Alternatively, if these expenditures are
postponed because no incremental capital is available to the Company, management
believes the Company's strategy would be modified to focus solely on operations
that currently produce positive cash flow.
 
    Prior to and since finalization of the CIBC credit facility, management has
explored a number of financing options, including the issuance of high yield
debt, long-term bank financing, and equipment financing. However, because of a
general tightening in the markets for new credit, the Company's underwriters and
potential creditors have repeatedly advised management of the need for either an
equity infusion or sale of certain assets in order to support any substantive,
long-term credit facility.
 
    This condition led management to evaluate the utility value of the Company's
assets and to explore the possibility of a private equity infusion and
subordinated debt. In the course of evaluating its assets the 49% interest in
KINNET was identified as an asset with a substantial liquidation value and one
with an operational value that could be leveraged to provide significant future
benefits. Accordingly, in November 1998, management began negotiations with the
original owner of KINNET for the sale of the Company's interest. In December
1998, the Company sold this interest back to its original owner for $10.0
million in cash, 225,000 shares of the Company's common stock (valued at $0.9
million), and the indefeasible right to use certain network facilities of KINNET
(valued at $7.0 million).
 
    In addition to selling the KINNET interest, management has considered and
continues to consider various possibilities for the sale of certain assets or
businesses. The Company also continues to explore proposals for raising private
equity. If consummated, these alternatives would represent a means of generating
sufficient liquidity to facilitate a debt offering, a financing that is critical
to implementing the Company's business strategy.
 
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
 
ANTICIPATED OPERATING LOSSES AND NEGATIVE CASH FLOWS
 
    Although the Company was EBITDA positive on a pro forma basis in 1998, the
Company expects to generate losses and expects to become EBITDA negative while
it focuses on further development of its telecommunications services business.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that the Company will be able to
sufficiently increase its revenue base or to achieve and sustain profitability
and generate sufficient cash flows to meet its working capital, capital
expenditure and debt service requirements, which could have a material adverse
effect on the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
 
                                       14
<PAGE>
INCREASED LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
 
    As of December 31, 1998, the Company had total consolidated indebtedness of
$35.2 million and stockholders' equity of $131.2 million. To fully implement the
Company's current development plans and to fund any future expansion not
contemplated by the Company's current development plans, the Company will be
required to secure additional financing.
 
    The Company's degree of financial and operating leverage could have
important consequences to the Company's future prospects, including the
following: (i) limiting the ability of the Company to obtain additional
financing for its working capital, capital expenditure and debt service
requirements or other purposes; (ii) requiring that a substantial portion of the
Company's cash flow from operations, if any, be dedicated to the payment of
principal of and interest on its indebtedness; (iii) limiting its flexibility in
planning, or reacting to, changes in its business; (iv) making the Company more
highly leveraged than some of its competitors, which may place it at a
competitive disadvantage; (v) making it more difficult for the Company to meet
its obligations; and (vi) making the Company more vulnerable to a downturn in
its business or in the markets in which it operates. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
 
    The Company's ability to meet its debt service obligations with respect to
existing and future indebtedness will depend upon its revenue generating
capacity and ability to control expenses, which will be affected by prevailing
economic conditions and financial, business and other factors, many of which are
beyond the Company's control. There can be no assurance that the Company's
operations will generate sufficient cash flow at levels that will be sufficient
to repay its indebtedness.
 
SIGNIFICANT CAPITAL REQUIREMENTS AND NEED FOR ADDITIONAL FINANCING
 
    Implementation of the Company's current development plans and the funding of
anticipated operating losses will require significant capital. The Company
currently estimates that its aggregate capital requirements for network
deployment planned through the end of 2000 will be approximately $112.0 million.
In addition, the Company will continue to evaluate additional revenue-generating
opportunities and other strategic initiatives in each of its businesses and, if
attractive opportunities develop, it may determine to make the investments
necessary to enable the Company to realize all of its strategic objectives. The
Company's failure to generate or raise sufficient funds may compel it to delay
or forego expansion plans or opportunities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
 
    ADG's expectations of future capital requirements are based on the Company's
current estimates. The amount and timing of the Company's capital requirements
could change if, among other things, (i) ADG's current development plans or
revenue or cost projections change or prove to be inaccurate, (ii) the Company
pursues additional revenue-generating opportunities or effects any significant
acquisitions or joint ventures, or (iii) the Company alters the schedule or
scope of its network deployment plans. The amount and timing of the Company's
capital requirements may also change as a result of the demand for its products
and services and regulatory, technological and competitive developments
affecting the Company (including new opportunities). There can be no assurance
that the Company's actual capital requirements will not be significantly higher
or lower than its current estimates.
 
TELECOMMUNICATIONS BUSINESS DEVELOPMENT AND EXPANSION RISKS
 
    The success of the Company's telecommunications services business depends,
among other things, upon the Company's ability to assess potential markets;
obtain and maintain required governmental and regulatory authorizations,
franchises and permits; secure financing; market to, sell and provision new and
 
                                       15
<PAGE>
existing customers; implement needed interconnections and collocations with ILEC
facilities; lease adequate trunking capacity from ILECs or other CLECs; purchase
and install switches; develop and implement efficient OSS and other back office
systems; control costs; and attract, assimilate and retain additional qualified
sales and technical personnel.
 
YEAR 2000 ISSUE
 
    The year 2000 issue is a matter of worldwide concern for carriers and
affects many aspects of telecommunications technology, including the computer
systems and software applications that are essential for network administration
and operations. A significant portion of the voice and data networking and
network management devices have date-sensitive processing in them which affect
network administration and operations functions such as service activation,
service assurance and billing processes.
 
    The Company and its vendors have evaluated the year 2000 readiness of the
Company's computer systems and software applications. Certain of the Company's
key processing systems have recently been implemented and the vendors of such
systems have represented to the Company that the systems are compliant with the
year 2000 issues without any modification. The Company will require confirmation
of year 2000 compliance in its future requests for proposals from equipment and
software vendors. Other legacy computer systems and software that are currently
in use are not currently compliant with the year 2000 issues; however,
management had previously planned on replacing or upgrading such systems for
business reasons other than the year 2000 issue. These replacements and upgrades
are expected to be completed by September 30, 1999. The failure of its computer
systems and software applications to accommodate the year 2000 could have a
material adverse effect on the Company's business, financial condition, results
of operation and cash flow.
 
    Further, if the networks, and systems of the ILECs, interexchange carriers
and others on whose services the Company depends and with whom its networks and
systems must interface are not year 2000 functional, it could have a material
adverse effect on the operation of the Company's networks and, as a result, have
a material adverse effect on the Company. Most major domestic carriers have
indicated that they are addressing their network and support systems to make
them year 2000 functional. However, other domestic and international carriers
may not be year 2000 functional. The Company plans to participate in the
interoperability testing processes being put in place by industry organizations
and intends to continue to monitor the performance of its accounting,
information and processing systems and software applications and those of its
third-party constituents to identify and resolve any year 2000 issues. To the
extent necessary, the Company may need to replace, upgrade or reprogram certain
systems and software applications to ensure that all of its computer systems and
software applications and all of its interoperability applications are year 2000
functional. However, based on current information, the Company does not believe
that it will incur costs for any replacement, upgrade or reprogramming of its
existing computer systems and software applications to resolve any year 2000
issues that will be materially in excess of the $500,000 currently budgeted.
 
    The estimated costs and date of completion of Y2K remediation are based on
management's best estimates, which were derived from numerous assumptions about
future events. These assumptions include the availability of certain resources,
third-party modification plans and other factors. There can be no guarantee that
these estimates will be achieved and actual results could differ materially.
Specific factors that might cause material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to identify and correct all relevant computer codes, and the cost and
availability of replacements for devices with embedded chips.
 
                                       16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors
Advanced Communications Group, Inc.
 
    We have audited the accompanying consolidated balance sheets of Advanced
Communications Group, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for the years ended December 31, 1998 and 1997,
and for the period from inception (June 6, 1996) through December 31, 1996. In
connection with our audits of the consolidated financial statements, we also
have audited the accompanying financial statements schedule. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanced
Communications Group, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the years ended
December 31, 1998 and 1997, and for the period from inception (June 6, 1996)
through December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
 
KPMG LLP
 
St. Louis, Missouri
February 10, 1999
 
                                       17
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                            PRO FORMA (UNAUDITED)                       ACTUAL
                                         ----------------------------  -----------------------------------------
                                           YEAR ENDED DECEMBER 31,       YEAR ENDED DECEMBER 31,    INCEPTION TO
                                         ----------------------------  ---------------------------  DECEMBER 31,
                                             1998           1997           1998           1997          1996
                                         -------------  -------------  -------------  ------------  ------------
<S>                                      <C>            <C>            <C>            <C>           <C>
Revenues:
  Telecommunications...................  $      66,853  $      46,045  $      59,638  $    --        $   --
  Directory............................         47,336         43,247         38,090       --            --
                                         -------------  -------------  -------------  ------------  ------------
    Total revenues.....................        114,189         89,292         97,728       --            --
Operating costs:
  Cost of services.....................         71,466         50,435         62,162       --            --
  Selling, general and administrative
    expenses...........................         42,274         30,705         37,933         2,071          649
  Depreciation and amortization........         10,862          9,306          9,720             3       --
  Stock-based compensation.............          1,760            870          1,760           870       --
                                         -------------  -------------  -------------  ------------  ------------
  Loss from operations.................        (12,173)        (2,024)       (13,847)       (2,944)        (649)
Other income (expense):
  Interest expense.....................         (1,955)          (775)        (1,845)         (256)         (10)
  Equity in loss of KINNET.............           (577)          (854)          (491)      --            --
  Loss on sale of KINNET...............         (2,399)      --               (2,399)      --            --
  Other................................            873            253            844       --            --
                                         -------------  -------------  -------------  ------------  ------------
Loss before income taxes...............        (16,231)        (3,400)       (17,738)       (3,200)        (659)
Income tax expense (benefit)...........         (5,555)         2,177         (6,459)      --            --
                                         -------------  -------------  -------------  ------------  ------------
      Net loss.........................  $     (10,676) $      (5,577) $     (11,279) $     (3,200)  $     (659)
                                         -------------  -------------  -------------  ------------  ------------
                                         -------------  -------------  -------------  ------------  ------------
Basic and diluted loss per share.......  $        (.54) $        (.28) $        (.61) $       (.39)  $     (.08)
                                         -------------  -------------  -------------  ------------  ------------
                                         -------------  -------------  -------------  ------------  ------------
Weighted average common
  shares outstanding...................     19,646,001     19,615,865     18,593,947     8,230,006    8,227,736
                                         -------------  -------------  -------------  ------------  ------------
                                         -------------  -------------  -------------  ------------  ------------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       18
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                             ---------------------
                                                                                                1998       1997
                                                                                             ----------  ---------
<S>                                                                                          <C>         <C>
                                          ASSETS
 
Current assets:
  Cash and cash equivalents................................................................  $   13,734  $  --
  Accounts receivable (net of allowance of $9,900 in 1998).................................      26,581     --
  Deferred costs...........................................................................       4,201     --
  Prepaid expenses and other current assets................................................       2,091     --
  Deferred taxes...........................................................................       3,782     --
                                                                                             ----------  ---------
    Total current assets...................................................................      50,389     --
                                                                                             ----------  ---------
Property, plant and equipment, net.........................................................      26,532          6
Intangible assets from business acquisitions, net..........................................     124,882     --
Other assets...............................................................................      12,565      2,689
                                                                                             ----------  ---------
    Total other assets.....................................................................     163,979      2,695
                                                                                             ----------  ---------
    Total assets...........................................................................  $  214,368  $   2,695
                                                                                             ----------  ---------
                                                                                             ----------  ---------
 
                      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
Current liabilities:
  Accounts payable and accrued liabilities.................................................  $   29,389  $   2,098
  Short-term debt and current maturities of long-term debt.................................      17,194      3,141
  Other current liabilities................................................................       3,045     --
                                                                                             ----------  ---------
    Total current liabilities..............................................................      49,628      5,239
Long-term obligations:
  Long-term debt...........................................................................      17,964     --
  Deferred tax liabilities.................................................................      15,192     --
                                                                                             ----------  ---------
    Total liabilities......................................................................      82,784      5,239
                                                                                             ----------  ---------
Commitments and contingencies..............................................................
Stockholders' equity (deficit):
  Preferred stock, Series A Redeemable Convertible $.0001 par value: 20,000,000 shares
    authorized; 142,857 shares issued and outstanding; $2,000 liquidation preference.......       1,122     --
  Common stock, $.0001 par value: 180,000,000 shares authorized; 19,859,262 and 8,232,276
    shares issued and outstanding, respectively............................................           2          1
  Additional paid-in capital...............................................................     146,611      1,314
  Treasury stock, 234,141 and 0 common shares, respectively................................      (1,013)    --
  Retained earnings (accumulated deficit)..................................................     (15,138)    (3,859)
                                                                                             ----------  ---------
    Total stockholders' equity (deficit)...................................................     131,584     (2,544)
                                                                                             ----------  ---------
    Total liabilities and stockholders' equity.............................................  $  214,368  $   2,695
                                                                                             ----------  ---------
                                                                                             ----------  ---------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       19
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                                           TOTAL
                             COMMON STOCK                   ADDITIONAL                                 STOCKHOLDERS'
                           -----------------  PREFERRED      PAID IN      TREASURY     ACCUMULATED        EQUITY
                             SHARES     AMOUNT   STOCK       CAPITAL        STOCK        DEFICIT         (DEFICIT)
                           -----------  ----  ----------   ------------   ---------   -------------   ---------------
<S>                        <C>          <C>   <C>          <C>            <C>         <C>             <C>
Initial capitalization,
  June 6, 1996...........    8,227,736  $ 1    $ --         $        27   $  --        $  --            $       27
Net loss.................      --       --       --             --           --              (659)            (659)
                           -----------  ----  ----------   ------------   ---------   -------------   ---------------
Balance, December 31,
  1996...................    8,227,736  $ 1    $ --         $        27   $  --        $     (659)      $     (632)
Issuance of stock options
  and warrants...........      --       --       --               1,237      --           --                 1,237
Issuance of stock for
  services performed.....        4,540  --       --                  50      --           --                    51
Net loss.................      --       --       --             --           --            (3,200)          (3,200)
                           -----------  ----  ----------   ------------   ---------   -------------   ---------------
Balance, December 31,
  1997...................    8,232,276  $ 1    $ --         $     1,314   $  --        $   (3,859)      $   (2,544)
Issuance of stock options
  and warrants...........      --       --       --               5,862      --           --                 5,862
Issuance of preferred
  stock..................      --       --       1,122          --           --           --                 1,122
Initial public offering,
  net of offering
    costs................    8,000,000    1      --              99,899      --           --                99,900
Issuance of stock for
  acquired companies.....    3,861,127  --       --              39,536      --           --                39,536
Acquisition of treasury
  stock..................     (234,141) --       --             --           (1,013)      --                (1,013)
Net loss.................      --       --       --             --           --           (11,279)         (11,279)
                           -----------  ----  ----------   ------------   ---------   -------------   ---------------
Balance, December 31,
  1998...................   19,859,262  $ 2    $ 1,122      $   146,611   $  (1,013)   $  (15,138)      $  131,584
                           -----------  ----  ----------   ------------   ---------   -------------   ---------------
                           -----------  ----  ----------   ------------   ---------   -------------   ---------------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       20
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED
                                                                                  DECEMBER 31,       INCEPTION TO
                                                                             ----------------------  DECEMBER 31,
                                                                                1998        1997         1996
                                                                             -----------  ---------  -------------
<S>                                                                          <C>          <C>        <C>
Cash flows from operating activities:
  Net loss.................................................................  $   (11,279) $  (3,200)   $    (659)
  Adjustments to reconcile net loss to net cash:
    Depreciation and amortization..........................................        9,720          3       --
    Stock-based compensation expense.......................................        1,760        870       --
    Equity in loss of KINNET...............................................          491     --           --
    Loss on sale of KINNET.................................................        2,399     --           --
    Deferred tax provision.................................................       (6,459)    --           --
    Changes in operating assets and liabilities:
      Decrease (increase) in:
        Accounts receivable, net...........................................       (7,115)         1           (1)
        Deferred costs.....................................................          425     --           --
        Prepaid expenses and other current assets..........................         (644)    --           --
        Other assets, net..................................................      (10,690)    --           --
      Increase (decrease) in:
        Accounts payable and accrued liabilities...........................       11,855      1,950          148
        Other current liabilities..........................................          689     --           --
                                                                             -----------  ---------       ------
        Net cash used in operating activities..............................       (8,848)      (376)        (512)
                                                                             -----------  ---------       ------
Cash flows from investing activities:
  Cash paid for businesses acquired, net of cash acquired..................      (83,256)    --           --
  Additions to property, plant and equipment, net..........................      (16,738)    --               (8)
  Cash from sale of KINNET.................................................       10,000     --           --
                                                                             -----------  ---------       ------
        Net cash used in investing activities..............................      (89,994)    --               (8)
                                                                             -----------  ---------       ------
Cash flows from financing activities:
  Borrowings of long-term debt.............................................       17,000      2,566          574
  Repayment of long-term debt..............................................       (4,197)    --           --
  Increase in deferred offering costs......................................      --          (2,223)         (48)
  Proceeds from common stock issuance, net of offering costs...............       99,900     --               27
  Acquisition of treasury stock............................................         (127)    --           --
                                                                             -----------  ---------       ------
        Net cash provided by financing activities..........................      112,576        343          553
                                                                             -----------  ---------       ------
        Net increase (decrease) in cash and cash equivalents...............       13,734        (33)          33
Cash and cash equivalents -- beginning of period...........................      --              33       --
                                                                             -----------  ---------       ------
Cash and cash equivalents -- end of period.................................  $    13,734  $  --        $      33
                                                                             -----------  ---------       ------
                                                                             -----------  ---------       ------
Supplemental cash flows information:
  Cash paid for interest...................................................  $       739  $  --        $  --
                                                                             -----------  ---------       ------
                                                                             -----------  ---------       ------
  Cash paid for income taxes...............................................  $   --       $  --        $  --
                                                                             -----------  ---------       ------
                                                                             -----------  ---------       ------
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       21
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
1.  BASIS OF PRESENTATION
 
    The consolidated financial statements include the accounts of Advanced
Communications Group, Inc. and its wholly owned subsidiaries (the Company). All
significant intercompany transactions have been eliminated in consolidation.
 
    The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
    The Company was founded to create a regional competitive local exchange
carrier that primarily provides a portfolio of telecommunications services to
business customers in service areas of Southwestern Bell and U S WEST and
publishes yellow page directories in selected markets. The Company completed its
initial public offering (IPO) on February 18, 1998. In connection with the IPO,
the Company simultaneously acquired nine operating companies and a 49% interest
in KIN Network, Inc. (KINNET) (collectively, the Acquired Companies or the
Acquisitions). Prior to February 1998, the Company had not conducted any
operations other than those relating to the IPO and the Acquisitions.
Consequently, the actual financial statements included herein relate only to the
parent Company prior to February 18, 1998, but include the results of the
Acquired Companies for the period February 18, 1998 to December 31, 1998.
 
    Certain pro forma operating information is presented for comparative
purposes as if the IPO and the Acquisitions had occurred on January 1, 1997. The
pro forma operating information does not purport to represent the results of
operations of the Company that would have actually occurred if the IPO and the
Acquisitions had in fact occurred on the date stated above. Since the Acquired
Companies were not under common control or management, historical combined
results of operations may not be comparable to, or indicative of, future
performance. The pro forma Consolidated Statements of Operations reflect the
historical results of operations of the Acquired Companies and were derived from
the respective Acquired Companies' financial statements.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    CASH AND CASH EQUIVALENTS -- The Company considers cash in banks and
highly-liquid investments purchased with an original maturity of three months or
less to be cash and cash equivalents.
 
    PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. Improvements are capitalized. Repair and maintenance costs are expensed as
incurred. The cost and related accumulated depreciation of assets retired or
disposed of are removed from the accounts, and any gains or losses are reflected
in results of operations. Depreciation is computed using the straight-line
method over the respective useful lives of the assets. The estimated useful
lives of the assets are: buildings and improvements -- 40 years;
telecommunications equipment -- 5 to 10 years; furniture and office equipment --
3 to 5 years; and leasehold improvements -- life of lease.
 
    INTANGIBLE ASSETS FROM BUSINESS ACQUISITIONS -- Intangible assets resulting
from the cost of businesses acquired exceeding the fair value of net assets
acquired consist principally of customer lists and goodwill. The value of
customer lists and their estimated useful lives were determined using
independent appraisals. Customer lists and goodwill are amortized on a
straight-line basis over their estimated useful lives ranging from 5 to 10 years
and 15 to 40 years, respectively. For the year ended December 31, 1998,
amortization expense relating to intangible assets, customer lists and goodwill
was $7,261,000.
 
                                       22
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    INCOME TAXES -- Income taxes are recognized during the year based on all
events that have been recognized in the consolidated financial statements, with
deferred taxes being provided for differences between the book basis and tax
basis of assets and liabilities as measured by the enacted tax laws.
 
    REVENUE RECOGNITION -- Directory revenues are derived from the sale of
advertising space in telephone directories and are recognized on the date that
the directory is published and substantially delivered. If the estimate of total
directory costs exceeds advertising revenues for a specific region's telephone
directory, a provision is made for the entire amount of such estimated loss.
Directory costs are deferred until the date that the directory is published and
substantially delivered. Directory costs include all direct costs related to the
publishing of a region's telephone directory, such as publishing and
distribution expenses, commissions on sales, other sales expenses and
depreciation and amortization. General and administrative costs are charged to
expense as incurred. Costs incurred with the expansion into new markets include
all direct costs related to the publishing of a first-year telephone directory
(prototype directory). Advertising space in prototype directories is generally
provided to advertisers at no cost; therefore, no advertising revenues are
derived from prototype directories. Because the future economic benefit of the
direct costs related to prototype directories cannot be determined, such direct
costs are charged to expense as incurred. The Company recognized approximately
$400,000 of expense in the year ended December 31, 1998, relating to a prototype
directory.
 
    Telecommunications revenues are recognized when long-distance, local and
toll free services are provided. Billings made in advance for local services are
deferred until earned.
 
    STOCK-BASED COMPENSATION -- Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," allows entities to
choose between a new fair value based method of accounting for employee stock
options or similar equity instruments and the intrinsic, value-based method of
accounting required by Accounting Principles Board Opinion (APB) No. 25. The
Company has elected to remain with the accounting in APB No. 25 and has included
in these financial statements pro forma disclosures of net loss and net loss per
share as if the fair value method of accounting had been applied. No employee
stock options or similar equity instruments were issued by the Company prior to
January 1, 1997.
 
    NET EARNINGS (LOSS) PER SHARE -- Basic earnings per share (Basic EPS) is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share (Diluted EPS) reflects the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock. In periods in which the inclusion of such securities or
contracts are antidilutive, the effect of such securities is not given
consideration.
 
    In calculating Diluted EPS for the year ended December 31, 1998 and 1997,
options and warrants to purchase 3,960,312, and 2,288,640 respectively, shares
of common stock were outstanding during part of the year but were not included
in the computation of Diluted EPS due to their anti-dilutive effect.
 
    FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's only financial
instruments are cash, short-term trade receivables and payables, notes payable
and capital lease obligations. Management believes the carrying amounts of the
financial instruments classified as current assets and liabilities approximate
their fair values because of their short-term nature. Management believes the
carrying value of its notes payable and capital lease obligations approximate
fair value.
 
                                       23
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF --
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flow expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets.
 
    COMPREHENSIVE INCOME -- The Company has adopted SFAS No. 130, "Reporting
Comprehensive Income," as of the first quarter of 1998. SFAS No. 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, it has no impact on the Company's net income or
stockholders' equity. For the years ended December 31, 1998 and 1997 and for the
period ended December 31, 1996, the Company did not incur items to be reported
in comprehensive income that were not already included in the reported net
earnings; therefore, comprehensive income (loss) and net income (loss) were the
same for these periods.
 
    NEW ACCOUNTING PRONOUNCEMENTS -- In February 1998, the FASB issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits."
This statement requires additional pension related disclosures. Adoption of this
statement will have no impact on the Company's net income, financial position or
cash flows.
 
    In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This SOP is
effective for financial statements for fiscal years beginning after December 15,
1998, with earlier application encouraged. The Company accounts for its software
costs in accordance with this SOP.
 
    In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This SOP provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up activities
and organization costs to be expensed as incurred. The Company is in compliance
with this SOP.
 
3.  ACQUISITIONS
 
    In February 1998, the Company completed its IPO. Concurrent with and as a
condition to the closing of the IPO, the Company acquired all of the outstanding
capital stock of Great Western Directories, Inc., Valu-Line of Longview, Inc.,
Feist Long Distance Service, Inc., FirsTel, Inc. and Tele-Systems, Inc.,
substantially all of the assets of Long Distance Management II, Inc., Long
Distance Management of Kansas, Inc., The Switchboard of Oklahoma City, Inc., and
National Telecom, a proprietorship, and 49% of the outstanding capital stock of
KINNET (collectively the Acquisitions or the Acquired Companies). The
Acquisitions are accounted for using the purchase method of accounting.
 
                                       24
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
3.  ACQUISITIONS (CONTINUED)
    The following table sets forth for accounting purposes the fair value of
consideration paid with respect to the Acquisitions and the assets acquired:
 
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------------------------------------------------------------
<S>                                                                                                     <C>
Consideration Paid for Acquired Companies:
  Cash................................................................................................  $   85,043
  Common stock........................................................................................      37,896
  Notes payable.......................................................................................      17,350
  Options and warrants................................................................................       4,101
                                                                                                        ----------
      Total purchase price............................................................................  $  144,390
                                                                                                        ----------
                                                                                                        ----------
Assets Acquired:
  Net working capital.................................................................................  $    9,829
  Property and equipment..............................................................................       5,141
  Customer lists......................................................................................      47,800
  Goodwill............................................................................................      96,741
  Net deferred tax liability..........................................................................     (15,121)
                                                                                                        ----------
      Total assets acquired...........................................................................  $  144,390
                                                                                                        ----------
                                                                                                        ----------
</TABLE>
 
    The following pro forma information presents results of operations as if the
Acquisitions had occurred at the beginning of the periods presented. This pro
forma information is based on historical information and does not necessarily
reflect the actual results that would have occurred nor is it necessarily
indicative of the future results of the combined companies.
 
Pro Forma Information (Unaudited)
(In Thousands, Except Per Share Data)
 
<TABLE>
<CAPTION>
                                                                                    1998        1997       1996
                                                                                 -----------  ---------  ---------
<S>                                                                              <C>          <C>        <C>
Total revenues.................................................................  $   114,189  $  89,292  $  85,414
Net income (loss)..............................................................      (10,676)    (5,577)       171
Earnings (loss) per share......................................................         (.54)      (.28)       .00
</TABLE>
 
    In November 1998, the Company acquired all of the outstanding stock of
Telecom Resources, Inc. and affiliates (TRI) for 477,538 newly issued shares of
common stock valued at $1.6 million. TRI, based in Dallas, Texas, offers its
customers a web-based virtual office package that combines voice, fax and data
into a single interface. This acquisition is accounted for under the purchase
method of accounting. The excess of cost over the estimated fair value of assets
acquired and liabilities assumed was allocated to goodwill. Approximately $3.3
million was allocated to goodwill and will be amortized over 15 years. The
results of operations and the pro forma results would not have been
significantly different if TRI had been acquired at the beginning of 1998.
 
                                       25
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
4.  INVESTMENT IN KINNET
 
    In connection with the IPO, the Company purchased a 49% interest in KINNET,
an owner and operator of a fiber optic network in Kansas, for $18.0 million. The
Company accounted for its investment in KINNET using the equity method.
 
    In December 1998, the Company sold its entire interest in KINNET back to the
original owner of KINNET for $10.0 million in cash, 225,000 shares of the
Company's common stock, valued at $0.9 million, and the indefeasible right to
use (IRU) certain network facilities of KINNET valued at $7.0 million. The sale
of the KINNET stock resulted in a $2.4 million loss due to the tax effect
associated with this transaction. This tax effect is considered a component of
other income (expense) rather than a component of income tax expense. The effect
of this transaction allowed the Company to realize the benefit of net operating
losses. The Company's stock received is included in treasury stock based upon
the fair market value on the date of the transaction. The IRU, which is included
in property, plant and equipment, has a term of 20 years and was valued based on
the fair value of leasing the equivalent network capacity.
 
5.  PROPERTY, PLANT AND EQUIPMENT
 
    Property, plant and equipment consisted of the following at December 31,
1998 and 1997:
 
<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                                     1998       1997
-----------------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                              <C>        <C>
Land and buildings.............................................................................  $     934  $  --
Leasehold improvements.........................................................................      1,709     --
Telecommunications equipment...................................................................     14,889     --
Furniture and office equipment.................................................................      7,851          8
Construction in progress.......................................................................      7,880     --
                                                                                                 ---------  ---------
                                                                                                    33,263          8
Less accumulated depreciation..................................................................     (6,731)        (2)
                                                                                                 ---------  ---------
                                                                                                 $  26,532  $       6
                                                                                                 ---------  ---------
                                                                                                 ---------  ---------
</TABLE>
 
6.  OTHER ASSETS
 
    Other assets consisted of the following at December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                                  1998       1997
--------------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                           <C>        <C>
Deferred acquisition costs..................................................................  $  --      $     929
Deferred offering costs.....................................................................     --          1,757
Deferred line acquisition costs, net of $1,853 accumulated amortization in 1998.............      9,373     --
Deferred debt costs, net of $196 accumulated amortization in 1998...........................      1,022     --
Noncompete agreement, net of $510 accumulated amortization in 1998..........................      1,240     --
Other, net of $196 accumulated amortization in 1998.........................................        930          3
                                                                                              ---------  ---------
                                                                                              $  12,565  $   2,689
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>
 
    At December 31, 1997, the Company had deferred certain legal, accounting,
appraisal and other costs incurred in connection with the Acquisitions and the
IPO. When the Acquisitions were completed,
 
                                       26
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
6.  OTHER ASSETS (CONTINUED)
deferred acquisition costs were included in the determination of excess purchase
price. Deferred offering costs were charged to additional paid-in capital upon
the closing of the IPO.
 
    Deferred line acquisition costs include the direct costs incurred in
connection with establishing local access line service contracts for customers
and are being amortized on a straight-line basis over the estimated life of the
average customer local service contract.
 
7.  LONG-TERM DEBT
 
    The carrying amount of long-term debt, which approximates fair value,
consisted of the following at December 31, 1998 and 1997:
 
<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                                  1998       1997
--------------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                           <C>        <C>
Borrowings under revolving line of credit, variable interest, 8.25% at December 31, 1998....  $  17,000  $  --
8% Note due upon consummation of IPO (related parties)......................................     --          2,875
5% Notes payable due February 18, 2000, interest due annually (related parties).............     15,000     --
10% Convertible notes due February 18, 2000, interest due annually
  (related parties).........................................................................      2,000     --
7% Note due annually through February 18, 2001, interest due annually
  (related parties).........................................................................        350     --
Notes payable to banks and capital lease obligations........................................        808     --
                                                                                              ---------  ---------
                                                                                                 35,158      2,875
Less short-term borrowings and current maturities...........................................    (17,194)    (2,875)
                                                                                              ---------  ---------
                                                                                              $  17,964  $  --
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>
 
    The Company has a $25.0 million revolving credit facility with a financial
institution that expires on August 6, 1999. At December 31, 1998, the Company
had outstanding borrowings of $17.0 million under this facility. Borrowings
under the facility are limited to 85% of eligible accounts receivable, and
interest varies at the bank's Base Rate as defined. Under the revolving credit
facility the Company must pay commitment fees of .5% on the unused portion of
the line; maintain certain financial ratios; and is restricted from, among other
things, paying dividends, selling assets and incurring additional indebtedness.
 
    Until the IPO, the Company's activities had been financed through a
Subordinated Promissory Note as amended (the Note) with Consolidated Partners
Founding Fund (CPFF), a related party, in the principal amount of $3,230,000 and
bearing an annual interest rate of eight percent. The Note was due on the
earlier of December 31, 1998, or the consummation of the IPO. At December 31,
1997, the principal balance under the Note was approximately $2,875,000.
 
    In connection with the IPO in February 1998, the entire balance of the Note
was repaid. During 1998, 1997 and 1996, the Company incurred interest expense of
$149,000, $256,000 and $10,000 respectively, related to the Note. Included in
long-term debt at December 31, 1998 are notes relating to the Acquisitions
totaling $15,393,000 which are due to current members of management. For the
year ended December 31, 1998, the Company recognized interest expense of
$709,000 relating to these notes.
 
                                       27
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
7.  LONG-TERM DEBT (CONTINUED)
    The 5% Notes and 10% Convertible Notes may be prepaid at any time and are
subordinated to the Company's senior debt as defined therein. The 10%
Convertible Notes are convertible into shares of the Company's common stock at
$14.00 per share.
 
8.  INCOME TAXES
 
    The provision for income tax expense (benefit) consists of the following:
 
<TABLE>
<CAPTION>
(IN THOUSANDS)                                                                         1998
-----------------------------------------------------------------------------------  ---------
<S>                                                                                  <C>
Current:...........................................................................  $  --
  Federal..........................................................................     --
                                                                                     ---------
  State............................................................................     --
                                                                                     ---------
Deferred:
  Federal..........................................................................     (5,945)
  State............................................................................       (514)
                                                                                     ---------
                                                                                        (6,459)
                                                                                     ---------
Income tax expense (benefit).......................................................  $  (6,459)
                                                                                     ---------
                                                                                     ---------
</TABLE>
 
    No provision for federal, state and local income taxes was recorded at
December 31, 1997 and 1996 because the historical Company had sustained
cumulative losses since its inception. A 100% valuation allowance had been
established for the related deferred tax asset.
 
    Significant components of deferred tax assets and liabilities at December
31, 1998 and 1997 were:
 
<TABLE>
<CAPTION>
(IN THOUSANDS)                                                              1998        1997
-----------------------------------------------------------------------  -----------  ---------
<S>                                                                      <C>          <C>
Deferred tax assets:
  Reserves and accruals................................................  $     3,782  $  --
  Customer lists amortization..........................................           49     --
  Net operating loss carryforwards.....................................        1,222      1,193
                                                                         -----------  ---------
                                                                               5,053      1,193
  Valuation allowance..................................................      --          (1,193)
                                                                         -----------  ---------
                                                                               5,053     --
                                                                         -----------  ---------
Deferred tax liabilities:
  Intangible assets....................................................      (16,144)    --
  Property and equipment depreciation..................................         (319)    --
                                                                         -----------  ---------
                                                                             (16,463)    --
                                                                         -----------  ---------
Net deferred tax asset (liability).....................................  $   (11,410) $  --
                                                                         -----------  ---------
                                                                         -----------  ---------
</TABLE>
 
                                       28
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
8.  INCOME TAXES (CONTINUED)
    The benefit for income taxes reconciles to the amount computed by applying
the statutory federal tax rate of 34% is as follows:
 
<TABLE>
<CAPTION>
(IN THOUSANDS)                                                             1998       1997
-----------------------------------------------------------------------  ---------  ---------
<S>                                                                      <C>        <C>
Computed expected tax benefit..........................................  $  (6,031) $  (1,088)
Non-deductible goodwill and intangibles................................        332     --
State income tax benefit...............................................       (339)      (105)
Loss on sale of KINNET.................................................        816     --
Other..................................................................        (44)    --
Change in valuation allowance..........................................     (1,193)     1,193
                                                                         ---------  ---------
                                                                         $  (6,459) $  --
                                                                         ---------  ---------
                                                                         ---------  ---------
</TABLE>
 
    In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion, or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which those temporary differences become deductible. Net operating loss
carryforwards of $3,139,000 and $78,000 expire in 2012 and 2013, respectively.
Management believes that the Company will generate sufficient taxable income to
absorb all net operating loss carryforwards and deductible temporary differences
prior to their expiration.
 
9.  STOCK OPTIONS AND WARRANTS
 
    In connection with the Acquisitions and IPO, the Company issued various
common stock warrants that allow the holder to purchase shares of common stock
at defined exercise prices. As of December 31, 1998, 1,584,427 of such warrants
were issued and outstanding.
 
    The Company has an employee incentive stock option plan which allows the
Company to grant key employees incentive and non-qualified stock options to
purchase up to 3,500,000 shares of the Company's common stock at not less than
the market price on the date of the grant. Options not exercised accumulate and
are exercisable, in whole or in part, in any subsequent period but not later
than ten years from the date of the grant.
 
    The Company also has a Non-Employee Director stock option plan, approved by
the stockholders, under which the Company grants an option to purchase 15,000
shares of common stock to each director who is neither an officer of the Company
nor compensated under any employment or consulting arrangements (Non-Employee
Director) upon their initial appointment as director and an additional option to
purchase 5,000 shares upon each subsequent re-election to director. Under the
plan, the option exercise price is the fair market value of the Company's common
stock on the date of the grant, and the options are exercisable, on a cumulative
basis, at 33 1/3% per year commencing on the first anniversary date of the
grant.
 
                                       29
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
9.  STOCK OPTIONS AND WARRANTS (CONTINUED)
    A summary of the stock option and warrant transactions under the plans for
the years ended December 31, 1998 and 1997, is as follows:
 
<TABLE>
<CAPTION>
                                                                               1998                   1997
                                                                       ---------------------  ---------------------
                                                                        AVERAGE   NUMBER OF    AVERAGE   NUMBER OF
                                                                         PRICE      SHARES      PRICE      SHARES
                                                                       ---------  ----------  ---------  ----------
<S>                                                                    <C>        <C>         <C>        <C>
Options and warrants outstanding at beginning of year................  $    8.76   2,288,640  $  --               0
Options and warrants granted.........................................  $    9.89   4,116,172  $    7.59   2,813,640
Options and warrants canceled........................................  $   13.57   2,444,500  $    2.50     525,000
Options and warrants exercised.......................................  $  --               0  $  --               0
                                                                       ---------  ----------  ---------  ----------
Options and warrants outstanding at end of year......................  $    6.96   3,960,312  $    8.76   2,288,640
                                                                       ---------  ----------  ---------  ----------
                                                                       ---------  ----------  ---------  ----------
Exercisable at end of year...........................................              1,580,377                107,561
                                                                                  ----------             ----------
                                                                                  ----------             ----------
</TABLE>
 
    Other information regarding stock options and warrants outstanding as of
December 31, 1998, is as follows:
 
<TABLE>
<CAPTION>
                                                                                 OPTIONS AND WARRANTS
                               OPTIONS AND WARRANTS OUTSTANDING                       EXERCISABLE
                    ------------------------------------------------------  -------------------------------
     RANGE OF         NUMBER           REMAINING         WEIGHTED AVERAGE     NUMBER     WEIGHTED AVERAGE
  EXERCISE PRICE    OF OPTIONS     CONTRACTUAL LIFE       EXERCISE PRICE    OF OPTIONS    EXERCISE PRICE
------------------  ----------  -----------------------  -----------------  ----------  -------------------
<S>                 <C>         <C>                      <C>                <C>         <C>
$2.50-$4.00            778,593               8.7             $    2.53         596,927       $    2.50
$4.50-$4.50          1,272,250              10.0             $    4.50          --              --
$4.67-$10.50           914,714               8.7             $    6.50         252,028       $    6.61
$14.00-$14.00          994,755               6.2             $   14.00         731,422       $   14.00
------------------  ----------               ---                ------      ----------          ------
$2.50-$14.00         3,960,312               8.5             $    6.96       1,580,377       $    8.48
------------------  ----------               ---                ------      ----------          ------
------------------  ----------               ---                ------      ----------          ------
</TABLE>
 
    The Company accounts for the option plans using APB No. 25, Accounting for
Stock Issued to Employees. Accordingly, no compensation expense has been
recognized relating to the stock options. Pro forma net earnings and net
earnings per common share in the following table were prepared as if the Company
had accounted for its stock options and warrants under the fair market value
method of SFAS No. 123.
 
<TABLE>
<CAPTION>
                                                                                       1998       1997
                                                                                     ---------  ---------
<S>                                                                                  <C>        <C>
Net loss -- pro forma..............................................................  $  13,566  $   5,972
Net loss per share -- pro forma....................................................        .73        .73
</TABLE>
 
    For the pro forma disclosures, the fair value of each option and warrant
grant is estimated at the date of the grant using an option pricing model with
the following assumptions: no expected dividends, risk-free interest rates of
5.5%, price volatility of 50% and expected lives of 4 years.
 
    On December 13, 1998, the Company's Board of Directors approved the
re-pricing of approximately 2,125,000 options granted to key employees with a
weighted-average exercise price of $13.53. Under the terms of the re-pricing,
holders of the affected options received one new option for each two existing
options. The new options have an exercise price of $4.50 per share, which
represents the fair market value of the Company's stock on December 14, 1998.
 
                                       30
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
9.  STOCK OPTIONS AND WARRANTS (CONTINUED)
    In connection with the Acquisitions, the Company issued warrants to purchase
756,078 shares of common stock at $6.61 per share and options to purchase
598,500 shares of common stock at $14.00 per share (the IPO price). The fair
value of these options and warrants was determined to be $4,101,000 on the date
of grant, which was recorded by the Company as a component of the purchase price
of the Acquisitions.
 
    During December 1997, the Company awarded two of its officers with ten-year
options to purchase 300,000 shares of common stock at an exercise price of $2.50
per share which vest in full at the end of three months. Additionally, in May
1997, the Company granted to one of its consultants a warrant for the purchase
of 7,561 shares of common stock at an exercise price of $2.65 per share. During
the year ended December 31, 1998 and 1997, the Company recognized $1,760,000 and
$870,000 respectively of compensation expense related to these options and
warrants.
 
10.  BENEFIT PLANS
 
    The Company has a stock purchase plan whereby eligible employees may elect
to invest up to 10% of their salary and the Company contributes an amount equal
to 15% of each participant's contribution. The Company also has a 401(k) plan
whereby eligible employees may elect to contribute a portion of their salary and
the Company contributes an amount equal to 50% of employee contributions up to
6% of the employee's base salary. The Company recognized expense of $281,000 in
1998 and no expense in 1997 or 1996, relating to these plans.
 
11.  LEASES
 
    Certain sales and administrative offices and equipment are leased. The
leases expire at various dates through 2008. Leases that expire are generally
renewed or replaced by similar leases depending on business needs. Rent expense
for operating leases in 1998, 1997 and 1996 was $1,370,000, $48,000 and $0,
respectively.
 
    At December 31, 1998, the Company's future minimum rental payments due under
noncancelable leases were as follows:
 
<TABLE>
<CAPTION>
                                                                            CAPITAL    OPERATING
(IN THOUSANDS)                                                              LEASES      LEASES
-------------------------------------------------------------------------  ---------  -----------
<S>                                                                        <C>        <C>
1999.....................................................................  $     124   $   1,861
2000.....................................................................        124       1,502
2001.....................................................................        124       1,094
2002.....................................................................        120         814
2003.....................................................................         81         380
Thereafter...............................................................        413      --
                                                                           ---------  -----------
                                                                           $     986   $   5,651
                                                                                      -----------
                                                                                      -----------
Less amount representing interest........................................        364
                                                                           ---------
Present value of minimum lease payments..................................  $     622
                                                                           ---------
                                                                           ---------
</TABLE>
 
                                       31
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
12.  PREFERRED STOCK
 
    In January 1998, the Company entered into an agreement with a certain
utility Company regarding the possible creation of a strategic alliance. Under
the terms of the agreement, which was consummated contemporaneously with the
closing of the IPO, the Company issued 142,857 shares of Series A Redeemable
Convertible Preferred Stock (Preferred Stock) with an aggregate liquidation
preference of $2.0 million. The Preferred Stock is convertible into shares of
common stock at the IPO price ($14.00) eighteen months after the consummation of
the IPO. The Preferred Stock does not pay dividends and its holders are not
entitled to vote in the election of directors. If a strategic alliance has not
been entered into by the 13th month after the IPO, the Company may, at its
option, redeem the Preferred Stock for total proceeds of $1.25 million.
 
13.  COMMITMENTS AND CONTINGENCIES
 
    The Company is party to various legal actions, proceedings and pending
claims arising in the normal course of business. Some of the foregoing involve,
or may involve, compensatory, punitive or other damages in material amounts.
Litigation is subject to many uncertainties, and it is possible that some of the
legal actions, proceedings and claims referred to above could be decided against
the Company. The Company's management believes that any resulting liability will
not materially affect the Company's financial position, liquidity or results of
operations.
 
14.  REPORTABLE SEGMENTS
 
    The Company has two reportable segments: yellow pages directory publishing
(directory) operations and telecommunications operations. The directory
operations publish and distribute yellow page directories in various markets in
Oklahoma, Texas and California. The telecommunications operations provide local,
long distance and other telecommunications services to customers in service
areas of Southwestern Bell and US West.
 
    The following summarizes key financial information regarding the operations
of each segment for the year ended December 31, 1998:
 
<TABLE>
<CAPTION>
                                                    DIRECTORY   TELECOMMUNICATIONS
(IN THOUSANDS)                                     OPERATIONS       OPERATIONS        TOTAL
-------------------------------------------------  -----------  ------------------  ----------
<S>                                                <C>          <C>                 <C>
Revenues.........................................   $  38,090       $   59,638      $   97,728
Cost of services.................................      17,847           44,315          62,162
Selling, general and administrative expenses.....      14,419           23,514          37,933
Depreciation and amortization....................       4,191            5,529           9,720
                                                   -----------        --------      ----------
Operating income (loss) before stock-based
  compensation...................................   $   1,633       $  (13,720)     $  (12,087)
                                                   -----------        --------      ----------
                                                   -----------        --------      ----------
Total assets.....................................   $  82,409       $  131,959      $  214,368
                                                   -----------        --------      ----------
                                                   -----------        --------      ----------
Capital expenditures.............................   $     285       $   16,453      $   16,738
                                                   -----------        --------      ----------
                                                   -----------        --------      ----------
</TABLE>
 
    The costs associated with the Company's corporate overhead including, but
not limited to, executive salaries, salaries of shared administrative personnel
and the direct costs of company-wide programs, have not been allocated and are
included in telecommunications operations.
 
                                       32
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE PERIOD ENDED DECEMBER
                                    31, 1996
 
15.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------
<S>                                               <C>          <C>          <C>          <C>          <C>
                                                   PRO FORMA     ACTUAL       ACTUAL       ACTUAL      PRO FORMA
1998 -- Pro Forma                                 1ST QUARTER  2ND QUARTER  3RD QUARTER  4TH QUARTER   FULL YEAR
                                                  -----------  -----------  -----------  -----------  -----------
Revenues........................................   $  32,195    $  28,015    $  25,159    $  28,820    $ 114,189
Operating income (loss).........................         836         (460)      (3,897)      (8,652)     (12,173)
Net income (loss)...............................        (521)      (1,031)      (3,691)      (5,433)     (10,676)
Net income (loss) per common share..............       (0.03)       (0.05)       (0.19)       (0.27)       (0.54)
Common shares used in per share calculation.....      19,616       19,616       19,616       19,822       19,646
</TABLE>
 
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------
<S>                                               <C>          <C>          <C>          <C>          <C>
                                                   PRO FORMA    PRO FORMA    PRO FORMA    PRO FORMA    PRO FORMA
1997 -- Pro Forma                                 1ST QUARTER  2ND QUARTER  3RD QUARTER  4TH QUARTER   FULL YEAR
                                                  -----------  -----------  -----------  -----------  -----------
Revenues........................................   $  27,528    $  23,284    $  18,267    $  20,213    $  89,292
Operating income (loss).........................       2,386          784       (1,776)      (3,418)      (2,024)
Net income (loss)...............................         261         (485)      (2,146)      (3,207)      (5,577)
Net income (loss) per common share..............        0.01        (0.02)       (0.11)       (0.16)       (0.28)
Common shares used in per share calculation.....      19,616       19,616       19,616       19,616       19,616
</TABLE>
 
                                       33
<PAGE>
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURE
 
    The Company has never filed a Current Report on Form 8-K to report a change
in accountants because of a disagreement over accounting principles or
procedures, financial statement disclosure or otherwise.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
    The following table sets forth certain information concerning each of
Advanced Communications' directors and executive officers (ages as of December
31, 1998). The Board of Directors (the "Board') consists of twelve directors,
divided into three classes of directors serving staggered terms. Currently there
are ten directors and two vacancies. Directors and executive officers of
Advanced Communications are elected to serve until they resign or are removed,
or are otherwise disqualified to serve, or until their successors are elected
and qualified. Directors of Advanced Communications are elected at annual
meetings of the stockholders. Executive officers of Advanced Communications
generally are appointed by the Board shortly after each annual meeting of
stockholders.
 
<TABLE>
<CAPTION>
                                                                                         TERM AS
                                                                                        DIRECTOR
               NAME                  AGE           POSITION(S) WITH COMPANY              EXPIRES
-----------------------------------  --- ---------------------------------------------  ---------
<S>                                  <C> <C>                                            <C>
Richard O'Neal                       58  Acting Chief Executive Officer, President        1999
                                          Directory Services Group and Director
James F. Cragg                       47  President and Chief Operating Officer and        2001
                                          Director
William H. Zimmer III                45  Executive Vice President, Chief Financial        1999
                                          Officer, Treasurer, Secretary and Director
Fred L. Thurman                      48  Senior Vice President Corporate Development      2000
                                          and Director
Todd J. Feist                        35  Vice President and Chief Operating Officer       1999
                                          Central Region and Director
Robert F. Benton                     68  Director                                         2001
Rod K. Cutsinger                     55  Director                                         2000
Reginald J. Hollinger                35  Director                                         2000
David M. Mitchell                    50  Director                                         2001
Marvin C. Moses                      54  Director                                         2001
</TABLE>
 
    RICHARD O'NEAL has been President Directory Services Group and a Director of
Advanced Communications since February 1998. He is currently Acting Chief
Executive Officer since the resignation of Richard Anthony in November 1998. He
founded Great Western Directors, Inc. in 1984 and has served as its President
since that time. Mr. O'Neal has served as an officer and director of several
publishing organizations such as Yellow Page Publishers Association and the
Association of Directory Publishers, two of the largest organizations in that
industry.
 
    JAMES F. CRAGG has served as President and Chief Operating Officer of the
Company since January 1998 when he was promoted from Executive Vice President,
Sales and Marketing a position he held since December 1997. From January 1997 to
December 1997, Mr. Cragg was employed by Brooks Fiber Properties, Inc., Cragg
most recently serving as Acting Regional President, Eastern Region, and also as
General Manager and Regional Vice President, Mid-America Region. In these
capacities, he had responsibilities for directing sales, construction and
operations in Kansas, Minnesota, Missouri and Tennessee. From June 1995 to May
1996, Mr. Cragg was Senior Vice President, Business Markets for Snyder
 
                                       34
<PAGE>
Communications Inc., an integrated marketing company. From October 1994 to June
1995, Mr. Cragg was a Director of Sales and Marketing and a principal for Ernst
& Young LLP. From 1983 to October 1994, Mr. Cragg held various management
positions at MCI. His last position at MCI was Director of Sales and Service,
Mid-America Region.
 
    WILLIAM H. ZIMMER III has been Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and a Director of Advanced Communications since
December 1997. Since 1991, Mr. Zimmer had been employed as Treasurer and
Secretary of Cincinnati Bell, the holding company of an incumbent local exchange
carrier. For more than nine years prior to that time, he served in a variety of
finance positions with Cincinnati Bell. As Secretary and Treasurer of Cincinnati
Bell, Mr. Zimmer was primarily responsible for that company's corporate
financings, risk management, trust asset management, cash management, corporate
investments and rating agency and exchange relationships.
 
    FRED L. THURMAN is Senior Vice President Corporate Development and has
served as a Director of Advanced Communications since February 1998. He has been
President of FirsTel since April 1994. Prior to that time he served as a
consultant to FirsTel for six months. Between 1984 and 1989, Mr. Thurman
provided accounting, tax and management advisory services as a certified public
accountant to Dial-Net, Inc., a long distance telephone company, which was
acquired by WorldCom in 1993. Since 1979, Mr. Thurman was also a partner in
Thurman, Comes, Foley & Co. LLP, a public accounting firm in Sioux Falls, South
Dakota, but in the last several years has not been active in the practice. Mr.
Thurman is also a director of Voyager Financial Services Corp. and Voyager Bank
located in Minneapolis, Minnesota.
 
    TODD J. FEIST is Vice President and Chief Operating Officer Central Region
and has served as a Director since February 1998. He has been President of Feist
Long Distance since February 1996. From April 1994 to February 1996, Mr. Feist
was Network Manager for Feist Long Distance, and from 1987 to April 1994, he was
Distribution Manager of Feist Long Distance in Lubbock, Texas.
 
    ROBERT F. BENTON has been a Director of Advanced Communications since July
1998. He has been Chairman of Orion Systems, Inc., a systems integration
company, since January 1998. From 1987 to May 1994, he served as Chairman of
Intermedia Communications, Inc. Prior to 1987, Mr. Benton served in a variety of
executive positions with CONTEL, ITT and C&P.
 
    ROD K. CUTSINGER has been a Director of Advanced Communications since
November 1998 and had been a director from the Company's inception until June
1998. Mr. Cutsinger was the founder of Advanced Communications. He developed the
Company's initial acquisition strategy and successfully negotiated the
definitive acquisition agreements with the Acquired Companies. In early 1983 Mr.
Cutsinger founded Advanced Telecommunications Corporation ("ATC") and took the
company public in late 1983. After selling his interest in ATC, in 1986 Mr.
Cutsinger founded American Funeral Services, Inc. ("AFS"), a publicly held death
care company headquartered in Houston, Texas. In late 1992 AFS was acquired by
Service Corporation International. Thereafter, Mr. Cutsinger founded and served
as the principal officer of Vadacom, Inc., a switched based long distance
company headquartered in Houston, that sold substantially all its assets in
1995. Mr. Cutsinger is also an executive officer, director and equity interest
owner of CPFF and Consolidation Partners.
 
    The Company and Mr. Cutsinger are parties to an agreement pursuant to which
Mr. Cutsinger, among other things, agreed that, for three years after the
completion of the initial public offering, he will not (i) acquire any voting
securities of the Company other than the shares of Common Stock issuable as
stock dividends or splits or upon exercise of his options under the Company's
Directors' Plan, (ii) sponsor or participate in any proxy solicitations, (iii)
enter into or form voting trusts, pooling agreements or "groups", (iv) vote any
of his shares of common stock in opposition to the recommendation of the
disinterested members of Advanced Communications board of directors regarding
the election or removal of directors and matters relating to a possible change
in control of the Company, or (v) directly or indirectly assist, encourage or
induce any person to bid or acquire any class of securities that is entitled to
 
                                       35
<PAGE>
vote for the election of directors. Mr. Cutsinger's obligations under the
standstill agreement will terminate if he is removed from the Board or not
renominated for election as a director in 2000.
 
    REGINALD J. HOLLINGER has been a Director since February 1998. Mr. Hollinger
is a Managing Director and Group Head of the Telecommunications Investment
Banking at PaineWebber Incorporated ("PaineWebber"). Mr. Hollinger serves as a
member of PaineWebber's Investment Banking Division's Management Committee.
Prior to joining PaineWebber in April 1997, Mr. Hollinger worked at Morgan
Stanley & Co. Incorporated for eight years and was most recently a Principal
focusing exclusively on the telecommunications industry. Mr. Hollinger has a
wide range of corporate finance and mergers and acquisitions experience in the
telecommunications industry.
 
    DAVID M. MITCHELL has been a Director since February 1998. Mr. Mitchell has
been engaged primarily as an investor in the telephone businesses since 1982,
when he founded National Telephone Exchange, Inc. of Temple, Texas. Mr. Mitchell
sold this and two other telephone companies in 1991 to U.S. Long Distance. Mr.
Mitchell owned a 50% interest in Valu-Line of Longview, Inc. ("Value-Line") at
the time it was acquired by the Company. In the acquisition agreement relating
to Valu-Line, the Company's Board, subject to its fiduciary obligations, agreed
to place Mr. Mitchell on its Board and renominate Mr. Mitchell as a director
from time to time as long as he owns at least 100,000 shares of common stock at
the time of such renomination.
 
    MARVIN C. MOSES has been a Director since July 1998. Mr. Moses has been a
consultant and private investor since May 1996. From November 1995 to April
1996, he served as the Vice Chairman and Chief Financial Officer and, from
August 1995 to November 1995, was also Executive Vice President of Frontier. Mr.
Moses also was the Executive Vice President and Chief Financial Officer of ALC
Communications Corp. from 1988 to August 1995, when that company was acquired by
Frontier. Mr. Moses is also currently a director of Teleglobe, Inc. and Advanced
Telecommunications, Inc.
 
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
                                                                                         LONG-TERM COMPENSATION
                                                                               -------------------------------------------
                                                                                          AWARDS
                                                                               ----------------------------     PAYOUTS
                                                    ANNUAL COMPENSATION              (f)            (g)      -------------
(a)                                           -------------------------------    RESTRICTED     SECURITIES        (h)
NAME AND                              (b)        (c)        (d)        (e)          STOCK       UNDERLYING       LTIP
PRINCIPAL POSITION                   YEAR      SALARY      BONUS      OTHER        AWARDS         OPTIONS       PAYOUTS
---------------------------------  ---------  ---------  ---------  ---------  ---------------  -----------  -------------
<S>                                <C>        <C>        <C>        <C>        <C>              <C>          <C>
Richard P. Anthony                      1998    211,218     --        354,125(1)       --           --            --
Chief Executive Officer (1)             1997     --         --         --            --            500,000        --
 
James F. Cragg                          1998    175,000     87,500     --            --             50,000        --
President and Chief                     1997     --        100,000     --            --            287,500(3)      --
  Operating Officer (2)
 
William H. Zimmer III                   1998    185,000     47,500     --            --             50,000        --
Executive Vice President and            1997     --         50,000     --            --            175,000(3)      --
  Chief Financial Officer
 
Richard O'Neal                          1998    300,000     --         --            --             75,000(3)      --
Acting Chief Executive                  1997     --         --         --            --             --            --
  Officer and President
  Directory Services Group
 
Fred L. Thurman                         1998    175,000     --         --            --             50,000(3)      --
Senior Vice President                   1997     --         --         --            --             --            --
  Corporate Development
 
<CAPTION>
(a)                                       (i)
NAME AND                               ALL OTHER
PRINCIPAL POSITION                   COMPENSATION
---------------------------------  -----------------
<S>                                <C>
Richard P. Anthony                        --
Chief Executive Officer (1)               --
James F. Cragg                            --
President and Chief                       --
  Operating Officer (2)
William H. Zimmer III                     --
Executive Vice President and              --
  Chief Financial Officer
Richard O'Neal                            --
Acting Chief Executive                    --
  Officer and President
  Directory Services Group
Fred L. Thurman                           --
Senior Vice President                     --
  Corporate Development
</TABLE>
 
------------------------
 
(1) Mr. Anthony ceased employment with the Company in November 1998. Other
    annual compensation represents Mr. Anthony's severance payout upon the
    termination of his employment agreement.
 
                                       36
<PAGE>
(2) Mr. Cragg was promoted from Executive Vice President Sales and Marketing to
    his current position in January 1999.
 
(3) Stock option awards are adjusted for repricing in December 1998 whereby
    holders of the affected options received one new option for each two
    existing options.
 
EMPLOYMENT AGREEMENTS
 
    Messrs. Cragg and Zimmer entered into six-year employment agreements
providing for their employment at an annual base salary of $175,000 and
$185,000, respectively. The agreements provide for a bonus potential equal to
100% of base salary for Mr. Cragg and 50% of base salary for Mr. Zimmer. The
agreements also provide for the annual grant of options to purchase up to 50,000
shares of Common Stock each at the current market price on the date of grant, if
certain targets set by the Compensation Committee are met. The options vest
immediately upon (i) their death or disability, (ii) their resignation following
a change of control, or (iii) the termination of their employment other than
"with cause," as defined. If Messrs. Cragg or Zimmer resign after a change in
ownership or management of the Company that significantly alters their job
responsibilities or compensation, they will be entitled to their base salary for
a period of two years. Unless they so resign or the Company terminates their
employment "with cause," Messrs. Cragg or Zimmer will be entitled to their base
salary for a one-year period upon their termination. The employment agreement
also provides for a one-year post-termination non-competition obligation that is
extended to three years if they voluntarily resign under circumstances that do
not involve a change in control.
 
    In addition, Messrs. O'Neal, Feist and Thurman have entered into three, five
and five-year employment agreements that provide for base salaries of $300,000,
$140,000 and $175,000, respectively, and a bonus potential ranging from 50% to
63% of base salary. If the Company terminates Mr. O'Neal's employment other than
for "cause" (as defined in his agreement) or if Mr. O'Neal resigns under
circumstances that he reasonably believes were contrived by Great Western to
force his resignation, or after a change in control of the Company, Mr. O'Neal
shall be entitled to continue to receive his base salary until the scheduled
expiration date of his employment agreement. Mr. Thurman shall be entitled to
receive one year's salary in the event his employer terminates him for a reason
other than with "cause" (as defined in his agreement) and two year's salary if
he resigns following a change in control of his employer. Mr. Feist is entitled
to receive six month's salary if his employer terminates him for a reason other
than with "cause" and one year's salary if he resigns following a change in
control of his employer. These agreements contain three-year non-competition
covenants.
 
    On December 16, 1998, a Severance Agreement by and between the Company and
Richard P. Anthony was executed in connection with the termination of his
employment with the Company. Under the terms of the Severance Agreement, Mr.
Anthony received a lump sum payment of $354,125, which represents $250,000 paid
to satisfy the obligation under his employment agreement and $104,125 severance
pay. Mr. Anthony was also given the right to exercise all of the non-qualified
stock options to purchase 500,000 shares of the Company's common stock that had
been previously awarded to him through November 8, 2001. Of those stock options,
350,000 are exercisable at $14.00 a share and 150,000 of such options are
exercisable at $2.50 per share. The Company also agreed to pay Mr. Anthony's
health insurance through November 8, 1999 and allowed Mr. Anthony to keep his
company-owned computer.
 
                        INFORMATION AS TO STOCK OPTIONS
 
    The following table provides certain information as to options grants in
fiscal 1998 to the persons named in the Summary Compensation Table.
 
                                       37
<PAGE>
                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                                                                                       POTENTIAL REALIZABLE
                                                                INDIVIDUAL GRANT                         VALUE AT ASSUMED
                                           ----------------------------------------------------------    ANNUAL RATES OF
                                            NUMBER OF      PERCENT OF                                      STOCK PRICE
                                           SECURITIES     TOTAL OPTIONS                                  APPRECIATION FOR
                                           UNDERLYING      GRANTED TO       EXERCISE OR                    OPTION TERM
                                             OPTIONS      EMPLOYEES IN      BASE PRICE    EXPIRATION   --------------------
                  NAME                      GRANTED #      FISCAL YEAR       ($/SHARE)       DATE       5% ($)     10% ($)
                   (A)                         (B)             (C)              (D)           (E)         (F)        (G)
-----------------------------------------  -----------  -----------------  -------------  -----------  ---------  ---------
<S>                                        <C>          <C>                <C>            <C>          <C>        <C>
Richard P. Anthony.......................      --              --               --            --          --         --
James F. Cragg...........................      50,000             1.6             5.88       1/13/09     184,488    467,912
William H. Zimmer III....................      50,000             1.6             5.88       1/13/09     184,488    467,912
Richard O'Neal...........................      75,000             2.4             4.50      12/14/08     212,252    537,888
Fred L. Thurman..........................      50,000             1.6             4.50      12/14/08     141,501    358,592
</TABLE>
 
    The following table lists option exercises in fiscal 1998 and the value of
options held as of the end of fiscal 1998 by the persons listed in the Summary
Compensation Table.
 
                AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                              NUMBER OF SECURITIES         VALUE OF
                                                                             UNDERLYING UNEXERCISED   UNEXERCISED IN THE
                                                                                OPTIONS AT FISCAL      MONEY OPTIONS AT
                                                                                    YEAR-END            FISCAL YEAR-END
                                                                                       ($)                    ($)
                                           SHARES ACQUIRED       VALUE            EXERCISABLE/           EXERCISABLE/
                  NAME                     ON EXERCISE ($)    REALIZED($)         UNEXERCISABLE          UNEXERCISABLE
                   (A)                           (B)              (C)                  (D)                    (E)
-----------------------------------------  ---------------  ---------------  -----------------------  -------------------
<S>                                        <C>              <C>              <C>                      <C>
Richard P. Anthony.......................        --               --              266,667/233,333           253,500/0
James F. Cragg...........................        --               --              150,000/187,500           253,500/0
William H. Zimmer III....................        --               --                    0/225,000                 0/0
Richard O'Neal...........................        --               --                    0/75,000                  0/0
Fred Thurman.............................        --               --                    0/50,000                  0/0
</TABLE>
 
DIRECTOR COMPENSATION
 
    Directors of the Company who are also employees of the Company receive no
directors' fees but are eligible to receive, and have received, grants of stock
options under the Company's 1997 Stock Awards Plan. Non-employee directors
receive fees of $1,000 for each Board meeting in which they participate, and are
reimbursed for reasonable out-of-pocket travel expenditures incurred.
Non-employee directors also receive options to purchase shares of Common Stock
pursuant to the 1997 Nonqualified Stock Option Plan for Non-Employee directors
(the "Directors' Plan"). Non-employee directors elected or appointed to the
Board will receive options to acquire 15,000 shares of Common Stock on the date
of their initial election or appointment. Additional non-qualified stock options
to acquire 5,000 shares of Common Stock will thereafter be awarded to each
director on the date of the annual meeting of stockholders at which he or she is
reelected to serve an additional three-year term.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
    Mr. Reginald Hollinger, a Managing Director and Group Head of the
Telecommunications Investment Banking at PaineWebber Incorporated and a member
of the Investment Banking Division's Management Committee, is also a member of
the Board's Compensation Committee. PaineWebber Incorporated is the Company's
investment banking firm and served as the lead manager in the Company's IPO. The
Company anticipates that it will continue to utilize the services of PaineWebber
Incorporated during the
 
                                       38
<PAGE>
remainder of the current fiscal year and thereafter. Neither the Board nor Mr.
Hollinger believe these relationships affect in any manner their respective
abilities to serve on, or fulfill their obligations to the Company and its
stockholders as participating members of the Compensation Committee of the Board
of Directors.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 18, 1999 by (a)
each of the executive officers of the Company, (b) each of the Company's
directors, (c) all executive officers and directors of the Company as a group,
and (d) each other person (or group or affiliated persons) who is known by the
Company to own beneficially 5% or more of the Company's Common Stock.
 
<TABLE>
<CAPTION>
                                                                                       SHARES BENEFICIALLY OWNED(2)
                                                                                       -----------------------------
NAME(1)                                                                                     NUMBER         PERCENT
-------------------------------------------------------------------------------------  ----------------  -----------
<S>                                                                                    <C>               <C>
Richard P. Anthony...................................................................        323,922(3)        1.6%
Robert Benton........................................................................          2,000          *
James F. Cragg.......................................................................        197,793(4)        1.0
William H. Zimmer III................................................................          6,284             *
Richard O'Neal.......................................................................        869,020(5)        4.3
Fred L. Thurman......................................................................        243,746(6)        1.2
Todd J. Feist........................................................................        321,429           1.6
Rod K. Cutsinger.....................................................................      5,196,664(7)       26.2
Reginald J. Hollinger................................................................          5,000(8)          *
David M. Mitchell....................................................................        192,144(9)        1.0
Marvin Moses.........................................................................         --             --
Consolidation Partners...............................................................      4,867,921          24.5
Officers and directors as a
  group (11 individuals).............................................................      7,358,002(10)      34.9
</TABLE>
 
------------------------
 
*   Percentage of shares beneficially owned is less than 1.0%.
 
(1) The address of all executive officers and directors (other than Messrs.
    Cutsinger and Powell) is 390 South Woods Mill Road, Suite 150, St. Louis,
    Missouri 63017; the address of Messrs. Cutsinger and Powell, Consolidation
    Partners Founding Fund (CPFF) and Consolidation Partners is 3355 West
    Alabama, Suite 580, Houston, Texas 77098.
 
(2) Beneficial ownership includes shares of common stock subject to options,
    warrants, rights, conversion privileges or similar obligations exercisable
    within 60 days for purposes of computing the ownership percentage of the
    person or group holding such options, warrants, rights, privileges or other
    obligations. Except as noted, each stockholder has sole voting and
    dispositive power with respect to all shares beneficially owned by such
    stockholder.
 
(3) Includes 266,667 shares of common stock subject to stock options that are
    immediately exercisable.
 
(4) Includes 150,000 shares of common stock subject to stock options that are
    immediately exercisable.
 
(5) Includes warrants to purchase 469,020 shares of common stock at $14.00 per
    share. A Trustee for Mr. O'Neal's children owns 189,020 of these
    non-transferable, ten-year warrants.
 
(6) Includes 13,513 shares of common stock issuable upon exercise of a warrant
    at $14.00 per share and 39,498 shares of common stock issuable upon
    conversion of a 10% convertible note issued by the Company, convertible at
    $14.00 per share.
 
                                       39
<PAGE>
(7) Includes 4,867,921 shares of common stock owned by Consolidation Partners, a
    limited liability Company in which Rod K. Cutsinger and his wife
    beneficially own of record 80% of the interests. The remaining interests are
    beneficially owned by trusts for the benefit of the Cutsingers' two adult
    children, including Brad K. Cutsinger, over which Rod K. Cutsinger has sole
    voting and dispositive power.
 
(8) Includes 5,000 shares of common stock subject to stock options that are
    currently exercisable.
 
(9) Includes 6,000 shares of common stock issuable upon exercise of a warrant at
    $14.00 per share and 5,000 shares of common stock subject to stock options
    that are currently exercisable.
 
(10) Includes 1,204,698 shares of common stock which such persons have the right
    to acquire upon the exercise of options and warrants which are immediately
    exercisable.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Richard O'Neal is an officer, director and owner of 50% of the outstanding
voting securities of Big Stuff, Inc. ("BSI"), a corporation that markets
Internet home page development services to business customers and provides high
quality yellow page colorizing services to Great Western Directories, Inc. and
other yellow page publishers. During the fiscal year ended December 31, 1998,
the Company paid BSI approximately $1.3 million, for yellow page colorizing
services. Great Western Directories, Inc. and BSI have entered into a Sales
Agreement pursuant to which BSI expects to continue to render the foregoing
services to Great Western Directories after the IPO upon terms and conditions
that the Company considers reasonable under the circumstances. BSI has also
agreed to give Great Western Directories the exclusive right to market
Worldpages in its service areas.
 
    Until the IPO, the Company's activities had been financed through a
promissory note with Consolidated Partners Founding Fund (CPFF), a limited
liability corporation owned by Rod K. Cutzinger and his family. In February
1998, the $3.2 million balance of the note was paid. During 1998, the Company
incurred interest expense of $149,000 relating to the note.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
 
(a) 1.  FINANCIAL STATEMENTS
 
    Item 8 of this report includes the financial statements of Advanced
Communications Group, Inc.
 
    2.  FINANCIAL STATEMENT SCHEDULES
 
    See Schedule II--Valuation and Qualifying Accounts on page 44. No other
schedules are included because they are not applicable or the required
information is shown in the financial statements or notes thereto.
 
(b) REPORTS ON FORM 8-K
 
    During the quarter ended December 31, 1998, the Company filed a Current
Report on Form 8-K dated November 9, 1998, regarding the appointment of Richard
O'Neal as Acting Chief Executive and James F. Cragg as Acting President and
Chief Operating Officer.
 
(c) EXHIBITS
 
    See the Exhibit Index attached hereto.
 
                                       40
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K
for the fiscal year ended December 31, 1998, to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
                                ADVANCED COMMUNICATIONS GROUP, INC.
 
                                By:              /s/ RICHARD O'NEAL
                                     -----------------------------------------
                                                   Richard O'Neal
                                              CHIEF EXECUTIVE OFFICER
                                           (PRINCIPAL EXECUTIVE OFFICER)
 
                                             /s/ WILLIAM H. ZIMMER III
                                     -----------------------------------------
                                               William H. Zimmer III
                                       CHIEF FINANCIAL OFFICER, SECRETARY AND
                                                     TREASURER
                                     (PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
                                                ACCOUNTING OFFICER)
 
Dated: March 30, 1999
 
                                       41
<PAGE>
    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>
<CAPTION>
             NAME                         TITLE                    DATE
------------------------------  --------------------------  -------------------
 
<S>                             <C>                         <C>
     /s/ ROBERT F. BENTON
------------------------------           Director             March 30, 1999
       Robert F. Benton
 
      /s/ JAMES F. CRAGG
------------------------------           Director             March 30, 1999
        James F. Cragg
 
     /s/ ROD K. CUTSINGER
------------------------------           Director             March 30, 1999
       Rod K. Cutsinger
 
      /s/ TODD J. FEIST
------------------------------           Director             March 30, 1999
        Todd J. Feist
 
  /s/ REGINALD J. HOLLINGER
------------------------------           Director             March 30, 1999
    Reginald J. Hollinger
 
    /s/ DAVID M. MITCHELL
------------------------------           Director             March 30, 1999
      David M. Mitchell
 
     /s/ MARVIN C. MOSES
------------------------------           Director             March 30, 1999
       Marvin C. Moses
 
      /s/ RICHARD O'NEAL
------------------------------           Director             March 30, 1999
        Richard O'Neal
 
     /s/ FRED L. THURMAN
------------------------------           Director             March 30, 1999
       Fred L. Thurman
 
  /s/ WILLIAM H. ZIMMER III
------------------------------           Director             March 30, 1999
    William H. Zimmer III
</TABLE>
 
                                       42
<PAGE>
 
<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                                 DESCRIPTIONS
---------------------  ------------------------------------------------------------------------------------------
<C>                    <S>
          3.1          Restated Certificate of Incorporation, incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
         3.1A          Form of Amendment to Restated Certificate of Incorporation, incorporated herein by
                        reference to the Company's Registration Statement on Form S-1.
          3.2          Restated Bylaws of ACG, filed herewith.
          3.3          Form of Certificate of Designation of Series A Redeemable Convertible Preferred Stock (see
                        Annex A to Exhibit 10.46), incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
         4.0           Credit Agreement dated August 6, 1998 by and between Advanced Communications Group, Inc.
                        and Canadian Imperial Bank of Commerce, filed herewith.
        *10.1          ACG 1997 Stock Awards Plan, incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
       *10.1A          Form of Non-Qualified Stock Option Agreement, incorporated herein by reference to the
                        Company's Registration Statement on Form S-1.
        *10.2          Non-Qualified Stock Option Plan for Non-Employee Directors, incorporated herein by
                        reference to the Company's Registration Statement on Form S-1.
        *10.3          Employment Agreement between ACG and Richard P. Anthony, incorporated herein by reference
                        to the Company's Registration Statement on Form S-1.
        *10.4          Form of Employment Agreement between Great Western Directories, Inc. and Richard O'Neal
                        (see Annex V to Exhibit 2.1), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        *10.5          Form of Employment Agreement between Feist Long Distance Service, Inc. and Todd Feist (see
                        Annex VII to Exhibit 2.3A), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        *10.6          Form of Employment Agreement between Fred L. Thurman and FirsTel, Inc. (see Annex V to
                        Exhibit 2.4), incorporated herein by reference to the Company's Registration Statement on
                        Form S-1.
         10.7          Form of Indemnification Agreement entered into between ACG and each of its executive
                        officers and directors, incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
         10.9          Form of Series A Warrant issued to shareholders of Great Western Directories, Inc.,
                        incorporated herein by reference to the Company's Registration Statement on Form S-1.
        10.10          Form of Series B Warrant issued to shareholders of Great Western Directories, Inc.,
                        incorporated herein by reference to the Company's Registration Statement on Form S-1.
        10.12          Form of Series D Warrant issued to shareholders of Great Western Directories, Inc. (see
                        Annex IV to Exhibit 2.1), incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
        10.13          Form of 5% Subordinated Note issued to shareholders of Great Western Directories, Inc.
                        (see Annex III to Exhibit 2.1), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        10.14          Form of 10% Convertible Subordinated Note issued to shareholders of FirsTel, Inc. (see
                        Annex III to Exhibit 2.4), incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
        10.15          Management Agreement dated January 1, 1997 between INI, L.C. and KIN Network, Inc.,
                        incorporated herein by reference to the Company's Registration Statement on Form S-1.
</TABLE>
 
                                       43
<PAGE>
<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                                 DESCRIPTIONS
---------------------  ------------------------------------------------------------------------------------------
<C>                    <S>
        10.16          Sales Agreement Terms and Conditions dated July 16, 1997 between Big Stuff, Inc. and Great
                        Western Directories, Inc., incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
        10.16A         Supplemental Letter dated December 22, 1997 from Big Stuff, Inc. to Great Western
                        Directories, Inc. regarding exclusive marketing rights to Worldpages in certain areas,
                        incorporated herein by reference to the Company's Registration Statement on Form S-1.
       *10.17          Employment Agreement between ACG and William H. Zimmer III, incorporated herein by
                        reference to the Company's Registration Statement on Form S-1.
       *10.18          Employment Agreement between ACG and James F. Cragg, incorporated herein by reference to
                        the Company's Registration Statement on Form S-1.
        10.19          Form of Series E Warrant issued to certain shareholders of Tele-Systems, Inc.,
                        incorporated herein by reference to the Company's Registration Statement on Form S-1.
        10.20          Form of Series F Warrant issued to certain shareholders of Tele-Systems, Inc.,
                        incorporated herein by reference to the Company's Registration Statement on Form S-1.
        10.21          Form of Series G Warrant issued to certain shareholders of Tele-systems, Inc. (see Annex
                        IV to Exhibit 2.4), incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
        10.22          Form of Series H Warrant issued to Daniel W. And Cheryl A. Peters (see Annex IV to Exhibit
                        2.9), incorporated herein by reference to the Company's Registration Statement on Form
                        S-1.
        10.23          Form of Series I Warrant issued to Daniel W. And Cheryl A. Peters (see Annex V to Exhibit
                        2.9), incorporated herein by reference to the Company's Registration Statement on Form
                        S-1.
        10.24          Warrant issued to Joseph C. Cook, incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        10.25          Form of Series K Warrant issued to certain consultants, incorporated herein by reference
                        to the Company's Registration Statement on Form S-1.
        10.26          Form of Series L Warrant issued to G. Edward Powell and Brad K. Cutsinger, incorporated
                        herein by reference to the Company's Registration Statement on Form S-1.
        10.27          Resale Agreement between Southwestern Bell Telephone Company and Feist Long Distance dated
                        June 4, 1997 (Oklahoma), incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
        10.28          Resale Agreement between Southwestern Bell Telephone Company and Feist Long Distance dated
                        April 4, 1997 (Kansas), incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
        10.29          Agreement for Service Resale dated as of June 6, 1997 between FirsTel, Inc. and U S West
                        Communications, Inc. (South Dakota), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        10.30          Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
                        Communications, Inc. (Wyoming), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        10.31          Agreement for Service Resale dated as of October 14, 1997 between FirsTel, Inc. and U S
                        West Communications, Inc. (Iowa), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
</TABLE>
 
                                       44
<PAGE>
<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                                 DESCRIPTIONS
---------------------  ------------------------------------------------------------------------------------------
<C>                    <S>
        10.32          Agreement for Service Resale dated as of March 19, 1997 between FirsTel, Inc. and U S West
                        Communications, Inc. as amended by a FirsTel Amendment to Agreement for Service Resale,
                        dated July, 1997 between FirsTel, Inc. and U S West Communications, Inc. (North Dakota),
                        incorporated herein by reference to the Company's Registration Statement on Form S-1.
        10.33          Agreement for Service Resale dated as of march 19, 1997 between FirsTel, Inc. and U S West
                        Communications, Inc. as amended by a Second Amendment to Agreement for Service Resale,
                        dated November 6, 1997 between FirsTel, Inc. and U S West Communications, Inc.
                        (Nebraska), incorporated herein by reference to the Company's Registration Statement on
                        Form S-1.
        10.34          Agreement for Service Resale dated as of August 12, 1997 between FirsTel, Inc. and U S
                        West Communications, Inc. (Minnesota), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        10.35          Resale Agreement dated as of April 30, 1997, between GTE Southwest Incorporated and
                        Valu-Line Long Distance (Texas), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        10.36          Resale Agreement dated as of September 12, 1997, between GTE Southwest Incorporated and
                        Valu-Line Long distance (Texas), incorporated herein by reference to the Company's
                        Registration Statement on Form S-1.
        10.37          Master Resale Agreement dated as of May 9, 1997, among Valu-Line Long Distance and United
                        Telephone Company of Texas, Inc. dba Sprint and Central Telephone Company of Texas dba
                        Spring and Southwest Incorporated and Valu-Line Long Distance (Texas), incorporated
                        herein by reference to the Company's Registration Statement on Form S-1.
        10.38          Form of Office Expense Agreement by and between Feist Publications, Inc., Feist Systems,
                        Inc. and Feist Long Distance Service. Inc., incorporated herein by reference to the
                        Company's Registration Statement on Form S-1.
        10.39          Form of Advertisement Agreement by and between Feist Publications, Inc. and Feist Long
                        distance Service, Inc. (see Annex IV to Exhibit 2.3), incorporated herein by reference to
                        the Company's Registration Statement on Form S-1.
        10.40          Form of InterNet Reseller Agreement by and between Feist Systems, Inc. and Feist Long
                        Distance Service, Inc., incorporated herein by reference to the Company's Registration
                        Statement on Form S-1.
        10.41          Form of Standstill Agreement dated as of February 18, 1998 between ACG and Rod K.
                        Cutsinger, incorporated herein by reference to the Company's Registration Statement on
                        Form S-1.
        10.42          Form of Non-Competition Agreement dated as of February 18, 1998 between ACG and Rod K.
                        Cutsinger, incorporated herein by reference to the Company's Registration Statement on
                        Form S-1.
        10.43          Asset Purchase Agreement made and entered into as of September 3, 1997 by and between
                        RAFT, L.L.C., PAM Oil, Inc., Scott D. Scofield, William Pederson and FirsTel, Inc.,
                        incorporated herein by reference to the Company's Registration Statement on Form S-1.
        10.44          Amendment to the Asset Purchase Agreement filed as Exhibit 10.43, incorporated herein by
                        reference to the Company's Registration Statement on Form S-1.
        10.45          Form of Stockholders' Agreement among KIN Network, Inc. and its Stockholders, incorporated
                        herein by reference to the Company's Registration Statement on Form S-1.
</TABLE>
 
                                       45
<PAGE>
<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                                 DESCRIPTIONS
---------------------  ------------------------------------------------------------------------------------------
<C>                    <S>
        10.46          Letter Agreement dated January 15, 1998 among Advanced Communications Group, Inc.,
                        Northwestern Public Service Company and Northwestern Growth Corporation, incorporated
                        herein by reference to the Company's Registration Statement on Form S-1.
        10.47          Form of Series M Warrant issued to William McCaughey, incorporated herein by reference to
                        the Company's Registration Statement on Form S-1.
        10.48          Form of Stock Option and Put Agreement issued to Mark Beall, incorporated herein by
                        reference to the Company's Registration Statement on Form S-1.
          11           Computation of Net Earnings Per Share, filed herewith.
          21           List of subsidiaries of the Company, filed herewith.
          23           Independent Auditors' Consent.
          27           Financial Data Schedule filed with the Securities and Exchange Commission in EDGAR version
                        only.
</TABLE>
 
------------------------
 
    * Compensatory plan or management arrangement.
 
                                       46
<PAGE>
              ADVANCED COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIOD ENDED DECEMBER 31,
                                      1996
 
<TABLE>
<CAPTION>
                                                         ADDITIONS    ACQUISI-
                                           BALANCE AT   CHARGED TO   TIONS FROM   DEDUCTIONS   BALANCE AT
                                            BEGINNING    COSTS AND    ACQUIRED       FROM        END OF
(In thousands)                              OF PERIOD    EXPENSES     COMPANIES    RESERVES      PERIOD
                                           -----------  -----------  -----------  -----------  -----------
 
<S>                                        <C>          <C>          <C>          <C>          <C>
Allowance for doubtful accounts and
 anticipated returns:
 
  Year ended December 31, 1998...........   $      --    $   3,156    $   9,551    $   2,807(A)  $   9,900
                                           -----------  -----------  -----------  -----------  -----------
                                           -----------  -----------  -----------  -----------  -----------
 
  Year ended December 31, 1997...........   $      --    $      --    $      --    $      --(A)  $      --
                                           -----------  -----------  -----------  -----------  -----------
                                           -----------  -----------  -----------  -----------  -----------
 
  Period ended December 31, 1996.........   $      --    $      --    $      --    $      --(A)  $      --
                                           -----------  -----------  -----------  -----------  -----------
                                           -----------  -----------  -----------  -----------  -----------
</TABLE>
 
------------------------
 
    (A) Accounts charged off less recoveries and returns.
 
                                       47