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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                   FORM 10-KSB

                                   ----------

     [X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                  For the fiscal year ended December 31, 1996.

                                       or

     [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

       For the transition period from _______________ to _______________.

                         Commission file number 0-25982

                         METRO DISPLAY ADVERTISING, INC.
                 (Name of small business issuer in its charter)

           California                                    33-0093323
    (State of incorporation)                (I.R.S. Employer Identification No.)

            15265 Alton Parkway, Suite 100, Irvine, California 92618
               (Address of principal executive offices)     (zip code)

                    Issuer's telephone number: (714) 727-3333

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

Securities to be registered pursuant to Section 12(g) of the Act:  Common Stock

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to filing requirements for the past 90 days.
YES __X__      NO _____

     Check mark indicates that disclosure of delinquent  filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

The issuer's revenues for its most recent fiscal year were $7,658,806.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant as of February 28, 1997 was approximately  $8,799,162.  No public
trading market exists for the issuer's voting stock,  and no bid or asked prices
are quoted.  The  foregoing  estimated  value  represents  the book value of the
issuer's  voting  stock,  based on the  registrant's  December  31, 1996 audited
financial statements, held by non-affiliates as of April 12, 1997.

     There were 963,030 shares outstanding of registrant's common stock as of
February 28, 1997.

     The following  documents are  incorporated  by reference  into this report:
None

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<PAGE>

                                     PART I

Item 1.  Description of Business.

General

     Metro Display Advertising,  Inc., a California corporation (the "Company"),
is primarily in the business of renting  advertising  space on panels located in
bus stop shelters.  Each bus stop shelter ("shelter")  consists of a covered bus
stop bench and two  advertising  panels  protected by acrylic.  The shelters are
owned,  installed and  maintained  by the Company and are  currently  located in
approximately 60 municipalities throughout Southern California.

     The  Company  also rents  advertising  space in  shelters  located in Clark
County,  Nevada,  including the City of Las Vegas,  through  Bustop  Shelters of
Nevada, Inc., a Nevada corporation ("BSON"),  its wholly-owned  subsidiary.  See
"Item 1. Description of Business - Bustop Shelters of Nevada, Inc."

     As of  February  28,  1997,  2,126  of  the  shelters  were  installed  and
maintained  by the Company and 584 shelters  were  installed  and  maintained in
Nevada  by BSON.  Advertising  sales for the  Company's  shelters  are  effected
primarily by Van Wagner  Communications,  Inc. ("Van  Wagner"),  an unaffiliated
advertising  company,  under  an  advertising  and  marketing  agreement.  Local
advertising sales are effected through the Company's in-house advertising staff.
During the  fiscal  year  ended  December  31,  1996,  approximately  20% of all
advertising  revenues  were derived from sales  effected  through the  Company's
in-house staff,  and the balance was derived from sales made by Van Wagner.  The
Company has also entered into a joint venture  agreement with Van Wagner for the
purposes of seeking additional  franchises and/or licenses for bus stop shelters
throughout  California  and the  United  States.  See  "Item 1.  Description  of
Business - Marketing."

Background of the Company/Prior Bankruptcy

     The  Company  was  incorporated  in  California  in 1984  and  subsequently
reincorporated  in 1987.  Until early in 1992,  the Company was  controlled  and
managed by persons no longer  associated with the Company ("Prior  Management").
Under  Prior  Management,   the  Company  was  in  the  business  of  designing,
manufacturing,   selling,   installing  and  maintaining  shelters  and  renting
advertising  space in such shelters.  In particular,  however,  until the end of
December  1991,  the Company's  primary  business and source of revenues was the
"sale" of  shelters  to  unaffiliated  investors.  The  shelters  were "sold" to
investors  by the  Company,  generally  for $10,000 per  shelter,  and then were
"leased"  back by the  Company.  The  Company,  in turn,  agreed to install  and
maintain  the  shelters  on  behalf  of  the  owner/investors  and  to  pay  the
owner/investors a fixed monthly rental. Prior Management, however, was unable to
derive sufficient  advertising  revenues from the shelters it leased to make the
promised monthly rent payments to the  owner/investors  of the shelters.  (As of
December  1991,  the Company  generated  approximately  $200,000  per month from
shelter  advertising  revenues,  while its  monthly  obligation  to its  shelter
owner/investors  was  approximately   $1,300,000.)   Accordingly,   the  Company
attempted to cover the cash  shortfall  through  increased  sales of  additional
shelters (many of which were never installed).

     In  1991,  the  Securities  and  Exchange   Commission  (the  "Commission")
commenced an  investigation  of Prior Management and the Company for the alleged
sale of  unregistered  securities  and  other  possible  causes of  action.  The
Commission  alleged that the sale and leaseback of the shelters  constituted  an
unlawful  sale of  securities.  In January  1992,  the  Commission  obtained  an
injunction  in the United  States  District  Court for the  Central  District of
California against Prior Management to prevent the sale of additional  shelters.
In  conjunction  with the  Commission's  investigation,  the  Federal  Bureau of
Investigation ("FBI") commenced an investigation of Prior Management.


<PAGE>

     On January  22,  1992,  the  Company  and  Continental  Shelters,  Inc.,  a
California  corporation then owned and controlled by Prior  Management,  filed a
voluntary  petition  before the United States  Bankruptcy  Court for the Central
District of California (the  "Bankruptcy  Court") for relief under Chapter 11 of
Title 11 of the United States Code (the "Bankruptcy Code"). On January 29, 1992,
Prior Management  resigned as officers of the Company.  On February 1, 1992, the
Company  entered  into a  Consent  to Entry  of  Permanent  Injunction  with the
Commission  which, in general,  permanently  restrained and enjoined the Company
and its officers  from  engaging in  activities in violation of Section 5 of the
Securities Act of 1933, as amended.

     On November 24, 1993, the Bankruptcy  Court entered an order confirming the
Company's  Sixth  Amended  Joint Plan of  Reorganization  (the  "Plan"),  and on
January 7, 1994, the Company emerged from bankruptcy. The following is a summary
of some of the major aspects of the Plan:

     (a)  All of the  capital  stock  of the  Company  outstanding  prior to the
          filing of the bankruptcy  petition  (i.e.,  the capital stock owned by
          Prior Management and a small group of other investors) was cancelled.

     (b)  All of the "leases"  with the  owner/investors  of the  shelters  were
          cancelled,  the  Company  acquired  ownership  of all of the  "leased"
          shelters, and the claims of the shelter owner/investors (approximately
          $105,000,000  in the aggregate)  were exchanged for a total of 820,578
          shares of the Company's common stock (the "Common Stock").

     (c)  Prior to the  bankruptcy  petition,  BSON  operated as an  independent
          company  that  leased bus stop  shelters  from the  Company.  The Plan
          stated that BSON owed the Company in excess of  $2,500,000,  that BSON
          had minimal asset value,  and that BSON's  primary value would be as a
          going concern owned by the Company.  Accordingly,  the Plan  permitted
          the Company to acquire 88% of the  outstanding  capital  stock of BSON
          from Prior  Management in exchange for token  consideration  ($22.00).
          The Company also  obtained the right to acquire the  remaining  12% of
          BSON's  outstanding  capital stock from the other BSON stockholders in
          exchange for 46,000 shares of Common Stock.  The Company  acquired the
          remaining  12% interest in BSON in November 1995 in exchange for 5,004
          shares of Common Stock.  See "Item 1. Description of Business - Bustop
          Shelters of Nevada, Inc."

     In addition to the  foregoing,  under the Plan (i) the Company's  President
and most of the current  members of the Board of Directors  were  appointed (see
"Item 9. Directors,  Executive Officers,  Promoters and Control Persons"),  (ii)
the  Company's  current  credit  facility with Dr. Allan Ross, a Director of the
Company,  was authorized and implemented (see "Item 6.  Management's  Discussion
and Analysis or Plan of Operation"),  and (iii) a total of 242 additional shares
of Common Stock were issued to the  Company's  other  creditors.  All  currently
issued and outstanding  shares of Common Stock were issued pursuant to the Plan.
In accordance  with the Plan, the Company also acquired the remaining  assets of
Continental Shelters,  Inc. (consisting primarily of shelters and shelter parts)
in exchange for token consideration  ($85.00).  Continental  Shelters,  Inc. had
been in the business of manufacturing  and installing  shelters  exclusively for
the  Company  until  the  Company  ceased  ordering  shelters  from  Continental
Shelters,  Inc. in early 1992. Continental Shelters, Inc. no longer conducts any
business and has been dissolved as of June 13, 1996.


                                       2.
<PAGE>

Current Business

     Market. Historically,  outdoor advertising has consisted primarily of large
painted  billboards  and a  vast  array  of  smaller  billboards  and  placards.
Recently,  legislation  has been enacted  throughout the United States to reduce
the number and size of outdoor billboards.  Many  municipalities  throughout the
United States,  including in particular Fountain Valley,  Tustin, Mission Viejo,
Lake Forest, Newport Beach and other municipalities within the Company's current
target  market  area,  have  prohibited  or severely  limited the use of outdoor
billboards.  As a result of the restrictive  legislation,  advertisers have been
looking  for  outdoor  advertising  alternatives  to  the  billboard.  One  such
alternative is advertising on bus stop shelters.

     While the use of billboards and other forms of outdoor advertising is being
prohibited  or  restricted  in many  localities,  many  municipalities  actively
encourage  private  shelter  owners and  operators to install  shelters in their
localities.  As described  below,  because the shelter  owners  build,  install,
maintain and insure bus stop shelters at their own cost, the municipalities that
allow such bus stop  shelters to be installed by private  companies are relieved
of the costs  related  to  providing  convenient  and  well-maintained  bus stop
shelters for their  residents.  In addition to the money saved by obtaining  bus
stop  shelters  from  private  companies at no cost to the  municipalities,  the
municipalities  also profit by receiving a fee from the shelter  owners and/or a
percentage of the advertising revenues generated by the shelters. As a result of
the restrictive  legislation  affecting traditional forms of outdoor advertising
and the benefits  derived by  municipalities  from the  installation of bus stop
shelters by private companies, advertising on bus stop shelters has been rapidly
increasing in recent years.

     New  Business  Focus.  During the  Company's  bankruptcy  proceedings,  the
Bankruptcy  Court  appointed  Mr.  Scott  Kraft,  the current  President  of the
Company,  to manage the Company.  While Prior Management's focus was on the sale
of shelters to owner/investors, the Company's new management recognized that, if
properly operated, the sale of advertising space on bus stop shelter advertising
panels could be a viable and profitable  business.  Accordingly,  new management
changed  the  Company's  focus  from  the  sale of  shelters  to (i)  increasing
advertising  revenues (the Company's  advertising  panel occupancy rate was only
10% in January 1992 and its rental  rates were 50% of the  national  rental rate
average),  (ii) decreasing the Company's  operating  costs, and (iii) converting
the Company's  un-installed  shelters into revenue generating assets (in January
1992,  the Company had  approximately  1,000  shelters  in  inventory).  The new
business focus  instituted by the court appointed  managers in 1992 continues to
be the business focus of the Company.

     Current Operations.  The Company's bus stop shelters are located at the bus
stops  established  by  cities,  counties,  and other  municipalities  along the
regular  bus routes in such  municipalities  and a small  number are  located at
shopping malls and other private  locations.  Each shelter  contains two or four
advertising  panels. Some of the shelters and advertising panels are illuminated
at night.  The Company leases the space in each of the panels to advertisers for
an amount of the rent that varies  depending on the location of the panel and on
the rating of the shelter.  Each shelter is rated based on the  municipality  in
which  the  shelter  is  located,   the  location  of  the  shelter  within  the
municipality,  and on its visibility  and estimated  number of patrons likely to
pass the shelter.  The higher rated shelters  command  higher rental prices.  In
addition,  advertising  panels that are illuminated at night are more attractive
to advertisers and typically  receive higher rentals.  The Company has, to date,
installed  2,126 shelters in 60  municipalities  in Southern  California and has
approximately 650 shelters in its inventory.

     Advertising  space is rented to national  advertisers  whose  products  are
nationally known (including such household names as Coca Cola, IBM,  McDonald's,
AT&T, etc.) and to local advertisers. Local


                                       3.
<PAGE>

advertisers  typically rent panels at selected locations (i.e., near their place
of business),  whereas national  advertisers  typically rent  advertising  space
based on rating points.  Under the rating points system,  a national  advertiser
will specify the minimum number of rating points its  advertisements  must meet,
without  designating  the  location  of  the  advertisements.  Accordingly,  for
national  advertisers,  provided that the national  advertiser's  overall rating
point requirements are satisfied,  the Company selects the shelters in which the
posters  will be  placed.  National  advertisers  have the  right  to audit  the
placement of their  advertisements to confirm compliance with their rating point
requirement.  The Company keeps track of the location of each  advertisement and
the rating of each shelter location through its computer system.  When necessary
or  desirable,  the  Company  can,  with  their  permission,   move  a  national
advertiser's  poster  from one  shelter to another  shelter,  provided  that the
rating points requirements continue to be met.

     The  advertising  posters are provided to the Company by the  advertiser at
the advertiser's  cost. Other than placing the  advertisements  in the Company's
shelters,  the Company is not  otherwise  involved in the form or content of the
advertisements.  Occasionally,  the Company will, however, assist smaller, local
advertisers with the development and preparation of advertising posters.

     The  Company  is  exploring   additional  means  to  increase  per  shelter
advertising  revenues.  One method for  increasing  per  shelter  revenues is to
increase the shelter's rating points,  which can be accomplished by illuminating
the  advertising  panels.  Accordingly,  the Company is installing  more lighted
panels in its  shelters.  Another  potential  method of  increasing  advertising
revenues is to rent advertising  space on shelters in increments of days or even
hours and to charge a different price for the panel depending on the day or hour
of the day. For example, an advertising panel at a busy commercial  intersection
could be rented for a certain price on weekends and holidays, for a higher price
during business days, and for an even higher price during the rush hours of such
business  days.  In  addition,  the  advertisement  could be changed to suit the
advertiser or the time period. For example, during business days the panel could
advertise a business  product,  while on weekends or  evenings,  the panel could
advertise recreational or leisure-time opportunities or products.

     Because  of the time  required  to  change  an  advertising  panel  and the
employee  expense related to changing  panels,  it currently is not practical or
cost effective to change panels daily or even hourly.  In order to overcome this
limitation, the Company has developed and built an automatic,  remote controlled
panel changer (the "Remote Panel Changer").  The Remote Panel Changer contains a
number of advertising  posters that can be scrolled  through the display area of
the  panel by means of a small  motor  located  in the  panel.  The motor can be
actuated to quickly scroll to any of the  advertising  posters  contained on the
scroll at any time. Furthermore, the Remote Panel Changer can be controlled from
the  Company's  offices via a telephone  line  hookup.  The Company is currently
field testing seven of the Remote Panel Changers.

     Marketing.  In January 1993, the Company  entered into an  advertising  and
marketing  agreement,  which  was  amended  as of June  1994  (as  amended,  the
"Marketing Agreement"), with Van Wagner Communications, Inc. (formerly VW Martin
Company,  "Van  Wagner").  Pursuant  to the  Marketing  Agreement,  the  Company
appointed Van Wagner as its  exclusive  representative  for leasing  advertising
space to national and regional advertisers. The Marketing Agreement provides the
Company with both a regional and national sales force. The Marketing Agreement's
term  expires in March 1999,  subject to an  automatic  five-year  renewal.  The
Company has the right to not renew the  Marketing  Agreement  if Van Wagner does
not  generate  net  sales  (defined  as  gross  sales  less  advertising  agency
commissions) of at least  $28,000,000  during the initial  five-year term of the
Marketing Agreement or does not generate at least $5,000,000 of net sales during
the  period  from  April  1998  to  March  1999.  If the  Company  sells  all or
substantially all of its assets,  then the Company (or the entity that purchases
the Company's assets) can terminate the Marketing Agreement.  Van Wagner has the
right to terminate the  Marketing  Agreement on


                                       4.
<PAGE>

March 31 of any year if it gives the  Company  at least 120 days  prior  written
notice.  If the Company defaults on its obligations under either the Plan and/or
the terms of its loan agreement  with Dr. Allan Ross (See "Item 2.  Management's
Discussion and Analysis or Plan of Operation,"  below), then Van Wagner also has
the right to terminate the Marketing Agreement.

     Under the Marketing  Agreement,  the Company is obligated to pay Van Wagner
commissions  that are based on net sales that it effects during a calendar year.
Until December 31, 1994,  the  commission  rate was 15% of net sales effected by
Van Wagner up to $1,500,000, 20% of net sales between $1,500,000 and $3,000,000,
25% of net sales  between  $3,000,000  and  $5,000,000,  and 20% of net sales in
excess of $5,000,000.  Effective  January 1, 1995, the rate of commissions under
the Van Wagner  agreement  was  changed to a flat rate of 20% of net sales.  The
Company  has also  granted Van Wagner a right of first  refusal to purchase  the
Company's assets if the Company proposes to sell all or part of its assets.

     As of November  18, 1994,  the Company and Van Wagner  entered into a joint
venture  agreement  (the  "Joint  Venture")  for  the  purposes  of (i)  seeking
additional  franchises  and/or  licenses  for bus shelters  from  municipalities
throughout  California and the United States (both through  direct  negotiations
and  by  purchasing  franchises  and/or  licenses  from  competitors)  and  (ii)
managing,  developing  and  operating  all such bus stop  shelters  and  selling
advertising space in connection  therewith.  The Joint Venture conducts business
under the name  "VW-MDA  Bus  Shelter  Co." Van Wagner  made an initial  capital
contribution  of  $30,000  to the  Joint  Venture  and  the  Company  agreed  to
contribute all fabricated  shelters and shelter parts currently in the Company's
inventory  as may,  from time to time,  be  requested  by the Joint  Venture for
installation  and  ownership by the Joint  Venture.  As of March 31,  1996,  the
Company had in its inventory  approximately 700 fabricated bus stop shelters and
parts for approximately an additional 600 bus stop shelters. The Company will be
credited with a $2,800 capital  contribution for each full bus stop shelter that
it  contributes  to the Joint  Venture.  The  Company and Van Wagner each own an
equal  one-half  interest in all of the assets and  property  owned by the Joint
Venture.  All net cash  proceeds  generated  from the  operations  of the  Joint
Venture,  in excess of certain working  capital  reserves and after repayment of
any loans made to the Joint  Venture,  are to be  distributed  (i) first to each
venturer pro rata in accordance with each venturer's capital  contribution until
each  venturer's  capital  contribution  has been repaid in full,  and then (ii)
equally to each of the venturers.  Notwithstanding  the foregoing,  all non-cash
capital contributions made to the Joint Venture shall be returnable ratably over
a five-year period,  provided,  however, that if the Joint Venture does not have
sufficient excess cash flow to make all such payments in any year, the return of
the unpaid capital  contribution shall be cumulated and paid in subsequent years
when  excess  cash  flow is  available.  The  Company  will be  responsible  for
maintaining all of the Joint Venture's bus stop shelters, for which services the
Company  will be paid an amount equal to its actual,  out-of-pocket  maintenance
costs.  The  Company  may  decline to provide  such  maintenance  costs  without
violating the terms of the joint venture agreement.

     The Joint  Venture's  joint venture  agreement  provides for a fifteen-year
term, subject to earlier termination by (i) the mutual agreement of the parties,
(ii) a default  in the  performance  of  obligations  under  the  joint  venture
agreement  which is not cured within the time  permitted to cure such default or
(iii) the insolvency of either of the parties.  The Joint Venture is entitled to
enter into additional franchise agreements with any municipality, city, district
or other entity  throughout  the United States other than in the State of Nevada
or in those  municipalities,  towns,  districts or entities in which the Company
had, as of November 18, 1994,  franchise  agreements for bus shelter operations.
In January,  1995,  the Joint  Venture  obtained a contract  with the City of La
Habra in which the Joint Venture currently has 19 bus stop shelters.

     The Company also markets  shelter  advertising  space to local  advertisers
through its  in-house  sales  staff.  As of February  28,  1997,  the  Company's
in-house sales staff consisted of four persons.


                                       5.
<PAGE>

     Contracts with  Municipalities.  The right to install and the obligation to
maintain  shelters  in any  municipality  is  normally  contained  in a contract
("Municipal  Contracts")  entered into between the  municipality and the shelter
advertising company or a permit ("Municipal  Permits") granted by a municipality
to a shelter  advertising  company.  Under a  Municipal  Contract,  the  shelter
operator's rights and obligations are defined by the written  contract,  whereas
the municipality's ordinances define the operator's rights and obligations under
a Municipal Permit.

     Municipalities   typically  grant  Municipal  Contracts  on  the  basis  of
responses  to  requests  for  proposals  ("RFPs")  that are  distributed  by the
municipalities to competing  shelter owners.  The RFPs contain the minimum terms
pursuant to which a municipality is willing to grant a Municipal Contract.  Each
competitor  is required to submit its bid for the right to install and  maintain
shelters in the municipality. Municipal Contracts then are awarded to the bidder
that submits the bid most suitable for the  municipality.  In considering  RFPs,
municipalities  evaluate,  among other things, the fee that the shelter operator
is willing to pay the municipality,  the shelter  operator's ability to maintain
the  shelter,  the design and  aesthetic  appeal of the  shelter  proposed to be
installed, and the shelter operator's ability to rent the advertising panels.

     The term of Municipal  Contracts  ordinarily is for a period of five years,
although the term can range from one to ten years.  The contracts either grant a
shelter  operator the exclusive  right to install and maintain bus stop shelters
throughout the  municipality or grant the operator  rights to certain  specified
locations.  The  Municipal  Contracts  require  the  shelter  operator,  at  the
operator's cost and expense,  to maintain and repair the shelters,  to regularly
clean the shelters, to provide and maintain liability insurance,  to include the
municipalities  as a named insured on such insurance  policy,  and various other
terms  ordinarily  contained in government  contracts,  such as compliance  with
equal  opportunity laws and worker safety laws. All Municipal  Contracts require
the  shelter  operator  to pay  the  municipality  a fee for  the  privilege  of
maintaining  shelters in the  municipality.  These fees are either fixed minimum
monthly  payments,  variable  payments based on the gross  advertising  revenues
received by the shelter operator from the shelters located in the  municipality,
or a  combination  of a fixed  minimum  payment  and a  percentage  payment  for
advertising revenues.

     The Municipal  Contracts  usually require the bus stop shelter  operator to
post  a  performance  bond  or  to  pledge  a  certificate  of  deposit  to  the
municipality in an amount  sufficient to cover the expected cost of removing any
installed  shelters should the shelter owners fail to do so upon the termination
of the Municipal Contracts. The bonds or certificates of deposit are required to
be returned to the  shelter  operator  when the  shelters  are removed  from the
municipalities. As of February 28, 1997, the Company had made cash bond deposits
or had pledged  certificates of deposit to municipalities in an aggregate amount
of $637,200.

     The  Company  believes  that it has the  ability to compete  for  Municipal
Contracts  based on its low  overhead and cost  structure,  on the design of its
shelters,  on its prior  record of shelter  maintenance,  and on its  ability to
attract  national  advertisers  through  Van  Wagner.  Accordingly,  the Company
believes that it will be able to remain competitive in responding to future RFPs
and  that it  will be able to  increase  its  base of  installed  shelters.  The
Company's reputation has, however,  been damaged by the on-going litigation with
certain  municipalities,  principally the on-going Victorville  litigation,  and
competitors of the Company using this factors  against the Company in responding
to RFPs. The Company  believes that it may, in fact,  have recently lost certain
Municipal  Contracts due to this  situation.  No assurance can be given that the
Company  will be able to  successfully  compete for  Municipal  Contracts in the
future due to this currently on-going litigation with municipalities.

     Municipal Permits are typically granted to bus stop shelter operators based
on a perceived need by the municipality  for a shelter at a particular  location
and other  factors,  such as the  ability of the  shelter


                                       6.
<PAGE>

operator to build and maintain the shelter.  Municipal  Permits  typically  last
only six months,  but are automatically  renewed unless notice is given prior to
such renewal.  Each  Municipal  Permit grants the shelter  operator the right to
install  and   maintain  one  shelter  at  a  specified   location   within  the
municipality.  As of February 28, 1997,  the Company held  Municipal  Permits in
approximately 12  municipalities  in Southern  California.  The Company has held
permits  in some  municipalities  for more than ten years and  believes  that it
generally will be able to continue to renew the Municipal Permits because of the
continuing need for shelters in these municipalities.

     The  following  table  sets  forth the number of  Municipal  Contracts  and
Municipal Permits in effect as of December 31 of each of the following years:

                           1991     1992    1993     1994     1995     1996
                           ----     ----    ----     ----     ----     ----
Municipal Contracts         47       47      48       49        51       53

Municipal Permits          266      265     270      171       162      148

     The  reduction on Municipal  Permits from December 31, 1993 to December 31,
1994 was  primarily due to the loss of permits in one  municipality,  Santa Ana.
Only one  Municipal  Contract  (with the County of Los Angeles) and no Municipal
Permit  accounted for more than 10% of the Company's  gross revenues  during the
fiscal year ended December 31, 1996.

     Competition.  The Company faces intense  competition for both (i) Municipal
Contracts  and  Municipal  Permits,  and (ii)  advertising  to be  placed in the
installed shelters.

     The Company's  principal  competitors for Municipal Contracts and Municipal
Permits in Southern California are Outdoor Systems  Advertising,  Inc. and Clear
Channel  Communications,  Inc.. Both  corporations  have  significantly  greater
financial and marketing  resources and name  recognition  than the Company.  The
Company also competes for Municipal  Contracts  with many other smaller  shelter
owner/operators.

     The  advertising  industry  is  highly  competitive,  and  competition  for
advertisers  is  intense.  The  Company  competes  not only with  other  shelter
owner/operators  for  advertising  revenues,  but also with all  other  forms of
advertising,  including outdoor billboards,  television, radio, and direct mail.
The  Company's  ability to  compete  effectively  for  national  advertisers  is
dependent on the  abilities of Van Wagner,  the Company's  national  advertising
agreement.

Employees

     As of February 28, 1997,  the Company  employed 31 full-time  persons.  The
Company believes that its employee relations are good.


                                       7.
<PAGE>

Bustop Shelters of Nevada, Inc.

     The Company currently conducts business in Clark County, Nevada,  including
the City of Las Vegas,  through BSON, its wholly-owned  subsidiary.  Until March
1992, all of the Company's capital stock was owned by Prior Management (88%) and
by certain others, including Dr. Ross, a director of the Company (12%). In March
1992,  in  connection  with the Company's  bankruptcy  proceedings,  the Company
acquired the 88% of the  outstanding  shares of capital stock of BSON then owned
by  Prior  Management.   Also  in  connection  with  the  Company's   bankruptcy
proceedings,  the  Company  obtained  the right,  exercisable  at the  Company's
option,  to acquire the  remaining  outstanding  shares of BSON in exchange  for
46,000 shares of Common Stock.  Subsequently,  in November 1995, the Company was
able to  renegotiate  the terms of its  acquisition of the remaining 12% of BSON
and completed such acquisition for 5,004 shares of Common Stock.

     Pursuant to three  Municipal  Contracts,  BSON has the right to install and
maintain bus stop shelters in the State of Nevada in (i) Clark County,  (ii) the
City of Las Vegas,  including  on the "Las Vegas  Strip,"  and (iii) the City of
North Las Vegas.  As of February  28,  1997,  BSON had 360,  156 and 38 shelters
installed in Clark County, Las Vegas and North Las Vegas,  respectively.  Except
for one other shelter  operator in Clark County,  the Company believes that BSON
currently is the exclusive  provider of shelters in these three  municipalities.
The Clark County agreement  expires in February,  2001 and is renewable by BSON,
with the consent of Clark County,  for two  additional  five-year  periods.  The
Municipal  Contract  with Las Vegas expired in July,  1996,  and the Company has
successfully  negotiated  a new contract to the City of Las Vegas to extend such
contract for an additional 15 years. See "Item 3. Legal Proceedings," below. The
Municipal Contract with North Las Vegas expires in February, 2000.

     Until the Company  acquired 100% of the capital stock of BSON,  BSON rented
all of its shelters from the Company  pursuant to an unwritten  lease  agreement
that had been in effect since the formation of BSON in 1987. The lease agreement
was terminated when the Company acquired the remaining 12% of BSON's outstanding
capital stock in November 1995.

     BSON's  headquarters  are located in Las Vegas,  Nevada.  BSON is currently
managed by a general  manager  who  reports to the  Company's  President.  As of
February 28, 1997, BSON had 19 full time employees and 1 part time employee.


Item 2.  Description of Property.

     The  Company's  principal  executive  offices  are  located at 15265  Alton
Parkway,  Suite 100,  Irvine,  California,  where it leases 4,169 square feet of
office space. The lease expires June 30, 1998.  However,  if the covenants under
the lease are met in a timely fashion,  the Company has the option to extend the
lease  term  until  June 30,  2003.  The  Company  currently  pays  base rent of
approximately $3,174 per month plus its share of certain expenses related to the
operation of the business center in which the office is located.

     The Company has also entered into a month-to-month  real property lease for
1,903 square feet of storage space at 15273 Alton Parkway,  Irvine,  California,
which requires payments of approximately $950 per month.

     The  Company  also  leases  13,500  square  feet of storage  space at 16221
Construction  Circle East,  Irvine,  California.  Such lease expires October 31,
1998 and obligates the Company to make payments of


                                       8.
<PAGE>

$1,780 per month.

     BSON has entered into a real property lease for approximately  3,820 square
feet of office warehouse in Las Vegas,  Nevada. Such lease commenced on March 1,
1995 and ends on February 29, 2000, and BSON has an option to extend the term of
the lease for five years. BSON currently pays base rent of $1,910 per month plus
real  property  taxes,  utilities  insurance  expenses,  a share of common  area
expenses and maintenance, repairs and alternations. Such lease also provides for
cost of living  increases of up to 3% a year  beginning in the third year of the
lease.


Item 3.  Legal Proceedings.

     On November 15, 1995, the Company filed a complaint in the Eighth  Judicial
District Court of Nevada against the City of Las Vegas.  The Company had entered
into a contract  with the City of Las Vegas in July 1985  pursuant  to which the
Company was obligated to provide bus stop shelters.  As such contract approached
its  expiration  date of July  1995,  the  Company  and  the  City of Las  Vegas
disagreed as to who would own the shelters  upon  expiration  of such  contract.
They  agreed to  extend  the  contract  while the  Company  filed an action  for
declaratory  relief to  determine  their  respective  rights with respect to the
shelters. In September, 1996, the City and the Company agreed to a settlement of
their dispute, providing for the Company to retain ownership of the shelters and
the award of a new long-term contract.

     In December 1995, the Company filed a complaint  against the City of Laguna
Hills.  The complaint  alleges that (i) in January  1995,  the City required the
Company to execute a Memorandum of  Understanding  that would  prohibit  certain
types of  advertising  and (ii) in  September  1995,  the City of  Laguna  Hills
decided to  eliminate  all bus stop  shelters  and require  their  removal.  The
Company  alleges  that such  actions  violated  its First  Amendment  rights and
deprived it of its civil rights.  The Company seeks as relief from the court the
following:  (i) a declaration  that certain  actions of the City of Laguna Hills
are unconstitutional, (ii) compensation for the elimination of the bus shelters,
(iii) an injunction  against the enforcement of its decision to do away with the
bus shelters and against the Memorandum of Understanding limiting the content of
the ad copy and (iv) $250,000 in general damages, plus attorneys' fees and costs
accrued.

     On November 15,  1995,  the Company  filed a complaint  against the City of
Victorville  as well as two of its City  Council  members  and one member of the
staff.  The Company  alleges  that the City of  Victorville  objected to certain
advertising  by  the  UFCW  Union  relating  to a  labor  dispute  with  a  food
supermarket  chain located within the City of Victorville.  When the Company did
not remove  this  advertising  at the  request of the City of  Victorville,  the
Company  claims  that  the  City of  Victorville  retaliated  by  canceling  the
Company's contract to operate the shelters. The Company has requested damages in
excess of  $1,000,000  as well as punitive  damages,  attorneys'  fees and court
costs.

     The Company  believes that the outcome of its  litigation  with the City of
Victorville  may be  vital  to the  maintenance  of its  business.  The  Company
believes that if municipalities are allowed to regulate the political content of
the Company's  advertising,  then its business will be adversely  affected.  The
Company makes its advertising  signs available to national and local advertisers
on a  non-discriminatory  basis in a fashion similar to newspaper,  magazine and
broadcast   advertising.   Although   the  Company  has  strived  to  work  with
municipalities  to avoid  advertising  that is offensive  in nature,  should the
content of its advertising,  especially advertising that is political in nature,
become regulated by the municipalities in which it places bus stop shelters, the
Company's ability to provide effective advertising may be compromised.

     The Company  believes that  advertising  companies  generally avoid placing
advertising  in a media


                                       9.
<PAGE>

that may become the target of negative  publicity.  As a result of the Company's
litigation with  Victorville,  advertisers  may choose to use other  advertising
media to avoid being entangled in or associated with a First Amendment conflict.

     Furthermore,  in  entering  bids  to try  to  obtain  the  right  to  place
additional  bus shelters,  the Company must now disclose that for the first time
it has had a contract  canceled by a  municipality  because  Victorville  is the
first  municipality  to ever have such a dispute  with the  Company.  Unless the
Company  is  successful  in  overcoming  the  negative  aspects  of  a  contract
cancellation,  the success of the  Company's  future bids for  contracts  may be
negatively impacted.

     On or about May 23, 1996, the Company filed a complaint against the City of
Lake Forest.  The complaint  alleges that the City,  first demanded that certain
advertising copy be removed by the multiple companies doing business in the City
and later decided to award an exclusive franchise to one of Metro's competitors.
The Company alleges that this action was taken in part to retaliate due to Metro
Display's  refusal  to remove  certain  advertising  copy  which the City  found
objectionable and to obtain better content control overall.  The complaint seeks
that Metro  Display be given the right to continue to do business in the City of
Lake Forest. Furthermore,  damages of at least $1,000,000 are sought, as well as
the recovery of attorney fees and court costs which have accrued.

     On June 27, 1996,  via an order issued by the United States  District Court
of Northern California approving a Settlement Plan between Busline Media and its
former shelter owners, Metro Display  Advertising,  Inc. acquired a 25% interest
in a newly formed  Corporation,  Bay Area Transit  Shelter,  with  operations in
Northern  California.  The 25% ownership was in exchange for debt obligations to
Metro  Display for cash and  services  rendered by Metro  Display to the Busline
Media Receivership as delineated in the Settlement Plan approved by the court on
June 20, 1996,

     Metro Display,  through an agreement with Bay Area Transit  Shelters,  will
operate and manage the affairs of the new corporation,  expanding its operations
into this newly acquired advertising market.


Item 4.  Submission of Matters to a Vote of Security Holders.

     No matters  were  submitted  during the fourth  quarter of the fiscal  year
covered by this report to a vote of the security holders.


                                      10.
<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

     There currently is no public market for the Company's securities,  although
the Company has approximately 1,195 holders of record of its Common Stock.

     The Company has never  declared  dividends on its Common Stock and does not
intend to do so in the foreseeable future.

     The Company will furnish,  without charge,  upon the written request of any
stockholder,  a copy of the  Company's  Annual  Report on Form  10-KSB,  for the
fiscal year ended  December 31, 1996,  including  the financial  statements  and
schedules  thereto.  Stockholders  wishing to obtain a copy  should  contact the
Company at (714) 727-3333.

     The  Company  has not,  to date,  paid any cash  dividends  upon its Common
Stock. The Company has no current plans to pay dividends on its Common Stock and
intends to retain  earnings,  if any, for working capital  purposes.  Any future
determination  as to the payment of  dividends  on the Common  Stock will depend
upon the results of operations, capital requirements, the financial condition of
the Company and other relevant factors.


Item 6.  Management's Discussion and Analysis or Plan of Operation.

     The following  discussion and analysis  should be read in conjunction  with
the  financial  statements  and notes thereto  appearing  elsewhere in this Form
10-KSB.

General

     From January 22, 1992 until January 7, 1994, the Company was in bankruptcy.
In  addition,  since 1992,  management  of the Company has been  implementing  a
revised business plan. See "Item 1 - Business - Background of the  Company/Prior
Bankruptcy."  The Company's  financial  statements  for each of the fiscal years
ended December 31, 1994 ("fiscal 1994") and December 31 1995 ("fiscal 1995") are
included in this Registration Statement.

     During fiscal 1993, the Company's principal focus was on merely maintaining
the Company's  existence,  on resolving the various  bankruptcy  claims,  and on
confirming the Company's plan of reorganization. During fiscal 1994, the Company
commenced its transition  from a company  operating under the supervision of the
Bankruptcy  Court to a company that had a revised  business  plan.  Accordingly,
during fiscal 1994,  the Company  reduced its work force,  revised its marketing
agreement  with Van Wagner,  entered into the Joint Venture  agreement  with Van
Wagner,  and turned its focus to renting and maintaining  the advertising  space
available  at the  Company's  shelters.  Other than  changing or  entering  into
agreements  with Van Wagner,  the Company  continued the  implementation  of its
business plan throughout fiscal 1996. The Company believes that the new business
plan will, in the long turn, increase the Company's revenues, reduce its overall
operating  costs, and increase the Company's  presence in additional  geographic
markets.  Accordingly,  the enclosed financial statements may not necessarily be
indicative  of the  Company's  expected  on-going  operating  results  under its
revised business plan.


                                      11.
<PAGE>

Results of Operations

     Revenues  during fiscal 1995 and fiscal 1996 were derived from  advertising
fees received by the Company from the rental of the  advertising  panels located
in the Company's  installed  shelters.  Revenues for fiscal 1996 exceeded fiscal
1995 revenues by $221,596,  or 3%, due to the implementation of management's new
business  plan,  which  plan was  adopted  in 1992  and has  been  incrementally
implemented  during  fiscal 1995 and fiscal  1996.  In  accordance  with the new
business  plan,  the  Company's  objectives  were to increase  (i) the number of
installed  shelters,  (ii) the occupancy  rate for  advertising in the panels of
each shelter,  and (iii) the average rental rate paid per advertising panel. The
increased  revenues  in  fiscal  1996  were the  result  of an  increase  in the
advertising  revenue during fiscal 1996 over fiscal 1995, and an increase in the
per panel rental rate during fiscal 1996 over fiscal 1995.

     The Company's total costs of sales in fiscal 1996 increased by $247,626, or
5%, from the total cost of sales in fiscal  1995.  Cost of sales as a percentage
of revenues  increased  slightly  from 64% in fiscal 1995 to 66% in fiscal 1996.
Advertising  commissions  increased  in fiscal  1996 as the result of  increased
advertising  sales.  Since the Company pays commissions based on a percentage of
advertising sales, such commissions will increase as advertising sales increase.

     Installation  and  maintenance  expenses  for  fiscal  1996  increased  35%
compared  to  the  prior   fiscal  year  due   primarily   to  new  bus  shelter
installations.  City advertising fees decreased by 14% in fiscal 1996 due to the
decrease  in  installed  shelters.  Since the  Company  pays fees to cities  and
municipalities   for  the  right  to   maintain   shelters  in  the  cities  and
municipalities, such fees will increase as advertising revenues increase.

     The Joint Venture obtained its first city contract in 1995.  However,  only
minimal revenues were received in fiscal 1995 as the shelter  installations were
not completed until late in the year. Revenues for fiscal 1996 were also minimal
due to the lack of  market  recognition  by  advertising  clients.  The  Company
believes  that the Joint Venture will in the future enter into  agreements  with
additional  municipalities to establish and operate  shelters,  which operations
will  generate  additional  revenues  for the  Company.  Because the Company has
approximately  650 fabricated  bus stop shelters in inventory,  the Company will
not have to expend any cash in connection with the  establishment of shelters by
the Joint  Venture.  The amount of revenues,  to be generated in the future from
the operation of the Joint Venture is, however,  dependent on the future success
of the Joint Venture in obtaining the right to establish shelters,  the terms of
the  agreements  to be  entered  into  with the  municipalities,  the  amount of
advertising  revenues  generated by the Joint Venture's  shelters,  and on other
factors.  Accordingly,  the amount of revenues to be derived by the Company from
its investment in the Joint Venture cannot be predicted.

     The Company's total operating expenses increased in fiscal 1996 by $94,756.
The primary  reasons for this increase was an increase in  professional  fees of
$96,342.

     In fiscal 1996, the Company incurred  $195,411 of interest expense compared
to $180,301 in fiscal  1995.  The  increase  in  interest  expense is  primarily
attributable to an increase in debt.

     For the fiscal year ended  December  31, 1996,  the Company  recorded a net
loss of  $91,399  compared  to a net income of $79,997  for  fiscal  1995.  This
represents an change of $171,396 in fiscal 1996 over fiscal 1995.


                                      12.
<PAGE>

Liquidity and Capital Resources

     As of December 31, 1996,  the Company's  current  liabilities  exceeded the
Company's current assets by $393,456. This represents an increase of $117,669 in
fiscal 1996 over fiscal 1995.  Approximately  $412,155 of the current  liability
consists of indebtedness owed to Dr. Ross under the Plan. Dr. Ross is a Director
and principal  shareholder  of the Company.  See "Item 9.  Directors,  Executive
Officers,  Promoters,  and Control Persons," and "Item 12. Certain Relationships
and Related  Transactions."  The Company and Dr. Ross  restructured this current
liability in order to allow the Company the  opportunity  to  implement  its new
business  plan.  Under this  restructured  agreement  with Dr. Ross, the Company
believes that it can fund the remaining  portion of its working  capital deficit
through  borrowings  under the unused portion of its Credit Facility and through
cash generated from operations.  For a description of the Credit  Facility,  see
"Item 12.  Certain  Relationships  and  Related  Transactions."  The  Company is
considering  obtaining private financing from unaffiliated  investors to pay off
the working  capital deficit and to provide the Company with working capital for
the possible future expansion of its business into other geographic  markets. No
assurances can,  however,  be given that the Company will be able to continue to
fund its current  working  capital  deficit.  Failure to satisfy its vendors and
other   creditors   could   result   in  the   loss  of   business   with   such
vendors/creditors,  could cause a change in the terms the Company  receives from
such  vendors/creditors,  and  could  result  in the  initiation  of  bankruptcy
proceedings against the Company.

     During  fiscal 1996,  the Company had a positive  cash flow from  operating
activities of $976,082.  This  represents an increase of $341,016 in fiscal 1996
over fiscal 1995.  This was  primarily due to the increase in cash received from
advertising  clients. In addition,  the Company used a total of $561,967 to fund
its purchases of new property and equipment and for other investing activities.

     At  December  31,  1996,  the  Company's  outstanding  accounts  receivable
decreased the amount of accounts receivable  outstanding as of December 31, 1995
by $388,055. The decrease is due to an increase in collections.

     Pursuant  to the Plan,  the  Company  borrowed  $800,000  under the  Credit
Facility in January 1994. Under the Credit Facility, the Company was required to
make  monthly  payments of  principal  and  interest and did not do so until the
Company  restructured  the Credit Facility  effective  September 1, 1995.  Since
September  1, 1995,  the Company has made all  required  payments of $20,000 per
month and is current under the terms of the Credit Facility. The current balance
as of December 31, 1996 was $317,935.

     The Company  currently  has  approximately  650 shelters in its  inventory.
Accordingly,   the  Company's  future  capital   expenditures   related  to  the
installation  of additional  shelters is expected to be  insignificant,  and its
marginal cost of maintaining  additional shelters is expected to be low. Because
the Company's marginal cost of installing and maintaining additional shelters is
low, the Company could increase its operating cash flow by installing additional
shelters  (directly or through the Van Wagner Joint  Venture) and by renting the
space on such additional  shelters.  Based on its currently  pending RFPs and on
increased shelter installation in existing municipalities,  the Company believes
that it will be able to  increase  its base of  installed  shelters  during  the
current fiscal year.

     In connection with obtaining  additional  Municipal Contracts and Municipal
Permits,  the Company is typically  required to post a performance bond with the
municipality to guarantee the removal of the shelter upon the termination of the
Municipal Contract. Under the Credit Facility, the Company is entitled to obtain
up to  $300,000  of  irrevocable  letters  of credit to satisfy  future  bonding
requirements.  The Company has funded all such bonding requirements to date with
operating  capital,  and as such  all  $300,000  is  available  for use for such
bonding.  As of the date hereof,  the Company believes that the letter of credit


                                      13.
<PAGE>

portion of the Credit  Facility is sufficient to satisfy the Company's needs for
at least 12 months.


Item 7.  Financial Statements.

     The following financial statements of Metro Display  Advertising,  Inc. are
included in this report:

     o    Consolidated Balance Sheets -- December 31, 1995 and 1996

     o    Consolidated Statements of Income -- Years ended December 31, 1995 and
          1996

     o    Statement of Stockholders' Equity -- Year ended December 31, 1996

     o    Consolidated Statements of Cash Flows -- Years ended December 31, 1995
          and 1996

     o    Notes to Financial Statements


Item 8. Changes In and Disagreement With Accountants on Accounting and Financial
        Disclosure.

     On December 10, 1996,  the Board of Directors of Metro Display  Advertising
adopted a resolution appointing Peck & Lopez,  Certified Public Accountants,  as
the  independent   auditors  for  calendar  years  1996  and  1997,  subject  to
ratification by the Shareholders at the next Annual Stockholder's Meeting.


                                      14.
<PAGE>

                           LETTERHEAD OF PECK & LOPEZ
================================================================================
                                                    Certified Public Accountants


                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders of
Metro Display Advertising, Inc.

We have audited the  accompanying  consolidated  balance sheets of Metro Display
Advertising,  Inc., (a California corporation) and subsidiary as of December 31,
1996 and the related consolidated  statements of income,  stockholders'  equity,
and cash flows for the year then ended.  The consolidated  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on the consolidated financial statements based on our audits.
The financial statements of Metro Display Advertising, Inc. and subsidiary as of
December 31, 1995,  were audited by other  auditors whose report dated April 15,
1996, expressed an unqualified opinion on those statements.

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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the consolidated  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 Metro  Display
Advertising, Inc. and the subsidiary as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.


Peck & Lopez
Certified Public Accountants




Newport Beach, CA
April 14, 1997




         1400 Bristol Street North, Suite 170, Newport Beach, CA 92660
                         714 225-7010 Fax 714 222-0481
      Member of the American Institute of CPAs California Society of CPAs

                                       15.

<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                    ASSETS                           December 31,
                                                                1996            1995
                                                            ------------    ------------
<S>                                                         <C>             <C>         
CURRENT ASSETS:
Cash                                                        $     74,947    $    225,524
Accounts receivable, net of allowances
  of $143,539 and $117,775  (Note 1)                             989,804       1,377,859
Prepaid expenses and other assets (Note 7)                       226,844          39,330
Deferred taxes - current portion  (Note 5)                       227,000         235,000
                                                            ------------    ------------
      TOTAL CURRENT ASSETS                                     1,518,595       1,877,713
                                                            ------------    ------------

PROPERTY AND EQUIPMENT: (Note 1 and 4)
Office furniture and equipment                                   343,473         282,230
Leasehold improvements                                            24,279          24,280
Machinery and equipment                                           82,588          70,500
Vehicles                                                         463,470         397,305
Bus stop shelters                                              7,940,283       7,813,534
                                                            ------------    ------------
                                                               8,854,093       8,587,849
Less: accumulated depreciation                                (2,649,509)     (1,821,408)
                                                            ------------    ------------
                                                               6,204,584       6,766,441
                                                            ------------    ------------
OTHER ASSETS:
Performance bond deposits  ( Note 3)                             734,722         694,722
Deferred taxes - less current portion  (Note 5)                2,944,000       2,924,000
Other assets (Note 2)                                            182,477         102,033
                                                            ------------    ------------
                                                               3,861,199       3,720,755
                                                            ------------    ------------
                                                            $ 11,584,378    $ 12,364,909
                                                            ============    ============
                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt  (Note 4)                 $    685,473    $    751,622
Accounts payable and other accrued liabilities                   293,069         372,237
Due to municipalities                                            629,661         757,569
Accrued payroll and related taxes                                 77,781          57,954
Advanced payments                                                226,067         214,118
                                                            ------------    ------------
      TOTAL CURRENT LIABILITIES                                1,912,051       2,153,500

LONG TERM LIABILITIES:
Long term debt - less current portion  (Note 4)                  873,165       1,320,848

COMMITMENTS AND CONTINGENCIES (Note 7 and 8)

STOCKHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized,
    no par value, no shares issued
Common stock,  5,000,000 shares authorized,
    no par value,  823,030 shares issued                       9,504,532       9,504,532
Accumulated deficit                                             (705,370)       (613,971)
                                                            ------------    ------------
                                                               8,799,162       8,890,561
                                                            ------------    ------------
                                                            $ 11,584,378    $ 12,364,909
                                                            ============    ============
</TABLE>

                 See notes to consolidated financial statements


                                       16.
<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                        CONSOLIDATED STATEMENTS OF INCOME


                                                      Years Ended December 31,
                                                         1996          1995
                                                     -----------    -----------

REVENUES:                                            $ 7,658,806    $ 7,437,210

COST OF SALES:
City fees  (Note 7)                                    1,553,941      1,805,548
Advertising commissions and expenses                   2,192,772      2,101,507
Installation and maintenance                           1,099,513        913,700
Other costs                                              198,675         73,188
                                                     -----------    -----------
    TOTAL COST OF SALES                                5,044,901      4,893,943
                                                     -----------    -----------

    GROSS PROFIT                                       2,613,905      2,543,267
                                                     -----------    -----------

OPERATING EXPENSES:
Wages and related expenses                               589,873        558,124
Professional fees                                        163,425         67,083
Bad debts                                                 62,814         72,500
Office expenses                                          218,769        192,314
Depreciation  (Note 1)                                   948,809        911,332
Other operating expenses                                 502,484        493,397
                                                     -----------    -----------
     TOTAL OPERATING EXPENSES                          2,486,174      2,294,750
                                                     -----------    -----------

INCOME FROM OPERATIONS                                   127,731        248,517
                                                     -----------    -----------

OTHER INCOME (EXPENSE):
Gain (Loss) on sale of assets                            (73,897)         2,060
Interest  income                                          20,638         11,033
Other income                                              17,540         45,688
Interest  expense                                       (195,411)      (180,301)
                                                     -----------    -----------
     TOTAL OTHER INCOME (EXPENSE)                       (231,130)      (121,520)

INCOME (LOSS) BEFORE TAXES                              (103,399)       126,997

PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 5)            (12,000)        47,000
                                                     -----------    -----------

NET INCOME (LOSS)                                    $   (91,399)   $    79,997
                                                     ===========    ===========


NET INCOME (LOSS) PER SHARE                          $     (0.09)   $      0.09
                                                     ===========    ===========

WEIGHTED AVERAGE SHARES OUTSTANDING                      963,030        906,364
                                                     ===========    ===========



                 See notes to consolidated financial statements


                                       17.

<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995




                                          COMMON     ACCUMULATED
                                          STOCK        DEFICIT         TOTAL
                                       -----------   -----------    -----------

Balance at January 1, 1995             $ 4,027,358   $  (693,968)   $ 3,333,390

Net Income                                      --        79,997         79,997

Exchange for Minority Interest              19,139            --         19,139

Stock Options (Note 9)                      79,880            --         79,880

Deferred tax adjustment (Note 5)         5,378,155            --      5,378,155
                                       -----------   -----------    -----------

Balance at January 1, 1996             $ 9,504,532   $  (613,971)   $ 8,890,561

Net Income                                      --       (91,399)       (91,399)

                                       -----------   -----------    -----------
Balance at December 31, 1996           $ 9,504,532   $  (705,370)   $ 8,799,162
                                       ===========   ===========    ===========







                 See notes to consolidated financial statements

                                       18.
<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                               1996           1995
                                                                            -----------    -----------
<S>                                                                         <C>            <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers                                                $ 8,007,469    $ 7,044,080
Cash paid to suppliers and employees                                         (6,857,240)    (6,280,225)
Interest received                                                                20,638         11,798
Interest paid                                                                  (193,985)      (139,787)
Franchise tax paid                                                                 (800)          (800)
                                                                            -----------    -----------
    Net cash provided by operating activities                                   976,082        635,066
                                                                            -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets                                                    158,646             --
Purchase of  property and equipment                                            (570,061)      (361,251)
Performance bond deposits                                                       (71,500)       (25,000)
Investment in joint venture                                                     (20,000)            --
Loans made                                                                      (59,052)            --
                                                                            -----------    -----------
    Net cash used in investing activities                                      (561,967)      (386,251)
                                                                            -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans                                                                  --        360,000
Payments on notes payable                                                      (564,692)      (504,559)
                                                                            -----------    -----------
    Net cash used in financing activities                                      (564,692)      (144,559)
                                                                            -----------    -----------

NET INCREASE IN CASH                                                           (150,577)       104,256

CASH AT BEGINNING OF YEAR                                                       225,524        121,268
                                                                            -----------    -----------

CASH AT END OF YEAR                                                         $    74,947    $   225,524
                                                                            ===========    ===========


SUPPLEMMENTAL DISCLOSURE SCHEDULE OF
  NON-CASH INVESTING AND FINANCING ACTIVITIES:

Purchase of vehicle in exchange for debt                                    $    30,000    $        --
                                                                            ===========    ===========

Issuance of common stock options in exchange for loan
and debt service costs                                                      $        --    $    79,880
                                                                            ===========    ===========

Increased deferred tax asset due to a change in tax attributes (Note 5)     $        --    $ 3,205,200
                                                                            ===========    ===========

Decrease deferred tax liability due to a change in tax attributes (Note5)   $        --    $ 2,172,155
                                                                            ===========    ===========

Exchange of minority interest for common stock of parent                    $        --    $    19,139
                                                                            ===========    ===========

</TABLE>




                 See notes to consolidated financial statements

                                       19.

<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                 STATEMENT OF CASH FLOWS - SUPPLEMENTAL SCHEDULE

<TABLE>
<CAPTION>

                                                            Years Ended December 31,
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH                 1996         1995
  PROVIDED (USED) BY OPERATING ACTIVITIES                    ---------    ---------
<S>                                                          <C>          <C>      
NET INCOME (LOSS)                                            $ (91,399)   $  79,997

ADJUSTMENTS TO RECONCILE TO NET CASH PROVIDED
  (USED) BY OPERATING ACTIVITIES

Depreciation                                                   948,809      911,332
(Gain) loss on sale of assets                                   73,897       (2,060)
(Increase) decrease in accounts receivable                     388,055     (370,568)
Decrease/(Increase) in other assets                           (182,839)      44,373
(Increase) decrease in joint venture                            (6,067)          --
(Decrease) increase accounts payable & accrued liabilities    (207,076)    (155,237)
(Decrease) increase in accrued payroll                          19,827           --
Increase (decrease) in advance payments                         11,949        4,250
(Increase) decrease in deferred tax                            (12,000)      46,200
Increase in accrued interest                                     1,426       41,279
Bonds paid to cities                                            31,500       35,500
                                                             ---------    ---------
    Net cash  provided by operating activities               $ 976,082    $ 635,066
                                                             =========    =========
</TABLE>



                 See notes to consolidated financial statements

                                       20.
<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


NOTE 1  -         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  ORGANIZATION

                  Metro Display Advertising,  Inc., "the Company",  incorporated
                  in  California  in  1984.  The  Company  has  agreements  with
                  municipalities  to install and maintain bus stop  shelters and
                  benches.  Revenue is generated by renting advertising space on
                  the installed shelters.  The shelters are owned, installed and
                  maintained  by  the  Company  and  are  currently  located  in
                  approximately   63    municipalities    throughout    Southern
                  California.  The  Company  also  rents  advertising  space  in
                  shelters located in Clark County,  Nevada,  including the City
                  of Las Vegas, through its wholly owned subsidiary.

                  Advertising  sales for the  Company's  shelters  are  effected
                  primarily by a national  outdoor  advertising  agency under an
                  advertising  and marketing  agreement  dated January 1993. The
                  marketing  agreement  provides the Company with both  regional
                  and national advertisers. The marketing agreement term expires
                  March  1999,  subject  to  an  automatic   five-year  renewal.
                  Approximately  80 percent of the Company's sales are generated
                  though this marketing and sales agreement.

                  The  Company  and  its  wholly  owned  subsidiary  Continental
                  Shelters, Inc., a California Corporation, filed a consolidated
                  voluntary  petition for relief under Chapter 11 of Title 11 of
                  the  United  States  Code on  January  22,  1992.  Continental
                  Shelters,   Inc.,  in  the  business  of   manufacturing   and
                  installing  bus stop  shelters  exclusively  for the  Company,
                  ceased operations February of 1992. All assets and liabilities
                  of the subsidiary were transferred to the Company. On November
                  19, 1993, the Bankruptcy Court confirmed the Company's plan of
                  reorganization,  effective January 7, 1994. The accounting for
                  the bankruptcy  and the  forgiveness of debt and adjustment to
                  assets were recorded on a fresh start  reporting basis for the
                  year ending December 31, 1993.

                  PRINCIPLES OF CONSOLIDATION

                  The accompanying financial statements present the consolidated
                  accounts  of the  Company  and  its  wholly-owned  subsidiary,
                  Bustop  Shelters of Nevada,  Inc., a Nevada  Corporation.  All
                  significant inter-company  transactions and balances have been
                  eliminated.

                  USE OF ESTIMATES

                  Management   uses  estimates  and   assumptions  in  preparing
                  financial  statements in accordance  with  generally  accepted
                  accounting principles.  Those estimates and assumptions affect
                  the reported amounts of assets and liabilities, the disclosure
                  of  contingent  assets  and  liabilities,   and  the  reported
                  revenues  and  expenses.  Actual  results  could vary from the
                  estimates   that  were  assumed  in  preparing  the  financial
                  statements.

                  REVENUE RECOGNITION

                  The  Company's  revenue is derived  primarily  from  providing
                  advertising services under contract arrangements.  The company
                  prepares  its  financial  statements  on the accrual  basis of
                  accounting in accordance  with generally  accepted  accounting
                  principles. Advertising revenue is recognized when earned, and
                  expenses are recorded when incurred.


                             See accountants' report

                                       21.
<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


NOTE 1  -         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

                  ALLOWANCE FOR DOUBTFUL ACCOUNTS

                  The Company has adopted the  allowance  for doubtful  accounts
                  method of accounting for losses from  uncollectible  accounts.
                  Under  this  method,   an  allowance  is  provided   based  on
                  historical   experience   and   management's   evaluation   of
                  outstanding accounts receivable at the end of each year.

                  PROPERTY AND EQUIPMENT

                  Property and equipment were re-stated at their  estimated fair
                  market  value at January 7, 1994,  the  effective  date of the
                  Company's   plan  of   reorganization,   in  accordance   with
                  fresh-start  reporting.  For year ended  December 31, 1995 and
                  1996,   property  and  equipment  are  depreciated   over  the
                  remaining  estimated  useful  lives,  (generally  one to seven
                  years), of the related assets using the straight-line  method.
                  The bus stop shelters are  depreciated  over ten years,  using
                  the straight-line method.

                  NET INCOME PER SHARE

                  Net income per common  and common  share  equivalent  share is
                  computed on the basis of the weighted average number of common
                  shares  outstanding  and dilutive  common  equivalent  shares.
                  Common stock equivalent shares include dilutive stock options.

                  CONCENTRATION OF CREDIT RISK

                  Financial  instruments that potentially subject the Company to
                  concentrations  of  credit  risk  consist  primarily  of trade
                  accounts  receivable.  The  company  performs  ongoing  credit
                  evaluations of its customers'  financial  condition and limits
                  its  exposure to  accounting  losses by limiting the amount of
                  credit extended  whenever deemed  necessary and generally does
                  not require collateral.  Reserves are maintained for potential
                  credit losses,  and such losses have been within  management's
                  expectations.

                  INCOME TAXES

                  Effective  January 1, 1993, the Company  adopted  statement of
                  Financial  Accounting  Standards  No. 109,  the  objective  of
                  accounting  for  income  taxes is to  recognize  the amount of
                  current and deferred taxes payable (or refundable) at the date
                  of the  financial  statements  as measured by the provision of
                  the enacted tax laws.

                  Deferred  income  taxes have been  provided for the future tax
                  effects of temporary  differences  between financial reporting
                  and tax  basis of  assets,  liabilities,  and  operating  loss
                  carryforwards.

                  RECLASSIFICATIONS

                  Certain  reclassifications  to the  December  31,  1995 income
                  statement have been made for consistent presentation.

NOTE 2  -         OTHER ASSETS

                   The Company  entered into an agreement  with Busline Media to
                   provide administrative services and support. Busline Media is
                   a sole  proprietorship  that became subject to a receivership
                   by order of the United States District Court on or about July
                   1993. As part of this  agreement,  the Company agreed to make
                   operating  expense  advances to Busline Media. As of December
                   31, 1996, the Company advanced  $156,410 to Busline Media. On
                   June  20,  1996,  the plan was  approved,  a new  corporation
                   called Bay Area Transit Shelters, Inc. ("BATS"), was formed.


                             See accountants' report

                                       22.
<PAGE>


                         METRO DISPLAY ADVERTISING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


NOTE 2  -         OTHER ASSETS, CONTINUED

                  The Company is expected to receive 25 percent of the new issue
                  common  stock of BATS in exchange  for services and the amount
                  owed. The stock will be issued May 1997.

                  In October 1996, the Company entered into a partnership, which
                  is primarily involved in operating,  maintaining, and managing
                  aircraft  transportation used by each partner.  The investment
                  represents  a 50 percent  ownership  in the  partnership.  The
                  investment  value in the  partnership  - income  tax  basis at
                  December 31, 1996 is $26,067.

NOTE 3  -         PERFORMANCE BOND DEPOSITS

                  The  Company,  under  terms  of its  agreements  with  various
                  municipalities,  is  required  to  maintain  either  cash bond
                  deposits or certificates of deposit pledged to municipalities,
                  which guarantee the removal of shelters. The bond deposits are
                  required for the duration of the agreements, generally five to
                  ten years.

NOTE 4  -         LONG TERM DEBT

                  The long term  debt at  December  31,  1996,  consists  of the
                  following:

<TABLE>
<CAPTION>
                                                                                         Current       Long Term           Total
                                                                                         -------       ---------           -----
<S>                                                                                     <C>            <C>               <C>      
                    Notes  payable  to bank,  secured  by  vehicle,  payable  in
                    monthly  installments  of  $944,  including  interest  at  8
                    percent maturing

                    October 1999.                                                       $  9,378       $  19,224         $  28,602
                                                                                   

                    Note payable to National Display Advertising,  Inc., secured
                    by 124 bus stop shelters, payable in monthly installments of
                    $8,067, including interest at 10%, maturing January 1997.
                                                                                           7,992               0             7,992

                    Unsecured  note  payable to  National  Display  Advertising,
                    Inc., payable in monthly installments of $12,000,  including
                    interest at 7 percent maturing November 1997. See Note 7 for
                    contingent liability
                    relating to this loan.                                               119,361               0           119,361


                    Line  of  credit   provided  by  a  related
                    party.  See Note 9 and 10.                                           201,022         116,913           317,935

</TABLE>


                             See accountants' report

                                       23.
<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


NOTE 4  -         LONG TERM DEBT, CONTINUED

<TABLE>
<CAPTION>
                                                                                         Current       Long Term           Total
                                                                                         -------       ---------           -----
<S>                                                                                     <C>            <C>               <C>      
                    Note payable secured by corporate assets.
                    Interest   only  at  10  percent  for  four
                    years,  thereafter monthly  installments of
                    $9,130, maturing September,  2003. See Note
                    9 and 10.                                                           $      0          326,351       $   326,351
                                                                                 

                    Trade  and  other  miscellaneous  obligations,   payable  in
                    monthly  installments  of $1,689,  discounted  at 7 percent,
                    maturing,
                    January, 1998.                                                        19,486            1,679            21,165

                    Trade  obligations due to a related party payable in monthly
                    installments  of $11,237,  discounted  at 7 percent  through
                    January 1998. See Note 10 for additional
                    information.                                                         211,133          312,438           523,571

                    Obligations   to   municipalities,    payable   in   monthly
                    installments  of $7,944,  discounted at 7 percent,  maturing
                    1998 and 1999.
                                                                                          83,187           96,560           179,747
                                                                                       ---------       ----------        ----------
                                                                                       $ 685,473       $  873,165        $1,558,638
                                                                                       =========       ==========        ==========

</TABLE>


                  Future maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
                                Year Ended December 31
                                ----------------------
<S>                                                                                     <C>
                                         1998                                           $   305,026
                                         1999                                               134,806
                                         2000                                               184,562
                                         2001                                                82,260
                                         2002 and after                                     166,511
                                                                                        -----------
                                                                                        $   873,165
                                                                                        ===========
</TABLE>


NOTE  5  -        INCOME TAXES

                  Under SFAS 109,  deferred  income  taxes  reflect  the net tax
                  effects of temporary  differences between the carrying amounts
                  of assets and liabilities for financial reporting purposes and
                  the amounts used for income tax purposes  and  operating  loss
                  carryforwards.

                             See accountants' report

                                       24.

<PAGE>


                         METRO DISPLAY ADVERTISING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


NOTE  5  -        INCOME TAXES, CONTINUED

                  The tax effects of significant  items  composing the Company's
                  net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                     1996                   1995
                                                                                                  -----------           -----------
<S>                                                                                               <C>                   <C>         
                  Deferred tax liabilities:
                  Difference between book and tax basis liabilities                               $         0           $   (22,780)
                  Difference between book and tax basis property                                     (376,090)             (456,180)
                                                                                                  -----------           -----------
                                                                                                     (376,090)             (478,960)
                                                                                                  -----------           -----------
                  Deferred tax assets:
                  Doubtful accounts allowance not currently
                  deductible                                                                           57,410                62,390
                  Shareholder interest not currently deductible                                        27,495                25,130
                  Federal net operating loss carryforward                                           3,930,000             3,991,970
                  State net operating loss carryforward                                               361,000               389,000
                  Other                                                                                16,185                14,470
                                                                                                  -----------           -----------
                                                                                                    4,392,090             4,482,960
                                                                                                  -----------           -----------

                  Valuation allowance                                                                (845,000)             (845,000)
                                                                                                  -----------           -----------
                  Net deferred tax asset                                                          $ 3,171,000           $ 3,159,000
                                                                                                  ===========           ===========
</TABLE>


     The income tax  components  of the  provision  (benefit)  for income  taxes
     consist of the following:

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                             ------------
                                                                                                 1996                         1995
                                                                                               --------                     --------
<S>                                                                                            <C>                          <C>     
                  Current:
                       State                                                                   $    800                     $    800

                  Deferred:
                       Federal                                                                   (9,600)                      38,000
                       State                                                                     (3,200)                       8,200
                                                                                               --------                     --------
                                                                                               $(12,800)                    $ 46,200
                                                                                               --------                     --------
                                                                                               $(12,000)                    $ 47,000
                                                                                               ========                     ========
</TABLE>

                  The Company has a federal net operating loss  carryforward  of
                  approximately  $12  million  and a state  net  operating  loss
                  carryforward  of  approximately  $4  million.  The federal net
                  operating  loss  carryforward  expires  beginning 2004 through
                  2009 and the state net  operating  loss  carryforward  expires
                  beginning 2000 through 2004.

                  Due to additional  information  regarding the  bankruptcy  and
                  treatment of the  leasehold  creditors,  the  Company,  on the
                  advice of counsel,  is applying  Internal Revenue Code Section
                  108 and 382.  Based upon the rule of Section 108, the exchange
                  of stock for debt by the  corporation  does not  result in any
                  recognition of income for the Company,  therefore  there is no
                  reduction in tax attributes  from that  exchange.  Section 382
                  requires  the  Company  to  reduce  it's  net  operating  loss
                  carryforwards  by 50 percent.  This resulted in an increase to
                  deferred  tax asset of  $3,205,200  and a decrease to deferred
                  tax liability of  $2,172,955  providing a total tax benefit of
                  $5,378,155 to common stock for year ended December 31, 1995.


                             See accountants' report

                                       25.

<PAGE>


                         METRO DISPLAY ADVERTISING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


NOTE  6  -        JOINT VENTURE AGREEMENT

                  On November  18,  1994,  the  Company  and a national  outdoor
                  advertising  agency  entered into a joint venture  agreement (
                  the "Joint  Venture")  for the  purpose of seeking  additional
                  franchises  and/or licenses for bus shelters  advertising from
                  municipalities  throughout the United  States,  and to manage,
                  develop,  and  operate  all such bus  stop  shelters  and sell
                  advertising  space  in  connection  therewith.   The  national
                  outdoor   advertising   agency   made   an   initial   capital
                  contribution of $30,000 to the Joint Venture while the Company
                  will  contribute  all  fabricated  shelters and shelter  parts
                  needed  by the  Joint  Venture.  Under  a  separate  marketing
                  agreement,  the agency  also  provides  sales  support for the
                  Company.

                  The  Joint   Venture's   joint   agreement   provides   for  a
                  fifteen-year  term,  subject to earlier  termination by mutual
                  consent  of the  parties,  a  default  in the  performance  of
                  obligations  under the joint  venture  agreement  which is not
                  cured within the time to cure such  default or the  insolvency
                  of one of the parties.  The Joint Venture will include all new
                  agreements  with  municipalities  and will  also  include  the
                  assignment of the Company's  agreement  with the city La Habra
                  to the extent that such city  permits the  assignment  of such
                  contract.  All other territories under pre-existing  contracts
                  that the Company has entered into shall remain  outside of the
                  Joint Venture.

NOTE  7  -        COMMITMENTS

                  The future  minimum  rental  payments  required  by  operating
                  leases that have non-cancelable lease terms beyond the balance
                  sheet date are as follows:

                                    Fiscal year ended
                                    -----------------
                                             1997                      $  81,918
                                             1998                         37,374
                                             1999                         23,604
                                             2000                          3,934
                                                                       ---------
                                             Total                     $ 146,830
                                                                       =========

                  The  Company's  lease for the  office in  Irvine,  California,
                  expires June 30, 1998. The subsidiary's lease for an office in
                  Las Vegas,  Nevada expires February 29, 2000. The Company also
                  rents storage space on a month-to-month basis.

                  Rent  expense  for the  year  ended  December  31,  1996,  was
                  approximately $101,708.

                  The  Company has entered  into an  agreement,  pursuant to the
                  terms  of  a  settlement   and   compromise  in  the  plan  of
                  reorganization,  with National Display Advertising, Inc. Under
                  the terms of the settlement, the debt will increase by at most
                  $500,000  if  $250,000  is not paid  against  principal  on or
                  before January 1998. The Company is currently  making payments
                  and  expects  to have the loan paid off prior to its  maturity
                  date to  avoid  any  further  liability.  See  Note 4 for loan
                  balance.

                  MUNICIPAL CONTRACTS

                  The Company and its  subsidiary  have  contracts  with various
                  municipalities  in  southern  California  and  Nevada  for the
                  installation  and  maintenance of bus shelters.  Many of these
                  contracts provide exclusive rights to operate  advertising bus
                  shelters,  while others  allow other bus shelter  companies to
                  share the area.


                             See accountants' report

                                       26.

<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


NOTE  7 -         COMMITMENTS, CONTINUED

                  The municipalities receive a guarantee fee and/or a percentage
                  of  the  advertising   revenue  depending  on  the  respective
                  agreement.  The  contracts  extend  three to ten  years,  with
                  options to renew upon approval by both parties. The guaranteed
                  payments  for  the  next  five  years,  according  to  current
                  contracts,   are   approximately   $1,410,000  per  year.  The
                  guaranteed  payments,  included  in city fees,  for year ended
                  December 31, 1996, were approximately $1,400,000.

                  The  Company  recorded  estimated  city  fee  overpayments  of
                  $113,046  to Clark  County for  payments  made for the periods
                  1994 through 1996.

NOTE 8 -          CONTINGENCIES

                  The Company was the  plaintiff in an action filed  against the
                  City of Las  Vegas,  filed  November  15,  1995.  The  Company
                  provided  shelters  located in the City pursuant to a contract
                  entered  into July 3, 1985.  As the  contract  approached  its
                  expiration,  the City  asserted the contract  provided for the
                  City's  retention and  ownership of the shelters.  The Company
                  asserted the shelters  remained  property of the Company,  and
                  could be removed by the Company in the event the  contract was
                  not renewed. The matter was resolved through negotiations that
                  resulted in the signing of a long-term contract. A stipulation
                  an order  dismissing  the case without  prejudice was filed on
                  September 20, 1996.

                  On December 20, 1995,  the Company  filed a complaint  against
                  the City of Laguna Hills. The complaint involves the Company's
                  bus shelters  located in the City of Laguna Hills. The lawsuit
                  was  commenced  as a result of action  taken by the City on or
                  about September 12, 1995, to eliminate all bus shelters within
                  the  City.  As a result  of this  decision,  the City has made
                  demand   that  the   Company   remove  all  of  its   shelters
                  immediately.

                  On May 23,  1996,  the Company  filed a complaint  against the
                  City of Lake Forest.  The  complaint was based on the decision
                  by  the  City  of  Lake  Forest  to  terminate  the  Company's
                  operations within the City and to grant an exclusive franchise
                  to a competitor of the Company.

                  On November 15, 1995,  the Company  filed a complaint  against
                  the City of  Victorville  as well as two of its  City  Council
                  members and one member of the staff.  This dispute  arose as a
                  result  of  efforts  by the  City of  Victorville  to have the
                  Company's bus shelters  removed after a dispute  regarding the
                  Company's  display of advertising by the U.F.C.W.  Union.  The
                  City officials strongly objected to the Union's  advertisement
                  and placed pressure on the Company to remove such advertising.

                  The Company  presently  believes that the  resolution of these
                  matters  will  not  have  a  material  adverse  effect  on its
                  financial condition as reported in the accompanying  financial
                  statements.

NOTE 9 -          STOCK OPTION PLANS

                  In February 1995, the Board of Directors approved and in April
                  1995, the Company's  shareholders  ratified the Company's 1995
                  Incentive Stock Option Plan ( the "Option" Plan").  The Option
                  Plan provides for the grant of options to officers,  directors
                  and other key  employees  of the  Company to purchase up to an
                  aggregate of 200,000 shares of Common Stock.


                             See accountants' report

                                       27.

<PAGE>

                         METRO DISPLAY ADVERTISING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996


NOTE 9 -          STOCK OPTION PLANS, CONTINUED

                  The  Option  Plan is to be  administered  by the Stock  Option
                  committee  of the  Board  of  Directors,  which  has  complete
                  discretion  to select the optionee and to establish  the terms
                  and  conditions of each option,  subject to the  provisions of
                  the Option Plan.  The Stock Option  Committee has not yet been
                  appointed.  Options  granted  under  the  Option  Plan  may be
                  "Incentive  Stock  Options"  as defined in Section  422 of the
                  Internal  Revenue Code of 1986,  as amended ( the "Code"),  or
                  nonqualified options, and will be designated as such.

                  As of December 31, 1996, the Board of Directors of the Company
                  authorized  the President to be eligible to  participate in an
                  Incentive  Stock Option Plan.  Under the Plan, the Company has
                  offered the  President an option to purchase  20,000 shares of
                  common stock for a price of $5 per share.  This option expires
                  December 31, 1999 one year after  expiration of his employment
                  contract.

                  In  1994,  as  part  of  an  exclusive  sales   representation
                  agreement,  a national outdoor  advertising agency received an
                  option to purchase  20,000 shares of new issue common stock at
                  $21 per share. The option expires January 1, 1998.

                  In 1994, as part of the terms of acquiring a line of credit, a
                  related party received an option to purchase  40,000 shares of
                  new issue common stock for a total  purchase price of $100. On
                  September 1, 1995,  the original loan  agreement was modified,
                  increasing  the option to include a total of 80,000  shares of
                  new issue common stock.  See Note 10 for details of the credit
                  line.  A discount of $40,000 was  recorded to common stock for
                  the  additional  40,000 stock options to be amortized over the
                  life of the loan.

                  As part of the  terms of  acquiring  the  $360,000  loan,  the
                  Company  has  granted  the  lender a stock  option to  acquire
                  40,000  shares of new issue  common stock for a total price of
                  $100.  A discount of $39,880 was  recorded to common stock for
                  the 40,000 stock options to be amortized  over the life of the
                  loan. The option expires December 31, 1998.

NOTE 10 -         RELATED PARTY TRANSACTIONS

                  The Company had an unsecured debt of $523,571, discounted at 7
                  percent,  payable  to a  corporate  stockholder  in  48  equal
                  installments.  The Company has not made the scheduled payments
                  on  the  stockholder's  unsecured  debt  as  required  by  the
                  agreement.  The Company  modified the loan  agreement on April
                  11,  1996 to allow the  Company  to  either  accrue or pay the
                  stated monthly amount.  Accrued  payments will accrue interest
                  at the 8 percent,  adjusted  on February 1, and August 1, each
                  year,   to  5  percent  above  the  Federal   Discount   Rate.
                  Stockholder can demand payments, start at any time, to be paid
                  over 48 equal installments.

                  The same stockholder has provided a credit line to finance the
                  implementation of the bankruptcy plan. On January 7, 1994, the
                  effective  date of the plan,  $1,200,000  was made  available,
                  secured by all the assets of the Company,  subordinate only to
                  holders of secured  debt.  Interest is at an initial rate of 8
                  percent,  adjusted on February 1 and August 1, each year, to 5
                  percent above the Federal Discount Rate. On September 1, 1995,
                  the Company  modified the terms of its original  agreement and
                  repayment terms. Principal and interest are payable in monthly
                  installments  of $20,000,  due on the first day of each month,
                  until paid in full.  The amount  utilized at December 31, 1996
                  was  $317,935.  Total  payments  made  including  interest and
                  principal was $250,000 for the year ended December 31, 1996.


                             See accountants' report

                                       28.

<PAGE>


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

     The directors and executive officers of the Company are as follows:

          Name                 Age                   Position
          ----                 ---                   --------
     Scott A. Kraft            37        Chief Executive Officer and President
     Allan L. Ross, M.D.       47        Chairman of the Board of Directors
     Mark R. Boileau           33        Director
     William M. Slater         59        Director and Secretary

     Scott A. Kraft has been the Chief  Executive  Officer and  President of the
Company since January 1993 and its Chief Operating  Officer since February 1992.
Prior to joining the  Company,  Mr.  Kraft  served as an engineer and manager at
Ferranti Aerospace from July 1987 to February 1992.

     Allan L. Ross, M.D., has been the Chairman of the Board of Directors of the
Company since January 1994. Dr. Ross has been a practicing  anesthesiologist  at
the Sharp Chula Vista Medical Center since 1985 and has been the Chairman of the
Department of Anesthesiology since 1987. Dr. Ross founded the Cardiac Anesthesia
program in 1987, and the obstetrical anesthesia program in 1992. Dr. Ross served
as the  director  of the  surgical  intensive  care unit  from 1990 to 1992.  He
founded  Anesthesiology  Medical  Consultants  of San  Diego  (AMCSD),  a medial
corporation serving the San Diego area, in 1991 and has been its President since
its inception.

     Mark R. Boileau has been a director of the Company since January 1994.  Mr.
Boileau has been an engineering  manager at Curtis PMC since October 1992.  From
June 1987 to October 1992, he was an engineering manager at Marconi Dynamics.

     William M. Slater has been a director  of the Company  since March 1994 and
the Secretary of the Company since July 1994.  Mr. Slater has been a real estate
broker  associated  with CB Commercial  Real Estate Group,  Inc. from  December,
1992, to November,1996. From May 1989 to December 1992, he was a mortgage broker
with American Mortgage Bankers.  He is currently a business analyst with Geneva,
Inc.

Compliance With Section 16(a) Of The Securities Exchange Act

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and certain of its officers,  and persons who own more than 10% of the
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership and changes of ownership with  Securities  and Exchange  Commission at
the time of the registration of such security on a national  securities exchange
or by the effective date of a registration  statement  filed pursuant to Section
12(g)  of the  Securities  Exchange  Act of  1934.  The  Company's  Registration
Statement  under  Section 12(b) became  effective on June 30, 1995.  None of the
directors or officers filed the required initial report of Form 3, and Dr. Allan
Ross,  a director of the Company,  failed to file the required  notice on Form 4
upon the receipt of options to purchase  80,000 shares of the  Company's  Common
Stock.


                                      29.
<PAGE>

Item 10. Executive Compensation.

     The following table sets forth the compensation paid by the Company for its
fiscal years ended December 31, 1996,  December 31, 1995,  December 31, 1994 and
December  31,  1993 to its  Chief  Executive  Officer  and all  other  executive
officers  (collectively,  the "Named Executive Officers") whose total salary and
bonus from the Company  exceeded  $100,000 in the fiscal year ended December 31,
1996:

                                            Annual Compensation(1)
                               -------------------------------------------------
                               Fiscal Year
        Name and                   Ended                               All Other
   Principal Position          December 31,    Salary      Bonus    Compensation
   ------------------          ------------    ------      -----    ------------
Scott Kraft                        1996       $115,103          0        --
  Chief Executive Officer          1995       $111,293          0        --
  and President                    1994       $ 75,000    $25,000        --
                                   1993       $ 78,000          0        --


     (1) The  compensation  described  in this  table does not  include  medical
insurance,  retirement  benefits and other  benefits  received by the  foregoing
executive officers which are available generally to all employees of the Company
and certain  perquisites and other personal  benefits  received by the foregoing
executive officers of the Company,  the value of which did not exceed the lesser
of $50,000 or 10% of the executive officer's cash compensation in the table.

     Stock Option Plan. In February 1995, the Board of Directors approved and in
April 1995,  the Company's  shareholders  ratified the Company's  1995 Incentive
Stock Option Plan (the "Option Plan"). The Option Plan provides for the grant of
options  to  officers,  directors  and other key  employees  of the  Company  to
purchase up to an aggregate of 200,000  shares of Common Stock.  The Option Plan
is to be administered  by the Stock Option  Committee of the Board of Directors,
which has complete  discretion to select the optionee and to establish the terms
and conditions of each option, subject to the provisions of the Option Plan. The
Stock Option  Committee has not yet been  appointed.  Options  granted under the
Option Plan may be  "incentive  stock  options" as defined in Section 422 of the
Internal  Revenue  Code of 1986,  as  amended  (the  "Code"),  or  non-qualified
options, and will be designated as such.

     The exercise price of incentive  stock options may not be less than 100% of
the fair  market  value of the  Company's  common  stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total  combined  voting power of all classes of capital  stock of the
Company).  The Code currently  limits to $100,000 the aggregate  value of common
stock that may be acquired in any one year  pursuant to incentive  stock options
under  the  Option  Plan  or any  other  option  plan  adopted  by the  Company.
Non-qualified  options may be granted under the Option Plan at an exercise price
less  than  the fair  market  value of the  common  stock on the date of  grant.
Non-qualified  options also may be granted without regard to any restrictions on
the amount of common stock that may be acquired  pursuant to such options in any
one year.


                                      30.
<PAGE>

     In general,  upon  termination  of employment  of an optionee,  all options
granted  to  such  person  which  were  not  exercisable  on the  date  of  such
termination  would immediately  terminate,  and any options that are exercisable
would  terminate  90 days  (one  year in the case of  termination  by  reason of
disability)   following  termination  of  employment  except  in  the  event  of
termination for cause.  In the event of termination  for cause,  all unexercised
options would terminate 30 days after termination.

     Options  may not be  exercised  more than ten years  after the grant  (five
years after the grant if the grant is an incentive  stock option to any employee
who owns more than 10% of the total  combined  voting  power of all  classes  of
capital  stock of the  Company).  Options  granted under the Option Plan are not
transferable  and may be exercised only by the respective  grantees during their
lifetime or by their heirs,  executors or  administrators in the event of death.
Under the Option  Plan,  shares  subject to canceled or  terminated  options are
reserved for subsequently granted options. The number of options outstanding and
the  exercise  price  thereof are subject to  adjustment  in the case of certain
transactions such as mergers, recapitalization, stock splits or stock dividends.
The  Option  Plan is  effective  for ten  years,  unless  sooner  terminated  or
suspended.

     As of December 31, 1996,  the Board of Directors of the Company  authorized
the President to be eligible to participate  in an Incentive  Stock Option Plan.
Under the Plan,  the Company has  offered  the  President  an option to purchase
20,000 shares of common stock for a price of $5 per share.  This option  expires
December 31, 1999 one year after expiration of his employment contract.


Item 11.   Security Ownership of Certain Beneficial Owners and Management.

     The following table sets forth certain information regarding the beneficial
ownership  of the  Company's  Common  Stock as of February  28, 1997 by (i) each
person  who is known by the  Company  to own  beneficially  more  than 5% of the
Company's outstanding Common Stock; (ii) each of the Company's directors;  (iii)
each of the Named  Executive  Officers;  and (iv)  officers and directors of the
Company as a group:

                                                 Amount and
                                                  Nature of         Approximate
                                                  Beneficial        Percent of
             Name and Address(1)                 Ownership(2)      Ownership(2)
--------------------------------------------     ------------      ------------
Dr. Allan Ross(3) ..........................        140,544            14.6%
William M. Slater ..........................          5,456            *
Scott A. Kraft .............................            704            *
Mark Boileau ...............................            528            *
All executive officers and directors                             
  as a group (4 persons)(3) ................        147,232            15.3%

----------

*    Represents less than 1%.

(1)  The address of each person is c/o the Company at 15265 Alton Parkway, Suite
     100, Irvine, California 92618.

(2)  Nature of beneficial ownership of securities is direct and arises from sole
     voting power and sole investment power,  subject to community property laws
     where applicable.


                                      31.
<PAGE>

(3)  Includes currently exercisable options to purchase 120,000 shares of Common
     Stock (of which 40,000 may be acquired by Dr. Ross from Debolt Enterprises,
     Inc.).


Item 12.   Certain Relationships and Related Transactions.

     On January 6, 1994, Dr. Allan Ross, a Director of the Company, entered into
that certain Loan Agreement with the Company pursuant to which Dr. Ross provided
the Company with a line of credit of up to $1,200,000  and made available to the
Company  irrevocable  letters of credit in an amount up to $300,000 (the "Credit
Facility"). The initial rate for monies borrowed under the Loan Agreement was 8%
per annum; the interest rate under the Loan Agreement  adjusts  semi-annually on
February 1 and August 1 to a rate that is equal to 5% above the Federal Discount
Rate in effect on the date of adjustment. The Company is obligated to make equal
monthly payments of principal and interest, which adjust when additional amounts
are borrowed  and/or the interest  rate  changes,  sufficient to fully repay the
outstanding  balance of amounts  borrowed under the Loan Agreement by the end of
December  2000.  In addition to the  foregoing  interest  rate,  the Company has
agreed to pay Dr. Ross, on each  anniversary  of the Loan  Agreement,  an amount
equal to 2% of the  difference  between  the  amount  borrowed  under the credit
facility and the amount available thereunder. In consideration for entering into
the Loan  Agreement,  the  Company  agreed  to grant Dr.  Ross the  opportunity,
through stock options or otherwise,  to purchase 4% of the capital stock (40,000
shares) of the Company for a total purchase price of $100.

     The amounts  borrowed  under the Loan Agreement are secured by a first lien
on all of the assets of the Company,  including without  limitation,  all of the
BSON stock owned by the Company, and all accounts receivable,  inventory,  cash,
contract  rights and other  tangible and intangible  assets.  The Loan Agreement
also contains certain negative  covenants  pursuant to which the Company,  among
other  things,  is  prohibited  from  declaring any dividend on its Common Stock
(other than stock dividends),  from  repurchasing or redeeming its shares,  from
incurring  additional  indebtedness  other  than  in  the  usual  course  of its
business,  from further encumbering its assets, from selling its assets, or from
expending  more than $300,000 for  acquisition of fixed or capital assets during
any year. A breach of any of the foregoing  covenants  would cause all principal
and interest to be immediately due and payable.  The Company  borrowed  $800,000
under its line of credit.  The Company had not made any of the monthly  payments
that it was required to make pursuant to the Loan Agreement until September 1995
when the Company and Dr. Ross restructured the Credit Facility.  The Company and
Dr. Ross entered into a Loan  Modification  in September  1995 that required the
Company to pay Dr. Ross $360,000  which was treated as a reduction of principal,
reduced the Company's  loan payments to $20,000 per month,  increased the number
of shares of the  Company's  Common  Stock  that Dr.  Ross  would  receive  upon
exercise  of his option  from  40,000 to 80,000 and made the loan  current as of
September 1, 1995. The Company has paid the $20,000  monthly  payments since the
date of such loan modification.


                                      32.
<PAGE>

     The Board of Directors believes that the terms of the Credit Agreement are,
at this time,  the most  favorable  terms that are  reasonably  available to the
Company.   Ordinarily,   credit   facilities   are   extended  to  companies  by
institutional  lenders based on both the Company's  prior  operations and on the
amount of assets that can be used as collateral.  Unfortunately, because (i) the
Company  was in  bankruptcy  a few years  ago,  (ii) its  business  has  changed
significantly  (i.e.,  the Company no longer generates cash from the sale of bus
stop  shelters to  investors),  and (iii) its inventory and other assets are not
preferred  types of  collateral,  the  Company  does not  believe  that it could
currently  obtain a similar loan from an unaffiliated  lender.  If the Company's
financial  condition and credit worthiness improve and, as a result,  additional
loan  opportunities  become available,  the Company will evaluate  replacing the
Credit Agreement with a credit facility from an unaffiliated lender.


                                      33.
<PAGE>

     The Company and Baron LLC,  of which Dr. Ross is the  managing  partner and
majority  owner,  entered into a  Memorandum  of  Understanding  effective as of
January 1, 1994 pursuant to which the Company can accrue the $11,237.17  monthly
payments owed by the Company to Baron LLC. Such accrued amounts bear interest at
the same interest rate as the Credit  Facility,  and Baron LLC can demand at any
time that the accrued amounts be paid in full over 48 equal monthly  payments of
principal and interest.

Item 13.   Exhibits and Reports on Form 8-K.

     (a)  Exhibits

          No exhibits were filed during the fiscal year covered by this report.

     (b)  Reports on Form 8-K

          No reports on Form 8-K were filed  during the fiscal  year  covered by
          this report.


                                      34.
<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 to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      Metro Display Advertising, Inc.

April 11, 1997                        By   /s/  SCOTT KRAFT
                                           ------------------------
                                           Scott Kraft
                                           Chief Executive Officer and President


     In accordance  with 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>
           Signature                                        Capacity                           Date
           ---------                                        --------                           ----

<S>                                          <C>                                          <C> 
/s/ SCOTT KRAFT                              Chief Executive Officer and President        April 11, 1997
-------------------------------              (Principal Executive, Financial and
Scott Kraft                                  Accounting Officer)



/s/ ALLAN L. ROSS, M.D.                      Chairman of the Board of Directors           April 11, 1997
-------------------------------
Allan L. Ross, M.D.



/s/ MARK R. BOILEAU                          Director                                     April 11, 1997
-------------------------------
Mark R. Boileau



                                             Director and Secretary                       April 11, 1997
-------------------------------
William M. Slater
</TABLE>