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

                                   FORM 10-KSB

(Mark One)
       [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1996.

       [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]

        For the transition period from ________________to_______________

                         Commission file number: 0-27704

                           DIGITAL DATA NETWORKS, INC.
                 (Name of small business issuer in its charter)


Washington                                                91-1426372
(State or other  jurisdiction of             (IRS Employer Identification No.)
incorporation  or  organization)

3102 Maple Avenue, Suite 230
Dallas, Texas                                                75201
(Address of principal executive offices)                  (Zip Code)

                                 (214) 969-7200
              (Registrant's telephone number, including area code)

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

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

Common Stock, no par value                       Common Stock Purchase Warrants
(Title of class)                                 (Title of class)


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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  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. [ X ]

The issuer's revenues for its most recent fiscal year were $683,000.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
issuer on March 26, 1997 was $11,854,054.

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date:  As of March 26,  1997,  2,337,496
shares of  Common  Stock and  1,840,000  Common  Stock  Purchase  Warrants  were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: 1) The information required by Items 9, 10,
11 and 12, Part III is incorporated by reference from the Registrant's
definitive proxy statement.



<PAGE>





                                     PART I

Item 1.     Business.

Company Background

         Digital Data Networks,  Inc. (the  "Registrant" or the "Company"),  was
incorporated as Transit Information Systems, Inc. under the laws of the State of
Washington on October 17, 1988. The present name was adopted in July,  1995. The
Company also operates as The Transit Network under an assumed name  certificate.
The  Company's  offices are currently  located at 3102 Maple Avenue,  Suite 230,
Dallas, Texas 75201, and its telephone number is (214) 969-7200.

         In February 1996, the Company completed the sale of 1,322,500 shares of
Common Stock and 1,840,000  Common Stock Purchase  Warrants  through its initial
public  offering  (the "Public  Offering"),  and  received net cash  proceeds of
approximately $5.8 million. The Company's Common Stock and Common Stock Purchase
Warrants  are listed on the Nasdaq  SmallCap  Market  under the trading  symbols
"DIDA" and DIDAW", respectively.

General

         DDN provides  wireless  communication  systems to the transit industry,
and Internet services, targeting primarily the business community.

      The Company's Transit Network Division markets two wireless  communication
     systems to the transit industry:  a digital  information network which uses
     an FM subcarrier signal to transmit information,  both text and graphic, to
     riders  on-board  public  transit  vehicles;   and  a  next-stop  automated
     audio/visual  announcement  system which utilizes Global Positioning System
     (GPS) technology to track a vehicle's position,  then triggers simultaneous
     audio and visual  announcements  of next-stop  locations  at  predetermined
     points along a route;

      Two wholly owned  subsidiaries  of the Company market  Internet  services:
     Pro.Net is a full  service  Internet  service  provider and Web page design
     firm; and Cyber America is a first-tier  Internet provider  delivering high
     speed access  directly to the backbone of the Internet.  Additionally,  the
     Company recently  acquired from SSNN an exclusive license to sell financial
     news coverage in Canada to small capitalization companies, and to make that
     financial information available to Internet users at SSNN's Web site.

History

         The Transit Network

         The  Company's  Transit  Network  Division  markets  and  operates  two
systems: a digital information  network and a next-stop  automated  audio/visual
announcement system  ("NextStop").  The digital information network is a network
of computerized  electronic  displays that delivers  information,  both text and
graphics, to riders on-board public transit vehicles, utilizing an FM subcarrier
signal to transmit  the data.  The  Company  operates  its  digital  information
network on the 824-bus fleet of the DART system as The Transit  Network under an
assumed name certificate,  while its wholly owned subsidiary,  DDN Rhode Island,
Inc.,  operates  the 66-bus fleet of the RIPTA system under the assumed name The
Transit  Network.  The RIPTA  system has  served as a test site for the  Company
since 1988. The DART system began operations in 1991.

<PAGE>

         Following  passage of the  Americans  with  Disabilities  Act  ("ADA"),
transit  authorities began to realize that this law included a mandate that they
would  have to provide  the same  information  to  hearing-  and  sight-impaired
passengers that  non-impaired  passengers  have. The Company foresaw the need to
provide audio and visual next-stop announcements for hearing- and sight-impaired
riders,  and began  development of NextStop,  a fully automated audio and visual
next-stop   announcement   system   utilizing  GPS   technology.   NextStop  was
successfully  tested on the  Company's  system in  Providence,  Rhode  Island in
October  of 1994.  Although  there are no  NextStop  systems in  operation,  the
Company intends to aggressively market this product to transit agencies in North
America.  According to METRO, a transit industry magazine,  their 1995 survey of
transit bus fleets  indicated  there were 52,428 buses in service in the largest
100 markets in the U.S. and Canada.  Tens of thousands more exist in authorities
operating  fleets in smaller  markets.  The Company  believes that a substantial
number of transit  authorities  are not in compliance with all areas of the ADA,
especially  as it  concerns  the  requirement  for  transit  agencies to provide
hearing- and sight-impaired passengers with the same information as non-impaired
passengers.

         Pro.Net Communications, Inc.

         Pro.Net, a Vancouver, British Columbia based corporation, was organized
in October  1994,  as a provider of Internet  services.  Pro.Net's  local access
service provides  customers with a local (i.e. the Greater Vancouver area) point
of  presence  access to the  Internet.  This  service  is  comprised  of quality
telecommunications   hardware,   proven  software  and  reliable  communications
facilities.  Pro.Net intends to continue capitalizing on the demand for Internet
access from corporations and individuals by providing Internet access via leased
and dial-up  lines.  Pro.Net also  provides  consulting  or training for clients
interested  in building an intranet or on-line  marketing  program.  Pro.Net was
acquired by the Company in June 1996.

         In  September  1996,  the Company  acquired hip  Communications,  Inc.,
another Internet-related  company, based in Vancouver,  which designs and builds
Web sites,  primarily for large  corporations  and  government  agencies.  hip's
operations have  subsequently  been merged with Pro.Net's,  allowing  Pro.Net to
offer Web page  design and  development  in  addition  to their  other  Internet
services.

         Cyber America Corporation

         With a growing number of businesses  emphasizing the importance of high
speed connectivity to the Internet, Cyber America's founders originated a unique
design  implementation  process  which  delivers  information  to and  from  the
backbone of the Internet faster that traditional methods.  Incorporated in March
1996, Cyber America filed a patent application on this design  implementation in
July,  1996.  This pending  patent was  subsequently  assigned to the Company in
connection with the  acquisition of Cyber America.  Unlike  traditional  primary
access  providers  who are  connected  to the  backbone  of the  Internet  using
point-to-point  wide area networks,  Cyber America has  implemented  connections
from the Internet  backbone into various carrier networks,  delivering  Internet
connectivity via broadband fast packet  services.  This means Cyber America does
not have to  oversubscribe  already  congested  networks,  and can eliminate the
multiple layers of routing involved, greatly improving access performance.

         License Agreement with SSNN, Inc.

         SSNN  became  operational  in December  1995,  and  provides  financial
information on public  companies to Internet users free of charge.  SSNN charges
an electronic  archiving and  distribution fee to public companies listed on its
Web sites.  SSNN intends to use its software and marketing  expertise to provide
on-line  financial news and e-mail services for most foreign  equities  markets,
since foreign public companies have also been traditionally hard to access. SSNN
granted an exclusive  license to the Company in October 1996,  in  consideration
for 25,000  shares of the Company's  Common  Stock,  which allows the Company to
market SSNN's service in Canada.  SSNN is currently in negotiations with several
other  groups  who  are  interested  in  licensing  SSNN's  service  in  Europe,
Australia,  New Zealand  and Hong Kong.  The  Company  believes  that if SSNN is
successful in establishing name identification in world-wide markets, it will be
beneficial to the Company's marketing efforts in Canada.
<PAGE>

Strategy

         The Company's  strategy  centers around three distinct  business plans.
First, to market its digital  information network and NextStop system to transit
authorities across the United States and Canada;  secondly, to capitalize on the
growing  demand for Internet  services by building  its customer  base for these
services  through its Pro.Net and Cyber  America  operations;  and  thirdly,  to
aggressively market SSNN's service to small  capitalization  companies in Canada
who are anxious to expand their  financial news coverage to potential  buyers of
their  publicly-traded  stock.  The  Company's  strategy to market its  wireless
communications systems, build its customer base for Internet services and market
SSNN's service consists of the following key elements:

               Successful  installation of The Transit Network's NextStop system
              in  the  near  future.   In  order  for  The  Transit  Network  to
              successfully and rapidly expand its NextStop  system,  the Company
              believes it is critical to get its first NextStop system installed
              quickly.  With the number of competitors in the industry  growing,
              many of whom also do not yet have their  systems  installed in any
              transit fleets, it would be a significant competitive advantage to
              have a  successful,  working  system  in  place.  The  Company  is
              currently  preparing  to respond  to two  Requests  For  Proposals
              ("RFP"s) for such  systems,  and believes that it has an excellent
              chance  of  being  the  winning  bidder  on one or both  of  these
              contracts. However, there can be assurance that any contracts will
              be awarded to the Company.

               Continued  compliance  with and enforcement of the Americans with
              Disabilities  Act.  The  federal  mandates  that  require  transit
              authorities  to  provide  hearing  and  sight-impaired  passengers
              access to the same information as able-bodied  passengers has been
              the impetus  behind  transit  authorities'  willingness to install
              automated   next-stop   announcement   systems  on  their  transit
              vehicles.  The  Company  believes  it is vital  that  the  Justice
              Department continue to enforce and pressure transit authorities to
              comply with all aspects of the  Americans  with  Disabilities  Act
              ("ADA"),  or most transit authorities would cease to address these
              needs,  making it difficult to survive in a market with increasing
              competitors and a reduced demand for these  products.  The Company
              will continue to encourage and support  disadvantaged and disabled
              groups  whose  constituents  would  benefit  from these  audio and
              visual next-stop announcement systems.

               Continued availability of funds for transit authorities.  Funding
              for wireless  communications systems such as The Transit Network's
              digital  information  network  and  NextStop  announcement  system
              typically originates from federal programs that pay for 80% to 90%
              of the total cost,  with the  remaining  difference  funded by the
              local transit  authority.  The amount of federal dollars available
              to transit  authorities  has been  shrinking the past few years as
              the  United  States  Congress  has been  attempting  to reduce the
              federal  budget  deficit.  The  Company  believes  that if funding
              remains near current  levels,  or is reduced only  slightly in the
              future, adequate federal funding exists for transit authorities to
              purchase  these types of systems.  Even in the event that  federal
              funding is  severely  reduced  from  current  levels,  the Company
              believes  that  transit  authorities  will  still be  expected  to
              fulfill all of the ADA requirements.  The Company's strategy is to
              assist interested transit  authorities in applying for these funds
              which  are  available   under  certain   federal  grant  programs.
              Additionally,  for transit authorities that can obtain the federal
              funds,  but don't have the necessary 10% - 20% required from local
              sources,  the Company may finance or arrange financing for, all or
              a portion of that 10% - 20% through a public/private  partnership,
              since it would have long-term benefits for both parties.
<PAGE>

               Approval of the Company's pending patent application. On July 12,
              1996, Simon D. Liebman,  an officer and director of Cyber America,
              filed a new patent  application for "Fast Packet Internet Access,"
              which  was  assigned  to the  Company  as  part  of the  Company's
              acquisition  of Cyber  America.  This  patent  relates to Internet
              communications,  and is a system for increasing the efficiency and
              data  communication  throughput  for corporate  Internet users and
              retail  Internet user access  providers by  eliminating  many POPs
              (Points of Presence),  routers and other slow network elements. If
              granted,  the Company would be protected from competitors  copying
              the same design  implementation,  allowing the Company to keep its
              competitive   advantage  as  it  relates  to  fast  and  efficient
              communication over the Internet. If not, there can be no assurance
              that other  companies will not copy this same system,  eliminating
              one of the  advantages  Cyber  America now has over  several of it
              competitors.

               Cyber America maintaining a low customer over-subscription ratio.
              A key element of Cyber  America's  strategy is to maintain a 2.5:1
              customer   over-subscription   ratio.   While   some   competitors
              over-subscribe their available bandwidth by ratios as high as 8:1,
              few, if any, have committed to maintaining  such a low ratio.  The
              Company  believes it is  important to keep this ratio low in order
              to better  handle the  higher  volume  applications  such as video
              distribution  and  electronic  commerce,  and intends to adhere to
              this low over-subscription ratio.

               Pro.Net  maintaining  problem-free  access  to its  service.  The
              fundamental  thrust  of  Pro.Net's  strategy  is  to  attract  and
              maintain  corporate  customers and  individuals who want access to
              the Internet but are  unwilling  to tolerate  the  connection  and
              navigating  problems  that  currently  exit  with  so  many  other
              Internet service providers. Pro.Net intends to continue addressing
              these  customer  concerns by  providing  unlimited,  high  quality
              set-up assistance,  reliable service,  state-of-the-art navigation
              tools and continual emphasis on customer support.

               Rapid enrollment of a sufficient  number of small  capitalization
              companies joining the SSNN network in Canada. The Company believes
              that it will be important  to enroll a sufficient  number of small
              capitalization  companies  as quickly as possible in order for the
              service to be  beneficial  to visitors of the  Company's  SSNN Web
              site,   allowing   visitors  to  browse   information  on  several
              companies,  and enticing them to return as an increasing number of
              companies are added to the network. This will be equally important
              to subscribing  companies  joining the SSNN network,  as they will
              want to see  other  companies  on the  network  to  justify  their
              investment in the program.  In order to accomplish  this goal, the
              Company  will  enact two  strategies:  the  Company  and SSNN will
              leverage existing relationships and develop new relationships with
              brokerage  firms that  conduct  business  in small  capitalization
              stocks;  and,  mount an aggressive  mailing and print  advertising
              campaign  which will target stock  brokers.  The Company  believes
              that these  actions will enable it to quickly  enroll a sufficient
              number of small capitalization companies at its Web site to create
              on-going demand for information of this type.

The Transit Network's Digital Information Network

         Background

         The  Transit  Network's  digital  information  network  is a network of
computerized electronic displays that delivers transit authority messages, news,
information and may optionally  include  advertising,  to riders on-board public
transit vehicles.  The network consists of specialized  electronic LED displays,
transmission protocol,  and control software.  Each system requires an agreement
with a local FM radio  station for the use of an FM  subcarrier  frequency.  The
Company  does  not  believe  that  the  cost  of  these  arrangements  will be a
significant expense.
<PAGE>

         The  electronic  display  utilized  on the  DART  and  RIPTA  buses  is
approximately  six inches  high by  twenty-six  inches in length,  strategically
located  behind and  slightly  above the driver,  and is visible from most areas
inside the vehicle. The software for the digital information network is licensed
from  Sunrise  Systems.  See  "--Digital  Information  Network  Technology"  and
"--Software License."

         News briefs,  weather,  trivia  questions,  sports  reports and transit
authority information are continuously  presented,  and can be interspersed with
advertising  messages as well.  The program  sequence runs  approximately  12-15
minutes, generally assuring that the full program cycle is viewed more than once
during an average commute,  which lasts  approximately  30 minutes  according to
United States  Department  of  Transportation  statistics.  Programs are usually
updated  twice a day,  changing  content to reflect the  demographic  profile of
riders at different  times,  to update the news, and to include new  information
from the transit  authority.  News stories may be changed more frequently if the
events of the day warrant such updates.  The Company  subscribes to United Press
International's  (UPI) wire service and receives  continuous  news stories every
few minutes  throughout  the day via satellite  transmission  and UPI's software
package.  With  UPI's  full  service  package,  the  Company  is able to  obtain
up-to-the  minute  programming   information  on  news,   weather,   sports  and
entertainment.  Advertising  copy is usually  supplied by the advertiser,  while
public service and transit information announcements are provided by the transit
authority.

         The  digital  information  network  has other  important  capabilities,
including  the ability to (i) target  specific  buses and routes with  different
programming,  (ii)  custom  design  special  programming,  and (iii)  display in
Spanish and other foreign  languages.  The network allows certain messages to be
displayed system-wide,  on selected vehicles, or on selected routes. In addition
to regular programming,  special programming can be custom-tailored for specific
events. For example, in Dallas, the transit authority uses approximately 100-125
buses to  transport  fans to Dallas  Cowboys  football  games.  Those  buses are
targeted  with a  special  program  that  is  filled  with  football  and  other
sports-related  features, while the other buses in the fleet continue to run the
regular  program.  This  ability to target  buses and routes is a feature of the
system  that  can be sold to  advertisers  desiring  to reach  specific  riders.
Targeting of  individual  buses which have been  chartered  for one-day  special
events is also available on the system.

         Digital Information Network  Technology

         The digital information network consists of specialized  electronic LED
displays,  transmission  protocol,  and control software.  The software allows a
programmer to enter information and entertainment data into a personal computer.
The program is updated via a high-speed modem connected  between the programming
site  and  the  transmitting  location.  It  is  then  broadcast  through  an FM
subcarrier  frequency and received by a small  antenna  located on each bus. The
digital  information  is then  transferred  into  buffer  memory  inside the LED
display.  As the program then being displayed  completes its cycle, the new data
automatically  replaces  the old  data  without  any  interruption.  The  entire
broadcast cycle - from in-house computer, to transmitter, to transit vehicle, to
its  on-screen  appearance,  can be  completed in just  minutes.  The Company is
responsible  for  repairing  or  replacing  its  electronic  displays  that  are
defective  or  damaged  after   installation.   The  Company   performs  monthly
maintenance on all installed message displays.

         Software License

         The Company  licenses the  software to operate its digital  information
network from Sunrise  Systems,  pursuant to a License  Agreement  (the "Software
License")  dated November 1, 1995, as amended.  The Software  License grants the
Company a  perpetual,  fully  paid up license to use the  software  wherever  it
wishes.  The Software License is exclusive with regard to each metropolitan area
in the United States and Canada (the "Primary Territory") which has a population
of at least  100,000  people,  and is  otherwise  non-exclusive  in the  Primary
Territory.  In areas  other than the  United  States  and  Canada  (the  "Option
Territory"),  the  Software  License is  non-exclusive,  although  the  Software
License  allows  it to become  exclusive  if  certain  conditions  are met.  The
Software  License  requires  the  Company to pay  Sunrise  Systems a site fee of
$7,500 for any new transit market it enters and allows the Company to sublicense
its rights in the software to other entities.
<PAGE>

         Transit Authority Marketing

         The Company  has  contracted  with  transit  authorities  in Dallas and
Providence,  and is continuing to solicit other public transit  authorities  for
the  purchase  of its  digital  information  network,  and/or  contract  for the
exclusive rights to operate its system inside the transit  vehicles  operated by
the  authorities.  In  the  latter  case,  the  Company's  strategy  is to  seek
long-term,  exclusive contracts with transit authorities.  The Company initially
will seek to penetrate the domestic  public transit market  comprised of the top
transit fleets. In cases where the Company sells its system to transit agencies,
the  Company  will  require   initial   capital   during  the  early  stages  of
installation,  since  transit  authorities  typically  cannot  or will  not make
payments until certain performance  requirements are satisfied.  There can be no
assurance that the Company will be awarded contracts in any new markets.

         Dallas Area Rapid Transit

         The  Transit  Network's  Dallas  operation  serves as a  prototype  for
operations in a large transit market. Dallas ranks 13th in the United States bus
transit  market,  with  approximately  824 vehicles.  The Company entered into a
contract  with DART on October 16,  1990,  which  granted the Company  exclusive
rights to install and operate its digital  information  network  on-board DART's
buses for a period of five years.  Installation of the DART system was completed
in August  1993.  The Company and DART  entered  into a new  contract  effective
October 16, 1995 for an  additional  three years,  which gives DART the right to
extend the contract for two additional  one-year terms.  Under the new contract,
the Company pays DART 4% of its gross advertising  receipts.  In addition,  DART
has reserved a permanent position on the digital information network program for
its exclusive use, as well as limited  access to  advertising  space for its own
printed  material.  The Company  must  reserve up to 30% of  available  space on
interior  advertising  panels and one message  block on the digital  information
network  during  each  cycle of  messages  for  DART'S  use and  public  service
announcements. Advertising revenues from the interior advertising panels account
for less than five percent of total advertising  revenues and the reservation of
advertising  space to DART  does  not  materially  affect  the  Company's  total
advertising  revenues.   Maintenance  of  the  digital  information  network  is
subcontracted to an independent party. Each bus is inspected at least monthly to
ensure that the hardware is  functioning  properly and the program is accurately
displayed.  Defective  hardware  is  returned  to Sunrise  Systems for repair or
replacement. Programming errors to date have been minor and are corrected at the
Company's office.

         Rhode Island Public Transit Authority

         The Company has  operated  its  digital  information  network as a test
market on  approximately 66 RIPTA buses since October 1988. The Company operates
the system under an oral  arrangement  to continue the  five-year  contract with
RIPTA,  dated April 1988,  which has  expired.  The  contract  provided  for the
exclusive  right to install  and  operate  electronic  displays  on-board  RIPTA
vehicles  in  return  for  a  royalty  based  on a  fixed  percentage  of  gross
advertising  revenues,  and for RIPTA to have access to a certain  percentage of
the Company's program time to display transit authority messages and promotions.


<PAGE>

         Advertiser Participation

         In the DART and RIPTA markets, where The Transit Network depends on the
sale of advertising to generate revenues, its clients consist primarily of local
consumer products and service  companies,  as well as regional and local offices
of national  companies.  The Company will initially  focus on local and regional
companies  until its  system is  installed  in a  sufficient  number of  transit
markets,  at which time large  advertisers  will consider use of their  national
advertising budgets for transit advertising.
         Competition for Advertisers

         The advertising industry is intensely competitive. The Company competes
for advertising dollars with all advertising and promotional channels, including
television,  radio,  magazines,   newspapers  and  direct  mailings.  Management
believes  that its primary  competition  is radio and  newspapers,  which charge
rates  significantly  higher  than those  charged by the  Company.  The  Company
believes that the primary basis for competition in the  advertising  industry is
price and  value,  although  other  factors  such as market  coverage,  audience
demographics, and time and cost of production are also of importance.

         Manufacturing, Supply and Installation

         The Company does not intend to manufacture or supply its hardware,  but
will  contract  with third  parties to produce the  equipment.  Sunrise  Systems
assembles The Transit  Network's  hardware  from  components  and  subassemblies
manufactured  by others  pursuant to an  exclusive  agreement  with the Company.
While the Company  believes that most of such components and  subassemblies  are
available to Sunrise  Systems from multiple  sources,  there can be no assurance
that  Sunrise  Systems  will  be  able  to  obtain  commitments  from  qualified
manufacturers to provide the components and  subassemblies  within the Company's
time and cost estimates.  The Company  incorporates  both system and application
software,  most of  which is  licensed  from  Sunrise  Systems.  See  "-Software
License."

         The Company will contract with third party  electrical  contractors  to
install the hardware in participating  transit authority  vehicles.  The Company
has an agreement  with a Dallas  electrical  contractor  who has  installed  The
Transit  Network's  hardware in DART  vehicles,  whereby the  contractor has the
right of first refusal to install the hardware in other  transit  systems in the
United States,  unless there are union labor or transit  authority  requirements
which the contractor cannot meet.

The Transit Network's NextStop Automated Audio/Visual Announcement System

         Background

         The Transit  Network's  NextStop  unit was developed in response to the
transit industry's requirement to comply with the ADA. Based on the tests of the
NextStop   announcement  system  conducted  on  RIPTA  buses,  the  Company  has
demonstrated that its system provides hearing- and sight-impaired passengers the
same  information as  non-impaired  passengers  have with respect to bus routes,
destination and stopping points on a route.

         Among other  requirements,  the ADA  requires  transit  authorities  to
provide  hearing- and  sight-impaired  passengers  with the same type of service
they  provide to  non-impaired  passengers.  As that  relates to transit  usage,
agencies  must  provide a means for hearing- and  sight-impaired  passengers  to
determine what route they are boarding,  and what destinations are upcoming once
they begin a trip. To accomplish this,  transit  authorities must have some type
of  audio  and  visual   announcement   system  which  can   accommodate   these
requirements.

         Because of heavy capital costs  incurred for  compliance  with the ADA,
transit authorities have been forced to gradually phase in compliance with these
requirements.  Numerous  transit  agencies have issued  Expressions  of Interest
("EOIs")  or RFPs  through  public  announcements  in industry  publications  to
ascertain which vendors' products exist to address these compliance mandates.
<PAGE>

         Description

         The NextStop system provides audio and visual announcements of upcoming
stops along a bus route.  Precise  latitude and longitude  coordinates  for each
stop  along a route are  programmed  into the  NextStop  unit,  along with voice
announcements  that the  transit  authority  wishes  to make.  An  internal  GPS
receiver  tracks the  location  of the  vehicle,  and once it crosses one of the
designated latitude and longitude points, it acts as a triggering  mechanism and
activates  an  audio  announcement,  while  simultaneously  displaying  the same
message visually on a single-line LED screen.

         Using a prototype,  NextStop was  field-tested  on October 11, 1994, in
Providence,  Rhode  Island.  RIPTA  supplied a map of a typical inner city route
which had 24 major stops.  The latitude and longitude points were determined for
these stops, and then programmed into the unit, along with the appropriate audio
and visual announcements.  NextStop was initially tested for a seven-day period.
After minor  modifications,  the unit was demonstrated  again in April 1995 with
positive results.

         Competition

         Over the past twelve to eighteen  months,  competition in this industry
has  intensified,  as the number of companies  providing  automated audio and/or
visual next-stop  announcement systems has grown to approximately  twenty. While
not every  company  uses GPS as the  triggering  mechanism  for these  automated
announcement systems, at least ten companies do. Many of the latter entries into
this  market  are  defense-related  companies  who  previously  concentrated  on
marketing their GPS products to the military, but have subsequently targeted the
transit  industry as potential  users of their GPS products.  In addition to the
downward  pressure  these  competitors  create on the  pricing of the  Company's
system,  many of these  companies have financial  resources far greater than the
Company's,  creating the possibility that they will underbid smaller competitors
such as the Company for these contracts,  even though these larger companies may
lose money or just break even. There can be also be no assurance that additional
competitors will not enter this market.

         Manufacturing and Installation

         The Company does not intend to manufacture the NextStop  hardware,  but
plans to contract the manufacture and installation to third parties. The Company
believes  that there are  multiple  manufacturers  that can  supply  GPS-related
products.  However,  there is no assurance  that another source will provide the
same quality at comparable costs as the Company's existing supplier.

         Revenue from Maintenance Contracts

         In addition to revenues  resulting from the sale of NextStop units, The
Transit  Network  believes  it will be able to  generate  annual  revenues  from
maintenance  contracts  with  transit  authorities  to service and  maintain the
system's hardware and software after the warranty period has expired.

Pro.Net Communications, Inc.

         Background

         Pro.Net is a full service Internet  provider that provides local access
to the Internet,  consulting and training  services for customers  interested in
building internal Internet systems or on-line marketing  programs,  and Web page
design and development.  Pro.Net became operational in October 1994, and targets
primarily  corporate  customers and government agencies that want access to or a
presence on the Internet.
<PAGE>

         The Internet as it applies to Pro.Net

         The Internet is a global web of computer networks, allowing individuals
and companies to transfer and access data worldwide by communicating  with other
computers  or  networks  connected  to the  Internet.  All that is  required  to
successfully communicate via the Internet is a personal computer, a modem and an
Internet access provider, such as Pro.Net.

         The World Wide Web

         One  part  of  the  Internet  which  has  seen  significant  growth  in
popularity  over  the  past  few  years  is the  World  Wide  Web,  which  links
information  of various kinds and allows the user to browse these areas at will.
The Web, based on a  client/server  model and a set of standards for information
access and  navigation,  can be accessed  using  software  that allows  users to
exploit  the  capabilities  of the  Internet.  The Web  enables  users  to find,
retrieve and link all types of information available on the Internet.

         Services Provided

         Pro.Net's primary service is providing local access to the Internet for
individuals and companies in the Greater Vancouver area.  Pro.Net believes there
are a large number of potential  customers who want to access the Internet,  but
are unwilling to suffer the connection  and navigation  problems that exist with
many other Internet service providers. To address these concerns,  Pro.Net makes
every  effort to ensure that  customers  enjoy simple  first-time  access to the
Internet when using Pro.Net. This is accomplished by providing set-up assistance
if  requested,  an adequate  number of access  lines and quality  communications
equipment to ensure rapid and reliable connection to the Internet, and automated
installation  of  user-friendly  software that allows easy  navigation  once the
customer is connected to the Internet.

          Pro.Net  believes  that there will be  tremendous  growth in  internal
Internet systems, called intranets,  which allow private corporate networks that
use Internet software to link employees and business partners to share selective
information. Because of the experience and knowledge of Pro.Net's staff, Pro.Net
is  able  to  offer  training  and  consulting  services  to  customers  who are
interested  in setting up their own intranet.  Pro.Net also provides  consulting
services  for  customers  who are  interested  in  marketing  their  products or
services on the Internet.

         As a result of the Company's  acquisition of hip Communications,  Inc.,
Pro.Net  now offers Web page  design and  development  in  addition to its other
Internet-related  services.  Unlike many graphic  design  firms and  advertising
agencies, Pro.Net builds sophisticated Web sites, and will therefore continue to
target large  corporations  and  government  agencies  which  typically  require
relatively complex Web sites for their users.

         Customer Support

         In choosing an Internet  service  provider,  customers often make their
decision based on the quality of a company's  customer support.  Because Pro.Net
believes  it is of  the  utmost  importance  to  provide  prompt  and  effective
assistance  to its  customers  when  they  request  it,  it has  arranged  for a
professionally  trained staff to provide quality  customer  support  twenty-four
hours per day, seven days per week.

         Competition

         The principal competition to Pro.Net's local Internet access comes from
approximately five other Internet access companies in British Columbia,  most of
whom have larger customer bases than Pro.Net. However, many of these competitors
have  experienced  difficulties  in providing easy access and reliable  service.
Pro.Net  believes  that with its continued  commitment  to customer  service and
quality  hardware,  it will be able to  increase  its  market  share  for  these
services.
<PAGE>

         There are several  companies in British  Columbia that provide Web page
design work.  However,  many of these  competitors do not specialize in complex,
sophisticated  Web sites as Pro.Net does. In addition,  the Company believes hip
has  established a favorable  reputation  for  designing  quality Web sites from
which the Company expects to benefit.

Cyber America Corporation

         Background

         Cyber  America  is an  early  stage  development  company  which  began
operations in March 1996. With companies placing  ever-increasing  importance on
high speed  connectivity  to the  Internet,  Cyber  America was formed after its
founders  originated  a unique  design  implementation  process  which  delivers
information  to and from the  backbone of the Internet  faster than  traditional
methods. Located in Willow Grove, Pennsylvania,  Cyber America delivers Internet
access directly to the National Science Foundation  Network's  ("NSFNet") access
point, or NAP site.

         The Internet as it applies to Cyber America

         The  Internet  is a global web of  computer  networks.  Developed  over
twenty-five years ago, this network allows any computer attached to the Internet
to talk to any other using the Internet Protocol. The Internet has traditionally
been subsidized by the U.S. federal government,  but as the number of commercial
entities that rely on the Internet for business  communications and commerce has
increased,  the level of federal  subsidies has  significantly  diminished,  and
funding for the  Internet  infrastructure  and backbone  operations  has shifted
primarily to the private sector.

         Individuals  and  companies  connect  directly to the Internet  through
Internet access  services such as those provided by MCI, AGIS,  Sprint and UUNet
Technologies.  In addition,  consumer online services such as America Online and
CompuServe have also introduced  Internet access gateways for their subscribers.
With these  gateways,  large numbers of  unforeseen  users have crowded onto the
Internet,  creating  bottlenecks  and data  clogs.  This in turn has  created an
increasing demand for and interest in high speed connectivity.

         Intranet

         Intranets, which heretofore have had a lower profile than the Internet,
are private corporate  networks that use Internet software to link employees and
business partners,  allowing for selective  distribution of company information.
According to estimates by Forrester  Research Inc. of Cambridge,  Massachusetts,
the entire  market for Internet  software will grow from $342 million in 1996 to
$8.5  billion by 1999.  The  Company  believes  that  intranets  will  become an
important segment of the Internet landscape,  and will help drive the demand for
speed conscious connectivity.

         Pending Patent

         Cyber America filed a patent  application in July, 1996 for Fast Packet
Internet Access, a system which eliminates many slow network elements associated
with  Internet  connectivity  and  enhances  efficiency  and data  communication
throughput for Internet  users.  This pending patent was assigned to the Company
in connection with the acquisition of Cyber America.

         Technology

         Cyber  America  is a  first  tier  Internet  provider,  connecting  its
customers  directly to the backbone of the Internet.  Online  service  providers
such as  America  Online  and  CompuServe  offer  Internet  access  via  network
gateways,  but this forces millions of their  subscribers to share the gateway's
limited  bandwidth,  resulting in  bottlenecks  that create slow response  time.
Utilizing Cyber America's patent pending network design and its interconnections
to NSFNet's NAP sites through an  Asynchronous  Transfer  Mode ("ATM")  network,
Cyber America delivers high speed connectivity to the Internet.
<PAGE>

         Competition

         Unlike other Internet  providers which typically sell their services to
individuals  and  small  businesses,   Cyber  America  targets  speed  conscious
customers  such as ISPs and  companies  that have  built  Intranet  or Wide Area
Network  infrastructures,  by leasing them bandwidth on T-1 or DS-3 lines. Cyber
America competes primarily with the traditional  backbone providers such as MCI,
AGIS, Sprint and UUNet Technologies.  Most of these traditional access providers
are applying  technologies  that have been in use since the early  1960s,  while
Cyber America utilizes its patent pending network design,  allowing it to create
service  that is three to five times  faster  than  traditional  methods.  Cyber
America also offers a lower over-subscription ratio than most competitors.  Some
competitors  over-subscribe  their available bandwidth by ratios as high as 8:1,
while Cyber  America has  committed  to  maintaining  a 2.5:1  over-subscription
ratio. The Company believes that this low  over-subscription  ratio is important
to better handle the higher volume  applications such as video  distribution and
electronic commerce.

         Customer Support

         The  Company  believes  that it is  important  to  provide  prompt  and
effective  assistance  to  its  customers.  Cyber  America  provides  assistance
twenty-four hours a day, seven days a week. The Company  anticipates  demand for
its customer support to grow as Cyber America's customer base expands. There can
be no assurance  that the Cyber  America's  customer  support  resources will be
sufficient to manage the expansion in its customer base. A failure to adequately
match  customer  support  resources  to projected  increases in customers  could
adversely affect the Company.

SSNN License Agreement

         Background

         SSNN provides  financial  information  on public  companies to Internet
users free of charge.  SSNN designs and builds Web sites which provide  Internet
users or investors with  convenient and easily  accessible  locations where they
can find information on publicly traded companies  worldwide.  Through exclusive
license agreements,  SSNN intends to use its software and marketing expertise to
expand its  service to  foreign  equities  markets.  SSNN  granted an  exclusive
license to the Company in October 1996 to market SSNN's  service in Canada,  and
is currently  negotiating with other groups to provide SSNN's service in Europe,
Australia,  New Zealand and Hong Kong as well. The Company believes that if SSNN
is successful in establishing name identification in world-wide markets, it will
be beneficial to the Company's marketing efforts in Canada.

         The Internet as it applies to SSNN

         The Internet is a global web of computer networks, allowing anyone with
a personal  computer,  a modem and an Internet access  provider,  to talk to any
other computer or network connected to the Internet.  This connectivity  feature
means the Internet  can be used to transfer  and access data and  communications
worldwide.

         The World Wide Web

         One  part  of  the  Internet  which  has  seen  significant  growth  in
popularity  over  the  past  few  years  is the  World  Wide  Web,  which  links
information  of various kinds and allows the user to browse these areas at will.
The Web, based on a  client/server  model and a set of standards for information
access and  navigation,  can be accessed  using  software  that allows  users to
exploit  the  capabilities  of the  Internet.  The Web  enables  users  to find,
retrieve and link all types of information available on the Internet.
<PAGE>

         Description

         The  Company  believes  that SSNN's  service  fills a void in the stock
market  industry by providing  comprehensive  financial  news coverage for small
capitalization  companies  (market  caps of less  than $500  million  Canadian).
Because  of  the  difficulty  in  obtaining  this  type  of  information,  print
publishers  currently cannot efficiently  report news on small,  publicly traded
companies.  Now, however, people with access to the Internet will be able to get
this information on small  capitalization  Canadian  companies free of charge at
the Company's SSNN Web site.  Information such as historical trading data, press
releases,  regulatory filings,  current stock market quotes, current market cap,
and research reports will be available. Small capitalization companies that join
this network pay an annual subscription fee to keep this information about their
company  accurate and up-to-date.  Statistical  information for each subscribing
company is updated nightly, while press releases are updated immediately.

         For visitors to the Company's  Web site,  the objective is to offer one
stop free shopping for investors, both individual and professional, by providing
a wealth of information on small capitalization  companies that is complete,  up
to date, convenient and easily accessible, so that an investment decision can be
made without  looking any further.  In addition to one stop free shopping,  SSNN
and the Company  intend to provide a  proprietary  "E-mail  Alert"  system which
alerts  investors to important  information  about  particular  stocks or public
companies they are  following,  through their  electronic  mail  ("e-mail").  By
utilizing this feature, investors can easily be kept abreast of new developments
on a multiple number of companies  automatically,  without having to notify each
individual  public  company  when  they wish to be added to or  deleted  from an
e-mail list.

         Content

         Information on subscribing companies that will be available to visitors
of  the  Company's  Web  site  will  include:   corporate  information  -  basic
information such as address, phone numbers, trading symbol, and a description of
the company and its business; stock trading information - one and two year stock
charts,  past 52 week price  range,  30 day average  volume and  current  market
capitalization,  all updated nightly; press releases - all regular announcements
plus any  additional  pertinent  announcements  on new  products  and  services,
awarded contracts, the hiring of key personnel, etc., which may not be deemed to
be  newsworthy  enough to be picked up by the major wire  services;  information
available  from  other  sources  -  whenever  available,  research  reports  and
recommendations   by  brokerage  firms  and   newsletters,   and  articles  from
newspapers,  magazines and trade  journals;  and,  corporate  events  schedule -
notices of annual meeting, proxy deadlines,  road shows and teleconferences.  In
addition,  direct links will be provided to the subscribing  company's home page
or other related Web sites.

         The information available at the Company's Web site is not proprietary,
and the same information  could be obtained by users or investors if they wanted
to  spend  their  time  going  to  multiple  sources  to  compile  it.  However,
information on small capitalization  stocks has traditionally been hard to find.
By their very nature and definition,  most small capitalization  stocks have not
yet been "discovered". One reason for that is because information on them is not
easily  accessible,  resulting in a much less efficient  market than the markets
for mid capitalization or larger stocks.  This void of information can create an
opportunity for investors,  and the Company believes that a significant  portion
of the Canadian  investment  public will be interested  in quickly  finding this
type of  information,  especially  when it can be found at one site,  and can be
obtained for no charge.

         Strategy

         The  Company  intends to  establish  a foothold  in Canada for  on-line
financial news and e-mail services for small capitalization  companies. By first
focusing on the niche of  distributing  financial  news and e-mail  services for
small capitalization companies, the Company intends to position itself to become
highly visible,  and recognized as a credible source for small  companies.  Once
this foothold is  established,  the Company  believes it will be able to use its
user/viewer  base  to  attract   advertisers,   creating   additional   revenue.
Additionally,  the  Company  intends to  construct  other  related Web sites for
Canadian  small  capitalization  companies  which  would be built  for  specific
industries  or  categories.  For  example,  a gas and oil company  listed on the
Company's  original  SSNN Web site could  also be listed at a Web site  entitled
"GAS&OILSTOCKS."  Each Web site would have links to all other related Web sites,
and  the  subscribing  company  would  pay an  additional  fee to be  listed  at
additional sites.
<PAGE>

         Competition

         While  there  are  many  Web  sites  on  the  Internet   which  provide
information  on publicly  traded  companies,  the Company  believes few, if any,
provide credible information on small  capitalization  companies in Canada. Most
Web sites which provide financial  information on publicly traded companies fall
into one of four categories:

               Web sites providing space for public companies to advertise their
              financial  statements  and press  releases.  These  types of sites
              comprise most of the financial Internet Web sites. The information
              on them changes infrequently.  Because the information is not kept
              up to date,  it is not  credible  enough to warrant  an  immediate
              investment  decision by a visitor to the Web site, and the visitor
              is not likely to revisit the Web sites for this reason.

               Web sites where information on public companies is made available
              by  someone  who  has a  vested  interest  in the  performance  of
              specific  companies.  Typically  these  types of sites  are run by
              promoters  or  investment   newsletters.   These  types  of  sites
              discriminate,   in  that  they  select  the   companies  and  what
              information  is made  available  at their Web  sites.  Because  of
              someone's  vested  interest in the companies found at these sites,
              rarely  does the visitor see  information  that may be  negatively
              perceived,  or have easy access to documents filed with regulatory
              agencies.  These types of sites have several problems: they do not
              list enough  companies  and  information  to attract and  maintain
              heavy user  traffic;  most  investors  prefer to make up their own
              minds as to what they are looking for in possible investments, and
              often spurn promotions; and, information is typically very static.

               Web sites  maintained  by someone who is charging,  or intends to
              charge,  the end user for  information.  These  Web  sites  have a
              different marketing  approach,  one that is driven by the end user
              paying a fee to access the available information. The problem with
              these sites is that many people are reluctant to pay for access to
              Web content.  A recent research  survey  conducted by Georgia Tech
              University  indicated  that 65% of Internet  users said they would
              not be willing to pay for access to Web content.

               Web sites that are the home pages of a public company. While some
              companies make their financial information available at their home
              page, often this  information is static,  and they often they lack
              in  comprehensive  content.  Credibility can be a problem as well,
              since investors and regulators may be leery of a company appearing
              to promote its own stock on its home page.

Employees

         As of March 26, 1997, the Company had nineteen employees, of which nine
were employed by The Transit Network Division, eight by Pro.Net and two by Cyber
America.


<PAGE>

Item 2.     Properties.

         The Company  leases (i)  approximately  1,370 square feet in Dallas for
$1,781 per month  pursuant to a 3-year lease which  commenced  December 1, 1996;
(ii)  approximately  300 square feet in  Providence,  Rhode  Island for $100 per
month on a  month-to-month  basis;  (iii)  approximately  3,800  square  feet in
Vancouver,  British  Columbia for $3,847  (Canadian) per month pursuant to three
separate lease  agreements  which expire at various times through July 2000; and
(iv)  approximately  200 square feet in Willow Grove,  Pennsylvania for $725 per
month for a one-year  period which  commenced May 1, 1996. The Company  believes
its facilities are in good condition.


Item 3.     Legal Proceedings.

         On November 6, 1996, Activeware Internet Corp.  ("Activeware") and Dick
Hardt ("Hardt"),  Plaintiffs,  filed a claim against Digital Data Networks, Inc.
("DDN") and its subsidiary, hip Communications Inc. ("hip"),  Defendants, in the
Supreme Court of British Columbia, in connection with certain agreements entered
into by all parties in September  1996,  whereby Hardt agreed to sell to DDN all
of the outstanding capital stock of hip. Hardt alleges that, among other things,
he signed one of the  agreements  against his will,  certain  agreements are not
enforceable,  DDN  failed  to  provide  him with  certain  payments  and a stock
certificate in a timely  fashion,  DDN and hip breached  certain  agreements and
obligations,  and  DDN and hip  have  failed  to pay  the  Plaintiffs  for  work
performed.  The  Plaintiffs  are seeking  against  DDN and/or  hip,  among other
things,  a  declaration  that certain  agreements  are  unenforceable,  specific
performance of certain agreements,  damages of $500,000 (Canadian) for breach of
the agreements,  monies owing pursuant to certain  agreements,  general damages,
punitive damages, and costs.

         The Company  denies these claims and intends to vigorously  defend this
lawsuit,  and further in that regard,  on January 22, 1997,  DDN and hip filed a
Counterclaim  against the  Plaintiffs,  alleging that,  among other things,  the
Plaintiffs  breached  certain  terms  of  the  Stock  Purchase  Agreement,   the
Consulting Agreement,  and the Intellectual Property Transfer and Use Agreement.
DDN and hip are seeking against the Plaintiffs,  among other things,  rescission
of certain agreements,  an order compelling the Plaintiffs to transfer ownership
of the hip.com  domain name to hip  forthwith,  an order for  possession  of the
office space,  an injunction  restraining  and  enjoining  the  Plaintiffs  with
respect to the design or hosting of Web sites and to return certain confidential
information  to hip,  damages  for  misrepresentation,  damages  for  breach  of
contract, punitive damages, and costs.

         Company  management   currently  believes  that  resolving  this  legal
proceeding  will not have a material  adverse impact on the Company's  financial
position, results of operations or cash flows.


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

         No matter was submitted to a vote of security holders during the fourth
quarter of 1996.




<PAGE>

                                     PART II

Item 5.     Market for Registrant's Common Equity and Related Stockholder
            Matters.

         (a) The  Company's  Common Stock (symbol  "DIDA") and Warrants  (symbol
"DIDAW") have traded on the NASDAQ  SmallCap Market since February 13, 1996. The
following  table  sets  forth the high and low sales  prices  for the  Company's
Common Stock and Warrants as reported by the NASDAQ Stock Market for the periods
indicated:

Common Stock

        Period                                   High                   Low
        ------                                   ----                   ---
   1996:
   1st Quarter (beginning February 13, 1996)    $ 8.75                $ 6.00
   2nd Quarter                                   11.38                  6.50
   3rd Quarter                                    8.00                  4.88
   4th Quarter                                    6.13                  3.75

Warrants

        Period                                   High                   Low
        ------                                   ----                   ---
   1996:
   1st Quarter (beginning February 13, 1996)    $ 4.25                $ 2.25
   2nd Quarter                                    6.63                  2.63
   3rd Quarter                                    3.50                  1.38
   4th Quarter                                    2.00                   .88

         The above prices represent inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not represent actual transactions.


         (b) As of March 26, 1997, the Company had approximately 250
shareholders of record and 16 warrantholders of record.

         (c) The Company has never paid cash dividends on its Common Stock,  and
currently  intends to retain  earnings,  if any,  for use in the  operation  and
expansion of its  business and  therefore  does not  anticipate  paying any cash
dividends on the Common Stock in the foreseeable future.



<PAGE>


Item 6.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations.

         Background

         From  inception in October 1988,  through  December  1992,  the Company
generated  insignificant  revenues,  and as a result of the  costs and  expenses
associated  with  funding  the  development  and initial  implementation  of the
digital information  network,  the Company incurred  significant  cumulative net
losses  which were  financed by the  issuance of debt and Common  Stock.  During
1988, the Company  completed the installation of the RIPTA test market. In 1990,
the  Company  was  awarded  a  contract  from  DART  to  install  an  electronic
advertising system on all of its buses.  Installation commenced in 1991, but was
not immediately  completed,  due to insufficient financial resources to purchase
needed  equipment  and labor.  During  1993,  the Company  raised  approximately
$670,000  from the sale of Common  Stock.  These funds were used to complete the
installation  of the DART  digital  information  network and to hire  additional
sales  personnel  and  programmers.  The  DART  system  began  to  generate  its
advertising revenues.

         The  following  year  and a half  was a  transitional  period  for  the
Company,  as it continued to operate the DART and RIPTA systems,  negotiated the
conversion  of debt to  equity,  funded the  development  of a new  product  (an
automated audio/visual  next-stop  announcement system),  expanded its sales and
operations  departments  in  Dallas,  and  implemented  changes  to  its  senior
management and Board of Directors.

         During the years prior to the Company's  public  offering,  the Company
incurred  significant   financing,   legal  and  other  consulting  expenses  in
connection  with,  among other  things,  extension  of credit,  modification  of
existing contract or agreement terms, debt exchanges, services provided, and the
continued  forbearance of its creditors,  for which the Company issued shares of
its  Common  Stock and  options  to  acquire  shares of its  Common  Stock.  The
estimated fair value of such securities issued was recorded as financing,  legal
and other consulting expense.

         In February 1996,  the Company  closed its initial public  offering and
received net cash proceeds of  approximately  $5.8 million,  after deducting for
underwriter's  commissions  and certain other offering  related costs,  from the
issuance of  1,322,500  shares of its Common  Stock and  1,840,000 of its Common
Stock Purchase Warrants.

         Subsequent  to the  Company's  initial  public  offering,  the  Company
completed several business  acquisitions and an exclusive license agreement.  On
June 3, 1996,  the  Company  acquired  all of the  outstanding  common  stock of
Pro.Net, a Vancouver, British Columbia,  Canada-based Internet service provider,
for 100,000 shares of the Company's  Common Stock. On June 14, 1996, the Company
acquired all of the outstanding  common stock of Cyber America for 50,000 shares
of  the  Company's  Common  Stock.   Cyber  America,   based  in  Willow  Grove,
Pennsylvania,  offers  high-speed  access to the  backbone of the  Internet.  On
September 27, 1996, the Company acquired all of the outstanding  common stock of
hip, a Web page design firm located in Vancouver,  British Columbia,  for 30,000
shares of the Company's Common Stock.  Hip's operations have  subsequently  been
merged with Pro.Net's. On October 4, 1996, the Company entered into an exclusive
license  agreement with SSNN to offer SSNN's  financial news coverage in Canada.
In consideration of this exclusive license agreement,  the Company issued 25,000
shares of its Common Stock to SSNN.

<PAGE>

         Comparison of the Years Ended December 31, 1995 and December 31, 1996

         Revenues for the year ended December 31, 1996  increased  $185,000 from
$498,000 to $683,000 from the prior year.  This increase is primarily the result
of  contributions  from Pro.Net,  which  generated  revenues of $109,000 and was
acquired in June 1996, and Cyber America,  which  generated  revenues of $82,000
and was  acquired  in June 1996.  Revenues  from the  Transit  Network  Division
remained  relatively  unchanged,  decreasing  from  $498,000 to $493,000.  Total
expenses rose from $1,767,000 for the year ended December 31, 1995 to $2,790,000
for the year  ended  December  31,  1996 due to the  following  changes.  Direct
operating  costs  increased  approximately  $188,000,  primarily due to hardware
purchases  associated  with new Pro.Net and Cyber  America  clients,  as well as
$75,000 in amortization  expense related to the software  license.  Salaries and
related rose from $615,000 to $880,000 due to an increase of $169,000  resulting
from the Company's  1996  business  acquisitions,  and $96,000 in  discretionary
bonus awards.  Marketing,  general and  administrative  expenses  increased from
$307,000  to  $722,000  in  1996,  primarily  due to  $338,000  incurred  by the
Company's  1996 business  acquisitions,  as well as additional  working  capital
requirements for new corporate activities resulting from being a publicly traded
company.  Increases in salaries and related expenses and marketing,  general and
administrative expenses were partially offset by a decrease in financing,  legal
and other consulting expenses of $174,000,  the result of decreased requirements
for these services  subsequent to completion of the Company's  public  offering.
Product development costs and amortization of intangible assets in the amount of
$329,000 in 1996 relates to the  amortization  of intangible  assets acquired in
the Pro.Net and hip acquisitions, and the expensing of product development costs
associated with the Cyber America acquisition.

         Financial Condition

         Cash used by operating activities for the years ended December 31, 1995
and 1996 were $527,000 and $1,456,000  respectively.  In 1995 this was funded by
financing  activities  involving the issuance of Common Stock and notes payable.
In 1996, cash used by operating  activities was funded by the Company's  initial
public  offering  wherein it received net cash  proceeds of  approximately  $5.8
million,  after  deducting  for  underwriter's  commissions  and  certain  other
offering  related  costs,  from the issuance of  1,322,500  shares of its Common
Stock and  1,840,000  of its  Common  Stock  Purchase  Warrants.  The  Company's
stockholders'  equity increased from approximately  ($1,667,000) at December 31,
1995 to  $3,107,000 at December 31, 1996 as losses of  approximately  $2 million
were offset by increases to Common Stock  resulting  from the  Company's  public
offering and other  issuances of the Company's  Common Stock,  including  shares
issued in  connection  with  business  acquisitions  and debt  exchanges.  Total
borrowings  approximated  $1.2  million at December 31, 1996 as compared to $2.3
million the prior year, the change  resulting from certain current and long-term
obligations which were paid after the public offering.

         In June 1996, DART put into service 40 light rail vehicles. The Company
is interested in installing its digital  information  network on these vehicles,
and is currently discussing the terms and conditions under which that may occur.
If  an  agreement  is  reached,   the  Company  estimates  that  it  will  incur
approximately  $175,000 of additional  equipment  and  installation  costs.  The
Company  believes,  however,  that  advertising  revenues  from these light rail
vehicles  will  increase in amounts  sufficient  to offset the  initial  capital
outlay. See "Business-Digital Information Network."
<PAGE>

         In August 1996, one of the Company's noteholders exercised his right to
covert the entire amount of principal and accrued but unpaid  interest to shares
of the Company's  Common Stock.  Pursuant to that  exercise,  the Company issued
30,795  shares of its Common  Stock in exchange  for  approximately  $124,000 of
principal and interest.  Subsequent to December 31, 1996, two other  noteholders
converted   promissory  notes  of  principal  and  accrued   interest   together
approximating $161,000 to 37,023 shares of the Company's Common Stock.

         A valuation allowance has been recorded for the full amount of deferred
taxes as  realization  of such  deferred tax asset is not  considered to be more
likely than not.

         Liquidity and Capital Resources

         In  February   1996,   the  Company   received  net  cash  proceeds  of
approximately  $5.8 million,  after deducting for underwriters'  commissions and
certain other offering  related costs. The Company has utilized a portion of the
offering proceeds for the repayment of approximately $1 million of notes payable
and related  accrued  interest and payment of $225,000 of the  Expanded  License
Payment to Sunrise Systems.

         At December 31,  1996,  the  Company's  principal  assets  consisted of
approximately  $2.9  million of cash,  of which  approximately  $2.7 million was
invested  in  short-term,  interest-bearing  investments  with  banks  and other
financial institutions,  and from which interest income is earned. The Company's
total obligations of approximately $1.2 million consisted  primarily of $389,000
in accounts payable  liabilities and accrued payroll and related  expenses,  and
$579,000 as the current portion of long-term debt and expanded  software license
commitment  incurred by the Company's  Transit Network  Division.  The Company's
long-term debt at December 31, 1996 was $34,000.

         Although the Company has no present  commitments to do so, as described
more fully in the prospectus relating to the Company's stock offering, estimates
of anticipated  uses of proceeds  include  approximately  $1 million for capital
expenditures. The Company anticipates that the companies it has acquired in 1996
will require additional  working capital until they become  profitable.  Pending
use of offering proceeds to fund operating activities, capital expenditures, and
potential future business  acquisitions,  the Company has invested such proceeds
in  short-term,  interest-bearing  investments  primarily  with  banks and other
commercial institutions.

         On February 4, 1997,  the Company  signed a Letter of Intent to acquire
Advanced  Communication and Information Services ("ACIS"), a provider of digital
communication and information services to business and government organizations.
The acquisition is subject to, among other conditions,  shareholder  approval by
both  companies.  The  purchase  transaction  is  anticipated  to be  valued  at
approximately  $30  million,  comprised  of a  combination  of cash  and  stock.
Subsequent to the execution of the Letter of Intent,  the Company  advanced ACIS
$1 million pursuant to secured, short-term promissory notes.

         The Company believes that its future operating  results,  liquidity and
capital  resources  will improve,  the result of  anticipated  revenue growth by
Pro.Net  and  Cyber  America.  The  Company  believes  that with the cash it has
invested  in  short-term  financial  instruments,  interest  earned  from  these
investments,  and anticipated  revenue from  operations,  the Company's  working
capital requirements will be sufficient for at least the next 12 months.

<PAGE>

         Effect of Recently Issued Accounting Standards

         Recently issued accounting  standards having relevant  applicability to
the Company consist primarily of Statement of Financial Accounting Standards No.
128 ("SFAS 128"),  which  establishes  standards  for  computing and  presenting
earnings per share ("EPS") and has the effect of  simplifying  the standards for
computing  earnings per share and makes them  comparable  to  international  EPS
standards.  It replaces presentation of primary EPS with a presentation of basic
EPS. Basic EPS excludes dilution for the effect of common stock equivalents such
as options or warrants.  SFAS 128 is effective for financial  statements  issued
for  periods  ending  after  December  15,  1997  (earlier  application  is  not
permitted) and requires  restatement of all prior period EPS data presented.  It
is not  expected  that  adoption  of SFAS 128 will have a  significant,  if any,
effect on reported EPS data.

Item 7.     Financial Statements.

         Index to Financial Statements:                              Page
                                                                     ----
         Report of Independent Certified Public Accountants          F-1

         Consolidated Balance Sheets                                 F-2

         Consolidated Statements of Operations                       F-3

         Consolidated Statement of Stockholders' Equity (Deficit)    F-4

         Consolidated Statements of Cash Flows                       F-5

         Notes to Financial Statements                               F-6 to F-16

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

         None.

                                    PART III

Items  9,  10,  11 and 12 are  incorporated  by  reference  from  the  Company's
definitive Proxy Statement to be filed by the Company with the Commission.

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

          (a)   Exhibits - none filed with this report.

          (b)   The Registrant filed a Form 8-K with the Securities and Exchange
         Commission on June 17, 1996, to report the acquisition of Pro.Net
         Communications, Inc. The Registrant filed a Form 8-K/A with the
         Securities and Exchange Commission on October 24, 1996, to file the
         audited financial statements of Pro.Net Communications, Inc. for the
         fiscal years ended September 30, 1995 and 1994, and the unaudited
         six-month interim period ended March 31, 1996.



<PAGE>



                                   SIGNATURES

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


                     DIGITAL DATA NETWORKS, INC.
                     (Registrant)


              By:    /s/  Donald B. Scott________________
                     Donald B. Scott, Chairman of the Board
                     (Principal Executive Officer)


                                            Date: March 31, 1997


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


Signatures                        Capacity                        Date
----------                        --------                        ----

/s/  Donald B. Scott__________    Chairman of the Board,          March 31, 1997
------------------------------    President, Director,
Donald B. Scott                   (Principal Executive Officer)


/s/  James F. Biagi, Jr.________  Secretary and Director          March 31, 1997
--------------------------------
James F. Biagi, Jr.


/s/  Richard F. Rutkowski_____    Director                        March 31, 1997
------------------------------
Richard F. Rutkowski


/s/  Stephen R. Willey________    Director                        March 31, 1997
------------------------------
Stephen R. Willey


/s/  Richard J. Boeglin________   Vice President, Finance and     March 31, 1997
-------------------------------   Operations (Principal Financial
Richard J. Boeglin                and Accounting Officer)





<PAGE>




                                     F - 1

               Report of Independent Certified Public Accountants


To the Board of Directors and Stockholders of
Digital Data Networks, Inc.


         We have audited the accompanying consolidated balance sheets of Digital
Data Networks,  Inc. and its subsidiaries (the Company), as of December 31, 1995
and 1996 and the related  consolidated  statements of operations,  stockholders'
equity  (deficit)  and  cash  flows  for each of the  years  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

         In our opinion,  the consolidated  financial statements present fairly,
in all material respects, the financial position of Digital Data Networks,  Inc.
and its  subsidiaries as of December 31, 1995 and 1996, and the results of their
operations  and their cash flows for each of the years then ended in  conformity
with generally accepted accounting principles.





BDO Seidman, LLP


March 25, 1997


<PAGE>


                 See accompanying Notes to Financial Statements

                                      F - 2

                           DIGITAL DATA NETWORKS, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>

                                                                         December 31,

                                                                   1995                  1996
                                                               --------              --------
CURRENT ASSETS
<S>                                                            <C>                   <C>
   Cash and cash equivalents                                   $     12              $  2,865
   Short-term investments                                             -                   325
   Accounts receivable                                               14                    83
   Prepaid expenses and other current assets                          3                   169
                                                               --------              --------
         Total Current Assets                                        29                 3,442

Equipment, net of accumulated depreciation
   of $1,018 and $1,356                                             445                   386

Intangible Assets, net of accumulated
   amortization of $159 and $263 (Note 2)                           100                   362

Other Assets                                                         83                    87
                                                               --------              --------

TOTAL ASSETS                                                   $    657              $  4,277
                                                               ========              ========




CURRENT LIABILITIES
   Accounts payable and accrued liabilities                   $    159              $    290
   Accrued payroll and related                                      68                    99
   Notes payable and accrued interest (Note 4)                     770                    71
   Current portion of long-term debt                                76                   501
   Current portion of expanded license commitment (Note 5)           -                    78
   Unearned income                                                  54                    97
                                                              --------              --------
         Total Current Liabilities                               1,127                 1,136
                                                              --------              --------

LONG-TERM OBLIGATIONS
   Long-term debt and accrued interest (Note 4)                    947                    34
   Expanded software license commitment (Note 5)                   250                     -
         Total Long-Term Obligations                             1,197                    34
                                                              --------              --------

COMMITMENTS AND CONTINGENCIES (Notes 6, 10, 11 and 13)

STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred Stock, no par value, 1 million shares
     authorized, none issued                                         -                     -
   Common Stock, no par value, 10 million shares authorized,
     704,547 and 2,297,473 shares issued and outstanding         6,359                13,099
   Accumulated Deficit                                          (8,026)               (9,992)
                                                              --------              --------
         Total Stockholders' Equity (Deficit)                   (1,667)                3,107
                                                              --------              --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)         $     657              $  4,277
                                                             =========              ========
</TABLE>


<PAGE>

                                     F - 3

                           DIGITAL DATA NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in Thousands Except Per Share Data)



<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                                  1995                  1996
                                                                              --------              --------

<S>                                                                           <C>                   <C>
REVENUES                                                                      $    498              $    683
                                                                              --------              --------

EXPENSES:
     Direct operating costs, including depreciation of $311 and $316               465                   653
     Salaries and related                                                          615                   880
     Marketing, general and administrative                                         307                   722
     Financing, legal and other consulting (Note 7)                                380                   206
     Product development costs, including amortization of
       intangible assets (Note 2)                                                    -                   329
                                                                              --------              --------

       Total Expenses                                                            1,767                 2,790
                                                                              --------              --------

     Loss Before Other Income (Expense)                                         (1,269)               (2,107)
                                                                              --------              --------

Other income (expense)
     Interest expense                                                             (140)                  (51)
     Investment income                                                               -                   192
       Total other income (expense)                                               (140)                  141
                                                                              --------              --------

NET LOSS                                                                      $ (1,409)             $ (1,966)
                                                                              ========              ========


NET LOSS PER SHARE                                                            $  (2.17)             $  (0.98)
                                                                              ========              ========
</TABLE>


<PAGE>

                                     F - 4

                           DIGITAL DATA NETWORKS, INC.
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (in Thousands)


<TABLE>
<CAPTION>

                                                        Common Stock              Accumulated
                                                     Shares        $              Deficit            Total
                                                     ------    --------         --------------       -----
<S>                                                    <C>     <C>                <C>             <C>
Balance, January 1, 1995                                 410   $  2,938           $   (6,617)     $  (3,679)

Shares issued upon debt exchange                         239      3,139                    -          3,139

Shares issued for other than cash                         51        257                    -            257

Shares issued for exercise of options                      5         25                    -             25

Net loss                                                   -          -               (1,409)        (1,409)
                                                     -------   --------           ----------      ---------

Balance, December 31, 1995                               705      6,359               (8,026)        (1,667)

Shares issued for cash                                 1,322      6,612                    -          6,612

Warrants issued for cash                                   -        276                    -            276

Stock offering costs                                       -     (1,066)                   -         (1,066)

Shares issued in connection with acquisitions of -

   Pro.Net Communications, Inc.                          100        325                    -            325

   Cyber America Corporation                              50        163                    -            163

   hip Communications, Inc.                               30         98                    -             98

Shares issued upon debt exchange                          31        124                    -            124

Shares issued for other than cash                         59        170                    -            170

Warrants issued for other than cash                        -         38                    -             38

Net loss                                                   -          -               (1,966)        (1,966)
                                                     -------   --------           ----------      ---------

Balance, December 31, 1996                             2,297   $ 13,099           $   (9,992)     $    3,107
                                                     =======   ========           ==========      ==========
</TABLE>



<PAGE>

                                     F - 5

                           DIGITAL DATA NETWORKS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                                                  1995                  1996
                                                                              --------              --------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                           <C>                   <C>
Net Loss                                                                      $ (1,409)             $ (1,966)
    Adjustments to reconcile net loss to net cash
      used by operating activities, exclusive of the
      effects of business acquisitions
       Depreciation and amortization                                               323                   427
       Product development costs                                                     -                   329
       Other non-cash operating expense                                            219                   209
       Increase in prepaid and other current assets                                  -                  (149)
       Increase (decrease) in accrued interest                                     140                   (69)
       Increase (decrease) in accounts payable and accrued liabilities             130                  (252)
       Other                                                                        70                    15
                                                                              --------              --------
Net Cash Used by Operating Activities                                             (527)               (1,456)
                                                                              --------              --------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of equipment                                                         (24)                  (15)
    Purchases of investments                                                         -                  (325)
    Cash acquired upon acquisition of businesses                                     -                    99
                                                                              --------              --------

Net Cash Used by Investing Activities                                              (24)                 (241)
                                                                              --------              --------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from issuance of common stock, net of stock issue costs                25                 5,822
    Proceeds from issuance of notes payable                                        525                     -
    Repayment of expanded license commitment                                         -                  (225)
    Repayment of notes payable                                                     (16)               (1,047)
                                                                              --------              --------

Net Cash Provided by Financing Activities                                          534                 4,550
                                                                              --------              --------

Net Increase (decrease) in Cash and Cash Equivalents                               (17)                2,853

CASH AND CASH EQUIVALENTS
    Beginning of Period                                                             29                    12
                                                                              --------              --------

    End of Period                                                             $     12              $  2,865
                                                                              ========              ========



SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
     Exchange of debt for equity                                              $  3,139              $    124
     Common stock and warrants issued for other than cash                          257                   208
     Accounts payable converted to debt                                            318                     -
     Common stock issued in business acquisitions                                    -                   586
</TABLE>



<PAGE>


                           DIGITAL DATA NETWORKS, INC.
                          NOTES TO FINANCIAL STATEMENTS


                                     F - 6


Note 1  Description of Business and Summary of Significant Accounting Policies

Digital Data Networks, Inc. (the "Company"), a wireless, passenger communication
and  advertising  company,  is  principally  engaged  in  development,   design,
installation and operation of the "digital  information  network",  a network of
computerized electronics message displays that deliver current news, information
and  advertising  to  riders  on-board  public  transit  vehicles.  The  digital
information  network  consists of a series of  electronic  information  displays
utilizing digital radio transmission  technology.  The Company,  incorporated in
1988, has operated the digital information network in Dallas,  Texas since 1991.
The Company currently operates the digital information network on the entire bus
fleet of Dallas  Area Rapid  Transit  ("DART")  and on a portion of the buses of
Rhode Island  Public  Transit  Authority  ("RIPTA").  In July 1995,  the Company
changed  its name  from  Transit  Information  Systems,  Inc.  to  Digital  Data
Networks, Inc.

As more fully  described in Note 2, as a result of recent  acquisitions of three
Internet related businesses,  the Company is also engaged in other operating and
development activities. The Company's subsidiary,  Pro.Net Communications,  Inc.
("Pro.Net"),  provides a range of  Internet  offerings  to  business  customers,
including  connectivity  services  to local  subscribers,  intranet  services to
corporations,  and the  development of on-line  working  programs for commercial
clients.  The Company's  subsidiary,  hip Communications,  Inc. ("hip") is a Web
page design and development company targeting corporate  customers.  Pro.Net and
hip currently operate  primarily in Vancouver,  British  Columbia,  Canada.  The
Company's subsidiary, Cyber America Corporation ("Cyber America"), offers direct
high speed access to the backbone of the  Internet and targets  speed  conscious
customers  such as Internet  service  providers and companies that have built an
intranet or wide area network infrastructure. Cyber America's primary operations
are in  Pennsylvania,  and its customers are primarily  located in the northeast
region of the United States.

Principles  of   Consolidation   -  The  Company's   financial   statements  are
consolidated and include the results of operations of its acquired  subsidiaries
from the date of their  acquisition.  Pro.Net and Cyber America were acquired in
June 1996, hip was acquired in September 1996. Intercompany account balances and
transactions are eliminated in consolidation.

Accounting  Estimates - The  preparation  of financial  statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reported period.

Cash and Cash Equivalents - Cash and cash equivalents generally consist of cash,
commercial  paper and other money market  instruments.  The Company  invests its
excess  cash in  deposits  with  major  banks and  money  market  securities  of
investment  grade companies.  These securities have original  maturity dates not
exceeding three months.  Such investments are stated at cost, which approximates
fair value,  and are considered cash  equivalents for purposes of reporting cash
flows.

Equipment - Equipment is recorded at cost less accumulated depreciation based on
assets estimated useful lives ranging from five to seven years.  Depreciation is
computed using primarily the straight-line  method.  Maintenance and repairs are
expensed while major improvements are capitalized.

Intangible Assets - Intangible assets includes the cost of the expanded software
license and identifiable and  unidentifiable  assets recorded in connection with
business  combinations  accounted for utilizing purchase accounting.  Intangible
assets are amortized on a straight-line  basis over estimated  productive  lives
not exceeding five years.  Cost and accumulated  amortization of fully amortized
intangible assets are removed from the accounts.


<PAGE>


Note 1  Description of Business and Summary of Significant Accounting Policies
        (continued)

Impairment  of Long-Lived  Assets - The Company  evaluates at each balance sheet
date the carrying  value of long-lived  assets and  intangible  assets,  and the
appropriateness  of the remaining lives of such assets  considering  whether any
events have occurred or conditions  have  developed  which may indicate that the
remaining life or the amortization method requires  adjustment.  After reviewing
the  appropriateness  of the  remaining  lives,  the Company  then  assesses the
overall  recoverability of the assets by determining if the unamortized  balance
can be recovered  through  undiscounted  future  operating  cash flows.  If such
evaluations  were to  indicate  a  material  impairment  of these  assets,  such
impairment would be recognized by a write down of the applicable  asset.  Absent
any  unfavorable  findings,  the Company  continues to amortize  its  intangible
assets based upon existing estimated lives.

Other  Assets - Other  assets at  December  31, 1995  include  stock issue costs
incurred in connection with the Company's  initial public stock offering.  These
costs were deferred and recorded as a reduction in common stock upon  completion
of the stock offering in 1996.

Income Taxes - Income taxes are accounted  for  utilizing the liability  method.
Deferred  income taxes are provided to represent the tax  consequence  on future
years for temporary  differences  between tax and financial  reporting  basis of
assets and  liabilities.  A valuation  allowance has been provided for the total
amount of deferred tax assets  which would  otherwise be recorded for income tax
benefits, primarily relating to operating loss carryforwards,  as realization is
not more likely than not.

Fair  Value of  Financial  Instruments  - The  Company's  financial  instruments
include cash and cash equivalents,  short-term  investments,  and notes payable.
Amounts  recorded  for these  instruments  approximate  fair value due to either
their maturity or the nature of these instruments.

Revenue  Recognition - The Company records  revenue as advertising  services are
provided.  To the  extent  payment is  received  for  advertising  in advance of
providing  the  service,  such prepaid  amounts are recorded as unearned  income
until services are provided.

Common  Stock and Stock  Splits - The Company  records  issuances  of its common
stock and grants or  issuances  of options or warrants to acquire  such stock at
the amount of cash received or, if issued for other than cash consideration,  at
the estimated fair value of such security at the date of issuance or grant.

In October 1995, the Company  increased the number of shares of its Common Stock
authorized  to 10 million and declared and made  effective a reverse 2.236 for 1
stock split.  In June 1995, the Company  declared and made effective a reverse 4
for 1 stock  split.  All  share  and per share  information  presented  in these
financial statements give effect to the reverse stock splits.

Stock-Based  Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") encourages, but does not
require  companies  to  record   compensation  cost  for  stock-based   employee
compensation.  The Company  has chosen to  continue  to account for  stock-based
employee  compensation  utilizing  the  intrinsic  value  method  prescribed  in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees."  Accordingly,  employee  compensation  cost  for  stock  options  is
measured as the excess,  if any, of the fair market price of the Company's stock
at the date of grant over the amount an employee  must pay to acquire the stock.
Pro forma net loss and loss per share  presented on the basis as if compensation
cost had been determined pursuant to FAS 123 is disclosed in Note 6.

Loss per Common Share - Loss per common share data have been computed based upon
the weighted  average  number of shares of common stock  outstanding  during the
period and give  effect to 1995  reverse  stock  splits.  Stock  options did not
impact loss per share as they were antidilutive.  The weighted average number of
shares  of  common  stock  and  common  equivalent  shares  outstanding  for the
calculation of primary earnings per share approximated 650,000 and 1,997,000 for
1995 and 1996, respectively.
<PAGE>

Note 1  Description of Business and Summary of Significant Accounting Policies
        (continued)

On a supplemental  basis, giving effect to the exchange of debt for common stock
which occurred  during 1995, as if it had occurred at the beginning of the year,
loss per share would have  approximated  $(2.09) for the year ended December 31,
1995.  On a  supplemental  basis,  giving effect to the repayment of debt with a
portion of its initial public  offering  proceeds which occurred during 1996, as
if it had occurred at the  beginning  of the  respective  years,  loss per share
would have  approximated  $(1.47) and $(0.96) for years ended  December 31, 1995
and 1996, respectively.

Significant  Customers - Revenues  from major  customers  exceeding 10% of total
revenue included one customer  accounting for  approximately  13% and 10% of the
Company's   revenues  during  the  years  ended  December  31,  1995  and  1996,
respectively.

Reclassifications  - Certain  reclassifications  have been made to prior  period
financial statements in order to conform to current period classifications.

Effect of Recently  Issued  Accounting  Standards - Recently  issued  accounting
standards  having relevant  applicability  to the Company  consist  primarily of
Statement  of  Financial  Accounting  Standards  No.  128  ("SFAS  128"),  which
establishes  standards for computing and  presenting  earnings per share ("EPS")
and has the effect of simplifying the standards for computing earnings per share
and  makes  them  comparable  to  international   EPS  standards.   It  replaces
presentation of primary EPS with a presentation of basic EPS. Basic EPS excludes
dilution for the effect of common stock equivalents such as options or warrants.
SFAS 128 is effective for financial  statements  issued for periods ending after
December  15,  1997  (earlier   application   is  not  permitted)  and  requires
restatement  of all prior period EPS data  presented.  It is not  expected  that
adoption of SFAS 128 will have a  significant,  if any,  effect on reported  EPS
data.


Note 2  Business Acquisitions

In June 1996,  the  Company  acquired  all of the  outstanding  common  stock of
Pro.Net for 100,000 shares of the Company's common stock valued at approximately
$325,000. Shares of Company common stock issued are subject to a two year resale
restriction,  and were recorded at their estimated fair value  determined on the
basis of discounting (for, among other things,  resale  restrictions) the market
price of Company  common stock.  The total  purchase  price,  including  assumed
liabilities at their estimated fair values (which  approximated  book value), is
allocated to assets  acquired based on estimates of fair value.  Assets acquired
include  tangible  assets (which fair values are estimated to  approximate  book
value) and identifiable  intangible  assets, a customer  subscription  base. The
excess of purchase price over fair value of current assets has been allocated to
non-current  tangible  and  identifiable  intangible  assets  based  upon  their
relative   estimated  fair  values.   Intangible  assets  recorded  in  purchase
accounting approximate $325,000 and are amortized over five years.

In June 1996, the Company acquired all of the outstanding  common stock of Cyber
America for 50,000 shares of the Company's  common stock valued at approximately
$163,000. One of the Company's Directors is related to a majority shareholder of
Cyber  America.  Shares of Company common stock issued are subject to a two year
resale  restriction,  and were recorded at their estimated fair value determined
on the basis of discounting (for, among other things,  resale  restrictions) the
market  price of Company  common  stock.  The total  purchase  price,  including
assumed  liabilities  at their  estimated  fair values (which  approximate  book
value), is allocated to assets acquired based on estimates of fair value. Assets
acquired include tangible assets (which fair values are estimated to approximate
book value) and identifiable  intangible  assets,  products in development.  The
estimated value of products in development which are not deemed to have attained
technological   feasibility,   as  defined  by  generally  accepted   accounting
principles,   are   capitalized   in  purchase   accounting  in  the  amount  of
approximately  $183,000 and  immediately  expensed as product  development  cost
subsequent to recording the business combination.


<PAGE>



Note 2  Business Acquisitions (continued)

In September 1996, the Company  acquired all of the outstanding  common stock of
hip for 30,000  shares of the  Company's  common stock  valued at  approximately
$98,000.  Shares of Company common stock issued are subject to a two year resale
restriction,  and were recorded at their estimated fair value  determined on the
basis of discounting (for, among other things,  resale  restrictions) the market
price of Company  common stock.  The total  purchase  price,  including  assumed
liabilities at their estimated fair values (which  approximate  book value),  is
allocated to assets  acquired based on estimates of fair value.  Assets acquired
include  tangible  assets (which fair values are estimated to  approximate  book
value) and identifiable  intangible  assets, a customer base, and unidentifiable
intangible assets. Intangible assets recorded in purchase accounting approximate
$109,000 and are amortized over their estimated  productive lives, which are not
in excess of two years.

The following unaudited pro forma summary presents financial  information on the
basis as if the  business  combinations  of Pro.Net,  Cyber  America and hip had
occurred at the beginning of the periods presented. The pro forma information is
based on historical  information and is not necessarily indicative of results of
operations that would have occurred,  nor is it necessarily indicative of future
results of operations of the combined companies (in thousands,  except per share
data):

                                             Year Ended December 31,
                                 ------------------------------------------
                                     1995                           1996
                                 -------------                   ----------

     Revenues                      $     878                     $   1,019
                                   =========                     =========

     Net loss                      $  (1,678)                    $  (1,947)
                                   =========                     =========

     Net loss per share            $   (2.02)                    $  (0.94)
                                   =========                     ========

The  above  pro  forma  financial  information  does not  include  non-recurring
expenses of approximately  $183,000  recorded in 1996 immediately  subsequent to
recording the Cyber America business  combination relating to the estimated fair
value of intangible  assets  acquired  associated  with products in  development
which have not been determined to have yet attained technological feasibility.


Note 3  Equipment

Equipment is comprised of the following (thousands of dollars):

                                                              December 31,
                                                              ------------

                                                         1995             1996
                                                         ----             ----

DDN equipment installed in public transit vehicles     $1,390           $ 1,390
Office equipment and other                                 73               352
                                                       ------           -------
                                                        1,463             1,742

Accumulated depreciation                               (1,018)           (1,356)
                                                       ------           -------
Equipment, net                                         $  445           $   386
                                                       ======           =======



<PAGE>



Note 4  Notes Payable and Long-Term Debt

Notes  payable  due  within  one year of the  balance  sheet  dates  consist  of
unsecured  promissory  notes and are  comprised of the  following  (thousands of
dollars):

                                                          December 31,
                                                    -----------------------
                                                       1995            1996
                                                    -------        --------

5% convertible due December 1996                    $    54        $     54
   Accrued interest                                      15              17
5% due on demand and March 1996                          75               -
   Accrued interest                                      28               -
10% due December 1995                                   549               -
   Accrued interest                                      49               -

       Notes Payable and Accrued Interest           $   770        $     71
                                                    =======        ========

Long-term  debt  consists  primarily  of  promissory  notes,   unsecured  unless
otherwise indicated, and is comprised of the following (thousands of dollars):

                                                          December 31,
                                                    -----------------------
                                                       1995            1996
                                                    -------        --------

5% convertible due March 1997                       $   131        $     25
   Accrued interest                                      20               6
8% due June 1997                                        276             126
   Accrued interest                                      57              69
10% due March 1997                                      150               -
   Accrued interest                                       5               -
11% to 12% due March 1997                               155             101
   Accrued interest                                       1              10
10% secured due March 1997                              225             144
   Accrued interest                                       3               1
8.5% payable $2 monthly,
   due July 1999, collateralized by equipment
   and $60,000 of Certificates of Deposit                 -              53
                                                    -------        --------

Total Long-Term Debt and Accrued Interest             1,023             535
Current portion                                         (76)           (501)
                                                    -------        --------

Long-Term Debt and Accrued Interest                 $   947        $     34
                                                    =======        ========

After the February  1996  closing of its initial  public  offering,  the Company
repaid in full its 10% notes due December 1995 (which had been extended to March
1996),  approximately  $48,000  (including  accrued  interest)  of its 5% demand
notes,  $125,000  of its 8% notes,  $150,000  of its 10%  notes due March  1997,
$50,000 of its 10% secured notes,  and  approximately  $57,000 of its 11% to 12%
notes.


<PAGE>



Note 4  Notes Payable and Long-Term Debt (continued)

Convertible  promissory  notes (the  "Convertible  Notes")  bear  interest at an
annual  rate of 5% and are  convertible  at the  holder's  option into shares of
Company common stock at a $13.42 per share  conversion  price.  The  Convertible
Notes are  convertible  in their  separate  entire amount  including all accrued
unpaid  interest.  Interest is payable at maturity.  The  Convertible  Notes are
senior in right of payment to other Company indebtedness,  except that they rank
equally with the 8%  promissory  note and junior to trade debt.  During the year
ended December 31, 1995, certain holders of Convertible Notes, having a combined
principal and accrued interest total approximating $2.9 million,  and the holder
of the 5% $150,000  promissory  note agreed to exchange debt and related accrued
interest for approximately  232,500 shares of Company common stock. In 1995, the
Company  renegotiated  certain terms of a portion of Convertible Notes resulting
in, among other  things,  extension of the due dates from March 1996 to December
1996 and March 1997.  In 1996,  the Company  issued  30,795 shares of its common
stock upon conversion of approximately  $124,000 (including accrued interest) of
its 5% convertible notes due March 1997.

The 8% promissory  note (the "8% Note") is secured by  substantially  all of the
Company's  assets,  which  have been  pledged  pursuant  to terms of a  security
agreement.  During the year ended  December 31, 1995,  the Company  renegotiated
certain terms of the 8% Note resulting in, among other things,  extension of the
due date from June 1996 to June 1997, and in connection  therewith issued shares
of Company  common stock to the note holder.  The 8% Note is  convertible in its
entire  amount,  including all accrued unpaid  interest,  into shares of Company
common stock at a $17.89 per share  conversion  price. The 8% Note ranks equally
with  Convertible  Notes and senior to other  Company  indebtedness,  except for
unsecured  trade debt.  Interest is payable at maturity.  In February  1996, the
Company  repaid  $125,000  of the 8%  Note  pursuant  to  terms  of a  mandatory
prepayment requirement,  which was effectuated upon the Company's receipt of its
initial stock offering proceeds. As a result of having made the prepayment,  the
security interest in Company assets was released.

During  1995,  in  connection  with  the  borrowings  pursuant  to  terms of 10%
promissory  notes due  December  1995 and March 1996  (subsequently  extended to
March 1997),  the Company issued  approximately  41,000 shares of Company Common
Stock to note  holders.  The  estimated  value  shares of issued,  approximately
$205,000,  has  been  expensed  and  included  in  financing,  legal  and  other
consulting expenses.

During 1995,  the Company  renegotiated  payment terms for amounts owed to DART,
whereby its current  payable of  approximately  $225,000,  was  exchanged  for a
secured 10% note payable due May 1998, with annual $30,000 payments. Pursuant to
terms of the promissory note, as amended,  as a result of the Company's  receipt
of proceeds from its initial public stock offering in February 1996, the Company
repaid  $50,000 of this note payable and the  remaining  balance is due in March
1997.

During 1995, in connection with settlement of litigation with an individual, the
Company, among other things, (i) refinanced a portion of demand notes payable to
such individual having an approximate  balance due,  including accrued interest,
of  approximately  $53,000  whereby such payable bears interest at an annual 12%
rate  (previously  a combination  of 12.5% and 5%) and is due in $2,000  monthly
installments (previously due on demand), subject to accelerated prepayment under
certain conditions, (ii) issued approximately 10,000 warrants to purchase shares
of  Company  common  stock  at $8.94  per  share,  and,  (iii)  granted  to such
individual the exclusive right to implement the digital  information  network in
the greater Seattle market. In February 1996, the Company repaid this payable in
full.

In 1995,  the Company  reached an agreement with one of its suppliers to convert
approximately  $93,000 of accounts  payable into an 11% promissory  note payable
due March 1997. In February 1996, the Company repaid $20,000 of this payable. In
March 1997, the Company issued 18,326 shares of its common stock in exchange for
the remaining note payable and related accrued interest.

Certain of the Company's  promissory  notes totaling less than $200,000 are past
due or soon scheduled to be due in early 1997. The Company is in discussion with
the noteholders  regarding potential refinancing or exchange for common stock of
such notes.


<PAGE>



Note 4  Notes Payable and Long-Term Debt (continued)

Future  maturities of the  Company's  long term debt at December 31, 1996 are as
follows (thousands of dollars):


                        1997                                $    501
                        1998                                      21
                        1999                                      13
                                                            --------
                                                            $    535


Note 5  Software License and Supply Agreement

Pursuant  to  terms  of a 1993  agreement,  as  amended,  the  Company  licenses
substantially all of its computer software, which is an essential element of the
digital information network, from Sunrise Systems, Inc. ("Sunrise Systems"),  an
electronics  supplier and software development company. The license provides the
Company with  exclusive  rights to such  software in  metropolitan  areas of the
United States and Canada with populations  over 100,000 and nonexclusive  rights
elsewhere  in the world.  The  software  license was to terminate in 1996 if the
Company had not completed a major  financing,  as defined,  by December 1996 and
paid Sunrise Systems $250,000 plus 8% of net financing proceeds over $5 million,
up to a maximum total payment of $300,000,  (the "Expanded License Payment"). In
1996,  the Company  paid  Sunrise  Systems  $225,000  representing  the Expanded
License  Payment  amount  then due as a result of the  Company's  receipt of its
initial stock offering proceeds;  the remaining  $75,000,  together with accrued
interest is due in 1997. In March 1997,  the Company issued 18,697 shares of its
common stock in full satisfaction of the remaining obligation.

Upon payment of the Expanded License Payment,  the Company purchased an Expanded
License  which is,  among other  things,  a  perpetual,  fully paid up exclusive
license to use, modify and make derivative  works of the source code and related
materials.  Effective in 1993,  the Company  recorded  the  $250,000  contingent
minimum  payment  amount as a long-term  obligation and the cost of the Expanded
License as an intangible asset in the accompanying balance sheet. The difference
between the total $300,000  actual amount of the Expanded  License  Payment over
the  $250,000  originally  recorded  was  recorded as an increase in  intangible
assets in 1996.  Accumulated  amortization was $150,000 and $225,000 at December
31, 1995 and 1996, respectively.


Note 6  Common Stock and Stock Options

In February  1996,  the Company  closed its initial  public  stock  offering and
received net cash proceeds of  approximately  $5.9 million,  after deduction for
underwriters  commissions and certain other offering  related costs. The Company
issued  1,322,500  shares of its common stock and  1,840,000 of its common stock
purchase warrants.  The warrants entitle the holder to purchase one share of the
Company's  common  stock at an  exercise  price of $6 per share  during the five
years  commencing  upon issuance.  The warrants are  redeemable  after one year,
under certain circumstances.  The Company utilized approximately $1.1 million of
the proceeds to repay certain notes payable and related accrued interest.

The Company has granted to certain of its promissory note holders, stockholders,
officers, directors,  employees,  suppliers,  consultants and financial advisors
non-qualified  options and warrants to purchase  shares of Company common stock.
Options generally expire within 5 to 10 years of grant.


<PAGE>



Note 6  Common Stock and Stock Options (continued)

During 1994, the Company adopted a Combined  Incentive and  Non-Qualified  Stock
Option Plan (the "1994 Plan")  which  permits the issuance of options to acquire
shares of Company  common  stock.  The plan permits  grants of  incentive  stock
options to employees and of non-qualified stock options to employees, directors,
consultants  or independent  contractors  of the Company.  The exercise price of
incentive  stock options shall not be less than the fair market value of Company
common stock at the date of grant.  The exercise  price of  non-qualified  stock
options  may be greater  or less than the fair  market  value of Company  common
stock at the date of grant.  The duration of options shall be established by the
Board of  Directors,  and shall not  exceed ten  years.  The 1994 Plan  reserves
approximately  112,000  shares of common stock for grant and provides that terms
of each  award be  determined  by the  Board of  Directors.  Prior to 1996,  the
Company  granted  approximately  104,000  1994 Plan  options,  including  75,000
granted in 1995. No 1994 Plan options have been exercised.

During 1996, the Company adopted a Combined  Incentive and  Non-Qualified  Stock
Option Plan (the "1996 Plan") with provisions similar to the 1994 Plan. The 1996
Plan  reserves  approximately  250,000  shares  of  common  stock  for grant and
provides  that  terms of each  award be  determined  by the Board of  Directors.
During 1996, the Company  granted  approximately  220,000 1996 Plan options.  No
1996 Plan options have been exercised.

In connection with the Company  entering into an underwriting  agreement for its
initial  public  stock  offering,  during  1995 the  Company  and certain of its
directors,  officers  and  employees  who had been  granted  options  to acquire
Company  Common Stock at exercise  prices less than the per share offering price
of $5.00 agreed to a change in exercise price to $5.00 per share.

During  1996,  in  connection  with an  agreement  pursuant to which the Company
acquired certain financial  consulting  services,  the Company issued options to
acquire  40,000  shares of its common  stock at an  exercise  price of $6.00 per
share,  exercisable for two years. The Company recorded the estimated fair value
of such  options as expense  and an  increase in common  stock.  Further,  for a
period of six to twelve months,  the Company agreed to issue additional  options
(40,000 for each of specified share prices)  contingent upon the average closing
bid price per share of Company  common  stock  attaining  $7, $8, $9 and $10 for
twenty out of thirty  conservative day time periods. As of December 31, 1996, no
additional options have been issued or are issuable for such contingent options.

The following  summarizes stock option and warrant  transactions  during the two
years ended December 31, 1996 (thousands of shares):

<TABLE>
<CAPTION>

                                                                   Exercise Price      Weighted Average
                                                  Shares              Per Share           Exercise Price
                                           ----------------        ----------------    -----------------
<S>                                                  <C>            <C>      <C>           <C>
   Outstanding at January 1, 1995                      286          $0.09 to $53.66        $     7.64

   Granted                                             100           0.09 to   8.94              8.94
   Exercised                                            (5)          0.09 to   4.47              4.47
   Expired                                             (21)          0.09 to  53.66             53.66
                                           ----------------


   Outstanding at December 31, 1995                    360            0.09 to 19.68              5.00

   Granted                                             303            4.50 to  6.00              5.55
   Sold in initial public offering                   1,840                     6.00              6.00
   Expired                                              (5)                    8.94              8.94
                                           ----------------


   Outstanding at December 31, 1996                  2,498          $0.09 to $19.68        $     5.79
                                               ===========
</TABLE>



<PAGE>


Note 6  Common Stock and Stock Options (continued)

Information  relating  to stock  options  and  warrants  at  December  31,  1996
summarized by exercise price are as follows (thousands of shares):

<TABLE>
<CAPTION>

                                              Outstanding
                            ---------------------------------------------
                                                  Weighted Average                 Exercisable
                                         --------------------------------  ----------------------------
                                         Remaining                                          Weighted
         Range of                           Life                                            Average
      Exercise Price            Shares    in Years      Exercise Price      Shares       Exercise Price
   ------------------       ----------   ---------      --------------     --------      --------------
<S>                              <C>           <C>         <C>               <C>         <C>
   $  0.09 to $  1.12              114         5.3         $  0.37             114       $    0.37
   $  4.47 to $  5.00              120         3.5            4.95             116            4.95
          $5.50                    268         4.6            5.50              61            5.50
   $  6.00 to $  6.71            1,894         4.0            6.01           1,894            6.01
   $  8.94 to $  9.93              101         4.4            9.60             101            9.60
   $ 13.42 to $ 19.68                1         2.6           16.37               1           17.00
                            ----------                                     --------

                                 2,498         4.2         $  5.79           2,287       $    5.82
                            ==========                                     ========
</TABLE>

All stock  options  issued to  employees  during  1995 and 1996 have an exercise
price not less than the fair market value of the  Company's  common stock on the
date of grant, and in accordance with accounting for such options  utilizing the
intrinsic value method there is no related  compensation expense recorded in the
Company's   financial   statements.   Had  compensation   cost  for  stock-based
compensation  been  determined  based  on the  fair  value  at the  grant  dates
consistent  with the  method of SFAS 123,  the  Company's  net loss and loss per
share for the year ended  December  31, 1995 would not have  changed and for the
year ended  December 31, 1996 would have been increased to the pro forma amounts
presented below (in thousands, except per share data):

                                                                         1996
                                                                     -----------
                                 Net loss
                                      As reported                    $   (1,966)
                                      Pro forma                      $   (2,308)

                                 Loss per share
                                      As reported                    $   ( 0.98)
                                      Pro forma                      $   ( 1.16)

The fair value of option grants is estimated on the date of grant  utilizing the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions  for grants in 1996:  expected life of options of 5 years,  expected
volatility of 8%,  risk-free  interest rate of 6.4% and a 0% dividend yield. The
weighted  average  fair value at date of grant for options  granted  during 1996
approximated $1.34 per option. The above proforma disclosures do not include the
effect  of  options  granted  prior to 1995 that  vest in  subsequent  years and
accordingly  are not  necessarily  indicative  of the  financial  impact had the
disclosure  provisions  of SFAS 123 been  applicable  to all years for  previous
option grants.

Note 7  Related Party Transactions

Two of the co-owners and executive officers of Sunrise Systems,  the provider of
the  Company's  Expanded  License  as  described  in Note 5, are  members of the
Company's   Board  of  Advisors.   Sunrise   Systems  owns  options  to  acquire
approximately 60,000 shares of Company common stock (36,000 exercisable at $9.93
per share,  18,400 exercisable at $0.09 per share and 5,600 exercisable at $0.89
per  share).   Subsequent  to  December  31,  1996,   Sunrise  Systems  acquired
approximately  18,700  shares of Company  common  stock in exchange  for certain
amounts owed.
<PAGE>

Note 8  Income Taxes

Deferred income taxes recorded for significant temporary differences between tax
and financial reporting basis of assets and liabilities approximate $1.3 million
and $2.2  million at December  31, 1995 and 1996,  respectively,  and  primarily
relate to operating loss carryforwards.  A valuation allowance has been recorded
for the full amount of deferred  taxes as realization of such deferred tax asset
is not considered to be more likely than not.

For income tax  purposes,  at December 31, 1996,  the Company has net  operating
loss carryforwards approximating $6.4 million, which begin to expire in 2011. As
a result  of  changes  in the  Company's  stock  ownership,  utilization  of net
operating loss carryforwards could be subject to annual limitations.  The annual
amount  that could be  utilized is limited to the value of the Company as of the
date of the  change in  ownership  multiplied  by the  interest  rate on federal
long-term exempt securities at that date.


Note 9  DART and RIPTA

In October 1995,  the Company  entered into a new contract with DART,  effective
for three years and eligible for extension at DART's option, on terms similar to
the original  five-year  contract  (which  expired in October  1995) except that
royalties  payable  to DART are  reduced  from  22% to 4% of  gross  advertising
receipts.  In  addition,  as  more  fully  described  in  Note  3,  the  Company
renegotiated  payment terms of its  approximately  $225,000  payable to DART for
royalties due pursuant to terms of the original contract.

The Company's  arrangement  with RIPTA is on a month to month basis and provides
for the Company to pay RIPTA a fee of 25% of advertising revenue received.


Note 10  Leases

The Company leases FM side bands for  transmission  to electronic  display signs
located  on-board  public  transit  vehicles.  One of the FM side band leases is
pursuant to an agreement  expiring December 2001, which requires annual payments
of  $30,000.  The other FM side band  lease is on a  month-to-month  basis.  The
Company  leases certain of its office  facilities  under  operating  leases with
various  expiration  dates.  Future annual  minimum lease  payments  approximate
$54,000, $51,000, $50,000 and $15,000 in 1997 through 2000, respectively.

Rent  expense,  relating to the  aforementioned  leases and certain other office
equipment  rents,  approximated  $54,000 during each of the years ended December
31, 1995 and 1996.
<PAGE>

Note 11  Commitments and Contingencies

The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business, including the litigation described in the following
sentence.  The former  stockholder of hip has initiated a lawsuit in the Supreme
Court of British  Columbia  against hip and the Company,  claiming,  among other
things,  damages for breach of contract in the amount of approximately  $550,000
Canadian   (approximately  $400,000  U.S.),  plus  punitive  damages  which  are
unquantified.  The Company denies these claims and intends to vigorously  defend
this  lawsuit  and,  further,  in this  regard,  the Company has  counterclaimed
against the plaintiffs  for, among other things,  damages for  misrepresentation
and breach of contract.  Company  management  currently  believes that resolving
these  various  legal  proceedings  and claims will not have a material  adverse
impact on the Company's financial position, results of operations or cash flows.

Note 12  Segment and Geographic Information

Results for the Company's  operations in Canada for the year ended  December 31,
1996  included  revenues of $109,000  and loss before  other income of $521,000.
There  are  no  significant  sales  between  foreign  and  domestic  operations.
Identifiable  assets  relating to foreign  operations  approximated  $552,000 at
December  31,  1996.  As  a  result  of  its  acquisitions  of  Internet-related
businesses,  commencing in 1996 the Company operates  principally in two service
industry segments. Certain corporate administrative expenses have been allocated
to the  transit  segment  based  upon  the  nature  of the  expense.  Summarized
financial  information by business segment for 1996 is as follows  (thousands of
dollars):
<TABLE>
<CAPTION>

                                 Transit               Internet               Corporate            Consolidated
                                 -------               --------               ---------            ------------
<S>                               <C>                    <C>                   <C>                  <C>
Revenues                          $ 493                  $ 190                 $    -               $    683
                                  =====                  =====                =======               ========

Operating loss                    $(294)                 $(852)                $ (961)              $ (2,107)
                                  =====                  =====                =======               ========

Depreciation and
    amortization                  $ 241                  $ 376                 $  139               $    756
                                  =====                  =====                =======               ========

Capital expenditures              $   -                  $   2                 $   13               $     15
                                  =====                  =====                =======               ========

Identifiable assets               $ 301                  $ 659                 $3,317               $  4,277
                                  =====                  =====                =======               ========
</TABLE>


Operating  loss by segment is total  operating  revenue less expenses  which are
deemed to be related to the segment's operating revenue.  Identifiable assets by
segment  are  those  assets  that are  used in the  operation  of that  segment.
Corporate  assets consist  primarily of cash and cash equivalents and short-term
investments.
Capital expenditures are exclusive of assets acquired upon business acquisition.

Note 13  Subsequent Events

On February 4, 1997, the Company  signed a Letter of Intent to acquire  Advanced
Communication  and  Information   Services  ("ACIS"),   a  provider  of  digital
communication and information services to business and government organizations.
The acquisition is subject to, among other conditions,  shareholder  approval by
both  companies.  The  purchase  transaction  is  anticipated  to be  valued  at
approximately  $30  million  comprised  of a  combination  of  cash  and  stock.
Subsequent to the execution of the Letter of Intent,  the Company  advanced ACIS
$1 million pursuant to secured, short-term promissory notes.