<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K

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

                  For the fiscal year ended December 31, 1996

                                       OR

 (  )      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934

                        Commission File Number 333-4128

                       BOSTON COMMUNICATIONS GROUP, INC.
                       ---------------------------------
             (Exact Name of Registrant as Specified in its Charter)


MASSACHUSETTS                                           04-3026859
-------------                                         --------------
(State or Other Jurisdiction                           (I.R.S. Employer
 of Incorporation or Organization)                     Identification No.)

100 SYLVAN ROAD, WOBURN, MASSACHUSETTS                 01801
-----------------------------------------------------  --------------
(Address of Principal Executive Office)                (Zip Code)

Registrant's telephone number, including area code:    (617) 692-7000
                                                       --------------

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

          Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
                     --------------------------------------

     Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
     YES  X                              NO
         ---                                ---
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     The approximate aggregate value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing sales price of such
stock quoted on the Nasdaq National Market on March 3, 1997, was $60,446,609.
The number of shares outstanding of the Registrant's common stock, $.01 par
value per share, as of March 3, 1997 was 12,725,602.

                      DOCUMENTS INCORPORATED BY REFERENCE

     The following document is incorporated by reference in the following part
of this Form 10-K: information required by Part III (Items 10, 11, 12 and 13) of
this Annual Report on Form 10-K is incorporated from the Proxy Statement
relating to the 1997 Annual Meeting of Stockholders of the Company.

                                      -1-

<PAGE>

ITEM 1.  BUSINESS
                                   BACKGROUND
GENERAL

Boston Communications Group provides high-quality innovative call processing
services, prepaid network services, carrier support teleservices and prepaid and
voice systems to wireless telephone carriers in the United States, Mexico and
Canada.  The Company's ROAMERplus/TM/ calling service provides carriers with the
ability to generate revenues from subscribers who are not covered under
traditional roaming agreements by arranging payment for roaming calls and paying
carriers for the air time used. BCG is the leading provider of roaming services
to the unregistered roaming market. The Company's carrier support teleservices
allow wireless carriers to outsource all or a portion of their customer service
activities, and are designed to help wireless carriers retain subscribers,
reduce costs and manage growth.  In early 1996, BCG introduced its prepaid
wireless service, C2C/SM/. This service enables carrier subscribers to use their
wireless phone as if they were a post-pay subscriber, thereby expanding service
offerings to new and existing subscribers without the added billing costs and
collection risk. The Company acquired Voice Systems Technology, Inc. (VST) in
February, 1996. VST markets a voice processing platform with enhanced features
for providing prepaid cellular, voice messaging and fax mail services to
wireless and wireline carriers throughout North America. VST also manufactures
prepaid systems which are sold directly to carriers and are used to support the
Company's C2C Network.

Wireless telephone service has been one of the fastest growing areas of the
telecommunications industry over the last eleven years. The Cellular
Telecommunications Industry Association (''CTIA'') estimates that the number of
cellular subscribers in the United States increased from approximately 340,000
in December 1985 to approximately 44 million in December 1996. This represents
an increase in market penetration from under 1% to over 17% of the United States
population. The CTIA also estimates that aggregate annual service revenues from
cellular subscribers grew from approximately $482.4 million in 1985 to
approximately $23.6 billion in 1996. A number of factors have contributed to
this growth, including the build-out of the cellular network infrastructure, the
decreasing cost of cellular telephones, the increasing mobility of the United
States population, technological improvements in the size and battery life of
cellular telephones and greater acceptance of wireless telephone use.
Significant growth in the wireless telephone market is expected to continue in
the future, particularly given the emergence of new electromagnetic spectrum for
''personal communications services,'' a new form of wireless telephone service
generally known as ''PCS''.

In June 1996, the Company completed an initial public offering and sold
3,918,555 shares of its common stock which raised net proceeds of approximately
$49.8 million.  Approximately $16.3 million of the net proceeds were used to
redeem all 11,871 outstanding shares of the Company's Redeemable Preferred Stock
at a redemption price of $1,000 per share, plus $4.5 million of accrued
dividends on such stock. Approximately $3.5 million of the proceeds were used to
repay short-term borrowings under an Account Purchase Agreement and long-term
borrowings under a Master Lease Agreement.  Approximately $4.5 million of the
net proceeds were used for capital expenditures in connection with the
deployment of the C2C Network.

In January 1996, the Company purchased 17.5% of Wireless Americas Corporation
(WAC) and entered into a Distribution Agreement with WAC whereby the Company
sells WAC the equipment needed to establish the C2C Network in Latin America and
South America. In connection with the Distribution Agreement, BCG obtained a
contract to provide prepaid service in several Mexican markets on behalf of Tel-
Cel, Mexico's largest wireless carrier. In October 1996, the Company acquired an
additional 62.5% of the stock of WAC for $916,500, bringing the Company's
ownership to 80% of WAC's stock. As of February 28, 1997, the prepaid network
has been deployed in several service regions in Mexico and has over 150,000
prepaid subscribers.

BCG provides its services to wireless carriers and their subscribers in the
United States, Canada and Mexico. The Company was organized as a Massachusetts
corporation in August, 1988 and introduced its ROAMERplus calling service in
1991. The Company introduced its carrier support teleservices in 1993 and

                                      -2-

<PAGE>

its prepaid calling service in 1996. The Company's principal office is located
at 100 Sylvan Road Woburn, Massachusetts 01801 and its telephone number is (617)
692-7000.


                            DESCRIPTION OF BUSINESS


SERVICES

CALLING SERVICES

The Company's ROAMERplus service is being used by approximately 95 cellular
carriers that collectively hold licenses for over 1,100 markets in the United
States, Canada and Mexico. BCG services 9 of the 10 largest cellular carriers,
by population covered, in the United States.  The Company's ROAMERplus service
provides carriers with the ability to generate revenues from unregistered
roamers in their service area. When an unregistered roamer places a call in the
carrier's service area, the carrier's mobile switching center forwards the call,
at the Company's expense, to the Company's proprietary digital call processing
system. The roamer may complete the call by charging the call to a telephone
calling card, a commercial credit card or as a collect call. A majority of all
incoming traffic is initially handled by an automated call processing system,
which prompts the caller for billing and calling information. The Company's
specially trained service representatives handle all remaining calls as well as
calls requiring additional operator assistance.

In order to implement the Company's ROAMERplus service, a carrier need only make
a minor software change in its mobile switching centers. BCG pays for transport
of the call to its facilities and for completion of the call. Under its
agreements with carriers, which typically have a term of one year, BCG pays the
serving carrier for the air time that the roamer uses and charges the roamer for
the call. The charge for the call appears directly on the caller's telephone
bill (if the caller used a telephone calling card) or the caller's credit card
bill, with BCG (typically, under the trade name ''Cellular Express'') as the
vendor. ROAMERplus eliminates collection and fraud risk for the carrier because
BCG takes responsibility for collection from the customer. The Company manages
this collection and fraud risk by accessing available databases, including the
Company's own proprietary database, and validating the caller's credit before
completing the call.


CARRIER SUPPORT TELESERVICES

The Company designed and began providing carrier support teleservices in 1993 in
response to the industry's need for 24-hour, 365 day customer service. The
Company's teleservices program allows a carrier's subscriber to obtain
information on rate plans, phone operations and service center locations, as
well as instructions on roaming features and promotions. Subscribers also may
make billing inquiries, initiate address and rate plan changes, and obtain other
customer assistance. The Company's service centers can also assist carriers in
billing and collections. Most of the carriers using BCG's teleservices use these
services for off-hours and overflow subscriber support. However, the Company's
services range from narrowly defined, short term projects to the provision of
all of the carrier's customer service activities. The Company currently provides
teleservices to 16 wireless customers under contracts generally with terms of
one year.

The Company provides teleservices from its service centers in Burlington and
Woburn, Massachusetts. The Company designed these facilities to provide highly
efficient, rapid customer response through the deployment of state-of-the-art
switching technologies with client/server architecture and open, automatic call
delivery platforms. Each customer service representative utilizes database
interfaces, customized for each carrier, to facilitate subscriber inquiry
response, technical problem resolution, program/feature clarification, on-line
follow-up and performance reporting. These customized interfaces can be
programmed to give the Company complete access to a particular carrier's
subscriber databases. Administration of call center floor personnel is
facilitated by the use of forecasting, scheduling and monitoring systems that
allow

                                      -3-
<PAGE>

floor supervisors to observe numerous aspects of the call center's
performance in a graphical format, including information on call duration,
compliance with contract standards and operator performance.

BCG has identified additional specific teleservice needs in the wireless
industry and has developed services to meet those needs. These services allow
the carriers to better manage the demands of hiring, training, managing and
retaining a large number of customer service representatives for specialized
service projects that often place significant increased demands on the capacity
of customer service centers. For example, BCG provides teleservice support to
carriers who are currently supporting prepaid subscribers on the C2C Network.
BCG's wireless-trained representatives are available to effectively answer
subscriber questions that are not handled by C2C's automated customer service
application. Additional specialized teleservices include LAWBUST, the Cellular
Telephone Industry Association's program developed by BCG and CTIA to reduce
cellular fraud by assisting law enforcement officials through on-line access to
the CTIA's proprietary database and other techniques.  BCG also provides special
support services to carriers including Personal Identification Number (PIN)
assignments, phone number and NPA-NXX area code changes and third party
verification services.  BCG intends to continue to invest in its teleservices
technology in order to provide additional service offerings such as outbound
calling and telemarketing programs.


PREPAID NETWORK SERVICES

The Company completed the design of its C2C Network prepaid wireless service in
late 1995 and began deploying the service in 1996.  The C2C Network was designed
in response to the carrier's need to increase revenues and retain existing
subscribers by penetrating untapped market segments, which include lower usage
subscribers or those who cannot or do not want to become subscribers under
traditional monthly billing arrangements. Because of the relatively high cost of
marketing and providing wireless service, carriers have generally only accepted
subscribers that are able to meet certain credit standards. In addition, the
costs of monthly billing arrangements reduce the profitability of servicing low-
usage subscribers. Furthermore, traditional monthly billing arrangements are
often not practical for individuals who want wireless service only temporarily
or for cellular telephones with multiple users. Prepaid service provides
carriers the opportunity to offer an alternative payment approach to potential
subscribers. Accordingly, BCG's proprietary C2C software and switching
technology was developed to enable carriers to cost effectively offer their
services to new and existing subscribers on a prepaid basis.

BCG's technology allows a prepaid subscriber's call to be automatically switched
to the C2C Network where information regarding the status of that subscriber's
prepaid account is maintained. The C2C Network completes the call and debits the
account automatically without requiring the subscriber to enter a debit card
number or other information. A subscriber may establish an account with a C2C
wireless carrier by prepaying a specific dollar amount that is credited toward
future service. Subsequently, each call that is initiated or received by the
subscriber is routed to the C2C Network and rated in real time based on the
telephone number called, carrier usage charges, taxes and appropriate
surcharges. When the remaining balance is reduced to a minimal amount, the
subscriber is able to replenish the account by purchasing additional prepaid
service directly from the carrier or via commercial credit card using C2C's
automated customer service application. As a result, a prepaid subscriber
receives service substantially similar to a subscriber using traditional billing
arrangements, including the ability to make outgoing and receive incoming calls,
as well as to roam into other markets. C2C also enables carriers to offer
additional services to existing subscribers such as international dialing
without collection risk, gift giving and promotional programs. Carriers
compensate BCG for network usage by contracting at a per minute rate for
connection time between the carrier's mobile switching center and the C2C
Network voice node.

The C2C Network consists of a central computer database linked by a high speed,
wide area frame relay network to geographically distributed proprietary call
processing subsystems, called voice nodes. Each voice node is capable of serving
more than one carrier and consists of a computer controlled telecommunications
switch and an interactive voice response unit that provides high quality
personalized voice prompts. These voice nodes are linked to the carriers' mobile
switching centers via dedicated

                                      -4-
<PAGE>

telephone facilities. The distributed node architecture is designed to be
modular and scaleable while remaining efficient and cost-effective. The
centralized database enables prepaid users to make calls while roaming in other
service areas where the C2C Network is in place. In addition, prepaid
subscribers are able to use the Company's ROAMERplus service to make roaming
calls in service areas where the C2C Network is not yet in place.

As of December 31, 1996, the Company had deployed 21 C2C nodes in various
markets across the United States and 15 markets were commercially available and
in use by prepaid subscribers.  Carriers are currently in the process of
implementing BCG prepaid systems in an additional 220 U.S. markets which, when
combined with the markets where prepaid service is now available, will cover
over 50% of the U.S. population.  The Company currently provides C2C to several
carriers, including Bell Atlantic NYNEX Mobile Systems, Southwestern Bell Mobile
Systems, SNET Cellular, LA Cellular, Airtouch, Bell South Mobility and Western
Wireless' PCS Division, among others.  The Company is continuing to install, at
its expense, the voice nodes and data links that make up the C2C Network in
order to support additional market areas under existing carrier contracts and
commitments.  As of February 28, 1997, the Company had activated over 200,000
prepaid subscribers with carriers who have deployed a BCG prepaid system in the
United States and Mexico.


SYSTEMS

In February 1996, the Company acquired Voice Systems Technology, Inc.  VST's
VISIONPlatform is an enhanced voice processing system that provides the high
speed, high reliability technology required by large-capacity voice processing
network systems.  Its major applications include prepaid calling, voice
messaging, fax mail and other enhanced service applications.  VST markets its
VISIONPlatform to Original Equipment Manufacturers (OEM's) and wireless and
wireline carriers throughout the United States, Canada and  Latin America.
VST's platform uses proprietary technology that is complimentary to the
technology used in the Company's C2C Network.  As a result, in 1996, VST began
manufacturing the prepaid voice nodes that have been and continue to be deployed
to support the Company's C2C Network.

In order to support existing prepaid systems and sales efforts in Latin America,
the Company recently established a Mexican subsidiary, BCG de Mexico, S.R.L.
that is located in Mexico City.  BCG de Mexico currently employs 4 personnel who
are responsible for providing technical and service support to Tel-Cel.


ENGINEERING, RESEARCH AND DEVELOPMENT

The software for the C2C Network was developed by the Company's internal
engineering and development staff along with technology from other vendors. The
Company has developed proprietary software to enable its call processing
platform to handle custom signaling interfaces to various types of wireless
switches, specialized call rating requirements of prepaid wireless services, and
interfaces to wireless administration and management information systems. The
Company is developing a number of enhanced services that it intends to make
available to prepaid and traditional subscribers through the C2C Network. These
enhanced services will be designed to enable carriers to generate additional
sources of revenue from subscribers in addition to providing carriers with more
extensive internal reporting capabilities.

The Company spent approximately $270,000, $839,000 and $3.2 million on
engineering, research and development in 1994, 1995 and 1996, respectively.  The
Company expects to continue to devote substantial resources to its engineering,
research and development activities in future years.

                                      -5-
<PAGE>

SALES AND MARKETING

The Company's sales strategy is to establish and maintain long-term
relationships with its customers. The Company employs a consultative sales
process to understand and define customer needs and determine how those needs
can be addressed by the Company's services. BCG seeks to build upon its existing
customer relationships by integrating and cross-selling its different service
offerings. The Company's sales cycle varies for different services and can be up
to 12 months for the Company's teleservices and prepaid service.

The Company's sales force currently consists of ten sales representatives
supervised by two senior sales executives, including one who is devoted to VST
voice and prepaid system sales. The Company's sales representatives have
significant experience in the wireless industry, either as former employees of
wireless carriers or in selling products and services to wireless carriers. The
Company typically assigns each sales representative to a single group of
wireless telephone carriers in order to support the development and maintenance
of long-term customer relationships.  The sales representatives are supported by
product specific account and service managers who also typically have experience
in the wireless industry and manage the accounts on a daily basis after the
completion of the initial sale.

The Company's direct sales strategy is complemented by a marketing program that
includes participation in industry trade shows, advertising and highly targeted
direct mail. Because the Company's customers are a readily identifiable group,
the Company seeks to gain wide exposure through carefully selected events and
activities specific to the wireless telephone industry.

Most of the Company's direct sales and marketing activities are supported from
its Woburn, Massachusetts facility, however, VST's sales efforts are supported
by its Cherry Hill, New Jersey office and Latin American prepaid sales are
supported from WAC's Coral Gables, Florida office.


CUSTOMER BASE

The Company provides its services to cellular carriers of varying size,
expertise and capabilities. The Company currently provides one or more of its
services to approximately 95 wireless carriers in the United States, Canada and
Mexico, including nine of the 10 largest cellular carriers in the United States.
Historically, a significant portion of the Company's revenues in any particular
period has been attributable to a limited number of customers. Net revenues
attributable to the Company's ten largest customers accounted for approximately
81.2%, 84.6% and 82.4% of the Company's total revenues in 1994, 1995 and 1996,
respectively.  Ameritech Cellular Services, Inc. (''Ameritech Cellular''), Bell
Atlantic NYNEX Mobile ("BANMS"), SNET Mobility, Inc. (''SNET Mobility'') and
Bell South Mobility, Inc. ("BSMI") accounted for approximately 15.0%, 13.9%,
11.9% and 9.2%, respectively, of the Company's total revenues in 1995 and for
14.8%, 12.3%, 8.1% and 11.4%, respectively, of total revenues in 1996.

For the ten month period ending December 31, 1996, VST generated $4.7 million in
prepaid and voice system revenues.  Of this revenue, 65.1% represented prepaid
system sales which were deployed in Mexico to support prepaid service in several
Mexican markets on behalf of Tel-Cel, Mexico's largest wireless carrier.  VST
markets its voice systems to OEM's and wireless and wireline carriers in the
United States, Canada and Mexico.


COMPETITION

The market for services to wireless carriers is highly competitive and subject
to rapid change. A number of companies currently offer one or more of the
services offered by the Company. In addition, many wireless carriers are
providing or can provide, in-house, the services that the Company offers. Trends
in the wireless telephone industry, including greater consolidation and
technological or other developments that make it simpler or more cost-effective
for wireless carriers to provide certain services themselves, could affect

                                      -6-
<PAGE>

demand for the Company's services and could make it more difficult for the
Company to offer a cost-effective alternative to a wireless carrier's own
capabilities. In addition, the Company anticipates continued growth in the
wireless carrier services industry, and consequently, the entrance of new
competitors in the future. BCG's principal competitor in the unregistered
roaming market is National Telemanagement Corporation and in the prepaid network
market, Brite Voice Systems, Open Development Corporation and GTE
Telecommunications Services, Inc. In the carrier support teleservices market,
BCG competes with a variety of companies that have inbound and outbound service
centers. VST's principal competitors in the voice processing systems market
include Boston Technology, Inc., Octel Communications Corp. and Centigram
Communications Corp.

The Company believes that the principal competitive factors in the wireless
carrier services industry include the ability to identify and respond to
customer needs, quality and breadth of service offerings, price and technical
expertise. The Company's ability to compete also depends in part on a number of
competitive factors outside its control, including the ability to hire and
retain employees, the development by others of products and services that are
competitive with the Company's products and services, the price at which others
offer comparable products and services and the extent of its competitors'
responsiveness to customer needs.  There can be no assurance that the Company
will be able to continue to compete successfully with its existing competitors
or with new competitors.


GOVERNMENT REGULATION

The Federal Communications Commission (''FCC''), under the terms of the
Communications Act of 1934, as amended, including the Telecommunications Act of
1996, regulates interstate communications and use of the radio spectrum,
including entry, exit, rates and terms of operation. BCG presently neither
operates any facilities utilizing the radio spectrum nor has any facilities-
based services involving interstate communications. Consequently, it is not
required to and does not hold any licenses or other authorizations issued by the
FCC. However, the wireless carriers that constitute the Company's customers are
regulated at both the federal and state levels. Such regulation may decrease the
growth of the wireless telephone industry, affect the development of the PCS
market, limit the number of potential customers for the Company's services or
impede the Company's ability to offer competitive services to the wireless
market or otherwise have a material adverse effect on the Company's business and
results of operations. At the same time, the Telecommunications Act of 1996, a
deregulatory measure, may cause changes in the industry, including entrance of
new competitors and industry consolidation, which could in turn affect the
Company's cost of doing business or otherwise have a material effect on the
Company's business, financial condition and results of operations.


The Telephone Operator Consumer Services Improvement Act of 1990 (''TOCSIA'')
directed the FCC to require that operator services providers comply with a
series of provisions and make available certain information in order to protect
consumers from perceived abuses in the operator services industry. In addition,
operator services providers must submit to the FCC an informational tariff
detailing their charges for interstate communications services. BCG's calling
services involve the provision of operator services for purposes of TOCSIA. BCG
believes that it has taken appropriate steps to comply with the terms of TOCSIA
and the applicable FCC regulations, including having filed an informational
tariff with the FCC.


EMPLOYEES

As of December 31, 1996, the Company had a total of 707 full-time and part-time
employees. Of these employees, 586 serve in call center and related functions,
70 serve in technology, engineering, development, installation and
manufacturing, 24 serve in sales and marketing and 27 serve in general
administration and management. None of the Company's employees is represented by
a labor union. The Company believes that its employee relations are good.

                                      -7-
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ITEM 2.  PROPERTIES

   The Company leases space at its five principal locations: Burlington and
Woburn, Massachusetts, Cherry Hill, New Jersey,  Tulsa, Oklahoma and Coral
Gables, Florida. The Burlington and Woburn locations serve as call center
operations facilities for teleservices and ROAMERplus services.  The Woburn
location also has separate facilities that house the Company's network
operations center as well as the Company's executive headquarters, engineering,
sales and finance personnel.  The Company is in the process of leasing
additional space in its Woburn location in order to accommodate the additional
direct and indirect personnel required to support the growth and expansion of
its teleservices and C2C businesses. The Tulsa facility is used for the
manufacturing and assembly of VST systems.  Related sales efforts are in Cherry
Hill for U.S. and Canada sales and WACO's Coral Gables location for Latin
American sales.  The Company also has thirteen other leased facilities
throughout the United States which are used to house the Company's voice nodes
and certain equipment for the C2C Network.


ITEM 3.  LEGAL PROCEEDINGS

   The Company is not party to any material legal proceedings.


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

   No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 1996.

EXECUTIVE OFFICERS OF THE REGISTRANT

  The executive officers of the Company and their ages and positions are as
follows:
<TABLE>
<CAPTION>

       Name                     Age                     Position
       ----                     ---  ----------------------------------------------
<S>                             <C>  <C>

Paul J. Tobin...............     53  Chairman of the Board

Brian E. Boyle..............     48  Vice Chairman

George K. Hertz.............     50  President and Chief Executive Officer,
                                     Director

Frederick E. von Mering.....     43  Vice President, Finance and Administration,
                                     Director
</TABLE>

  Mr. Tobin has served as Chairman of the Board of Directors of the Company
since February 1996 and served as the Company's President and Chief Executive
Officer from 1990 until February 1996. Prior to joining the Company, Mr. Tobin
served as President of Cellular One Boston/Worcester from July 1984 to January
1990 and as a Regional Marketing Manager for Satellite Business Systems, a joint
venture of IBM, Comsat Corp. and Aetna Life & Casualty from April 1980 to June
1984. Mr. Tobin received his undergraduate degree in economics from Stonehill
College and his M.B.A. in marketing and finance from Northeastern University.
Mr. Tobin also serves as a member of the Board of Trustees at Stonehill College.

  Mr. Boyle has served as Vice Chairman of the Company since February 1996 and
as Chairman, New Wireless Services of the Company from January 1994 to February
1996. From July 1990 to September 1993, Mr. Boyle served as Chief Executive
Officer of Credit Technologies, Inc., a supplier of customer application
software for the cellular telephone industry. Prior to 1990, Mr. Boyle founded
and operated a number of ventures servicing the telecommunications industry,
including APPEX Corp. (now EDS Personal Communications Division of EDS
Corporation, a global telecommunications service company) and Leasecomm Corp., a
micro-ticket leasing company.

                                      -8-
<PAGE>

Mr. Boyle earned his B.A. in mathematics from Amherst College and his B.S., M.S.
and Ph.D. in electrical engineering and operations research from M.I.T. Mr.
Boyle is also a Director of Saville Systems PLC, a provider of customized
billing solutions to telecommunications providers, as well as of several private
companies.


  Mr. Hertz has served as Chief Executive Officer and President of the Company
since February 1996. From April 1988 to March 1996, Mr. Hertz served as
President of Advanced MobileCom, a wholly-owned subsidiary of Fidelity
Investment Corp., focusing on pursuing opportunities in the wireless
communications industry. Mr. Hertz also served as President of PhaseOne
Development Corporation, a communications and entertainment company, from 1984
to 1987 and in various capacities at Zip-Call, Inc., a paging company, from 1982
to 1983. Mr. Hertz received his B.A. and M.A. in political science and public
administration from the University of Massachusetts.

  Mr. von Mering has served as the Company's Vice President, Finance and
Administration since 1989. Prior to joining the Company, Mr. von Mering served
as Regional Vice President and General Manager for the paging division of
Metromedia, Inc., a communications company, from 1980 to 1986. From 1975 to
1979, Mr. von Mering was employed at Coopers & Lybrand LLP. Mr. von Mering
earned his B.A. degree in accounting from Boston College and his M.B.A. from
Babson College.

Each officer serves at the discretion of the Board of Directors. There are no
family relationships among any of the Directors and executive officers of the
Company.



                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION FOR COMMON STOCK

   Boston Communications Group, Inc.'s (BCGI) Common Stock is traded principally
on the NASDAQ National Market.  The following table reflects the range of high
and low selling prices of BCGI's common stock for the periods indicated since
the date on which the Common Stock commenced trading.
<TABLE>
<CAPTION>

                                              1996
                                       -------------------
                                        HIGH       LOW
                                       -------  ----------
<S>                                    <C>      <C>
Second Quarter                         $ 17       $ 14
Third Quarter                            14 1/4     12
Fourth Quarter                           16 1/8      4 3/8

</TABLE>
HOLDERS

At March 4, 1997, there were approximately 2,700 holders of Common Stock.


DIVIDENDS

No dividends were declared to holders of common stock in 1995 or 1996.  The
Company currently intends to retain all of its earnings to finance future growth
and, accordingly, does not anticipate paying any cash dividends in the
forseeable future. Future payment of dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs, plans for expansion and other factors the Board of
Directors may deem relevant.

                                      -9-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

   The following tables should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this report.
<TABLE>
<CAPTION>


                                                        YEAR ENDED DECEMBER 31,
                                          ----------------------------------------------------
                                            1992       1993       1994       1995    1996 (1)
                                          ---------  ---------  ---------  --------  ---------
CONSOLIDATED STATEMENTS OF OPERATIONS            (IN THOUSANDS, EXCEPT PER SHARE DATA)
 DATA:
<S>                                       <C>        <C>        <C>        <C>       <C>
Total revenues                             $ 6,275   $  8,694   $ 18,334   $34,220   $ 50,651
Operating income (loss)                        291       (269)       405     2,129        610
Income (loss) from continuing                  259       (332)       288     3,008        599
 operations(2)
Income (loss) from discontinued             (1,196)       (92)     1,507      (165)        --
 operations
Net income (loss)                             (937)      (424)     1,795     2,843        599
Net income (loss) available to common
 shareholders                               (1,967)    (1,454)       779     1,893        148
Net income (loss) per common share(3):       (0.65)     (0.45)      0.09      0.21       0.01
CONSOLIDATED BALANCE SHEET DATA:
Cash and  short-term investments               890        681        204       253     21,421
Working capital                                372        695      1,098     2,082     26,480
Property and equipment                       1,434      1,262      2,699     4,884     12,906
Total assets                                 6,107      6,889      8,867    13,614     51,959
Redeemable preferred stock                  13,901     14,930     14,947    15,896         --
Shareholders' equity (deficit)             $(9,916)  $(11,370)  $(10,591)  $(8,698)  $ 42,893
Dividends per common share                      --         --         --        --         --
</TABLE>
(1) In February 1996, the Company acquired VST for Common Stock and cash with
    an aggregate value of approximately $2.5 million.
(2) In 1995, the Company reversed the deferred tax asset valuation
    allowance, resulting in a tax benefit of $1.8 million. In addition, in 1994
    and 1995, the Company realized benefits from net operating loss
    carryforwards of $382,000 and $840,000, respectively. See Note 6 of Notes to
    Consolidated Financial Statements.
(3) See Note 2 of Notes to Consolidated Financial Statements


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

  The management's discussion and analysis of financial condition and results of
operations have been included as Appendix A to the Form 10-K.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  The financial statements and supplementary data have been included in Appendix
B to the Form 10-K.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

  None.

                                      -10-
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

  The sections entitled "Election of Directors" and "Reports Under Section 16(a)
of the Exchange Act" appearing in the Company's proxy statement for the annual
meeting of stockholders to be held on May 22, 1997, set forth certain
information with respect to the directors of the Company and reports filed by
certain persons under Section 16(a) of the Exchange Act and are incorporated
herein by reference.  Certain information with respect to persons who are or may
be deemed to be executive officers of the Company is set forth under the caption
"Executive Officers of the Company" in Part I of this report.


ITEM 11.  EXECUTIVE COMPENSATION

  The sections entitled "Executive Compensation", "Employment Agreements with
Named Executive Officers", "Stock Plans", "Report of the Compensation
Committee", and "Stock Performance Graph" appearing in the Company's proxy
statement for the annual meeting of stockholders to be held on May 22, 1997, set
forth certain information with respect to the compensation of management of the
Company and are incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The section entitled "Security Ownership of Certain Beneficial Owners and
Management" appearing in the Company's proxy statement for the annual meeting of
stockholders to be held on May 22, 1997, set forth certain information with
respect to the ownership of the Company's Common Stock and is incorporated
herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The sections entitled "Executive Compensation", "Employment Agreements with
Named Executive Officers," and "Certain Transactions" appearing in the Company's
proxy statement for the annual meeting of stockholders to be held on May 22,
1997, set forth certain information with respect to certain business
relationships and transactions between the Company and its directors and
officers and are incorporated herein by reference.


                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K

(A)(1)  FINANCIAL STATEMENTS

  The following consolidated financial statements of Boston Communications
Group, Inc. are included as Appendix A attached hereto:

Consolidated Balance Sheets-December 31, 1996 and 1995.
Consolidated Statements of Operations-Fiscal years ended December 31, 1996, 1995
and 1994.
Consolidated Statements of Stockholders' Equity-Fiscal years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows-Fiscal years ended December 31, 1996, 1995
and 1994.
Notes to Consolidated Financial Statements.

                                      -11-
<PAGE>

 (2) FINANCIAL STATEMENT SCHEDULES

  Index to Consolidated Financial Statement Schedules

For the three years 1996, 1995 and 1994:
  Schedule II - Valuation and Qualifying Accounts

 All other Schedules have been omitted because the required information is shown
in the consolidated financial statements or notes thereto or they are not
applicable.

 (3) The Exhibits listed in the Exhibit Index immediately preceding the Exhibits
are filed as part of this Annual Report on Form 10-K.

(B)  REPORTS ON FORM 8-K

 On November 7, 1996 a Form 8-K was filed with respect to the acquisition by the
Company of 62.5% of the outstanding capital stock of Wireless Americas Corp.
(WAC), a Delaware corporation. As a result of this transaction the Company now
owns 80% of the capital stock of WAC and has an option to purchase the remaining
20% of such capital stock.

                                      -12-
<PAGE>

                                   SIGNATURES


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


                                      BOSTON COMMUNICATIONS GROUP, INC.


                                      By:  /s/ George K. Hertz
                                           ------------------------
                                             GEORGE K. HERTZ
                                            PRESIDENT AND CHIEF
                                             EXECUTIVE OFFICER



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

          SIGNATURE                      TITLE                 DATE
          ---------                      -----                 ----

  /s/   George K. Hertz            President, Chief         March 24, 1997
--------------------------         Executive Officer
          George K. Hertz          and Director


/s/   Fritz von Mering             Vice President,          March 24, 1997
--------------------------         Finance and
      Fritz von Mering             Administration,
                                   Director (Principal
                                   Financial Officer)


/s/  Karen A. Walker               Controller (Principal    March 24, 1997
--------------------------         Accounting Officer)
     Karen A. Walker


/s/   Paul J. Tobin                 Chairman of the         March 24, 1997
--------------------------          Board of Directors
      Paul J. Tobin
<PAGE>

          SIGNATURE                      TITLE                 DATE
          ---------                      -----                 ----



/s/   Brian E. Boyle              Vice Chairman of the      March 24, 1997
--------------------------        Board of Directors
      Brian E. Boyle

/s/   Jerrold D. Adams            Director                  March 24, 1997
--------------------------
      Jerrold D. Adams

/s/   Craig L. Burr               Director                  March 24, 1997
--------------------------
      Craig L. Burr


/s/   James L. McLean             Director                  March 24, 1997
--------------------------
      James L. McLean


/s/   Paul R. Gudonis             Director                  March 24, 1997
--------------------------
      Paul R. Gudonis

/s/   Gerald Segel                Director                  March 24, 1997
--------------------------
      Gerald Segel
<PAGE>

                                                                     Appendix A

          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations


Overview

Boston Communications Group provides high-quality innovative call processing
services, prepaid network services, carrier support teleservices and prepaid and
voice systems to wireless telephone carriers in the United States, Canada and
Mexico. The Company's ROAMERplus calling service provides carriers with the
ability to generate revenues from subscribers who are not covered under
traditional roaming agreements by arranging payment for roaming calls and paying
carriers for the air time used. BCG is the leading provider of roaming services
to the unregistered roaming market. The Company's carrier support teleservices
allow wireless carriers to outsource all or a portion of their customer service
activities, and are designed to help wireless carriers retain subscribers,
reduce costs and manage growth. In early 1996, BCG introduced its prepaid
wireless service, C2C This service enables subscribers to use their wireless
phone as if they were a post-pay subscriber, thereby expanding service offerings
to new and existing subscribers without the added billing costs and collection
risk. The Company acquired Voice Systems Technology, Inc. (VST) in February,
1996. VST markets a voice processing platform with enhanced features for
providing prepaid cellular, voice messaging and fax mail services to wireless
and wireline carriers throughout North America. VST also manufactures prepaid
systems which are sold directly to carriers and used to support the Company's
C2C network.

  The Company has achieved significant growth in revenues over the past four
years, with total revenues increasing from $8.7 million for the year ended
December 31, 1993 to $50.7 million for the year ended December 31, 1996. Total
revenues for 1996 represent a 48.2% increase over the $34.2 million in revenues
generated in 1995. This growth resulted primarily from an increase in the number
of the Company's carrier customers, new service offerings and an increase in
demand for the Company's services due to the general growth in the cellular
industry. 14.6%, or $5 million of the increase in 1996 over 1995 was a result of
new revenues generated from prepaid network services and system sales. Operating
income for 1996 was $610,000, a decrease as compared to 1995 operating income of
$2.1 million. The reduction in earnings was principally due to significant
upfront costs and investment in the C2C network. These costs include personnel
and development costs associated with the implementation and deployment of the
C2C network. Due to an increase in the number of commitments and contracts in
place to deploy C2C in numerous additional markets throughout the United
States and the need to support future development and enhancements, the Company
expects that it will continue to incur additional capital and personnel costs to
support the C2C network. These costs and other costs to support the C2C
network will continue to be a significant percentage of revenue until the
subscriber base and usage revenues grow sufficiently to more fully absorb
operating costs.

  In June 1996, BCG completed an initial public offering and sold 3,918,555
shares of its common stock which raised net proceeds to the Company of
approximately $49.8 million. Approximately $20.8 million of the net proceeds
were used to redeem outstanding shares of the Company's Redeemable Preferred
Stock and accrued dividends on such stock. $3.5 million of the proceeds were
used to repay short-term and long-term borrowings and approximately $4.5 million
of the net proceeds were used for capital expenditures in connection with the
deployment of the C2C network.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain items in the Company's Consolidated
Statements of Operations.

<TABLE>
<CAPTION>
                                      Percentage of Total Revenues
                                         Year Ended December 31,
                                        1996       1995       1994
-------------------------------------------------------------------
<S>                                    <C>        <C>        <C>
Revenues:
  Calling service revenues              63.6%      74.4%      87.3%
  Teleservice revenues                  26.5       25.6       12.7
  Network service revenues               0.6        0.0        0.0
  System revenues                        9.3        0.0        0.0
-------------------------------------------------------------------
  Total revenues                       100.0      100.0      100.0
-------------------------------------------------------------------
Expenses:
  Cost of service revenues              72.3       76.3       77.5
  Cost of system revenues                5.1        0.0        0.0
  Engineering, research
    and development                      6.4        2.5        1.5
  Sales and marketing                    5.8        5.7        6.9
  Related party
    management fees                      0.6        2.9        5.5
  General and administrative             4.5        3.8        4.2
  Depreciation and
    amortization                         4.1        2.6        2.2
-------------------------------------------------------------------
  Total expenses                        98.8       93.8       97.8
-------------------------------------------------------------------
  Operating income                       1.2        6.2        2.2
Interest income (expense)                1.2       (0.4)      (0.3)
-------------------------------------------------------------------
Income from continuing
  operations before income taxes         2.4        5.8        1.9
Provision (benefit) for
  income taxes                           1.2       (3.0)       0.3
-------------------------------------------------------------------
Income from continuing
  operations                             1.2        8.8        1.6
Income (loss) from
  discontinued operations                0.0       (0.6)       8.2
-------------------------------------------------------------------
Net income                               1.2        8.2        9.8
Accretion of dividends on
  redeemable preferred stock             0.9        2.7        5.6
-------------------------------------------------------------------
Net income available to
  common shareholders                    0.3%       5.5%       4.2%
-------------------------------------------------------------------

</TABLE>

<PAGE>

          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  (continued)



Years Ended December 31, 1996
and 1995


Service and system revenues

Total revenues increased 48.2% from $34.2 million in the year ended December 31,
1995 to $50.7 million in the year ended December 31, 1996. Calling services
revenues increased 26.8% from $25.4 million in the year ended December 31, 1995
to $32.2 million in the year ended December 31, 1996, due primarily to increased
revenues generated by higher call volumes from existing carrier customers. The
increase in calling service revenues generated from existing carrier customers
resulted from the general growth in the number of cellular subscribers,
increased roaming by cellular subscribers and increased frequency in the
suspension of inter-carrier roaming agreements between cellular carriers due to
greater incidents of cellular fraud. Carrier support teleservice revenues
increased 52.2% from $8.8 million in the year ended December 31, 1995 to $13.4
million in the year ended December 31, 1996. This increase was primarily
attributable to new and additional services provided to existing customers and
new carrier customers. Network service revenues in 1996 of $312,000 were
generated in markets where C2C was commercially available. As of December 31,
1996, twenty-one C2C network switches were deployed in various markets
throughout the United States. Of these switches, fifteen were fully operational
and processing live transactions by the end of the year. System revenues of $4.7
million in 1996 consist principally of prepaid and voice systems sold by Voice
Systems Technology, Inc. (VST) and Wireless Americas Corporation (WAC), both
acquired by the Company in 1996.


Cost of service revenues

Cost of service revenues consist primarily of cellular network and landline
transmission costs in addition to the personnel costs associated with operator
assisted ROAMERplus calling service calls, carrier support teleservice calls and
C2C operations. Cost of service revenues increased as a percentage of service
revenues from 76.3% to 79.6% in the years ended December 31, 1995 and 1996,
respectively. The increase in cost of service revenues as a percentage of
service revenues was primarily due to the high initial operating costs as
subscribers are added and usage is generated on the C2C network and, to a
lesser extent, due to higher per minute cellular network charges for calling
service revenues. The Company expects that cost of service revenues for C2C
will continue to be a significant percentage of revenue until the subscriber
base and usage revenues grow sufficiently to more fully absorb operating costs.


Cost of system revenues

Cost of system revenues represent the cost of prepaid and voice systems sold by
VST and WAC. Cost of system revenues totaling $2.6 million represent costs
associated with systems sold in 1996.


Engineering, research and development expenses

Engineering, research and development expenses include primarily the salaries
and benefits for software development and engineering personnel associated with
the development, implementation and maintenance of existing and new services.
Engineering, research and development expenses increased 281.4% from $839,000 in
the year ended December 31, 1995 to $3.2 million in the year ended December 31,
1996 and increased as a percentage of revenues from 2.5% to 6.3% in the years
ended December 31, 1995 and 1996, respectively. This increase was principally
due to costs associated with the Company's hiring of new personnel to support
the development, implementation and deployment of the C2C network for its
prepaid service, and to a lesser extent, additional personnel to support the
expansion of its carrier support teleservices. The Company intends to continue
to significantly increase its engineering, research and development expenditures
to support future development and enhancements of its prepaid and other wireless
services.



Sales and marketing expenses

Sales and marketing expenses include direct sales force salaries and
commissions, travel and entertainment expenses, and the cost of trade shows,
advertising and other promotional expenses. Sales and marketing expenses
increased 52.6% from $1.9 million in the year ended December 31, 1995 to $2.9
million in the year ended December 31, 1996, and increased as a percentage of
revenues from 5.7% to 5.8% in the years ended December 31, 1995 and 1996,
respectively. The increase in sales and marketing expenses was due primarily to
additional expenditures to support the more sales intensive prepaid service
business and to support concentrated sales and marketing efforts related to
carrier support teleservices. The Company expects to increase expenditures on
sales and marketing in the future, particularly in connection with its prepaid
service, and such expenditures are expected to vary as a percentage of revenues.


Management fees

Management fees of $1.0 million and $252,000 for the years ended December 31,
1995 and 1996, respectively, represent the costs associated with payroll and
certain benefit costs of senior management personnel responsible for the
operations of the Company payable under the terms of a Management Agreement with
Boston Communications Capital Corporation. The Management Agreement was
terminated on March 31, 1996. As a result of the termination, the entire payroll
and related costs of these senior management personnel now are being directly
incurred by the Company and are recorded as general and administrative expenses.


General and administrative expenses

General and administrative expenses include salaries and benefits and other
expenses that provide administrative support to the Company. General and
administrative expenses increased


<PAGE>

76.9% from $1.3 million in the year ended December 31, 1995 to $2.3 million in
the year ended December 31, 1996. Total general and administrative expenses
increased as a percentage of revenues from 3.8% to 4.5% in the years ended
December 31, 1995 and 1996, respectively. This increase was primarily
attributable to an increased number of employees and related expenses to support
the Company's growth and to the costs of senior management personnel that were
classified as management fees through March 31, 1996.



Depreciation and amortization expense

Depreciation and amortization expense includes depreciation of
telecommunications systems, furniture and equipment and leasehold improvements.
The Company provides for depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to seven years.
Goodwill related to the acquisition of VST and WAC is being amortized over eight
years. Depreciation and amortization expense increased 136.2% from $889,000 in
the year ended December 31, 1995 to $2.1 million in the year ended December 31,
1996. This increase was due primarily to amortization of goodwill from the
Company's two acquisitions and depreciation of additional technical equipment
and software to support the Company's calling services, carrier support
teleservices and prepaid network services. In addition, the expansion of the
Company's call centers and VST assembly facility resulted in increased
depreciation of furniture and equipment and leasehold improvements. Depreciation
and amortization expense are expected to increase in 1997 due to a full year of
goodwill amortization from the VST and WAC acquisitions and increased
depreciation of telecommunications systems associated with carrier support
teleservices and the expansion of the C2C network.



Interest income (expense)

Interest expense was $151,000 in the year ended December 31, 1995 and interest
income was $589,000 in the year ended December 31, 1996. Interest expense in
1995 resulted from interim period borrowings under the Company's Account
Purchase Agreement which was terminated in 1996. Interest income was earned in
1996 from investments of the proceeds of the Company's initial public offering
(IPO) and was partially offset by interest expense from the Account Purchase
Agreement and capital leases.



Provision for income taxes

The income tax benefit of $1.0 million for the year ended December 31, 1995 was
attributable to the Company's reversal of its valuation reserve. The income tax
expense of $600,000 for the year ended December 31, 1996 yielded a 50% income
tax rate. The income tax rate in 1996 was due primarily to the non-deductibility
of goodwill from the VST and WAC acquisitions. The effective income tax rate is
expected to continue to be greater than 40% in 1997 due to the continued impact
of non-deductible goodwill.



Income from continuing operations

The Company recognized income from continuing operations of $2.1 million in the
year ended December 31, 1995 and $610,000 in the year ended December 31, 1996.
The decrease in income from continuing operations reflects the increased
depreciation, telecommunication costs and personnel costs associated with the
deployment of the C2C network and the expansion of the Company's facilities.
This decrease in income from continuing operations in 1996 was partially offset
by operating profit earned by VST from system sales.



Income (loss) from discontinued operations

The loss of $165,000 from discontinued operations in the year ended December 31,
1995 represents the loss from operations of $129,000 associated with the
Company's cellular sales and service business and the loss on sale of that
business of $36,000.




Years Ended December 31, 1995
and 1994


Service revenues

Total revenues increased 86.6% from $18.3 million in 1994 to $34.2 million in
1995. Calling services revenues increased 59.0% from $16.0 million in 1994 to
$25.4 million in 1995, due primarily to increased revenues generated from
existing carrier customers. The increase in revenues generated from existing
carrier customers resulted from general growth in the number of cellular
subscribers, increased roaming by cellular subscribers and increased frequency
in the suspension of inter-carrier roaming agreements between cellular carriers
due to increased fraud. Carrier support teleservice revenues increased 276.6%
from $2.3 million in 1994 to $8.8 million in 1995. Of this increase,
approximately $3.7 million was attributable to the addition of a new carrier
customer, approximately $1.5 million was attributable to increased services
provided to an existing customer and the balance was primarily attributable to
increased services provided to other existing customers.



Cost of service revenues

Cost of service revenues increased 83.7% from $14.2 million in 1994 to $26.1
million in 1995, but decreased as a percentage of revenues from 77.5% in 1994 to
76.3% in 1995. The decrease in the cost of service revenues as a percentage of
revenues was caused by the relative increase as a percentage of total revenues
of carrier support teleservices, which generally have a lower cost of services
as a percentage of revenues than calling services. This more than offset higher
per minute cellular network charges, which are a significant part of calling
services costs.



<PAGE>

          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  (continued)



Engineering, research and development expenses

Engineering, research and development expenses increased 211.3% from $270,000 in
1994 to $839,000 in 1995, and increased as a percentage of revenues from 1.5% in
1994 to 2.5% in 1995. This increase was due to the Company's hiring of new
personnel to support the development of the C2C Network for its prepaid
service, expansion of its carrier support teleservices and continued development
of new calling services.



Sales and marketing expenses

Sales and marketing expenses increased 52.5% from $1.3 million in 1994 to $1.9
million in 1995, and decreased as a percentage of revenues from 6.9% in 1994 to
5.7% in 1995. The increase in sales and marketing expenses was due primarily to
an additional $315,000 in payroll costs for existing and new sales personnel, an
additional $70,000 in trade show expenditures and additional expenditures for
other sales and marketing costs to support the more sales intensive carrier
support teleservices business and to initiate marketing efforts relating to
prepaid services. The decrease in sales and marketing expenses as a percentage
of revenues was due to the overall increase in revenues, particularly increased
revenues attributable to calling services for the Company's established
customers.



Management fees

Management fees of $1.0 million in 1994 and 1995 represent the costs associated
with payroll and certain benefit costs of senior management personnel
responsible for the operations of the Company.



General and administrative expenses

General and administrative expenses increased 70.4% from $775,000 in 1994 to
$1.3 million in 1995, due principally to an increased number of employees and
related expenses to support the Company's growth. These expenses decreased as a
percentage of revenues from 4.2% in 1994 to 3.8% in 1995. This decrease was
attributable primarily to the significant growth of revenues, which the Company
was able to achieve without a commensurate percentage increase in general and
administrative expenses.



Depreciation and amortization expense

Depreciation and amortization expense increased 124.2% from $396,000 in 1994 to
$889,000 in 1995. This increase was due primarily to depreciation of additional
equipment and furniture acquired during the period to support the Company's
carrier support teleservices business.



Interest income (expense)

Interest expense increased 135.5% from $64,000 in 1994 to $150,000 in 1995.
Borrowings under the Company's Account Purchase Agreement during 1995 ranged
from zero to $1.9 million and averaged approximately $1.1 million.



Provision (benefit) for income taxes

Income tax expense of $52,000 in 1994 and a benefit of $1.0 million in 1995 do
not have a normal relationship to pretax income because of the benefit of
federal net operating loss carryforwards and a reduction in deferred tax asset
valuation reserves. In 1994 and 1995, the benefit from applying federal net
operating loss carryforwards to taxable income was $382,000 and $840,000,
respectively. As a result of having achieved a second year of profitability and
expecting near term profitability, the Company determined that the valuation
allowance recorded upon adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," was no longer necessary. Therefore, the
Company reversed the valuation allowance in 1995, which resulted in a tax
benefit of $1.8 million. At December 31, 1995, there were no additional
unrecognized federal net operating loss carryforwards for financial reporting
purposes, and the Company had $3.0 million of net operating loss carryforwards
for federal income tax purposes that begin to expire in 2003.



Income from continuing operations

The Company generated income from continuing operations of $289,000 in 1994 and
$3.0 million in 1995. This increase reflects higher revenues achieved in 1995
for all of the Company's services, the general decline in expenses as a
percentage of revenues and the tax benefit from the reversal of the valuation
allowance relating to the Company's net operating loss carryforwards.



Income (loss) from discontinued operations

Operating income from discontinued operations decreased from $104,000 in 1994 to
a loss of $129,000 in 1995. The 1995 loss was due solely to the Company's
cellular sales and service business whose operating results decreased from
$262,000 of income in 1994 to $129,000 of losses in 1995 due to a significant
decline in revenues ($9.5 million in 1994 compared to $1.0 million in 1995)
partially offset by a significant reduction in operating expenses ($9.2 million
in 1994 compared to $1.1 million in 1995). The loss from the sale of
discontinued operations of $36,000 in 1995 was attributable to the sale of the
cellular sales and service business in December 1995. The gain on disposal of
$1.4 million in 1994 resulted from the Company's sale of its rural cellular
telephone system.



Selected Quarterly Operating Results

The following table sets forth certain unaudited quarterly results of operations
of the Company for the eight quarters in the two year period ended December 31,
1996, including such amounts expressed as a percentage of revenues. This
quarterly information is unaudited, has been prepared on the same basis as the
audited Consolidated Financial Statements and, in the


<PAGE>

option of the Company's management, reflects all necessary adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the information for the periods presented. The quarterly
operating results are not necessarily indicative of future results of
operations.



<TABLE>
<CAPTION>
                                                                            Three months ended
                                  March 31,        June 30,   Sept. 30,    Dec. 31,   March 31,    June 30,   Sept. 30,   Dec. 31,
                                    1995             1995        1995        1995        1996        1996        1996       1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                  <C>         <C>         <C>         <C>         <C>         <C>         <C>
Revenues:
  Calling service revenues         $4,606          $6,579     $ 7,387     $ 6,874     $  7,214    $  8,327    $  8,873    $  7,820
  Teleservice revenues              1,312           1,934       2,706       2,822        3,847       3,303       3,272       2,991
  Network service revenues             --              --          --          --           --          69          42         201
  System revenues                      --              --          --          --           92       1,141       1,726       1,733
----------------------------------------------------------------------------------------------------------------------------------
    Total revenues                  5,918           8,513      10,093       9,696        11,153      12,840     13,913      12,745
Expenses:
  Cost of service revenues          4,634           6,568       7,612       7,286         8,311       9,465      9,763       9,067
  Cost of system revenues              --              --          --          --            37         553      1,076         910
  Engineering, research and
    development                        99             168         321         251           419         744        957       1,101
  Sales and marketing                 398             475         532         529           558         638        680       1,073
  Related party management
    fees                              252             252         252         252           252          --         --          --
  General and
    administration                    325             333         320         343           482         621        607         618
  Depreciation and
    amortization                      175             210         246         258           359         477        557         716
----------------------------------------------------------------------------------------------------------------------------------
    Total expenses                  5,883           8,006       9,283       8,919        10,418      12,498     13,640      13,485
----------------------------------------------------------------------------------------------------------------------------------
Operating income                       35             507         810         777           735         342        273        (740)
Interest income (expense)             (16)            (35)        (46)        (53)           (6)        (75)       341         329
----------------------------------------------------------------------------------------------------------------------------------
Income from continuing
 operations before income taxes        19             472         764         724           729         267        614        (411)
Provision (benefit) for
 income taxes                           2              63         100      (1,195)          300         123        283        (106)
----------------------------------------------------------------------------------------------------------------------------------
Income from continuing
 operations                        $   17          $  409     $   664     $ 1,919       $   429     $   144    $   331     $  (305)
==================================================================================================================================
</TABLE>



<TABLE>
<CAPTION>
                                                            As a Percentage of Total Revenues
----------------------------------------------------------------------------------------------------------------------------------
                                  March 31,        June 30,   Sept. 30,    Dec. 31,   March 31,    June 30,   Sept. 30,   Dec. 31,
                                    1995             1995        1995        1995        1996        1996        1996       1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                  <C>         <C>         <C>         <C>         <C>         <C>         <C>
Revenues:
  Calling service revenues           77.8%           77.3%       73.2%       70.9%        64.7%       64.8%       63.8%       61.4%
  Teleservice revenues               22.2            22.7        26.8        29.1         34.5        25.7        23.5        23.5
  Network service revenues             --              --          --          --           --         0.5         0.3         1.6
  System revenues                      --              --          --          --          0.8         9.0        12.4        13.5
----------------------------------------------------------------------------------------------------------------------------------
    Total revenues                  100.0           100.0       100.0       100.0        100.0       100.0       100.0       100.0
Expenses:
  Cost of service revenues           78.3            77.2        75.4        75.1         74.5        73.7        70.1        71.1
  Cost of system revenues              --              --          --          --          0.3         4.3         7.7         7.1
  Engineering, research and
    development                       1.7             2.0         3.2         2.6          3.8         5.8         6.9         8.7
  Sales and marketing                 6.7             5.6         5.3         5.5          5.0         5.0         4.9         8.4
  Related party management
    fees                              4.3             2.9         2.5         2.6          2.3          --          --          --
  General and
    administrative                    5.4             3.9         3.2         3.5          4.3         4.8         4.4         4.9
  Depreciation and
    amortization                      3.0             2.5         2.4         2.7          3.2         3.7         4.0         5.6
----------------------------------------------------------------------------------------------------------------------------------
    Total expenses                   99.4            94.1        92.0        92.0         93.4        97.3        98.0       105.8
----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss)               0.6             5.9         8.0         8.0          6.6         2.7         2.0        (5.8)
Interest income (expense)            (0.3)           (0.4)       (0.5)       (0.5)        (0.1)       (0.6)        2.4         2.6
----------------------------------------------------------------------------------------------------------------------------------
Income from continuing
 operations
  before income taxes                 0.3             5.5         7.5         7.5          6.5         2.1         4.4        (3.2)
Provision (benefit) for
 income taxes                          --             0.7         1.0       (12.3)         2.7         1.0         2.0        (0.8)
----------------------------------------------------------------------------------------------------------------------------------
Income from continuing
 operations                           0.3%            4.8%        6.5%       19.8%        3.8%        1.1%        2.4%        (2.4)%

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

</TABLE>

<PAGE>



          Management's Discussion and Analysis of Financial Condition
                           and Results of Operations
                                  (continued)

  The Company has experienced fluctuations in its quarterly operating results
and anticipates that such fluctuations will continue and could intensify. The
Company's quarterly operating results may vary significantly depending on a
number of factors, including the timing of the introduction or acceptance of new
services offered by the Company or its competitors, changes in the mix of
services provided by the Company, changes in regulations affecting the wireless
industry, changes in the Company's operating expenses, personnel changes, and
general economic conditions. In particular, the Company's calling service
revenues are affected by the frequency and volume of use of the Company's
services, which may be influenced by seasonal trends, as well as changes in
demand during particular periods due to a higher or lower incidence of temporary
suspension of inter-carrier roaming agreements in certain markets. Carrier
support teleservice revenues may be influenced by the requirements of one of
more of the Company's significant carrier support teleservice customers,
including engagement of the Company for implementing or assisting in
implementing special projects of limited duration. In this regard, the Company's
carrier support teleservice revenues were favorably affected in the second and
third quarters of 1995 by the Company's implementation of a special project for
one of its major carrier customers.

  Because a significant portion of the Company's operating expenses are
committed in advance, the Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly,
unexpected revenue shortfalls could cause significant variations in operating
results from quarter to quarter and could have a material adverse effect on the
Company's results of operations. As a result, the Company believes that period-
to-period comparisons of its results of operations are not necessarily
meaningful and shouldn't be relied upon as an indication of likely future
performance.

  During 1996, the Company made significant investments in personnel and
infrastructure to support the development and deployment of the C2C network.
These strategic investments have adversely impacted earnings in the fourth
quarter of 1996 and the Company expects that these strategic investments will
continue to impact earnings in the short term.



Liquidity and Capital Resources

Net cash provided by operations was $2.0 million in 1995 and net cash used in
operations was $1.4 million in 1996. In the year ended December 31, 1996,
accounts receivable increased $3.2 million which was principally due to sales of
VST systems and additional revenues generated from the Company's carrier support
teleservices and calling services businesses. Inventory increased $1.1 million
during the year ended December 31, 1996 due to the acquisition of VST.

  The Company's investing activities utilized $31.0 million of net cash during
the year ended December 31, 1996. The proceeds of the IPO were invested in
short-term investments until needed to finance the growth of the business. In
addition, approximately $846,000, net of cash acquired, was paid to purchase VST
and an 80% interest in WAC. The Company acquired the net assets of VST for
Common Stock and cash with an aggregate value of $2.5 million. The 80% interest
in WAC was acquired for $952,000 in cash. The Company expended $9.6 million to
purchase and finance property and equipment to support the expansion and growth
of its business. These purchases consisted of $6.7 million of telecommunications
systems and systems in development primarily related to the Company's C2C
network. Furniture and equipment and leasehold improvements of $2.9 million were
added in 1996 to support the opening of the Company's new call center, to equip
newly hired personnel and to support the expansion of the Company's assembly
facility at VST. The Company anticipates capital expenditures over the next 12
months for additional equipment to support the Company's teleservices growth as
well as the continuing development and deployment of the C2C network for its
prepaid service as additional new switches are expected to be deployed
throughout various United States markets in 1997.

  The Company's financing activities generated net cash of $31.6 million in
1996. Through the IPO, the Company raised proceeds of $49.8 million, a portion
of which was utilized to repay $11.9 million of redeemable preferred stock and
accreted dividends of $4.4 million. The proceeds were also used to finance
equipment purchases in 1996 which primarily related to the C2C network, to
repay the $2.0 million which was outstanding under the Account Purchase
Agreement and to repay $1.5 million outstanding under capital leases.

  The Company believes that its short-term investments and funds anticipated to
be generated from operations will be sufficient to finance the Company's
operations for at least the next 18 months.



Certain Factors That May Affect
Future Results

This Annual Report contains forward-looking statements that involve risks and
uncertainties including statements regarding increased research and development
expenditures, costs of deploying the C2C network and increased expenditures
for sales and marketing. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. A number of
uncertainties exist that could affect the Company's future operating results,
including, without limitation, technological changes in the Company's industry,
the ability of the Company to develop and successfully deploy its C2C network,
the Company's ability to retain existing customers and attract new customers,
increased competition and general economic factors.



<PAGE>

  Historically, a significant portion of the Company's revenues in any
particular period have been attributable to a limited number of customers. This
concentration of customers can cause the Company's revenues and earnings to
fluctuate from quarter to quarter, based on the volume of call traffic generated
from these customers or the services being performed for the carrier support
teleservice programs. A significant decrease in business from any of the
Company's major customers, including a decrease in business due to factors
outside of the Company's control, would have a material adverse effect on the
Company's business, financial condition and results of operations.

  The Company historically has provided all of its services to cellular
carriers, including roaming services and carrier support services. Although the
cellular market has experienced significant growth in recent years, there can be
no assurance that such growth will continue at similar rates, or at all, or that
cellular carriers will continue to use the Company's services. In addition, the
prepaid wireless service and PCS markets are in their initial stages of
development, and if these markets do not grow as expected or if the carriers in
these markets do not use the Company's services, the Company's business,
financial condition and results of operations would be materially and adversely
affected.

  The Company's future success depends, in large part, on the continued use of
its existing services, the acceptance of new services in the wireless industry,
such as prepaid service, and the Company's ability to develop services that keep
pace with changes in the wireless telephone industry. Further, a rapid shift
away from the use of cellular in favor of other services, such as PCS, could
affect demand for the Company's service offerings and could require the Company
to develop modified or alternative service offerings to address the particular
needs of the providers of such new services. There can be no assurance that the
Company will be successful in developing or marketing its existing or future
service offerings in a timely manner, or at all.

  The Company is currently devoting significant resources toward the development
and deployment of its wireless prepaid service, including deployment of its
C2C network. There can be no assurance that the Company will successfully
complete the development and deployment of the C2C network or its prepaid
service in a timely fashion, that the market for the Company's prepaid service
will develop, or that the Company's C2C network will operate successfully.

  Recently, the Company has expanded its operations rapidly, which has created
significant demands on the Company's administrative, operational, development
and financial personnel and other resources. Additional expansion by the Company
may further strain the Company's management, financial and other resources.
There can be no assurance that the Company's systems, procedures, controls and
existing space will be adequate to support expansion of the Company's
operations. If the Company's management is unable to manage growth effectively,
the quality of the Company's services, its ability to retain key personnel and
its business, financial condition and results of operations could be materially
and adversely affected.

  The market for services to wireless carriers is highly competitive and subject
to rapid change. A number of companies currently offer one or more of the
services offered by the Company. In addition, wireless carriers are providing or
can provide, in-house, the services that the Company offers. In addition, the
Company anticipates continued growth and competition in the wireless carrier
services industry and consequently, the entrance of new competitors in the
future. An increase in competition could result in price reductions and loss of
market share. Any resulting reduction in gross margins could have a material
adverse effect on the Company's business, financial condition or results of
operations.

  The Company's success and ability to compete is dependent in part upon its
proprietary technology. If unauthorized copying or misuse of the Company's
technology were to occur to any substantial degree, the Company's business,
financial condition and results of operations could be materially adversely
affected. In addition, some of the software used to support the Company's
roaming services and prepaid services is licensed by the Company from single
vendors, which are small corporations. There can be no assurance that these
suppliers will continue to license this software to the Company or, if any
supplier terminates its agreement with the Company, that the Company will be
able to develop or otherwise procure software from another supplier on a timely
basis and at commercially acceptable prices.

  The Company's operations are dependent on its ability to maintain its
computer, switching and other telecommunications equipment and systems in
effective working order and to protect its systems against damage from fire,
natural disaster, power loss, telecommunications failure or similar events. Any
damage, failure or delay that causes interruptions in the Company's operations
could have a material adverse effect on the Company's business, financial
condition and results of operations.


<PAGE>

                                                                     Appendix B


                          Consolidated Balance Sheets
              (In thousands, except share and per share amounts)
<TABLE>
<CAPTION>

                                                                                        December 31,
                                                                                       1996      1995
<S>                                                                                  <C>       <C>
-------------------------------------------------------------------------------------------------------
Assets
Current assets:
  Cash and cash equivalents                                                          $   923   $   253
  Short-term investments                                                              20,498        --
  Accounts receivable, net of allowance for billing adjustments and
   doubtful accounts of $884 in 1995 and $1,242 in 1996                               11,060     6,250
  Inventory                                                                            1,189        --
  Deferred income taxes                                                                1,334     1,800
  Prepaid expenses                                                                       495       194
-------------------------------------------------------------------------------------------------------
      Total current assets                                                            35,499     8,497
Property and equipment:
  Telecommunication systems                                                            9,169     4,312
  Furniture and equipment                                                              3,359     1,123
  Leasehold improvements                                                                 903       225
  Systems in development                                                               2,658       734
-------------------------------------------------------------------------------------------------------
                                                                                      16,089     6,394
Less allowances for depreciation and amortization                                      3,183     1,510
-------------------------------------------------------------------------------------------------------
                                                                                      12,906     4,884
Goodwill, net                                                                          3,159        --
Other assets                                                                             395       232
-------------------------------------------------------------------------------------------------------
      Total assets                                                                   $51,959   $13,613
-------------------------------------------------------------------------------------------------------
Liabilities, Redeemable Preferred Stock and Shareholders' Equity
Current liabilities:
  Accounts payable                                                                   $ 1,371   $ 1,277
  Accrued expenses                                                                     7,158     4,428
  Income taxes payable                                                                   490       710
-------------------------------------------------------------------------------------------------------
      Total current liabilities                                                        9,019     6,415
Minority interest                                                                         47        --
Redeemable Preferred Stock, non-voting, par value $100 per share,
  13,000 shares authorized, 11,871 shares issued and outstanding in 1995                  --    15,896
Commitments and contingencies
Shareholders' equity:
  Convertible Preferred Stock, $1.00 par value per share,
    1,325 shares authorized, 850 shares issued and outstanding in 1995                    --         1
  Preferred Stock, no par value, 2,000,000 shares authorized,
    0 shares issued and outstanding  in 1996                                              --        --
  Common Stock, voting, par value $.01 per share, 35,000,000 shares authorized,
    3,335,985 shares in 1995 and 12,725,749 shares in 1996 issued and outstanding        127        33
  Additional paid-in capital                                                          52,738     1,016
  Treasury Stock (46,420 shares in 1996, at cost)                                       (372)       --
  Accretion of dividends on Redeemable Preferred Stock                                    --    (4,025)
  Accumulated deficit                                                                 (9,600)   (5,723)
-------------------------------------------------------------------------------------------------------
      Total shareholders' equity (deficit)                                            42,893    (8,698)
-------------------------------------------------------------------------------------------------------
      Total liabilities, redeemable preferred stock and shareholders' equity         $51,959   $13,613
-------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>

                     Consolidated Statements of Operations
              (In thousands, except share and per share amounts)
<TABLE>
<CAPTION>

                                                                                               Year Ended December 31,
                                                                                              1996       1995      1994
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>       <C>       <C>
Revenues:
  Calling service revenues                                                                   $32,234   $25,446   $16,004
  Teleservice revenues                                                                        13,413     8,774     2,330
  Network service revenues                                                                       312        --        --
  System revenues                                                                              4,692        --        --
-------------------------------------------------------------------------------------------------------------------------
                                                                                              50,651    34,220    18,334
Expenses:
  Cost of service revenues                                                                    36,606    26,100    14,212
  Cost of system revenues                                                                      2,576        --        --
  Engineering, research and development                                                        3,221       839       270
  Sales and marketing                                                                          2,949     1,934     1,268
  Related party management fees (see Note 9)                                                     252     1,008     1,008
  General and administrative                                                                   2,328     1,321       775
  Depreciation and amortization                                                                2,109       889       396
-------------------------------------------------------------------------------------------------------------------------
                                                                                              50,041    32,091    17,929
-------------------------------------------------------------------------------------------------------------------------
Operating income                                                                                 610     2,129       405
Interest income (expense)                                                                        589      (151)      (64)
-------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes                                          1,199     1,978       341
Provision (benefit) for income taxes                                                             600    (1,030)       53
-------------------------------------------------------------------------------------------------------------------------
Income from continuing operations                                                                599     3,008       288
Discontinued operations:
  Income (loss) from operations                                                                   --      (129)      104
  Gain (loss) on disposal                                                                         --       (36)    1,403
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations                                                        --      (165)    1,507
-------------------------------------------------------------------------------------------------------------------------
Net income                                                                                       599     2,843     1,795
Accretion of dividends on redeemable preferred stock                                            (451)     (950)   (1,016)
-------------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders                                                   $  148   $ 1,893   $   779
-------------------------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders per common share:
  Continuing operations                                                                       $  0.01  $  0.22   $ (0.08)
-------------------------------------------------------------------------------------------------------------------------
  Net income                                                                                  $  0.01  $  0.21   $  0.09
-------------------------------------------------------------------------------------------------------------------------
Shares used in computing net income per common share                                           11,259    9,179     8,848
-------------------------------------------------------------------------------------------------------------------------
Supplemental net income available to common shareholders per common share                     $  0.05  $    --   $    --
-------------------------------------------------------------------------------------------------------------------------
Shares used in computing supplemental net income per common share                             12,427        --        --
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.
<PAGE>

Consolidated Statements of Redeemable Preferred Stock and Shareholders' Equity
                     (In thousands, except share amounts)
<TABLE>
<CAPTION>

                                                                             Shareholders' Equity
                                              --------------------------------------------------------------------------------------
                                                                                                        Accretion
                                                                                                        of Divi-
                                                                                                        dends on             Total
                            Redeemable                       Convertible                       Addi-     Redeem-             Share-
                         Preferred Stock   Treasury Stock  Preferred Stock    Common Stock     tional   able Pre-   Accu-   holders'
                         --------------------------------------------------------------------  Paid In   ferred    mulated   Equity
                         Shares  Dollars   Shares Dollars  Shares Dollars  Shares     Dollars  Capital    Stock    Deficit (Deficit)
------------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>      <C>       <C>    <C>      <C>    <C>      <C>        <C>      <C>      <C>      <C>       <C>
Balance at January 1,
  1994                    12,871  $ 14,930      --  $  --     850   $ 1     2,630,432  $ 26    $ 1,023  $(2,059) $(10,361) $(11,370)
 Issuance of Common
  Stock                       --        --      --     --      --    --       705,553     7         (7)      --        --        --
  Repurchase of
   Redeemable
   Preferred Stock        (1,000)   (1,000)     --     --      --    --            --    --         --       --        --        --
  Accretion of dividends
   on Redeemable
   Preferred Stock            --     1,016      --     --      --    --            --    --         --   (1,016)       --    (1,016)
  Net income                  --        --      --     --      --    --            --    --         --       --     1,795     1,795
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
 1994                     11,871    14,946      --     --     850     1     3,335,985    33      1,016   (3,075)   (8,566)  (10,591)
  Accretion of dividends
   on Redeemable
   Preferred Stock            --       950      --     --      --    --            --    --         --     (950)       --      (950)
  Net income                  --        --      --     --      --    --            --    --         --       --     2,843     2,843
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
 1995                     11,871    15,896      --     --     850     1     3,335,985    33      1,016   (4,025)   (5,723)   (8,698)
  Conversion of
   Convertible
   Preferred Stock            --        --      --     --    (850)   (1)    5,004,608    50        (49)      --        --        --
  Accretion of dividends
   on Redeemable
   Preferred Stock            --       451      --     --      --    --            --    --         --     (451)       --      (451)
  Redemption of
   Redeemable
   Preferred Stock and
   Accreted Dividends    (11,871)  (16,347)     --     --      --    --            --    --         --    4,476    (4,476)       --
  Issuance of Common
   Stock                      --        --      --     --      --    --     4,183,928    42     51,745       --        --    51,787
  Exercise of Common
   Stock options              --        --      --     --      --    --       201,228     2         26       --        --        28
  Treasury Stock
   Purchase                   --        --  46,420   (372)     --    --            --    --         --       --        --      (372)
  Net income                  --        --      --     --      --    --            --    --         --       --       599       599
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
 1996                         --  $     --  46,420  $(372)     --   $--    12,725,749  $127    $52,738  $    --   $(9,600) $ 42,893
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>

                     Consolidated Statements of Cash Flows
                                (In thousands)

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                             1996                1995                  1994
<S>                                                       <C>                  <C>                   <C>
---------------------------------------------------------------------------------------------------------------
Operating activities
Income from continuing operations                         $    599             $ 3,008               $   288
Adjustments to reconcile
 net income to net cash
 provided by (used in)
 operating activities:
    Depreciation and amortization                            2,109                 888                   396
    Deferred income taxes                                      466              (1,800)                   --
    Changes in operating
      assets and liabilities,
      excluding effects of
      discontinued
      operations and business
      acquisitions:
        Accounts receivable                                 (3,208)             (2,655)               (1,242)
        Inventory                                           (1,128)                 --                    --
        Prepaid expenses and other assets                     (547)                (51)                 (140)
        Accounts payable and accrued expenses                  524               1,225                 1,152
        Income taxes payable                                  (297)                679                    31
---------------------------------------------------------------------------------------------------------------
                                                            (1,482)              1,294                   485
Income (loss) from discontinued operations                      --                (166)                1,506
Adjustments to reconcile
  income (loss) from
  discontinued operations:
  (Gain) loss on disposal of discontinued operations            --                  37                (1,402)
  Cash flow related to results of operations until
    disposal date                                               --                 803                  (148)
---------------------------------------------------------------------------------------------------------------
                                                                --                 674                   (44)
---------------------------------------------------------------------------------------------------------------
  Net cash provided by (used in) operations                 (1,482)              1,968                   441

Investing activities
Acquisition of businesses, net of cash acquired               (846)                 --                    --
Purchases of short-term investments                        (26,937)                 --                    --
Sales of short-term investments                              6,439                  --                    --
Purchase of property and equipment                          (8,093)             (2,993)               (2,215)
Net proceeds from sale of lines of business                     --               1,074                 7,545
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities        (29,437)             (1,919)                5,330

Financing activities
Proceeds from exercise of stock options                         28                  --                    --
Proceeds from issuance of stock                             49,787                  --                    --
Repurchase of redeemable preferred stock                   (16,347)                 --                (1,000)
Purchase of treasury stock                                    (372)                 --                    --
Repayment of long-term debt and capital leases              (1,507)                 --                (5,248)
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities         31,589                  --                (6,248)
---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents               670                  49                  (477)
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                 253                 204                   681
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                  $    923             $   253               $   204
---------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.
<PAGE>

                  Notes to Consolidated Financial Statements

1. BASIS OF PRESENTATION

The Company

Boston Communications Group, Inc. (the Company) develops, markets and provides
specialized calling services, carrier support teleservices and prepaid network
services to the wireless telephone industry. The Company also manufactures
prepaid and voice system equipment.

2. SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The Company earns revenues by providing carrier support teleservices, processing
prepaid cellular calls and processing cellular calls for individuals who have
roamed outside of their service area. Revenue is recognized when the service is
provided and is recorded net of estimated chargebacks and other billing
adjustments. The Company recognizes revenue from the sale of systems at the time
the systems are shipped.

Principles of Consolidation

The financial statements include 100% of the accounts and operations of the
Company and all of its majority-owned subsidiaries. Minority interest represents
the minority owner's proportionate share of the equity in the 80%-owned
subsidiary. All intercompany accounts and transactions have been eliminated.

Investments

The Company accounts for its marketable securities under the Statement of
Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Instruments in Debt and Equity Securities." The Company has classified all of
its securities as available-for-sale, and are thus reported at fair market
value. Interest on all securities is reported as interest income.

  Investments with maturities between three and twelve months are considered
short-term investments. The Company's short-term investments consist of debt
securities such as corporate notes and marketable direct obligations of the
United States Treasury. The following is a summary of available-for-sale
securities as of December 31, 1996 (in thousands):

<TABLE>
<S>                               <C>
-----------------------------------------
Corporate notes                   $ 3,965
U.S. Treasury bills                16,533
-----------------------------------------
  Total short-term investments    $20,498
=========================================
</TABLE>

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, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Concentrations of Credit Risk

The Company's roaming customers are individuals who place cellular calls from
service areas which are not covered by traditional roaming agreements. These
calls are forwarded by cellular carriers to the Company for processing. Each
transaction is small in size and the Company minimizes credit risk by validating
appropriate billing information. Carrier support teleservices are provided to
cellular carriers located throughout the country. Prepaid network services
include the Company's prepaid wireless service which provides carriers,
throughout the United States, with an alternative billing facility for their
cellular customers. Accounts are not activated until payment is received by the
carrier. The Company sells its voice systems in North America and its prepaid
systems in Latin America and Europe.

  The Company has roaming, carrier support and network service agreements with,
and sells its systems to numerous carriers, 10 of which accounted for 81.2%,
84.6% and 82.4% of the
<PAGE>

Company's total revenues for the years ended December 31, 1994, 1995 and 1996,
respectively. The following table summarizes sales in excess of 10% of total
revenues, as a percentage of total revenues, to major customers:

<TABLE>
<CAPTION>
                              Year Ended December 31,
                              1996   1995   1994
--------------------------------------------------
<S>                           <C>    <C>    <C>
Ameritech Cellular            14.8%  15.0%  16.0%
Bell Atlantic NYNEX Mobile    12.3   13.9   11.7
SNET Mobility                   --   11.9     --
AT&T Wireless                   --     --   15.6
Bell South Mobility           11.4     --     --
</TABLE>

Inventory

Inventory, which consists of computer hardware and electronic components, is
recorded at the lower of cost (first-in, first-out method) or market. Inventory
is categorized as follows at December 31, 1996 (in thousands):
<TABLE>
--------------------------
<S>                <C>
Raw materials       $ 984
Work in process       129
Finished goods         76
--------------------------
                   $1,189
==========================
</TABLE>

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets, which range from 3 to 7
years. Systems in development represent the cost of purchased hardware and
software to be used in switching equipment not yet placed into service and will
be depreciated over 5 years. In accordance with Financial Accounting Standards
Board No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," the Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If it is determined that the
carrying amount of an asset cannot be fully recovered, an impairment loss is
recognized.

Goodwill

Goodwill represents the excess of cost of acquired businesses over the fair
market value of all net assets acquired. Goodwill is being amortized on a
straight-line basis over an eight year period. Accumulated amortization totaled
$296,000 as of December 31, 1996.

Engineering, Research and Development

Costs associated with engineering, research and development are expensed as
incurred.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) in accounting for its
stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation," as this
alternative requires the use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, since the exercise
price of options granted under these plans equals the market price of the
underlying stock on the date of grant, no compensation expense is required.

Net Income (Loss) Per Share

Net income (loss) per share is computed using the weighted average number of
common and dilutive common shares outstanding during each period. Common and
common equivalent shares issued during the twelve month period prior to the
initial filing date of the public offering have been included in the calculation
as if they were outstanding for all periods presented using the treasury stock
method.

Supplemental Net Income Per Share

Supplemental net income per share is based on the weighted average number of
shares used in the calculation of net income per share increased by the number
of shares which at the initial public offering price of $14.00 were required to
complete the redemption of the Redeemable Preferred shares. Net income available
to common shareholders is increased by the dividends accreted in 1996 on the
Redeemable Preferred Stock.
<PAGE>

                  Notes to Consolidated Financial Statements
                                  (continued)


3. DISCONTINUED OPERATIONS

On March 31, 1995, the Company sold the net assets of its cellular sales and
service subsidiary for $573,000. On October 24, 1994, the Company sold the net
assets of its rural cellular phone system subsidiary for $8,000,000, including a
note receivable for $500,000 which was paid in 1995. In connection with this
sale, the Company repaid $5,000,000 of promissory notes and vendor obligations.
On March 15, 1994, the Company sold the net assets of its air-to-ground system
subsidiary for $150,000.

  Interest expense of $492,000 in 1994 has been allocated to the discontinued
operations of the rural cellular phone system subsidiary as the borrowings were
specifically associated with that business. Income taxes associated with the
discontinued operations are not material.

  The revenues of the discontinued operations are summarized below:
<TABLE>
<CAPTION>
                                                                                                                 1995        1994
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                           <C>          <C>
Cellular sales and service                                                                                    $ 1,001      $ 9,455
Rural cellular phone system                                                                                        --          717
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                              $ 1,001      $10,172
===================================================================================================================================
</TABLE>

  The operating income (loss) of the discontinued operations is summarized
below:
<TABLE>
<CAPTION>
                                                                                                                 1995        1994
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                           <C>          <C>
Cellular sales and service                                                                                    $  (129)      $  262
Rural cellular phone system                                                                                        --         (158)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                              $  (129)      $  104
===================================================================================================================================
</TABLE>

  The gain (loss) on the disposal of the discontinuations is summarized below:
<TABLE>
<CAPTION>
                                                                                                                 1995        1994
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                           <C>          <C>
Cellular sales and service                                                                                    $  (36)           --
Rural cellular phone system                                                                                       --       $ 1,403
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                              $  (36)      $ 1,403
===================================================================================================================================
</TABLE>

  Income taxes associated with the gain (loss) on the disposal of the
discontinued operations are not material.

4. ACQUISITIONS

In February 1996, the Company acquired the net assets of Voice Systems
Technology Inc. (VST), a company which develops and markets prepaid and voice
processing systems, for approximately $2.5 million ($500,000 cash and 265,373
shares of common stock). VST had revenues and net income for the 11 months ended
February 29, 1996 of $2.1 million and $9,000, respectively. The acquisition has
been accounted for under the purchase method of accounting and the results of
operations have been included in the Company's results of operations from the
date of acquisition. The allocation of the purchase price is based on the fair
market value of assets and liabilities acquired and the excess over those
amounts is accounted for as goodwill. The allocation of the purchase price is as
follows (in thousands):


<TABLE>
-----------------------------------------------
<S>                                      <C>
Property and equipment                   $  106
Accounts receivable, net                     51
Other current assets                         68
Accounts payable and accrued expenses      (312)
Other current liabilities                   (59)
Goodwill                                  2,683
-----------------------------------------------
                                         $2,537
===============================================
</TABLE>

  On January 31, 1996, the Company acquired 17.5% of the stock in Wireless
Americas Corporation (WAC) for $35,000. WAC markets and sells prepaid equipment
in Latin America. On October 23, 1996, the Company acquired an additional 62.5%
of the stock of WAC for $916,500. The purchase has been reflected in the
Company's consolidated balance sheet. Results of WAC's operations from the date
of acquisition through December 31, 1996 have been included in the Company's
consolidated results.

  The following unaudited pro forma information has been prepared assuming that
these acquisitions had taken place at the beginning of the respective period.
The unaudited pro forma information includes adjustments for interest expense
that would have been incurred to finance the purchase, amortization of goodwill
resulting from the purchase, elimination of the effect of transactions between
the Company and WAC and income taxes. There is no impact to 1995 from the WAC
<PAGE>

transaction as WAC operations began in 1996. The unaudited pro forma financial
information is not necessarily indicative of the results of operations as if the
transactions had been effected on the assumed dates (in thousands, except per
share data):
<TABLE>
<CAPTION>
                                                                December 31,
                                                               1996      1995
--------------------------------------------------------------------------------
                                                                (unaudited)
<S>                                                          <C>       <C>
Net revenues                                                 $51,873   $ 36,288
-------------------------------------------------------------------------------
Net income available to
  common stockholders                                        $     1   $ 1,558
-------------------------------------------------------------------------------
Net income per common share                                  $  0.00   $  0.17
===============================================================================
</TABLE>

5. ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     December 31,
                                                                    1996     1995
-----------------------------------------------------------------------------------
<S>                                                               <C>       <C>
Billing adjustments and chargebacks                               $ 1,240   $ 1,136
Cellular airtime                                                    2,447     1,077
Payroll                                                               931       391
Deferred revenue                                                      264       325
Telecommunication costs                                               442       305
Billing services                                                      296       282
Other                                                               1,538       912
-----------------------------------------------------------------------------------
                                                                  $ 7,158   $ 4,428
===================================================================================
</TABLE>

6. INCOME TAXES


Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):


<TABLE>
<CAPTION>


                                                                                                December 31,
                                                                                            1996         1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards                                                         $    356     $ 1,189
  Book over tax amortization and
   depreciation expense                                                                         279         390
  Allowance for doubtful accounts, billing
  adjustments and chargebacks                                                                   801         775
  Minimum tax credit carryforwards                                                              128          49
  Accrued vacation and warranty                                                                 154          --
  Other                                                                                         142          --
----------------------------------------------------------------------------------------------------------------
                                                                                              1,860       2,403
  Valuation allowance for deferred
    tax assets                                                                                  --         (162)
----------------------------------------------------------------------------------------------------------------
Total deferred tax assets                                                                     1,860       2,241
Deferred tax liabilities:
  Tax over book amortization                                                                   (366)       (281)
  Amortization of legal costs                                                                  (160)       (160)
----------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities                                                                 (526)       (441)
----------------------------------------------------------------------------------------------------------------
Net deferred tax assets                                                                     $ 1,334     $ 1,800
================================================================================================================
</TABLE>

  The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                           1996      1995          1994
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>       <C>           <C>
Current:
  Federal                                                                                  $ 51      $   110        $18
  State                                                                                      83          660         35
------------------------------------------------------------------------------------------------------------------------
                                                                                            134          770         53
Deferred:
  Federal                                                                                   423       (1,530)
  State                                                                                      43         (270)
------------------------------------------------------------------------------------------------------------------------
                                                                                            466       (1,800)
------------------------------------------------------------------------------------------------------------------------
Income tax provision (benefit)                                                             $600      $(1,030)       $53
========================================================================================================================

</TABLE>
<PAGE>

                  Notes to Consolidated Financial Statements
                                  (continued)

  At January 1, 1995, primarily as a result of the net operating losses, the
Company was in a net deferred tax asset position. The full amount of the
deferred tax asset was offset by a valuation allowance due to uncertainties
associated with the realization of the deferred tax benefit. Based on the
Company's ability to generate taxable income and its projections for 1997 and
1998, the Company has reduced the remaining valuation allowance to state the net
deferred tax asset at its net realizable value.

  The Company utilized $1.2 million in 1994, $2.6 million in 1995 and $2.0
million in 1996 of federal net operating loss carryforwards to offset taxable
income. The valuation allowance decreased $3.1 million during 1995 due primarily
to the utilization of net operating loss carryforwards and to the reversal of a
significant portion of the valuation allowance. The valuation allowance
decreased by $286,000 and $162,000 in 1994 and 1996, respectively.

  At December 31, 1996, the Company has approximately $1.0 million of net
operating loss carryforwards for federal income tax return purposes available
for use in future years that expire beginning in 2003.

  A reconciliation of the statutory rate to the effective rate is
as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                       1996      1995      1994
<S>                                                    <C>      <C>       <C>
----------------------------------------------------------------------------------
Federal provision at statutory rate                      34%      34%      34%
State income provision,
  net of federal benefit                                  6        6        6
Permanent differences                                    12        1        2
Change in valuation allowance                            --      (65)      --
Benefit of net operating loss                            (2)     (28)     (27)
----------------------------------------------------------------------------------
                                                         50%     (52)%     15%
==================================================================================
</TABLE>


  Income taxes paid were $36,000 in 1994, $68,000 in 1995, and $352,000 in 1996.

7. Capital Stock

Common Stock
On April 26, 1996, the Company authorized 35,000,000 shares of a new class of
common stock and effected a recapitalization of the Company (the "1996
Recapitalization"). All outstanding shares of the Company's class A, B, C and D
common stock were exchanged for an aggregate of 3,335,985 shares of Common
Stock. In addition, the terms and conditions of the Company's three classes of
convertible preferred stock were modified, without changing the total number of
shares of Common Stock into which the preferred stock can be converted. The
convertible preferred shares were converted to 5,004,608 shares of Common Stock
upon the closing of the initial public offering.

Initial Public Offering
In 1996, the Company sold in its initial public offering (IPO) 3,918,555 shares
of its common stock yielding net proceeds of $49.8 million. The proceeds were
used to redeem preferred stock and to repay an existing line of credit and
capital leases.

  Upon the closing of the IPO, the Company redeemed all 11,871 outstanding
shares of redeemable preferred stock at a redemption price of $1,000 per share.
In addition, the Company paid approximately $4.5 million in accreted dividends
on the redeemable preferred stock.

Preferred Stock
The Board of Directors are authorized, subject to certain limitations prescribed
by law, without further shareholder approval, to issue from time to time up to
an aggregate of 2,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change of control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
<PAGE>

Stock Option Plan
The Company's 1996 Stock Option Plan (the 1996 Plan) was adopted by the Board of
Directors and approved by the holders of the Company in 1996. The 1996 Plan
provides for the grant of stock options to employees, officers and directors,
consultants and advisors to, the Company and its subsidiaries. Under the 1996
Plan, the Company may grant options that are intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") ("incentive stock options"), or options not
intended to qualify as incentive Stock options ("non-statutory options").
Incentive stock options may only be granted to employees of the Company. A total
of 1,264,792 shares of Common Stock may be issued upon the exercise of options
granted under the 1996 Plan. The maximum number of shares with respect to which
options may be granted to any employee under the 1996 Plan shall not exceed
200,000 shares of Common Stock during any calendar year. The 1996 Plan replaces
the 1994 Stock Option Plan which granted 355,738 options and was terminated in
1996. All options granted have 10 year terms and generally vest and become
exercisable over four or five years.

  In 1996, the Company granted non-qualified options to purchase 653,278 and
93,551 at exercise prices of $5.75 and $10.00, respectively, which were deemed
fair market value as determined by the Company.

  Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement.

The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1995 and 1996, respectively: risk-free interest rates of 7.1%
and 5.9%, respectively, no dividend yield, the volatility factor of the expected
market price of the Company's common stock was 0.5 and a weighted-average
expected life of the option of 5 years.

  The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

  For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except for per share information):

<TABLE>
<CAPTION>
                                                                     December 31,
                                                                   1996         1995
------------------------------------------------------------------------------------
<S>                                                              <C>          <C>
Pro forma net income (loss)                                      $(1,086)     $1,893
------------------------------------------------------------------------------------
Pro forma net income (loss) per share                            $ (0.10)     $ 0.21
------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                  Notes to Consolidated Financial Statements
                                  (continued)

 Stock option information is as follows:

<TABLE>
<CAPTION>

                                                   1996                       1995                         1994
--------------------------------------------------------------------------------------------------------------------------------
                                                        Weighted                   Weighted                      Weighted
                                                        Average                    Average                       Average
                                          Options    Exercise Price   Options    Exercise Price    Options    Exercise Price
--------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>              <C>        <C>                <C>       <C>
Outstanding--beginning of year             355,758       $ 0.14        324,629        $0.14             --            --
  Granted                                1,548,329         9.76         31,129         0.14         324,629        $0.14
  Exercised                               (201,228)        0.14             --           --             --            --
  Cancelled                                (36,500)       13.61             --           --             --            --
--------------------------------------------------------------------------------------------------------------------------------
Outstanding--end of year                 1,666,359         --          355,758         0.14         324,629         0.14
================================================================================================================================
</TABLE>

  The following table summarizes the stock options
 outstanding and exercisable as of December 31, 1996:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------
       Options                     Options                    Exercise
     Exercisable                 Outstanding                   Price
-----------------------------------------------------------------------
<S>                              <C>                          <C>
      14,454                       154,530                    $ 0.14
     653,278                       653,278                      5.75
       2,500                       108,500                      8.25
          --                        93,551                     10.00
          --                        15,000                     12.25
      12,933                       641,500                     14.00
-----------------------------------------------------------------------
     683,165                     1,666,359
=======================================================================
</TABLE>

  There were 181,219 options exercisable at December 31, 1995 at a weighted-
average exercise price of $0.14. The weighted-average fair value of options
granted during 1995 and 1996 was $0.07 and $4.69, respectively. The weighted-
average contractual life of options outstanding at December 31, 1995 and 1996
was 9.0 years and 9.2 years, respectively.

Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and approved by the shareholders of the
Company in April 1996. The Purchase Plan authorizes the issuance of up to a
total of 225,000 shares of Common Stock to participating employees.

Certain employees of the Company who have been employed by the Company for a
minimum of twelve months, including directors of the Company who are employees,
are eligible to participate in the Purchase Plan. On the first day of a
designated payroll deduction period (the "Offering Period"), the Company will
grant to each eligible employee who has elected to participate in the Purchase
Plan an option to purchase shares of Common Stock as follows: the employee may
authorize an amount (up to a maximum of 10% of such employee's regular pay) to
be deducted by the Company from such pay during the Offering Period. On the last
day of the Offering Period, the employee is deemed to have exercised the option,
at the option exercise price, to the extent of accumulated payroll deductions.
Under the terms of the Purchase Plan, the option price is an amount equal to 90%
of the fair market value per share of the Common Stock on either the first day
or the last day of the Offering Period, whichever is lower. In no event may an
employee purchase in any one Offering Period a number of shares which has an
aggregate market value (determined on the last day of the Offering Period) in
excess of $25,000. The Compensation Committee may, in its discretion, choose an
Offering Period of 12 months or less for each of the Offerings and choose a
different Offering Period for each Offering.
<PAGE>

8. COMMITMENTS

The Company has noncancelable operating lease commitments for office space. Rent
expense approximated $399,000 in 1994, $443,000 in 1995 and $881,000 in 1996.
Future minimum rental commitments, which include office space leased as of
December 1996, are as follows (in thousands):

<TABLE>
---------------------------------------
<S>                              <C>
Year ending December 31, 1997    $  875
1998                                844
1999                                765
2000                                496
2001                                 83
---------------------------------------
                                 $3,063
=======================================
</TABLE>

  The Company entered into capital leases of $1.5 million in 1996 which were
fully repaid in 1996.

9. RELATED-PARTY TRANSACTIONS

Pursuant to a management agreement, the Company paid annual fees in the amount
of $1,008,000 in 1994 and 1995 and $252,000 in 1996 to a management company
affiliated with certain shareholders of the Company. These amounts represent the
payroll and certain benefit costs of six senior management personnel responsible
for the operations of the Company.

The management agreement was terminated in March, 1996 and the employees of the
management company became employees of the Company. The management fees
previously incurred by the Company under the management agreement closely
approximate the actual payroll and related benefits currently being directly
incurred by the Company, and the Company believes that these amounts are
reasonable and comparable to those that would have been incurred with an
unrelated third party. Additionally, the Company leased office space from
another company affiliated with certain shareholders of the Company under a
leasing arrangement which was terminated in August 1996. The Company recorded
rent expense of $28,000 in 1994, $68,000 in 1995 and $40,000 in 1996 in
connection with this lease. Another company, affiliated with certain
shareholders of the Company, received $462,000 in connection with the repurchase
of redeemable preferred stock of the affiliated company's investment and its
accreted dividends.
<PAGE>

               Report of Ernst & Young LLP, Independent Auditors



Board of Directors and Shareholders
Boston Communications Group, Inc.

We have audited the accompanying consolidated balance sheets of Boston
Communications Group, Inc. and subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of operations, redeemable preferred stock
and shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. Our audits also include the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.

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

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Boston
Communications Group, Inc. and subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

                                                               Ernst & Young LLP

Boston, Massachusetts
February 11, 1997
<PAGE>

                                                                     SCHEDULE II

               BOSTON COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>

               COL. A                     COL. B              COL. C                COL. D          COL. E
-------------------------------------  ------------  -------------------------  ---------------  -------------
                                                           ADDITIONS
                                                     ------------------------
                                                                 CHARGED TO
                                                                 ----------
                                        BALANCE AT   CHARGED TO    OTHER
                                       ------------  ----------    -----
                                       BEGINNING OF  COSTS AND     ACCOUNTS--    DEDUCTIONS--     BALANCE AT
                                       ------------  ----------    ----------    ----------       ------------
DESCRIPTION                               PERIOD      EXPENSES      DESCRIBE     DESCRIBE         END OF PERIOD
-----------                            ------------  ----------     --------     ------------     -------------
<S>                                    <C>           <C>         <C>              <C>             <C>

Year ended December 31, 1996:
 Reserves and allowances deducted
  from asset accounts:
  Allowance for billing adjustments
    and uncollectible accounts             $883,692     $30,000    $895,961(1)      $567,356(2)     $1,242,297
Year ended December 31, 1995:
 Reserves and allowances deducted
  from asset accounts:
  Allowance for billing adjustments
    and uncollectible accounts              545,637          --     642,421(1)       304,366(2)        883,692
Year ended December 31, 1994:
 Reserves and allowances deducted
  from asset accounts:
  Allowance for billing adjustments
    and uncollectible accounts              343,602          --     449,508(1)       247,473(2)        545,637
</TABLE>

(1) Billing adjustments recorded as a reduction of revenue.
(2) Settlement of billing adjustments.

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
  NO.       DESCRIPTION                                                             PAGE
 ------     -----------                                                             ----
<S>         <C>                                                                     <C>
*3.1        Restated Articles of Organization of the Company, as amended.

*3.3        Amended and Restated By-Laws of the Company.

*10.1       1994 Stock Option Plan.

*10.2       1996 Stock Option Plan.

*10.3       1996 Employee Stock Purchase Plan.

10.3.1      Amendment Number 1, dated August 30, 1996, to 1996 Employee Stock
            Purchase Plan

*10.4       Employment Letter Agreement dated February 6, 1996 between the Company
            and George K. Hertz.

*10.5       Billing and Related Services Agreement dated April 19, 1995 between
            the Company and OAN Services, Inc. ("OAN").

*10.7       Software license Agreement dated March 30, 1995 between the Company
            and Innovative Telecom Corporation ("ITC").

*10.8      Service Bureau Agreement dated April 7, 1995 between the Company and
           ITC.

*10.9      BCG-ITC Strategic Partnership Agreement Addendum Dated March 31, 1996
           between the Company and ITC.

*10.10    License Agreement dated April 23, 1996 between the Company and
          MicroDimensions, Inc.

*10.11    Gateway Service Agreement dated June 5, 1995 between the Company and
          SNET Diversified Group, Inc.

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>                                                                     <C>

 10.12    Frontier Service Agreement dated June 6, 1996 between the Company
          and Frontier Communications of the West, Inc.

*10.15    Commercial Lease dated January 24, 1996 between the Company and
          Cummings Properties Management, Inc.

 10.15.1  Commercial Lease dated February 26, 1996 between the Company and
          Cummings Property Management, Inc. (Amendment No. 1).

 10.15.2  Amendment No. 2, dated August 8, 1996, to the commercial lease between
          the Company and Cummings Property Management, Inc.

 10.15.3  Amendment No. 3, dated February 5, 1997, to the commercial lease
          between the Company and Cummings Property Management, Inc.

*10.16    Lease dated November 30, 1994, as amended, between the Company
          and Teachers Realty Corporation.

*10.17    Commercial/Industrial Lease dated September 27, 1995 between
          the Voice Systems Technology Inc. ("VST") and Schleuter Properties.

*10.18    Lease dated November 30, 1995, as amended, between VST and Society
          Hill Office Park LTD.

*10.21    Distribution Agreement dated January 31, 1996 between the Company
          and Wireless Americas Corp. ("WAC")

*10.22    Agreement dated April 22, 1996 between the Company and MDTelecom,
          Inc. ("MDT").

 10.23    Memorandum of Understanding dated January 1, 1997 between the
          Company and Milcon Communications (Hong Kong) Ltd.

*10.24    Subscription and Sale Agreement dated April 23, 1996 between the
          Company and MDT.

*10.25    Source Code Release Agreement dated April 23, 1996 between the
          Company and MDT.

*10.26    End-User Purchase and License Agreement between the Company and
          Teloquent Communications Corporation.

 10.27    Software License and Services Agreement dated October 30, 1996
          between the Company and Oracle Corporation.

 10.28    Software License and Services Agreement dated September 24, 1996
          between the Company and Oracle Corporation.

**10.29   Amended and Restated Option Agreement, dated October 23, 1996,
          among the Company, WAC and Robert B. Sproul.

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>                                                                     <C>



11        Statement re: Computation of Per Share Earnings.

21        Subsidiaries of the Registrant.

23        Consent of Ernst & Young LLP, Independent Auditors.

27        Financial Data Schedule.
</TABLE>

----------
*Incorporated by reference to the Company's Registration Statement on Form S-1
filed June 17, 1996 (File No. 333-4128)
**Incorporated by reference to the Company's Current Report on Form 8-K filed
November 7, 1996.