<PAGE>   1
 
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                       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, 1998
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
        FOR THE TRANSITION PERIOD FROM                TO
 
                          COMMISSION FILE NO. 0-24521
 
                                CORECOMM LIMITED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                                 <C>
                      BERMUDA                                         NOT APPLICABLE
          (STATE OR OTHER JURISDICTION OF                            (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NO.)
</TABLE>
 
<TABLE>
<S>                                                 <C>
                    CEDAR HOUSE                                 SECRETARY CORECOMM LIMITED
                  41 CEDAR AVENUE                                  110 EAST 59TH STREET
             HAMILTON, HM 12, BERMUDA                               NEW YORK, NY 10022
                  (441) 295-2244                                      (212) 906-8485
         (ADDRESS, INCLUDING ZIP CODE, AND                  (NAME, ADDRESS, INCLUDING ZIP CODE,
       TELEPHONE NUMBER, INCLUDING AREA CODE             AND TELEPHONE NUMBER, INCLUDING AREA CODE
   OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)                    OF AGENT FOR SERVICE)
</TABLE>
 
       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                (TITLE OF CLASS)
 
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  [X] Yes  [ ] 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.  [ ]
 
     The aggregate market value of the Registrant's common stock held by
non-affiliates at March 16, 1999, valued in accordance with the Nasdaq Stock
Market's National Market closing sale price for the Registrant's common stock,
was approximately $420,076,000.
 
     Number of shares of Common Stock outstanding as at March 16, 1999:
13,239,599
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
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                                                              PART OF 10-K IN WHICH
                          DOCUMENT                                INCORPORATED
                          --------                            ---------------------
<S>                                                           <C>
Definitive proxy statement for the 1999 Annual Meeting of           Part III
  the Stockholders of CoreComm Limited
</TABLE>
 
     This Annual Report on Form 10-K for the year ended December 31, 1998, at
the time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Section 13, 14 and 15(d) of the
Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporated by
reference this Annual Report.
 
 "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
                                     1995:
 
     Certain statements contained herein constitute "forward-looking statements"
as that term is defined under the Private Securities Litigation Reform Act of
1995. When used herein, the words, "believe," "anticipate," "should," "intend,"
"plan," "will," "expects," "estimates," "projects," "positioned," "strategy,"
and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Registrant, or industry results, to be materially different from those
contemplated or projected, forecasted, estimated or budgeted, whether expressed
or implied, by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions, industry
trends, the Registrant's ability to continue to design and build its network,
install facilities, obtain and maintain any required government licenses or
approvals and finance construction and development, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions, as well as
assumptions about customer acceptance, churn rates, overall market penetration
and competition from providers of alternative services, the impact of new
business opportunities requiring significant up-front investment, year 2000
readiness and availability, terms and deployment of capital.
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<PAGE>   2
 
                               TABLE OF CONTENTS
 
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                                                                PAGE
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PART I
ITEM 1.  BUSINESS...........................................       2
ITEM 2.  PROPERTY...........................................      16
ITEM 3.  LEGAL PROCEEDINGS..................................      16
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS....      16
 
PART II
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND
         RELATED STOCKHOLDER MATTERS........................      16
ITEM 6.  SELECTED FINANCIAL DATA............................      17
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
         OPERATIONS AND FINANCIAL CONDITION.................      18
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
          MARKET RISK.......................................      21
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........      21
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE................      21
PART III
ITEMS 10, 11, 12 AND 13.....................................      22
 
PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K...............................      22
EXHIBIT INDEX...............................................      23
SIGNATURES..................................................      24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................     F-1
</TABLE>
 
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                                     PART I
 
ITEM 1.  BUSINESS
 
     CoreComm Limited ('CoreComm" or the "Company") is now embarking on the next
phase of its business strategy, which is to create a national, facilities-based
network capable of transmitting voice and data to our customers using the latest
technologies.
 
     CoreComm's objective is to exploit the convergence of the
telecommunications and information services industries through a "Smart Local
Exchange Carrier" or "Smart LEC" strategy. This strategy combines advanced
communications technologies together with a unique implementation plan which
management believes will result in the production of a low cost, efficient
delivery system for bundled Internet access and local and long distance
telephony. In time, this network may provide video services as well.
 
     A core part of our strategy is to offer our customers "one-stop shopping"
for bundled telecommunications and Internet services. We are building our Smart
LEC network to provide a full range of voice and data services. Bundling these
services together with convenient integrated billing and a single point of
contact for sales and service are central to our strategy. We have already
developed this approach in our Ohio operations.
 
     The Smart LEC concept -- combining our own facilities and switches with
leased lines, interconnection agreements for use of local networks -- allows us
to implement our own national facilities-based telecommunications network
without the great expense and time commitment of building our own lines and
local loops. Management believes this strategy, which has been made possible by
the Telecommunications Act of 1996, will result in better profit margins than
those of the resale business in a much shorter period of time. This strategy
also allows us to expand incrementally over time, while we continue to act as a
reseller where we do not have facilities in place yet.
 
     We have already begun building the Smart LEC network in Ohio. We are in the
process of installing switches and will make use of the local ILEC's networks
through interconnection agreements. We are also in the process of negotiating
leases for transport lines that will carry communications to our switch.
 
     CoreComm now holds, through directly and indirectly wholly owned
subsidiaries, entities which operate or hold licenses or applications to operate
the following businesses:
 
     - competitive local exchange carrier ("CLEC")
 
     - Internet service provider ("ISP")
 
     - long distance service
 
     - centralized exchange telecommunications services ("CENTREX")
 
     - cellular service
 
     - prepaid cellular service
 
     - paging service
 
     - local multipoint distribution services ("LMDS")
 
     CoreComm has entered into a definitive agreement to acquire MegsINet, Inc.,
a Chicago based, regional ISP and regional telecommunications provider that has
already assembled a large network of leased lines, is currently installing a
switch in Chicago and has an interconnection agreement with Ameritech. We plan
to integrate MegsINet's existing network into our Smart LEC network if and when
the acquisition is completed. This acquisition of MegsINet is described below
under the section "Recent Developments."
 
     We have also entered into an agreement to acquire certain assets of USN
Communications, Inc., subject to Bankruptcy Court auction procedures. USN is
primarily a CLEC that provides services as a reseller of ILEC's local telephone
services principally in Illinois, Ohio, Michigan, Massachusetts and New York, as
well as several other states in the Ameritech and Bell Atlantic regions. USN has
developed advanced systems for interacting with the ILECs used in servicing
existing customers and acquiring new customers. USN has also
 
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developed a strong base of customers in its markets. The potential acquisition
of USN is described below under the section "Recent Developments."
 
THE SMART LEC NETWORK
 
     The Smart LEC network will be built through a combination of several
elements:
 
     - Installing "switches" in population centers, beginning with Ohio. These
       switches are devices which route voice and data transmissions -- i.e.,
       ordinary phone service and Internet service -- between networks and to
       and from end users.
 
     - Leasing the "last mile" or "local loop" (the portion of the network
       extending from the end-office to the customer's premises) from incumbent
       local exchange carriers or "ILECs" which own the vast majority of the
       existing telephone lines -- both copper and fiber-optic -- that can carry
       and terminate voice and data transmissions in most cities. The ILECs own
       the networks of lines leading to a customer's home or office in most
       local areas.
 
     - Leasing the transport lines necessary to carry voice and data nationally
       from interexchange carriers ("IXCs") and Competitive Access Providers
       ("CAPs").
 
     - Entering into interconnection agreements with the ILECs through which we
       route voice and data communications over the ILEC's networks to carry
       those transmissions directly to homes and offices.
 
     Our Smart LEC network will be capable of carrying both voice and data
communications using the following technologies:
 
     - Standard Telephony -- involving the transmission of voice or data over a
       copper wire and fiber optical transmission path which, through the use of
       switches, becomes a dedicated end-to-end circuit.
 
     - Internet Protocol (IP) -- the structure of data transmitted over the
       Internet. Because Internet Protocol involves splitting data into
       "packets" which are transmitted independently and reassembled at their
       destination, Internet Protocol does not require a dedicated end-to-end
       circuit and many different communications can be routed simultaneously
       over the same transmission facilities.
 
     - Digital Subscriber Line (DSL) -- a transport protocol that allows mixing
       data, voice and video over conventional, copper phone lines. A technique
       known as "modulation" is used to boost transmission rates hundreds of
       times beyond that of ordinary modem transmission rates. There are
       geographic limitations using the various forms of DSL technology that
       require users to be within certain distances from the DSL "access
       multiplexers."
 
     - Asynchronous Transfer Mode (ATM) -- a transport protocol that supports
       many types of high speed transmissions including voice, data, video,
       audio and imaging.
 
     These technologies will allow us to offer telephone and Internet service
over the same network. Our planned acquisition of MegsINet would give us access
to their network, which already incorporates IP and ATM technology and is in the
process of being upgraded to implement classic telephony and DSL technologies as
well. MegsINet's network currently consists of 57 major-city "nodes" linked via
a high capacity ATM network.
 
MARKETING STRATEGY
 
     CoreComm's marketing strategy is to provide business and residential
customers a bundled package of high quality telecommunications services at
competitive prices, delivered with exceptional care and service to the customer.
 
     Based on our experience in the telecommunications industry, a bundled
service offering allows us to package products in ways which are viewed
attractively by the customer. These bundled packages can be priced to provide
better "value for money" than more typical service offerings, can be modified
for individual
 
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customer needs, and are conveniently offered on a single bill. We believe that
these and other factors will improve acceptance ratios for our services and
increase customer retention.
 
     The Smart LEC strategy will enable us to market our services over wide
geographical areas. By using a combination of resold and facilities-based
services, we will not be limited to offering services only in areas where we
have built our own networks. We believe that the ability to market over larger
areas will increase the efficiency and effectiveness of our marketing and
advertising programs.
 
     In addition, CoreComm, through its own marketing, as well as acquisitions,
has an existing base of customers to which it intends to offer additional
services.
 
CORECOMM'S BUSINESSES
 
  Competitive Local Exchange Carrier (CLEC) Business
 
     CoreComm has already been certified as a CLEC in Ohio and began providing
CLEC services to customers in March, 1998. We have also been certified as a CLEC
in New York, California and Massachusetts and have also applied, or intend to
apply, for certification as a CLEC in twenty-seven other states, and are
expecting to gain certification for CLEC services in those states by the end of
1999. CoreComm has applied for a CLEC license in Michigan and believes it will
obtain such license in the spring of 1999. For a description of the
Telecommunications Act of 1996 and the regulatory environment for CLECs, see the
section entitled "Regulation" beginning on page 10.
 
     CoreComm provides CLEC services in Ohio on a resale basis, pursuant to
Interconnection Agreements with Ameritech and Cincinnati Bell, the incumbent
local exchange carriers in Ohio. Under those agreements, we purchase local
exchange services at wholesale prices from Ameritech and Cincinnati Bell, and
resell those services to our customers.
 
     Services offered for resale include most of the telecommunications products
and services engineered and provided by the ILEC, including:
 
     - local exchange calling
 
     - call waiting
 
     - call forwarding
 
     - caller ID and
 
     - three-way calling
 
     We also have an agreement for the resale of certain non-telecommunications
services to its customers, including inside wire maintenance. CoreComm's CLEC
service is transparent to the customer, whose telephone operates in precisely
the same manner as it did prior to selecting CoreComm as its local carrier. The
customer receives its bill from us, rather than from the ILEC.
 
  Internet Service Provider Business
 
     Internet service will be a key component of the CoreComm business strategy.
Primarily through Stratos Internet Group, Inc. ("Stratos"), CoreComm is
currently offering access to the Internet. Internet access services are provided
on a "dial-up" basis as well as "dedicated" access to business and residential
customers. In addition, Stratos offers "web hosting" services to business
customers to enable them to place their own Web-sites on the Internet.
 
  Long Distance Business
 
     We are a reseller of long distance telephone services to residential and
small business customers throughout Ohio, under the CoreComm name. The primary
product is our Dial-1 Telephone Service. Our other long distance telephone
products are 800 Number services and debit calling card services.
 
     In order to provide these products, we purchase long distance telephone
time from national carriers at wholesale rates based upon high volume usage. We
then resell this time to our customers at our own retail
 
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<PAGE>   6
 
rates which are priced generally below AT&T's published, tariffed basic rates.
Our calling card products operate similarly to the calling card products offered
by the major carriers. Our customers pay for their long distance calling usage
through direct billing from us or through a major credit card.
 
     In addition, we sell retail long distance telephone services in portions of
Ohio, Michigan, Kentucky and Indiana to cellular customers of various local
cellular service providers who have chosen us as their long distance service
provider. We market these cellular long distance services under the CoreComm
name.
 
     We also sell retail long distance services to cellular customers of AT&T
Wireless who choose CoreComm as their long distance service provider. We provide
these services primarily through arrangements with other long distance carriers
under tariff or contract. The markets currently include Colorado, Florida,
Texas, Minnesota, Nevada and Pennsylvania, where the services are offered under
the "Cellular Long Distance Company" service mark, and California and Texas,
where the services are offered under the "Cellular Network" service mark.
 
  Centrex Business
 
     We own, through Digicom, Inc. ("Digicom"), a well developed business
providing centralized telecommunication services to multiple customers. Digicom
offers to small to large sized businesses throughout Ohio, reliable one-source
communications services, together with the latest in communications equipment
and enhanced services.
 
  Cellular Business
 
     Through CoreComm and Wireless Outlet, we sell cellular telephone service
throughout Ohio and Michigan. We sell cellular services under the CellularOne(R)
and Wireless Outlet service marks and the CoreComm name. We have signed resale
agreements with the three major providers of cellular service in Michigan and
Ohio: AirTouch Cellular, GTE Mobilenet Inc. and Ameritech Mobile Communications,
Inc.
 
  Pre-paid Cellular Business
 
     In addition to its traditional paging and cellular resale businesses,
Wireless Outlet also sells pre-paid cellular service on a resale basis. Pre-paid
debit cards allow users to make calls from a cellular phone based on a prepaid
dollar amount that has been credited to the card. Pre-paid services offer
several advantages to the consumer, including no monthly access fee, no monthly
bills, easier control over spending, and the absence of credit checks. In
addition, prepaid debit card applications include promotional campaigns, fund
raising for charitable organizations and budgeted out-of-town calling for
traveling employees. CoreComm currently sells prepaid cellular cards in Ohio,
California and Texas and is also in the process of expanding its business to
other states.
 
  Paging Business
 
     Wireless Outlet operates a paging system on a resale basis and a pager
sales and repair business. The paging business resells paging services and
markets its products through a dealer network that sells the service and the
pagers, primarily to small businesses throughout Ohio.
 
  Local Multipoint Distribution Service
 
     Local Multipoint Distribution Service is a broadband wireless
communications service that uses frequencies in the 28GHz to 31GHz range to
transmit video and data signals to and from residences and offices at distances
of only up to a few miles. An LMDS system is capable of providing high-capacity
broadband service for the "last mile" to a subscriber's home or office, at what
may be a substantially lower cost than other competing delivery systems.
 
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     Video or data signals transmitted through an LMDS system, such as
television programming, are received by the system from satellite transponders,
terrestrial microwave facilities or studios. Internet Access can be obtained
through dedicated lines, such as a T-3 line, connected to the Internet
"backbone." The signals are then converted to the LMDS frequency band and
transmitted via omnidirectional transmitters.
 
     Prior to the development of LMDS systems, transmission of communications
signals in the 28 GHz frequency range was not commercially pursued apart from
limited satellite applications because technical impediments, such as
interference between transmitters and rainfade, were thought to be
insurmountable. Modern LMDS systems seek to eliminate or significantly reduce
these impediments through the strategic placement of transmitters and advanced
system architecture.
 
     CoreComm, through Cortelyou Communications, an indirect, wholly owned
subsidiary, participated in the FCC's recent auction of LMDS licenses. On June
8, 1998 we were awarded the following A-Block licenses in 15 markets in Ohio
with a total of 10,573,982 Pops (representing more than 95% of the POPs in
Ohio):
 
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MARKET NAME                                                      POPS(1)
-----------                                                     ----------
<S>                                                             <C>
Cleveland-Akron, OH.........................................     2,894,133
Cincinnati, OH..............................................     1,990,451
Columbus, OH................................................     1,477,891
Dayton-Springfield, OH......................................     1,207,689
Toledo, OH..................................................       782,184
Canton-New Philadelphia, OH.................................       513,623
Youngstown-Warren, OH.......................................       492,619
Lima, OH....................................................       249,734
Mansfield, OH...............................................       221,514
Zanesville-Cambridge, OH....................................       178,179
Findlay-Tiffin, OH..........................................       147,523
Sandusky, OH................................................       133,019
Ashtabula, OH...............................................        99,821
Chillicothe, OH.............................................        93,579
Marion, OH..................................................        92,023
                                                                ----------
          Total.............................................    10,573,982
                                                                ==========
</TABLE>
 
---------------
(1) Pops are the estimated population of a market multiplied by a company's
    ownership interest in the entity operating the system in that market. The
    number of pops owned by an operator does not represent the number of users
    of its services and is not necessarily indicative of the number of potential
    subscribers. Rather, this term is used only as a basis for comparison of the
    current size of system operators. The FCC used pops in the LMDS auction for
    determining initial payments, bidder eligibility, and minimum bids. The pops
    in this chart are based upon the April 1, 1990 U.S. Department of Commerce,
    Bureau of the Census data.
 
     For a detailed description of the FCC bidding process and LMDS, see the
section entitled "Regulation -- Local Multipoint Distribution Service" beginning
on page 14.
 
     Each LMDS license covers a defined Basic Trading Area, with each A-Block
LMDS license consisting of 1150 MHZ of spectrum. CoreComm bid approximately
$25.2 million for such licenses, for an average of $2.39/per pop.
 
     In the provision of multichannel video services, we will compete with
franchised cable systems and also may face competition from several other
sources, such as multichannel multipoint distribution service systems, Satellite
Master Antenna Television systems, direct broadcast satellite and video service
from telephone companies. The Telecommunications Act of 1996 eliminated
restrictions that prohibited local telephone exchange companies from providing
video programming in their local telephone service areas and substantially
 
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reduces current and future regulatory burdens on franchised cable systems,
resulting in significant additional competition from local telephone companies
and franchised cable systems.
 
BACKGROUND
 
     CoreComm was formed in March 1998 as a subsidiary of Cellular
Communications of Puerto Rico, Inc. (formerly CoreComm Incorporated) ("CCPR").
CCPR offers cellular, paging and other telecommunications services in Puerto
Rico and the U.S. Virgin Islands. CCPR created CoreComm in order to succeed to
operations of OCOM Corporation, which had been purchased by CCPR, and to pursue
new telecommunications opportunities outside of Puerto Rico and the U.S. Virgin
Islands in an entrepreneurial corporate environment. CCPR spun-off CoreComm on
September 2, 1998, by distributing to each CCPR stockholder, on a one for one
basis, 100% of the outstanding common stock of CoreComm (the "Spin-off").
CoreComm has since been listed on the Nasdaq national market and trades under
the symbol "COMMF". As of December 31, 1998, CoreComm and its subsidiaries had
approximately 250 employees.
 
     Certain of CoreComm's businesses were formerly owned by OCOM Corporation,
previously a subsidiary of NTL Incorporated. OCOM Corporation sold all of these
assets and related liabilities to a subsidiary of CCPR pursuant to an agreement
dated as of June 1, 1998. The common stock of that subsidiary was among the
assets contributed to CoreComm prior to the Spin-off. CoreComm also owns
Digicom, Inc. which operates a CLEC in the State of Ohio. CoreComm also owns
Stratos which was acquired on November 30, 1998, and provides Internet service
to customers in the Ohio region. CoreComm also owns the assets of JeffRand
Corp., also know as the Wireless Outlet, which operates prepaid cellular and
paging businesses. Following a Federal Communications Commission ("FCC")
auction, on June 8, 1998, Cortelyou Communications Corp., a subsidiary of
CoreComm, was awarded local multipoint distribution service (referred to in this
industry as LMDS) licenses for 15 markets in the State of Ohio.
 
OPTION PLANS
 
     After its formation, CoreComm adopted customary compensation policies and
plans, including the CoreComm Limited 1998 Stock Option Plan under which 6
million shares have been reserved for issuance. In addition, in January, 1999,
CoreComm Ohio Limited, a wholly owned subsidiary of CoreComm, adopted the
CoreComm Ohio Limited 1999 Stock Option Plan. Under that plan, up to thirty
percent of the common stock of CoreComm Ohio Limited may become subject to
options. These options will not become exercisable unless and until there is a
registered public offering of CoreComm Ohio Limited's common stock.
 
PATENTS, COPYRIGHTS AND LICENSES
 
     We do not have any patents or copyrights, nor do we believe patents or
copyrights play a material role in our business. Other than our FCC licenses,
our only license is for the use of the service mark and trademark
CellularOne(R), which is also licensed to many of the non-wireline cellular
systems in the United States. We have the right to use the mark under contract
for a fifteen-year term. Under the Cellular One Agreement, we are required to
maintain certain service quality standards and to pay licensing and other fees
for the use of the service mark.
 
COMPETITION
 
     The telecommunications industry and all of its segments are highly
competitive. Our CLEC business, which is in the development stage, will operate
in this highly competitive environment. We expect that competition will continue
to intensify in the future due to the increase in the size, resources and number
of market participants. In each of our markets, we face competition from larger,
better capitalized incumbent providers.
 
     In the local exchange markets, our principal competitor will be the
incumbent local exchange carrier. We also face competition or prospective
competition from one or more CLECs, many of which have significantly greater
financial resources than CoreComm. For example the following companies have each
begun to offer
 
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local telecommunications services in major U.S. markets using their own
facilities or by resale of the incumbent local exchange carrier's services or
other providers' services:
 
     - AT&T
 
     - MCIWorldCom
 
     - ICG
 
     - Nextlink
 
     - Sprint
 
Certain competitors, including AT&T, MCIWorldCom and Sprint, have entered into
interconnection agreements with Ameritech for Michigan and Ohio, both states in
which we operate. These competitors either have begun or in the near future
likely will begin offering local exchange service in those states. In addition
to long distance service providers and existing CLECs, entities that are
potentially capable of offering switched services include cable television
companies, electric utilities, microwave carriers, wireless telephone system
operators and large customers who build private networks. Many facilities-based
CLECs have committed substantial resources to building their networks or to
purchasing CLECs or IXCs with complementary facilities. By building or
purchasing a network or entering into interconnection agreements or resale
agreements with ILECs, including Bell Operating Companies, and IXCs, a provider
can offer single source local and long distance services similar to those
offered by us. Some of these CLECs and other facilities-based providers of local
exchange service are acquiring or being acquired by IXCs. Some of these combined
entities have resources far greater than ours. These combined entities may
provide a bundled package of telecommunications products, including local and
long distance telephony, that is in direct competition with the products offered
by CoreComm, or to be offered in the future.
 
     Under the Telecommunications Act and related federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
availability of broad-based local resale and introduction of facilities-based
local competition are required before the Bell Operating Companies may provide
in-region long distance services originating in their traditional service area.
The Bell Operating Companies are currently allowed to offer certain in-region
"incidental" long distance services (such as cellular, audio and visual
programming and certain interactive storage and retrieval functions) and to
offer out-of-region landline long distance services.
 
     Section 271 of the Telecommunications Act prohibits a Bell Operating
Company from providing long-distance service that originates (or in certain
cases terminates) in one of its in-region states until the Bell Operating
Company has satisfied certain statutory conditions in that state and has
received the approval of the FCC. The FCC to date has denied each application
for such approval, including the application of Ameritech for in-region long
distance authority in Michigan. We anticipate that a number of Bell Operating
Companies, including Ameritech, will file additional applications for in-region
long distance authority in certain states. The FCC will have 90 days from the
date an application for in-region long distance authority is filed to decide
whether to grant or deny the application. Based on continuing legal challenges,
we do not believe that any Bell Operating Company will provide in-region long
distance services on a significant basis prior to the year 2000.
 
     Once the Bell Operating Companies are allowed to offer widespread in-region
long distance services, they will be in position to offer single-source local
and long distance services similar to those offered by CoreComm and the largest
IXCs.
 
     While new business opportunities have been made available to us through the
Telecommunications Act and other federal and state regulatory initiatives,
regulators are likely to provide the incumbent local exchange carriers with an
increased degree of flexibility with regard to pricing of their services as
competition increases. The Ameritech resale agreement contains certain pricing
protections, including adjustments in the wholesale rates to be consistent with
any changes in the Ameritech retail rates. Nevertheless, if the incumbent local
exchange carriers elect to lower their rates and sustain lower rates over time,
this may adversely affect our revenues from and place downward pressure on the
rates we can charge. We believe the effect of lower rates may be offset by the
increased revenues available by offering new products and services to our target
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<PAGE>   10
 
customers as well as increased usage, but we cannot be sure that this will
occur. In addition, future regulatory decisions may afford the incumbent local
exchange carriers excessive pricing flexibility or other regulatory relief which
could have a material adverse effect on us.
 
     Competition for our products and services is based on price, quality,
network reliability, service features and responsiveness to customers' needs. A
continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to CoreComm.
Many of our existing and potential competitors have financial, technical and
other resources significantly greater than ours.
 
     Pay television operators face competition from other sources of
entertainment, such as movie theaters and computer on-line services. Further,
premium movie services offered by cable television systems have encountered
significant competition from the home video industry. In areas where several
off-air television broadcasts can be received without the benefit of cable
television, cable television systems have experienced competition from such
broadcasters.
 
     Many actual and potential competitors have greater financial, marketing and
other resources than we do. No assurance can be given that we will be able to
compete successfully.
 
RECENT DEVELOPMENTS
 
  Proposed MegsINet, Inc. Acquisition
 
     On February 18, 1999, CoreComm announced that it had entered into an
agreement and plan of merger to acquire MegsINet, Inc. for a total consideration
of approximately $16.75 million in cash plus approximately 1.4 million shares of
CoreComm common stock. We believe that this acquisition will close during the
summer of 1999, although it remains subject to conditions. As of December 31,
1998, MegsINet had approximately $28 million in property, plant and equipment at
historical cost and currently serves approximately 45,000 Internet subscribers.
 
     MegsINet is an integrated communications provider in the ISP business that
in the future will offer local and long distance telephone services over its
telecommunications network. MegsINet is currently in the process of acquiring
and installing the equipment, obtaining the licenses and entering into
agreements with telephone carriers required to become a CLEC and an Internet
telephony service provider. By leasing inter-exchange and local facilities from
fiber optic carriers, MegsINet has created a packet based transport network
which MegsINet will use to provide the business and consumer markets with an
ever expanding line of advanced telecommunications services.
 
     In February 1998, MegsINet entered into a definitive agreement with
Northern Telcom, Inc. to jointly deploy Nortel's latest generation of switched
service technology. MegsINet has formed a wholly owned subsidiary,
MegsINet-CLEC, Inc., to pursue this opportunity. The Illinois and California
Commerce Commissions have granted the subsidiary authority to operate as a
facilities and reseller based carrier. They are in the process of registering to
operate as a CLEC in the other contiguous 48 states. In addition, MegsINet has
received authorization from the FCC to act as an international
telecommunications carrier. MegsINet is also processing long distance carrier
filings in the contiguous 48 states. Once the regulatory process is completed,
MegsINet expects to be the first integrated communications company to provide
services as an Internet service provider, CLEC, IXC and CAP over its proprietary
packet-based network.
 
  Proposed Acquisition of Assets of USN Communications, Inc.
 
     On February 19, 1999, CoreComm entered into an asset purchase agreement to
acquire certain assets of USN Communications, Inc., (specifically excluding its
wireless business), for an upfront payment of approximately $27 million in cash,
warrants to purchase an aggregate of 350,000 shares of CoreComm common stock,
and a contingency payment based on future operating results, that caps the total
consideration at $85 million. Completion of this transaction is conditioned upon
approval by the Bankruptcy Court presiding over USN's voluntary Chapter 11
reorganization case that is currently pending. USN is currently subject to an
auction in that proceeding, in which third parties may bid for the same assets
that CoreComm agreed to
 
                                        9
<PAGE>   11
 
purchase. CoreComm may be outbid for these USN assets, which would result in our
not completing this acquisition and termination of the agreement.
 
     USN offers a bundled package of telecommunications products, including
local and long distance telephony, voicemail, paging, teleconferencing, and
other enhanced and value-added telecommunications services, tailored to meet the
needs of its customers. USN primarily focuses its marketing efforts on small and
medium-sized businesses with telecommunications usage of less than $5,000 per
month.
 
     USN is presently selling service to customers in certain states in the Bell
Atlantic Corporation region (including Massachusetts, New Hampshire, New York
and Rhode Island) and the entire Ameritech Corporation region (including
Illinois, Indiana, Michigan, Ohio and Wisconsin) and is currently in
negotiations to expand its bundled services offering throughout the 14-state
Bell Atlantic region.
 
                                   REGULATION
 
OVERVIEW
 
     The telecommunications services we provide are subject to regulation by
federal, state and local government agencies. At the federal level, the FCC has
jurisdiction over Interstate and international services and interstate services
are communications that originate in one state and terminate in another.
Intrastate services are communications that originate and terminate in a single
state and state public service commissions exercise jurisdiction over intrastate
services. Municipalities and other local government agencies may also regulate
limited aspects of our business, such as use of government-owned rights-of-way
and construction permits. Our networks are also subject to numerous local
regulations such as building codes, franchise and right-of-way licensing
requirements.
 
TELECOMMUNICATIONS ACT OF 1996
 
     The federal Telecommunications Act, enacted in 1996, has resulted and will
continue to result in substantial changes in the marketplace for
telecommunications services. These changes include, at present, opening local
exchange services to competition and, in the future, a substantial increase in
the addressable services for CoreComm. Among its more significant provisions,
the Telecommunications Act:
 
     - removes legal barriers to entry into all telecommunications services,
       such as long distance and local exchange services,
 
     - requires incumbent local exchange carriers (e.g. Ameritech or Bell
       Atlantic) to "interconnect" with and provide services for resale by
       competitors,
 
     - establishes procedures for incumbent local exchange carriers to enter
       into new services, such as long distance and cable television,
 
     - relaxes regulation of telecommunications services provided by incumbent
       local exchange carriers and all other telecommunications service
       providers, and
 
     - directs the FCC to establish an explicit subsidy mechanism for the
       preservation of universal service.
 
     The FCC was also directed by Congress to revise and make explicit subsidies
inherent in the access charge paid by IXC's for use of local exchange carriers'
services.
 
REMOVAL OF ENTRY BARRIERS
 
     The provisions of the Telecommunications Act should enable us to provide a
full range of local telecommunications services in any state. Although we will
be required to obtain certification from state public service commissions in
almost all cases, the Telecommunications Act should limit substantially the
ability of a state public service commission to deny a request for
certification. The provisions of the Telecommunications Act also reduce the
barriers to entry by other potential competitors and therefore increase the
level of
 
                                       10
<PAGE>   12
 
competition we will likely face in all markets affected by the Act. For a
detailed description of the competition we likely will face, see "Competition"
beginning on page 7.
 
INTERCONNECTION WITH LOCAL EXCHANGE CARRIER FACILITIES
 
     A company cannot compete effectively with the incumbent local exchange
carriers in switched local telephone services unless it is able to connect its
facilities with the incumbent local exchange carriers and obtain access to
certain essential services and resources under reasonable rates, terms and
conditions. The Telecommunications Act imposes a number of access and
interconnection requirements on all local exchange providers, including CLECs,
with additional requirements imposed on non-rural incumbent local exchange
carriers. These requirements are intended to provide access to certain networks
under reasonable rates, terms and conditions. Specifically, local exchange
carriers must provide the following:
 
          Telephone Number Portability.  Telephone number portability enables a
     customer to keep the same telephone number when the customer switches local
     exchange carriers.
 
          Dialing Parity.  All local exchange carriers must provide dialing
     parity, which means that a customer calling to or from a CLEC network
     cannot be required to dial more digits than is required for a comparable
     call originating and terminating on the local exchange carrier's network.
 
          Reciprocal Compensation.  The duty to provide reciprocal compensation
     means that local exchange carriers must terminate calls that originate on
     competing networks in exchange for a given level of compensation and that
     they are entitled to termination of calls that originate on their network,
     for which they must pay a given level of compensation.
 
          Resale.  Incumbent local exchange carriers generally may not prohibit
     or place unreasonable restrictions on the resale of their services. In
     addition, incumbent local exchange carriers must offer bundled local
     exchange services to resellers at a wholesale rate that is less than the
     retail rate charged to end users.
 
          Access to Rights-of-Way.  All incumbent local exchange carriers, CLECs
     and certain other utilities must provide access to their poles, ducts,
     conduits and rights-of-way on a reasonable, nondiscriminatory basis.
 
          Unbundling of Network Elements.  Incumbent local exchange carriers
     must offer access to various unbundled elements of their network. This
     requirement allows new entrants to purchase at cost-based rates elements of
     an incumbent local exchange carrier's network that may be necessary to
     provide service to a new entrant's customers.
 
     While the Telecommunications Act generally requires incumbent local
exchange carriers to offer interconnection, unbundled network elements and
resold services to CLECs, local exchange carrier to CLEC interconnection
agreements may have short terms, requiring the CLEC to renegotiate the
agreements. Local exchange carriers may not provide timely provisioning or
adequate service quality, thereby impairing a CLEC's reputation with customers
who can easily switch back to the local exchange carrier. In addition, the
prices set in the agreements may be subject to significant rate increases if
state regulatory commissions establish prices designed to pass on to the CLECs
part of the intrastate cost of providing universal service.
 
     In January 1999, the United States Supreme Court upheld the FCC's authority
to adopt pricing rules for unbundled network elements and resale by CLECs.
However, the Supreme Court instructed the FCC to reconsider aspects of its 1996
order regarding the extent to which incumbent local access carriers are required
to unbundle elements of their networks. In addition, the FCC's pricing rules are
subject to further judicial review.
 
     In February 1999, the FCC determined that calls to ISPs are interstate in
nature, thus falling under the FCC's jurisdiction. They have since initiated a
review of compensation arrangements between ILECs and CLECs for calls to ISPs.
This review could adversely affect the compensation that CLECs, including
CoreComm, receive for carrying such traffic.
 
                                       11
<PAGE>   13
 
LOCAL EXCHANGE CARRIER ENTRY INTO NEW MARKETS
 
     Our principal competitor in each market we enter is the ILEC. Prior to the
enactment of the Telecommunications Act, the Bell Operating Companies generally
were prohibited by the consent decree that broke up the Bell System from
providing long distance services. The Telecommunications Act established
procedures under which a Bell Operating Company can provide landline long
distance services originating from (and in certain cases, terminating in) its
traditional telephone service area after receiving approval from the FCC. The
interconnection offered or provided by the Bell Operating Company must comply
with a competitive checklist that incorporates the interconnection requirements
discussed above. See "Interconnection with Local Exchange Carrier Facilities" on
page 11. Bell Operating Companies are currently permitted to provide landline
long distance services to customers outside of their local service areas and in
conjunction with their mobile telephone service offerings.
 
     Approval from the FCC will enable a Bell Operating Company to provide
customers with a full range of local and long distance telecommunications
services. The provision of landline long distance services by Bell Operating
Companies is expected to reduce the market share of the major long distance
carriers, which may be significant customers of our services. Consequently, the
entry of the Bell Operating Companies into the long distance market may have
adverse consequences on the ability of CLECs both to generate access revenues
from the IXCs and to compete in offering a package of local and long distance
services. To date, the FCC has denied each application for in-region long
distance service. More Bell Operating Company requests to provide in-region long
distance service are expected to be filed with the FCC in the near future.
 
RELAXATION OF REGULATION
 
     A goal of the Telecommunications Act is to increase competition for
telecommunications services, thereby reducing the need for regulation of these
services. To this end, the Telecommunications Act requires the FCC to streamline
its regulation of ILECs and permits the FCC to forbear from regulating
particular classes of telecommunications services or providers. Since CoreComm
is a non-dominant carrier and, therefore, is not heavily regulated by the FCC,
the potential for regulatory forbearance likely will be more beneficial to the
incumbent local exchange carriers than to us in the long run.
 
     The Communications Act requires all common carriers to charge just and
reasonable rates for their services and to file schedules of these rates with
the FCC. These schedules are known as "tariffs" and they represent a contract
between a carrier and its customers. The Telecommunications Act permits the FCC
to "forbear" from enforcing certain provisions of the Communications Act and the
FCC has used this authority to determine that it is in the public interest to
prohibit carriers from filing tariffs for their interstate services. This
decision of the FCC and its "mandatory detariffing" has been stayed by the U.S.
Court of Appeals for the D.C. Circuit. Another FCC decision permits, but does
not require, CLECs to file tariffs for the charges that they levy on interstate
long distance carriers for completing calls to CLEC customers (see discussion of
"access charges" below). In the absence of a tariff, a carrier depends on a
contract with its customers to determine the rates and conditions of service.
 
UNIVERSAL SERVICE AND ACCESS CHARGE REFORM
 
     On May 8, 1997, the FCC issued an order implementing the provisions of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service. This order requires all telecommunications carriers providing
interstate telecommunications services, including CoreComm, to contribute to
universal service support.
 
     In a related proceeding, on May 16, 1997, the FCC issued an order
implementing certain reforms to its access charge rules. Access charges are
charges imposed by local exchange carriers on long distance providers for access
to the local exchange network, and are designed to compensate the local exchange
carrier for its investment in the local network. The FCC regulates interstate
access and the states regulate intrastate access. This order required incumbent
local exchange carriers to substantially decrease over time the prices they
charge for switched and special access and changed how access charges are
calculated. These changes are intended to reduce access charges paid by IXCs to
local exchange carriers and shift certain usage-based
                                       12
<PAGE>   14
 
charges to flat-rated, monthly per-line charges. To the extent that these rules
are effective in reducing access charges, our ability to offer customers
lower-cost access services might be impaired. Additionally, the FCC ruled that
incumbent local exchange carriers may no longer impose certain interconnection
charges on competitive providers that interconnect with the incumbent exchange
carrier at the incumbent's end offices but do not use the incumbent company's
transport facilities.
 
     Some state public service commissions have adopted rules or are currently
considering actions to preserve universal services and promote the public
interest.
 
FEDERAL REGULATION GENERALLY
 
     Through a series of proceedings, the FCC has established different levels
of regulation for "dominant carriers" and "non-dominant carriers." Only ILECs
are classified as dominant; all other providers of domestic interstate services
are classified as non-dominant carriers. As a non-dominant carrier, we are
subject to relatively limited regulation by the FCC. However, at a minimum, we
must offer interstate services at just and reasonable rates in a manner that is
not unreasonably discriminatory.
 
     The FCC has adopted rules requiring ILECs to provide "collocation" to CLECs
for the purpose of interconnecting their competing networks. Under the rules
adopted by the Local Competition Orders, ILECs are required to provide either
physical collocation or virtual collocation at their switching offices.
 
     All local exchange carriers, including CLECs, must:
 
     - make their services available for resale by other carriers,
 
     - provide nondiscriminatory access to rights-of-way,
 
     - offer reciprocal compensation for termination of traffic, and
 
     - provide dialing parity and telephone number portability.
 
In addition, the Telecommunications Act requires all telecommunications carriers
to contribute to the universal service mechanism established by the FCC and to
ensure that their services are accessible to and usable by persons with
disabilities. Moreover, the FCC is considering the regulatory implications of
various aspects of local exchange competition. Any or all of these proceedings
may negatively affect CLECs, including CoreComm.
 
     The FCC could grant incumbent local exchange carriers substantial pricing
flexibility with regard to interstate access services. The May 21, 1997 order
reforming the FCC's price cap formula affords local exchange carriers greater
flexibility in establishing rates and provides additional incentives to foster
efficiency. To the extent these regulatory initiatives enable or require
incumbent local exchange carriers to offer selectively reduced rates for access
services, the rates CoreComm may charge for access services will be constrained.
Our rates also will be constrained by our competitors which, excluding the
ILECs, are subject to the same streamlined regulatory regime as CoreComm and can
price their services to meet competition.
 
STATE REGULATION GENERALLY
 
     Most state public service commissions require companies to be certified to
provide common carrier services. These certifications generally require a
showing that the carrier has adequate financial, managerial and technical
resources to offer the proposed services in a manner consistent with the public
interest.
 
     In addition to obtaining certification, in each state, we must negotiate
terms of interconnection with the incumbent local exchange carrier before we can
begin providing switched services. Under the Telecommunications Act, the FCC has
adopted interconnection requirements, certain portions of which have been upheld
by the United States Supreme Court and other portions of which are subject to
reconsideration by the FCC or further judicial review. See "Interconnection with
Local Exchange Carrier Facilities" beginning on page 11. We have already entered
into interconnection agreements with Ameritech. In addition, we have entered
into an agreement to acquire MegsINet which has also entered into an
interconnection agreement with Ameritech.
 
                                       13
<PAGE>   15
 
     We are not presently subject to price regulation based on costs or
earnings. Most states require CLECs to file tariffs setting forth the terms,
conditions and prices for intrastate services. Some states permit tariffs to
list a rate range or set prices on an individual case basis.
 
     Several states provide incumbent local exchange carriers with flexibility
for their rates, special contracts (selective discounting) and tariffs,
particularly for services deemed subject to competition. This pricing
flexibility increases the ability of the incumbent local exchange carrier to
compete with us and constrains the rates we may charge for its services. In
light of the additional competition that is expected to result from the
Telecommunications Act, states may grant ILECs additional pricing flexibility.
At the same time, some ILECs may request increases in certain local exchange
rates to offset revenue losses due to competition.
 
REGULATION OF RESELLERS
 
     The FCC has defined resale as any activity in which a party (the reseller)
subscribes to the services or facilities of a facilities-based provider (or
another reseller) and then reoffers communications services to the public for
profit, with or without adding value. Resellers are common carriers generally
subject to all rules and regulations placed on providers of the underlying
services by either the FCC or the states in which they operate. The FCC has held
that prohibitions on the resale of common carrier services are unjust,
unreasonable, and unlawfully discriminatory in violation of the Communications
Act. Accordingly, all common carriers must make their services available for
resale at rates, terms, and conditions that do not unreasonably discriminate
against resellers. The Telecommunications Act imposes the additional duty upon
incumbent local exchange carriers to make their services available for resale at
wholesale rates. The FCC adopted specific requirements for determining such
wholesale rates for local telecommunications services. While the United States
Supreme Court upheld the FCC's authority to adopt these rules, the FCC's
specific pricing rules are subject to further judicial review. As to other
telecommunications services, however, there is no regulation that requires
discounts to resellers below those offered to end users of the same quantities
of like services. The FCC has determined that because of the competitive
development of broadband commercial mobile radio service, providers of those
services will not be required to offer their services for resale after November
24, 2002.
 
LOCAL GOVERNMENT AUTHORIZATIONS
 
     Some jurisdictions where CoreComm may provide service require license or
franchise fees based on a percent of certain revenues. There are no assurances
that jurisdictions that do not currently impose fees will not seek to impose
fees in the future. In many markets, other companies providing local
telecommunications services, particularly the incumbent local exchange carriers,
had been excused from paying license or franchise fees or paid fees that are
materially lower than those that would be required from new competitors such as
CoreComm. The Telecommunications Act requires jurisdictions to charge
nondiscriminatory fees to all telecommunications providers, but it is uncertain
how quickly this requirement will be implemented by particular jurisdictions
where we operate or plan to operate or whether it will be implemented without a
legal challenge initiated by us or another CLEC.
 
LOCAL MULTIPOINT DISTRIBUTION SERVICE
 
     The FCC has established a new wireless service named Local Multipoint
Distribution Service (LMDS). The FCC allocated two frequency blocks in each of
493 Basic Trading Areas in the U.S. to LMDS: Block A with 1,150 MHZ of spectrum
in the 28 GHz and 31 GHz bands, and Block B with 150 MHZ in the 31 GHz band.
LMDS licenses are awarded for ten-year terms with renewal expectancies provided
to licensees that make a showing of substantial service in their licensed areas.
 
     LMDS may be used to provide any kind of communications service on a common
carrier or non-common-carrier basis. Radio frequencies in the 28 and 31 GHz
bands are generally capable of only "line-of-sight" transmission and reception,
are subject to interference from certain weather conditions, and do not lend
themselves to mobile applications. LMDS is expected to be used for the delivery
of various broadband services to homes and offices, including
telecommunications, Internet access, and two-way video. At least seven other
 
                                       14
<PAGE>   16
 
countries, including Canada and Mexico, have licensed LMDS on either a permanent
or experimental basis. LMDS licensees are expected to be able to provide a wide
array of services, two-way capabilities, and high capacity through the use of
newer digital equipment and transmission mechanisms. The FCC expects that
Block-A LMDS licensees especially, by applying cellular-style frequency re-use
technology to an already large frequency bandwidth, have the potential to become
competitors to ILECs and cable operators. Accordingly, the LMDS rules prohibit
ownership of Block-A licenses by ILECs and incumbent cable operators prior to
July, 2000, but permit an applicant that would otherwise be prohibited from
holding a Block-A license to apply for a waiver of the ownership restriction by
showing that it does not have market power in its telephone or cable service
area.
 
     The FCC held a simultaneous, multiple-round auction for the 986 LMDS
licenses which closed on March 25, 1998. 104 winning participants bid a total of
$578,663,029 for 864 licenses. No auction participant placed the minimum opening
bid on any of the remaining 122 licenses, which will be reauctioned beginning in
April, 1999. We won 15 Block-A licenses for Basic Trading Areas encompassing
substantially all population centers in the state of Ohio, for a total bid of
$25,241,133. Auction participants that had average gross revenues for the
previous three years of $75 million or less, when aggregated with all commonly
controlled affiliates, were entitled to bidding credits of 25%, 35%, or 45%. We
did not qualify for any bidding credit. The FCC has since granted our 15 LMDS
licenses with an effective date of June 8, 1998.
 
FUTURE INTERNATIONAL OPERATIONS
 
     CoreComm may ultimately expand its operations to other countries and
currently provides international resale services. The FCC requires every carrier
that intends to originate international telecommunications from within the U.S.,
either through the use of its own facilities or on a resale basis, to secure in
advance an authorization from the FCC under Section 214 of the Communications
Act. Additionally, these carriers must file with the FCC a tariff containing the
rates, terms, and conditions of their international service offerings. In
applying for a 214 Authorization, a carrier must disclose any affiliations with
or special concessions from foreign carriers or nations. The FCC has streamlined
its procedures for granting 214 Authorizations, providing a routine grant of
such authorizations in 35 days unless an application is formally opposed or the
applicant is affiliated with a carrier that controls bottleneck
telecommunications facilities in a foreign country, in which case the applicant
may be subject to more stringent regulation as a "dominant" carrier.
Additionally, applicants affiliated with foreign carriers in countries that are
signatories to the Telecommunications Annex to the World Trade Organization
General Agreement of Trade in Services, including Canada, have a reduced burden
of demonstrating their "non-dominance." Carriers that have received 214
Authorizations are subject to certain reporting requirements, must file
contracts with foreign correspondents, and are restricted in the provision of
certain services to certain nations, such as the use of resold private lines for
switched services and the provision of any services to countries on the FCC's
"exclusion list." CoreComm holds a 214 Authorization for both facilities-based
and resale international services and has filed a tariff for its international
resale services.
 
INTERNET REGULATION
 
     The FCC currently does not regulate the provision of Internet service,
although it does regulate common carriers that provide elements of the
"backbone" networks on which the Internet is based. Similarly, state public
utility commissions generally do not regulate Internet service, except in some
limited circumstances where incumbent local exchange carriers provide Internet
services. The FCC and some states, however, are reviewing the development of the
Internet and the types of services that are provided through it. For example, if
the FCC should determine that an Internet service provider offers a service that
is an exact substitute for long distance telephone service with the sole
distinction that it is based on a packet-switched network rather than a
circuit-switched network, the FCC may determine that it should provide
regulatory parity for the services.
 
                                       15
<PAGE>   17
 
CUSTOMER DEPENDENCE AND SEASONALITY
 
     The Company is not dependent upon any single customer for any significant
portion of its business. The Company's business as well as the cellular
communications industry, is not generally characterized as having a material
seasonal element and it is not expected to become seasonal in the foreseeable
future.
 
EMPLOYEES
 
     As of December 31, 1998, the Company and its subsidiaries had an aggregate
of approximately 250 employees. No employees are represented by any labor
organization. The Company believes that its relationship with its employees is
excellent.
 
ITEM 2.  PROPERTY
 
     Certain of the Company's subsidiaries lease office space which the Company
believes is adequate to serve its present business operations and its needs for
the foreseeable future. See the Notes to the Company's Consolidated Financial
Statements included elsewhere in this Form 10-K for information concerning lease
commitments.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     The Company is not involved in any legal disputes that are expected to have
a material adverse effect on the Company's financial condition.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
 
     No matter was submitted to a vote of security holders of the Company during
the quarter ended December 31, 1998.
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
        MATTERS.
 
     CoreComm formerly was a wholly owned subsidiary of Cellular Communications
of Puerto Rico, Inc. ("CCPR") (formerly CoreComm Incorporated). On September 2,
1998, CCPR distributed to its stockholders, on a one for one basis, all of the
capital stock of CoreComm. CoreComm's Common Stock began trading on the Nasdaq
Stock Market's National Market on September 2, 1998, under the Nasdaq symbol
"COMFV". Subsequently, on September 3, 1998, the symbol was changed to "COMMF,"
under which it presently trades. The following table sets forth for the periods
indicated, the high and low last sale prices on the Nasdaq Stock Market's
National Market.
 
<TABLE>
<CAPTION>
                                                               LAST SALE PRICE
                                                              ------------------
                                                               HIGH        LOW
                                                              -------    -------
<S>                                                           <C>        <C>
1998
Third Quarter (beginning September 2, 1998).................  $ 15.00    $ 10.00
Fourth Quarter..............................................  $ 17.25    $  7.50
1999
First Quarter (through March 16, 1999)......................  $39.125    $16.375
</TABLE>
 
     On March 16, 1999, the last sales price for the Common Stock on the Nasdaq
Stock Market National Market was $33.94. As of March 16, 1999, there were
approximately 290 record holders of the Common Stock. This figure does not
reflect beneficial ownership of shares held in nominee names.
 
     The Company has never declared or paid any cash dividends on the Common
Stock. The Company anticipates that it will retain earnings, if any, for use in
the operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future.
 
                                       16
<PAGE>   18
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
     The following selected financial data of CoreComm and its predecessor, OCOM
Corporation Telecoms Division ("OCOM") should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
Form 10-K. The selected historical financial data relates to OCOM as it was
operated prior to its acquisition by CoreComm.
 
<TABLE>
<CAPTION>
                                                                    THE PREDECESSOR (OCOM)
                             FOR THE PERIOD FROM    -------------------------------------------------------
                                APRIL 1, 1998       FOR THE PERIOD
                               (DATE OPERATIONS          FROM                YEAR ENDED DECEMBER 31,
                                COMMENCED) TO       JANUARY 1, 1998   -------------------------------------
                             DECEMBER 31, 1998(1)   TO MAY 31, 1998    1997      1996     1995(2)    1994
                             --------------------   ---------------   -------   -------   -------   -------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                          <C>                    <C>               <C>       <C>       <C>       <C>
INCOME STATEMENT DATA:
Revenues...................        $ 6,713              $ 1,452       $ 3,579   $ 5,103   $ 4,001   $ 3,690
Operating expenses.........         25,139                4,234         7,954     6,333     8,413     2,987
Net income (loss)..........        (16,255)              (2,782)       (4,379)   (1,097)   (4,154)    1,048
Net income (loss) per
  common share:
  Basic....................          (1.23)                (.21)         (.33)     (.08)     (.38)      .11
  Diluted..................          (1.23)                (.21)         (.33)     (.08)     (.38)      .10
Weighted average number of
  common shares(3):
  Basic....................         13,190               13,183        13,075    13,196    11,070     9,867
  Diluted..................         13,190               13,183        13,075    13,196    11,070    10,161
</TABLE>
 
<TABLE>
<CAPTION>
                                                                   THE PREDECESSOR (OCOM)
                                                                        DECEMBER 31,
                                              DECEMBER 31,    ---------------------------------
                                                1998(1)        1997     1996      1995     1994
                                              ------------    ------    -----    ------    ----
                                                               (IN THOUSANDS)
<S>                                           <C>             <C>       <C>      <C>       <C>
BALANCE SHEET DATA:
Working capital.............................    $133,899      $ (950)   $(490)   $  (42)   $148
Fixed assets -- net.........................       3,582       1,269      270       226     172
Total assets................................     176,526       1,731      917     1,020     670
Noncurrent liabilities......................         501          --       --        --      --
Shareholders' equity........................     169,297          --       --        --      --
Parent's investment.........................          --         321     (208)     (207)    353
</TABLE>
 
---------------
(1) During the period from April 1, 1998 (date operations commenced) to December
    31, 1998, CCPR made the following contributions to CoreComm prior to the
    Spin-off: (a) a cash contribution of $150 million, (b) a contribution of
    businesses acquired by CCPR in April and June 1998 and (c) the contribution
    of the subsidiary that owns various LMDS licenses in Ohio that were acquired
    for an aggregate of $25,241,000. Revenues and expenses of CoreComm increased
    in the period from April 1, 1998 (date operations commenced) to December 31,
    1998 when compared to the revenues and expenses of OCOM for the year ended
    December 31, 1997 due to the increase in OCOM expenses subsequent to its
    acquisition by CoreComm and the consolidation of the results of operations
    of the acquired businesses.
 
(2) OCOM incurred one-time costs of $2,294,000 in 1995 in connection with the
    expansion of its cellular long distance resale business into certain AT&T
    Wireless markets.
 
(3) The weighted average number of common shares are equivalent to CCPR's
    historical weighted average shares on a one-for-one basis, plus CoreComm's
    weighted average shares in the 1998 period.
 
     CoreComm has never declared or paid any cash dividends.
 
                                       17
<PAGE>   19
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
 
                             RESULTS OF OPERATIONS
 
     The following discussion of the results of operations of CoreComm (or "the
Company") includes a comparison to the results of operations of OCOM, the
predecessor business to the Company. The Company was formed in March 1998 and
did not have any prior operations. Since OCOM represents a significant portion
of CoreComm's current business, the comparison with OCOM's historical operating
results gives the reader a basis to evaluate CoreComm's present business.
However, the historical results of OCOM may not be indicative of CoreComm's
future results. OCOM's primary historical business is its cellular long distance
resale business that has been and currently is a highly competitive segment of
the long distance telephone market. OCOM and now CoreComm have diversified into
other telecommunications resale businesses.
 
FOR THE PERIOD FROM APRIL 1, 1998 (DATE OPERATIONS COMMENCED) TO DECEMBER 31,
1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997
 
     The increase in revenues to $6,713,000 from $3,579,000 is primarily due to
acquisitions in 1998, which accounted for $4,535,000 of the increase. OCOM's
revenues decreased to $2,178,000 from $3,579,000 because OCOM's revenues prior
to its acquisition in June 1998 of $1,452,000 are not included in the 1998
amount. OCOM's cellular long distance revenues continued to decline in 1998 as a
result of customers switching to other long distance providers, which trend is
expected to continue to occur. This reduction in revenues was offset by
increases in CLEC and cellular revenues.
 
     Operating costs increased to $5,584,000 from $1,581,000 primarily due to
acquisitions in 1998, which accounted for $3,895,000 of the increase. Operating
costs as a percentage of revenues increased to 83% from 44%. This increase is
the result of the reduction in cellular long distance revenues which to date has
the highest gross margin of CoreComm's telecommunications businesses.
 
     Selling, general and administrative expenses increased to $13,989,000 from
$5,934,000 as a result of increased selling and marketing costs and increased
customer service costs. These costs are expected to increase in the foreseeable
future. These increases were offset by a reduction in billing costs due to the
implementation of in-house billing in the fourth quarter of 1997.
 
     The compensation charge of $4,586,000 in 1998 is a non-cash charge recorded
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," as a one time charge related to the issuance of CoreComm's warrants
and stock options to holders of CCPR's stock options in connection with the
Spin-off.
 
     Depreciation expense increased to $749,000 from $428,000 as a result of an
increase in fixed assets, primarily computer hardware and software.
 
     Amortization expense increased to $231,000 from $11,000 due to the
amortization of goodwill from the acquisitions in 1998.
 
     Interest income and other, net, increased to income of $2,632,000 from
expense of $4,000 primarily due to $2,585,000 of interest income on CoreComm's
cash, cash equivalents and marketable securities.
 
     Interest expense increased to $21,000 from zero due to interest on the note
payable and capital leases.
 
     The income tax provision of $440,000 in 1998 is for state and local tax.
 
YEARS ENDED DECEMBER 31, 1997 AND 1996
 
     Revenues decreased to $3,579,000 from $5,103,000 primarily due to a
reduction in cellular long distance revenues as a result of customers switching
to other long distance providers. The reduction in cellular long distance
revenues was partially offset by revenues from landline long distance and
cellular service, both of which were introduced subsequent to December 31, 1996.
 
                                       18
<PAGE>   20
 
     Operating costs decreased to $1,581,000 from $3,065,000 as a result of the
decline in revenues. Operating costs as a percentage of revenues decreased to
44% from 60% due to the improvement in the margin on cellular long distance as a
result of a reduction in the wholesale cost.
 
     Selling, general and administrative expenses increased to $5,934,000 from
$3,119,000 as a result of increased selling and marketing costs, customer
service costs and management costs due to the increased efforts beginning in
late 1996 to grow and develop OCOM's business.
 
     Depreciation expenses increased to $428,000 from $138,000 as a result of an
increase in fixed assets, primarily computer hardware and software.
 
     Interest income and other, net, decreased to expense of $4,000 from income
of $133,000 primarily due to the termination of OCOM's consulting agreement with
AT&T Wireless for assistance in marketing and implementing a cellular long
distance resale business.
 
                        LIQUIDITY AND CAPITAL RESOURCES
 
     The Company will require significant resources to fund the construction of
its facilities based network, develop and expand its existing businesses and
licenses, acquire or develop additional telecommunications-related business, and
fund near term operating losses.
 
     The Company intends to significantly expand its telecommunications
infrastructure in the United States over the next several years. CoreComm, as
well as its completed and pending acquired companies, have already begun the
process of installing switches, Internet points-of-presence, and other
telecommunications facilities in Ohio as well as other states. The anticipated
amount of such expenditures have yet to be determined, and will be related to
the speed and location of equipment deployment, as well as the mix of resold vs.
facilities-based services.
 
     The Company's businesses will also consume capital to acquire new customers
and to finance the working capital required to support these new customers.
These businesses will also require additional billing, customer service and
other back-office infrastructure. These capabilities can be expanded in-house or
can be outsourced to reduce up-front capital requirements. To date, the
Company's strategy has been to utilize the expertise developed by its management
to develop in-house billing and back-office capabilities.
 
     In February 1999, CoreComm entered into agreements to acquire MegsINet and
certain assets of USN. The USN acquisition is subject to Bankruptcy Court
auction procedures. Approximately $16.75 million in cash would be required to
complete the acquisition of MegsINet and approximately $27 million in cash (plus
a potential contingent payment to be paid in 2000) would be required to complete
the acquisition of the USN assets. In addition, the Company would require
significant capital to fund the expansion and operations related to those
acquisitions, if consummated. In the future, the Company plans to make further
appropriate acquisitions which may require significant capital expenditures.
 
     The amount of capital required to construct the LMDS systems is unknown at
this time, but is likely to be several times the cost of the licenses. In
addition to up-front network construction costs, a significant ongoing capital
requirement will be the cost to acquire customer premise equipment to receive
and transmit LMDS signals. The network and customer premise equipment costs are
unknown because a de facto standard has yet to emerge among the LMDS auction
winners and because insufficient orders have been placed with manufacturers who
determine likely prices for equipment. As license holders choose equipment
manufacturers and one or more equipment standard emerges, prices will become
more easily quantifiable.
 
     The Company intends to fund its near term capital expenses, operating
losses and working capital requirements with cash, cash equivalents and
marketable securities on hand of $137 million at December 31, 1998. The funds on
hand are primarily the result of the $150 million cash capital contribution from
CCPR prior to the Spin-off. Longer term, it is likely that the Company will be
required to raise additional debt and/or equity financing to fully implement its
goals.
 
                                       19
<PAGE>   21
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
     Cash used in operating activities increased to $12,322,000 from $3,477,000
primarily due to the increase in the net loss to $16,255,000 from $4,379,000.
The net loss increased as a result of acquisitions and an increase in selling
and marketing costs and customer service expenses. We expect cash used in
operating activities to increase in 1999 for the same reasons.
 
     Cash used to purchase fixed assets increased to $2,344,000 from $1,435,000
due to acquisitions and as a result of an increase in computer hardware and
software purchases. We continue to expand our in-house billing capabilities and
require additional hardware for additional personnel.
 
     Cash provided by capital contributions of $150,904,000 is the cash
contributed by CCPR prior to the Spin-off.
 
YEAR 2000
 
     We have a comprehensive Year 2000 project designed to identify and assess
the risks associated with our information systems, operations and
infrastructure, suppliers, and customers that are not Year 2000 compliant, and
to develop, implement and test remediation and contingency plans to mitigate
these risks. The project comprises four phases: (1) identification of risks, (2)
assessment of risks, (3) development of remediation and contingency plans and
(4) implementation and testing.
 
     Our assessment is primarily focused on both our information technology
("IT") systems, in particular our billing, provisioning and customer service
systems, and the readiness of the significant facilities-based carriers that we
depend upon for our resale services. Our leased office space and other non-IT
equipment which may have embedded technology that may be affected by the year
2000 problem is being separately assessed.
 
     - We have completed the assessment of our financial IT systems, which will
       require upgrades from vendors at nominal additional cost. The upgrades
       will be placed into service by June 1999.
 
     - Our evaluation of the billing, provisioning and customer service IT
       systems has progressed from assessments to renovation and validation. We
       expect to incur nominal costs to complete the renovation and validation
       of these systems since they are new systems that were designed to be year
       2000 ready. Although we expected to complete the renovation and
       validation of the billing, provisioning and customer service IT systems
       by June 1999, we now expect to complete these tasks by September 1999. We
       have engaged a consulting firm to assist us in this process.
 
     - Most of our IT hardware is currently year 2000 ready. Primarily all of
       the cost of upgrades and purchases of hardware and data communications
       equipment to complete the implementation of year 2000 readiness is part
       of our planned growth and upgrade capital expenditures in 1999 and is not
       expected to be significantly different than expenditures in previous
       years. Although we expected to complete the IT hardware upgrades by June
       1999, we now expect to complete these upgrades by September 1999.
 
     - Our evaluation of the readiness of our significant vendors is still in
       process. We have requested information from these vendors in order to
       determine the extent to which we may be vulnerable to their failure to
       correct their own year 2000 problems. We have received responses from
       approximately 45% of these vendors through March 16, 1999. However, we
       believe that all of the facilities-based vendors that we rely upon for
       wholesale service, including billing data, and for Internet connections,
       are telephone companies that are required to report their year 2000
       readiness to state public utility commissions. We anticipate that such
       reporting will assist us in our evaluation of their readiness.
       Approximately 75% of the vendors who have not yet responded to our
       inquiries are telephone companies and other public utilities.
 
     - We currently believe the most reasonably likely worst case scenario with
       respect to the Year 2000 is the failure of one or more of our significant
       facilities-based vendors, including utilities, to be ready for the year
       2000. This could cause a temporary interruption in our provision of
       service to customers or in
                                       20
<PAGE>   22
 
       our ability to bill our customers, or both. Either or both could have a
       material adverse effect on our operations, although it is not possible at
       this time to quantify the amount of revenues and gross profit that might
       be lost, or the costs that could be incurred. Our contingency plan to
       address some of these risks involve switching customers to another
       wholesale provider, which would require time to implement and may be
       constrained due to capacity and/or training limitations.
 
     As the Year 2000 project continues, we may discover additional problems,
may not be able to develop, implement or test remediation or contingency plans,
or may find that the costs of these activities exceed current expectations. In
many cases, we are relying on assurances from suppliers that new and upgraded
information systems and other products will be Year 2000 ready. We plan to test
such third-party systems and products. However, we cannot be sure that our tests
will be adequate or that, if problems are identified, they will be addressed by
the supplier in a timely and satisfactory way.
 
     Because we use a variety of information systems and have additional systems
embedded in our operations and infrastructure, we cannot be sure that all of our
systems will work together in a Year 2000-ready fashion. Furthermore, we cannot
be sure that we will not suffer business interruptions, either because of our
own Year 2000 problems or those of third-parties upon whom we rely on for
services. We are continuing to evaluate our Year 2000-related risks and
corrective actions. However, the risks associated with the Year 2000 problem are
pervasive and complex; they can be difficult to identify and address, and can
result in material adverse consequences to the Company. Even if we, in a timely
manner, complete all of our assessments, identify and test remediation plans
believed to be adequate, and develop contingency plans believed to be adequate,
some problems may not be identified or corrected in time to prevent material
adverse consequences to the Company.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
 
     The Securities and Exchange Commission's rule related to market risk
disclosure requires that we describe and quantify our potential losses from
market risk sensitive instruments attributable to reasonably possible market
changes. Market risk sensitive instruments include all financial or commodity
instruments and other financial instruments (such as investments and debt) that
are sensitive to future changes in interest rates, currency exchange rates,
commodity prices or other market factors. We are not exposed to market risks
from changes in foreign currency exchange rates or commodity prices. We do not
hold derivative financial instruments nor do we hold securities for trading or
speculative purposes. We currently have a small amount of noncurrent liabilities
at fixed interest rates, therefore, we do not believe it is necessary to manage
this exposure to interest rate changes. We are exposed to changes in interest
rates primarily from our investments in cash equivalents and available-for-sale
marketable securities. All of our marketable Securities have maturities of less
than one year which reduces our interest rate exposure. Under our current
policies, we do not use interest rate derivative instruments to manage our
exposure to interest rate changes. A hypothetical 100 basis point decline in
short-term interest rates would reduce the fair value of our interest sensitive
investments by approximately $137,000 at December 31, 1998.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
     The Financial Statements are included herein commencing on page F-1.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
     Not applicable.
 
                                       21
<PAGE>   23
 
                                    PART III
 
ITEMS 10, 11, 12 AND 13.
 
     The information required by Part III is incorporated by reference from
CoreComm's definitive proxy statement involving the election of directors which
CoreComm expects to file, pursuant to Regulation 14A, within 120 days following
the end of its fiscal year.
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
<TABLE>
    <S> <C>    <C>
    (a) (1)    Financial Statements -- See list of Financial Statements on
               page F-1.
               Financial Statement Schedules -- See list of Financial
               Statement Schedules on page F-1.
        (2)
               Exhibits -- See Exhibit Index on page 23.
        (3)
    (b)        Reports on Form 8-K. The Company filed no current reports on
               Form 8-K for the quarter ended December 31, 1998.
    (c)        Exhibits -- The response to this portion of Item 14 is
               submitted as a separate section of this report.
    (d)        Financial Statement Schedules -- See list of Financial
               Statement Schedules on page F-1.
</TABLE>
 
                                       22
<PAGE>   24
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT NO.                      DESCRIPTION OF EXHIBIT
-----------                      ----------------------
<C>           <S>
    2.1       Form of Distribution Agreement, dated as of August 18, 1998,
              between CoreComm Incorporated and the Registrant(1)
    3.1       Company's Memorandum of Association and Certificate of Name
              Change(1)
    3.2       Company's By-laws(1)
    4.1       Rights Agreement between the Company and Continental Stock
              Transfer & Trust Company, as Rights Agent(1)
    4.2       Form of Common Stock Certificate(1)
   10.1       Form of Tax Disaffiliation Agreement between CoreComm
              Incorporated and the Registrant(1)
   10.2       CoreComm Limited 1998 Stock Option Plan(1)
   10.3       CoreComm Ohio Limited 1999 Stock Option Plan
   11         Statement re: Computation of per share earnings
   21         Subsidiaries of the registrant
   27.1       Financial Data Schedules
</TABLE>
 
---------------
(1) Incorporated by reference from the Company's Registration Statement on Form
    10, File No. 0-24521.
 
                                       23
<PAGE>   25
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 2234, the Registrant has duly caused this report to be signed on
its behalf by the under signed thereunto duly authorized. Dated: March 22, 1999
 
                                               CORECOMM LIMITED
 
                                               By: /s/ RICHARD J. LUBASCH
 
                                               ---------------------------------
                                                   Senior Vice President,
                                                   General Counsel and Secretary
 
     Pursuant to the requirements of the Securities Exchange Act of 2234, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
 
<TABLE>
<CAPTION>
SIGNATURE                                                     TITLE                         DATE
---------                                                     -----                         ----
<S>                                           <C>                                      <C>
 
/s/ GEORGE S. BLUMENTHAL                      Chairman of the Board and Director
------------------------------------------
George S. Blumenthal                                                                   March 22, 1999
 
/s/ J. BARCLAY KNAPP                          Principal Executive and Financial
------------------------------------------    Officer and Director
J. Barclay Knapp                                                                       March 22, 1999
 
/s/ PATTY J. FLYNT                            Principal Operating Officer
------------------------------------------
Patty J. Flynt                                                                         March 22, 1999
 
/s/ GREGG GORELICK                            Principal Accounting Officer
------------------------------------------
Gregg Gorelick                                                                         March 22, 1999
 
/s/ SIDNEY R. KNAFEL                          Director
------------------------------------------
Sidney R. Knafel                                                                       March 22, 1999
 
/s/ DEL MINTZ                                 Director
------------------------------------------
Del Mintz                                                                              March 22, 1999
 
/s/ ALAN J. PATRICOF                          Director
------------------------------------------
Alan J. Patricof                                                                       March 22, 1999
 
/s/ WARREN POTASH                             Director
------------------------------------------
Warren Potash                                                                          March 22, 1999
 
/s/ TED H. MCCOURTNEY                         Director
------------------------------------------
Ted H. McCourtney                                                                      March 22, 1999
</TABLE>
 
                                       24
<PAGE>   26
 
                       FORM 10-K -- ITEM 14(a)(1) AND (2)
 
                       CORECOMM LIMITED AND SUBSIDIARIES
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE
 
     The following consolidated financial statements and schedule of CoreComm
Limited and subsidiaries and its predecessor OCOM Corporation Telecoms Division
are included in Item 8:
 
<TABLE>
<S>                                                             <C>
Report of Independent Auditors..............................     F-2
 
Report of Independent Auditors..............................     F-3
Consolidated Balance Sheets -- December 31, 1998 and 1997...     F-4
Consolidated Statements of Operations -- For the Period from
  April 1, 1998 (date operations commenced) to December 31,
  1998, for the Period from January 1, 1998 to May 31, 1998
  and for the Years Ended December 31, 1997 and 1996........     F-5
Consolidated Statement of Shareholders' Equity -- For the
  Period from April 1, 1998 (date operations commenced) to
  December 31, 1998.........................................     F-6
Statement of Parent's Investment (Deficiency) -- For the
  Period from January 1, 1998 through May 31, 1998 and for
  the years ended December 31, 1997 and 1996................     F-7
Consolidated Statements of Cash Flows -- For the Period from
  April 1, 1998 (date operations commenced) to December 31,
  1998, for the Period from January 1, 1998 to May 31, 1998
  and for the Years Ended December 31, 1997 and 1996........     F-8
Notes to Consolidated Financial Statements..................     F-9
 
The following consolidated financial statement schedule of
  CoreComm Limited and subsidiaries is included in Item
  14(d):
 
Schedule II -- Valuation and Qualifying Accounts............    F-20
 
The following financial statement schedule of OCOM
  Corporation Telecoms Division is included in Item 14(d):
 
Schedule II -- Valuation and Qualifying Accounts............    F-21
</TABLE>
 
     All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
 
                                       F-1
<PAGE>   27
 
                         REPORT OF INDEPENDENT AUDITORS
 
Shareholders and Board of Directors
CoreComm Limited
 
     We have audited the consolidated balance sheet of CoreComm Limited and
Subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for the period from April 1,
1998 (date operations commenced) to December 31, 1998. Our audit also included
the financial statement schedule listed in the Index at Item 14(a) for the
period from April 1, 1998 (date operations commenced) to December 31, 1998.
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 audit.
 
     We conducted our audit 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 audit provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CoreComm Limited and Subsidiaries at December 31, 1998, and the consolidated
results of their operations and their cash flows for the period from April 1,
1998 (date operations commenced) to December 31, 1998 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
 
New York, New York
February 26, 1999
 
                                       F-2
<PAGE>   28
 
                         REPORT OF INDEPENDENT AUDITORS
 
Shareholder
OCOM Corporation Telecoms Division
 
     We have audited the accompanying balance sheet of OCOM Corporation Telecoms
Division ("OCOM") as of December 31, 1997, and the related statements of
operations, parent's investment (deficiency) and cash flows for the period from
January 1, 1998 to May 31, 1998 and the years ended December 31, 1997 and 1996.
Our audit also included 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
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of OCOM Corporation Telecoms
Division at December 31, 1997, and the results of its operations and its cash
flows for the period from January 1, 1998 to May 31, 1998 and the years ended
December 31, 1997 and 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
 
New York, New York
February 26, 1999
 
                                       F-3
<PAGE>   29
 
                       CORECOMM LIMITED AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                   THE PREDECESSOR
                                                                                       (OCOM)
                                                             DECEMBER 31, 1998    DECEMBER 31, 1997
                                                             -----------------    -----------------
<S>                                                          <C>                  <C>
                                              ASSETS
Current assets:
Cash and cash equivalents..................................    $ 26,161,000          $       --
Marketable securities......................................     110,718,000                  --
Accounts receivable-trade, less allowance for doubtful
  accounts of $742,000 (1998) and $46,000 (1997)...........       1,125,000             332,000
Due from affiliates........................................       1,954,000                  --
Inventory..................................................         150,000              80,000
Other......................................................         519,000              48,000
                                                               ------------          ----------
          Total current assets.............................     140,627,000             460,000
Fixed assets, net..........................................       3,582,000           1,269,000
Goodwill, net of accumulated amortization of $230,000......       4,028,000                  --
LMDS license costs.........................................      25,366,000                  --
Other, net of accumulated amortization of $1,000...........       2,923,000               2,000
                                                               ------------          ----------
                                                               $176,526,000          $1,731,000
                                                               ============          ==========
                               LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable.........................................    $  1,937,000          $  348,000
  Accrued expenses.........................................       4,247,000           1,062,000
  Current portion of note payable and capital lease
     obligations...........................................         133,000                  --
  Deferred revenue.........................................         411,000                  --
                                                               ------------          ----------
          Total current liabilities........................       6,728,000           1,410,000
Note payable...............................................         283,000                  --
Capital lease obligations..................................         218,000                  --
Commitments and contingent liabilities
Shareholders' equity:
  Series preferred stock -- $.01 par value, authorized
     1,000,000 shares; issued and outstanding none.........              --                  --
  Common stock -- $.01 par value; authorized 75,000,000
     shares; issued and outstanding 13,199,000 shares......         132,000                  --
Additional paid-in capital.................................     185,420,000                  --
(Deficit)..................................................     (16,255,000)                 --
Parent's investment........................................              --             321,000
                                                               ------------          ----------
                                                                169,297,000             321,000
                                                               ------------          ----------
                                                               $176,526,000          $1,731,000
                                                               ============          ==========
</TABLE>
 
                            See accompanying notes.
                                       F-4
<PAGE>   30
 
                       CORECOMM LIMITED AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                    THE PREDECESSOR (OCOM)
                            FOR THE PERIOD FROM        -------------------------------------------------
                               APRIL 1, 1998           FOR THE PERIOD FROM     YEAR ENDED DECEMBER 31,
                        (DATE OPERATIONS COMMENCED)      JANUARY 1, 1998      --------------------------
                           TO DECEMBER 31, 1998          TO MAY 31, 1998         1997           1996
                        ---------------------------    -------------------    -----------    -----------
<S>                     <C>                            <C>                    <C>            <C>
REVENUES..............         $  6,713,000                $ 1,452,000        $ 3,579,000    $ 5,103,000
 
COSTS AND EXPENSES
Operating.............            5,584,000                    772,000          1,581,000      3,065,000
Selling, general and
  administrative......           13,989,000                  3,205,000          5,934,000      3,119,000
Compensation charge
  from the issuance of
  stock options.......            4,586,000                         --                 --             --
Depreciation..........              749,000                    255,000            428,000        138,000
Amortization..........              231,000                      2,000             11,000         11,000
                               ------------                -----------        -----------    -----------
                                 25,139,000                  4,234,000          7,954,000      6,333,000
                               ------------                -----------        -----------    -----------
Operating (loss)......          (18,426,000)                (2,782,000)        (4,375,000)    (1,230,000)
 
OTHER INCOME (EXPENSE)
Interest income and
  other, net..........            2,632,000                         --             (4,000)       133,000
Interest expense......              (21,000)                        --                 --             --
                               ------------                -----------        -----------    -----------
(Loss) before income
  tax provision.......          (15,815,000)                (2,782,000)        (4,379,000)    (1,097,000)
Income tax
  provision...........             (440,000)                        --                 --             --
                               ------------                -----------        -----------    -----------
Net (loss)............         $(16,255,000)               $(2,782,000)       $(4,379,000)   $(1,097,000)
                               ============                ===========        ===========    ===========
Basic and diluted net
  (loss) per share....         $      (1.23)               $      (.21)       $      (.33)   $      (.08)
                               ============                ===========        ===========    ===========
</TABLE>
 
                            See accompanying notes.
                                       F-5
<PAGE>   31
 
                       CORECOMM LIMITED AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
         FOR THE PERIOD FROM APRIL 1, 1998 (DATE OPERATIONS COMMENCED)
                              TO DECEMBER 31, 1998
 
<TABLE>
<CAPTION>
                                              COMMON STOCK
                                         ----------------------      ADDITIONAL
                                           SHARES        PAR       PAID-IN CAPITAL     (DEFICIT)
                                         ----------    --------    ---------------    ------------
<S>                                      <C>           <C>         <C>                <C>
Initial contribution...................   1,200,000    $ 12,000    $    22,173,000
Capital contributions..................  11,998,000     120,000        158,658,000
Issuance of stock options..............                                  4,586,000
Exercise of warrants...................       1,000                          3,000
Net (loss) for the period from April 1,
  1998 (date operations commenced) to
  December 31, 1998....................                                               $(16,255,000)
                                         ----------    --------    ---------------    ------------
Balance, December 31, 1998.............  13,199,000    $132,000    $   185,420,000    $(16,255,000)
                                         ==========    ========    ===============    ============
</TABLE>
 
                            See accompanying notes.
                                       F-6
<PAGE>   32
 
                       CORECOMM LIMITED AND SUBSIDIARIES
 
              OCOM CORPORATION TELECOMS DIVISION (THE PREDECESSOR)
 
                 STATEMENT OF PARENT'S INVESTMENT (DEFICIENCY)
          FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH MAY 31, 1998 AND
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
 
<TABLE>
<S>                                                             <C>
Balance, December 31, 1995..................................    $   207,000
Capital contributions.......................................        682,000
Net loss for the year ended December 31, 1996...............     (1,097,000)
                                                                -----------
Balance, December 31, 1996..................................       (208,000)
Capital contributions.......................................      4,908,000
Net loss for the year ended December 31, 1997...............     (4,379,000)
                                                                -----------
Balance, December 31, 1997..................................        321,000
Capital contributions.......................................      4,261,000
Net loss for the period ended May 31, 1998..................     (2,782,000)
                                                                -----------
Balance, May 31, 1998.......................................    $ 1,800,000
                                                                ===========
</TABLE>
 
                            See accompanying notes.
                                       F-7
<PAGE>   33
 
                       CORECOMM LIMITED AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                       THE PREDECESSOR (OCOM)
                                                              FOR THE PERIOD   ---------------------------------------
                                                              FROM APRIL 1,      FOR THE
                                                                1998 (DATE     PERIOD FROM
                                                                OPERATIONS     JANUARY 1,
                                                              COMMENCED) TO      1998 TO      YEAR ENDED DECEMBER 31,
                                                               DECEMBER 31,      MAY 31,     -------------------------
                                                                   1998           1998          1997          1996
                                                              --------------   -----------   -----------   -----------
<S>                                                           <C>              <C>           <C>           <C>
OPERATING ACTIVITIES
Net (loss)..................................................  $ (16,255,000)   $(2,782,000)  $(4,379,000)  $(1,097,000)
Adjustments to reconcile net (loss) to net cash used in
  operating activities:
  Depreciation and amortization.............................        980,000        257,000       439,000       149,000
  Compensation charge from the issuance of stock options....      4,586,000             --            --            --
  (Gain) loss on disposal of fixed assets...................          2,000             --         4,000        (1,000)
  Inventory reserve.........................................             --             --        78,000            --
  Provision for losses on accounts receivable...............        501,000         92,000        46,000            --
  Accretion of interest on marketable securities............       (639,000)            --            --            --
  Other.....................................................       (121,000)            --            --            --
  Changes in operating assets and liabilities, net of effect
    from business acquisitions:
    Accounts receivable.....................................       (480,000)      (262,000)      129,000       129,000
    Due from affiliates.....................................     (1,954,000)            --            --            --
    Inventory...............................................        (82,000)        20,000      (158,000)           --
    Other current assets....................................       (205,000)      (199,000)       79,000         7,000
    Other assets............................................     (2,824,000)            --            --            --
    Accounts payable........................................      1,261,000       (311,000)      169,000        82,000
    Accrued expenses........................................      2,814,000       (453,000)      116,000       230,000
    Deferred revenue........................................         94,000
                                                              -------------    -----------   -----------   -----------
Net cash (used in) operating activities.....................    (12,322,000)    (3,638,000)   (3,477,000)     (501,000)
INVESTING ACTIVITIES
Purchase of fixed assets....................................     (2,344,000)      (623,000)   (1,435,000)     (183,000)
Proceeds from disposal of fixed assets......................          3,000             --         4,000         2,000
Purchase of marketable securities...........................   (110,079,000)            --            --            --
                                                              -------------    -----------   -----------   -----------
Net cash (used in) investing activities.....................   (112,420,000)      (623,000)   (1,431,000)     (181,000)
FINANCING ACTIVITIES
Capital contributions.......................................    150,904,000      4,261,000     4,908,000       682,000
Exercise of warrants........................................          3,000             --            --            --
Principal payments of capital lease obligations.............         (4,000)            --            --            --
                                                              -------------    -----------   -----------   -----------
Net cash provided by financing activities...................    150,903,000      4,261,000     4,908,000       682,000
                                                              -------------    -----------   -----------   -----------
Increase in cash and cash equivalents.......................     26,161,000             --            --            --
Cash and cash equivalents at beginning of period............             --             --            --            --
                                                              -------------    -----------   -----------   -----------
Cash and cash equivalents at end of period..................  $  26,161,000    $        --   $        --   $        --
                                                              =============    ===========   ===========   ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest......................................  $       4,000    $        --   $        --   $        --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Capital contributions of noncash net assets.................  $  30,059,000    $        --   $        --   $        --
Liabilities incurred to acquire fixed assets................        175,000             --            --            --
</TABLE>
 
                            See accompanying notes.
 
                                       F-8
<PAGE>   34
 
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND BUSINESS
 
     CoreComm Limited (the "Company"), formerly a wholly-owned subsidiary of
Cellular Communications of Puerto Rico, Inc. ("CCPR"), was formed in March 1998
(operations commenced in April 1998) in order to succeed to the businesses and
assets that were operated by OCOM Corporation and as an appropriate vehicle to
pursue new telecommunications opportunities outside of Puerto Rico and the U.S.
Virgin Islands. In September 1998, CCPR made a cash contribution to the Company
of $150,000,000 and distributed 100% of the outstanding shares of the Company on
a one-for-one basis to CCPR's shareholders.
 
     The Company's competitive local exchange carrier ("CLEC"), cellular long
distance, landline long distance and cellular resale businesses were formerly
owned and operated by OCOM Corporation Telecoms Division ("OCOM"). CCPR acquired
the operating assets and related liabilities of these businesses from OCOM on
June 1, 1998. OCOM is the predecessor business to the Company.
 
     In addition to the businesses acquired from OCOM, the Company also sells
pre-paid cellular service through the sale of pre-paid cards, provides
centralized telecommunications services ("Centrex"), provides a full range of
Internet services for both home and business customers through its Internet
Service Provider ("ISP") subsidiary and provides paging service and pager
repairs. The Company's customers are located throughout the United States,
although much of the Company's business is conducted in Ohio. The Company does
not own any facilities, except for certain ISP facilities. Instead, it purchases
capacity on a wholesale basis pursuant to contracts and sells it at retail rates
to end users. The Company depends upon the facilities-based carriers to maintain
the quality of their service to the Company's customers. Also, except for
pre-paid cellular service, the Company depends upon the facilities-based
carriers for accurate and prompt billing information in order for the Company to
bill its customers. In addition, all of the Company's lines of business are
highly competitive which results in pricing pressure and increasing customer
acquisition costs, and primarily all are dependent upon trends in the use of
communications service.
 
     The following are the revenues from external customers for each of the
Company's communications services:
 
<TABLE>
<CAPTION>
                                       FOR THE PERIOD FROM              THE PREDECESSOR (OCOM)
                                          APRIL 1, 1998      ---------------------------------------------
                                        (DATE OPERATIONS     FOR THE PERIOD FROM   YEAR ENDED DECEMBER 31,
                                          COMMENCED) TO        JANUARY 1, 1998     -----------------------
                                        DECEMBER 31, 1998      TO MAY 31, 1998        1997         1996
                                       -------------------   -------------------   ----------   ----------
<S>                                    <C>                   <C>                   <C>          <C>
CLEC and landline long distance......      $1,976,000            $  217,000        $  167,000   $  104,000
Cellular long distance...............       1,035,000             1,034,000         3,352,000    4,999,000
Centrex..............................       1,017,000                    --                --           --
Wireless (including pre-paid
  cellular)..........................       2,530,000               201,000            60,000           --
ISP..................................         155,000                    --                --           --
                                           ----------            ----------        ----------   ----------
                                           $6,713,000            $1,452,000        $3,579,000   $5,103,000
                                           ==========            ==========        ==========   ==========
</TABLE>
 
     In February 1999, the Company entered into an agreement to acquire
MegsInet, Inc., a national Internet network and regional telecommunications
provider. The Company will purchase 100% of MegsInet's stock for a total
consideration of approximately $16.75million in cash plus approximately 1.4
million shares of the Company's common stock. This transaction is subject to
certain conditions, including the registration of the Company's stock to be
issued.
 
                                       F-9
<PAGE>   35
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1.  ORGANIZATION AND BUSINESS (CONTINUED)
     Also in February 1999, the Company entered into an agreement to acquire
certain assets of USN Communications, Inc., a CLEC reseller. Completion of this
transaction is conditioned upon approval by the Bankruptcy Court presiding over
USN's Chapter 11 case, in which third parties may bid for the same assets.
2.  SIGNIFICANT ACCOUNTING POLICIES
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
  Principles of Consolidation
 
     The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and those entities where the Company's interest is
greater than 50%. Significant intercompany accounts and transactions have been
eliminated in consolidation.
 
  Cash Equivalents
 
     Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $20,995,000 at December
31, 1998 and consisted of corporate commercial paper.
 
  Marketable Securities
 
     Marketable securities are classified as available-for-sale, which are
carried at fair value. Unrealized holding gains and losses on securities, net of
tax, are carried as a separate component of shareholders' equity. The amortized
cost of debt securities is adjusted for amortization of premiums and accretion
of discounts to maturity. Such amortization is included in interest income.
Realized gains and losses and declines in value judged to be other than
temporary will be included in interest income. The cost of securities sold or
matured is based on the specific identification method. Interest on securities
is included in interest income.
 
     Marketable securities at December 31, 1998 consisted of a certificate of
deposit and corporate commercial paper. During the period from April 1, 1998
(date operations commenced) to December 31, 1998, there were no realized gains
or losses on sales of securities. All of the marketable securities as of
December 31, 1998 had a contractual maturity of less than one year.
 
  Inventory
 
     Inventory consists principally of telephones, pagers and accessories and is
stated at the lower of cost or market. Cost is determined by specific
identification or the first-in, first-out method.
 
  Financial Instruments
 
     The carrying value of all financial instruments approximates their fair
value due to the short maturity of the respective instruments.
 
  Fixed Assets
 
     Fixed assets are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives are as follows: operating equipment -- 5 or 15 years, computer
 
                                      F-10
<PAGE>   36
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
hardware and software -- 3 or 5 years and other equipment -- 2 to 7 years,
except for leasehold improvements for which the estimated useful lives are the
term of the lease.
 
     Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and carrying value of the asset.
 
  Goodwill
 
     Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over the 10 year period benefited. The
Company continually reviews the recoverability of the carrying value of goodwill
using the same methodology that it uses for the evaluation of its other
long-lived assets.
 
  LMDS License Costs
 
     The costs incurred to acquire the Local Multipoint Distribution Service
("LMDS") licenses from the Federal Communications Commission (the "FCC") were
deferred and will be amortized on a straight-line basis over the term of the
licenses upon the commencement of operations. The Company continually reviews
the recoverability of the carrying value of LMDS licenses using the same
methodology that it uses for the evaluation of its other long-lived assets.
 
  Noncompetition Agreements
 
     Other assets include noncompetition agreements obtained in connection with
an acquisition which were valued at an aggregate of $100,000. The noncompetition
agreements are being charged to expense on a straight-line basis over the
noncompetition period of 5 years.
 
  Net (Loss) Per Share
 
     The Company reports its net (loss) per share in accordance with the
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". The denominator for the basic
and diluted net loss per common share computations was 13,190,000, 13,184,000,
13,075,000 and 13,196,000 for the period from April 1, 1998 (date operations
commenced) to December 31, 1998, for the period from January 1, 1998 to May 31,
1998 and for the years ended December 31, 1997 and 1996, respectively. These
weighted average shares are equivalent to CCPR's historical weighted average
shares (since CCPR shareholders received one share of the Company for each CCPR
share owned), plus the Company's weighted average shares in the 1998 period. The
shares issuable upon the exercise of stock options and warrants are excluded
from the calculation of net loss per share as their effect would be
antidilutive.
 
  Revenue Recognition
 
     Telecommunications revenue is recognized at the time service is provided to
the customer. Charges for services that are billed in advance are deferred and
recognized when earned.
 
                                      F-11
<PAGE>   37
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Advertising Expense
 
     The Company charges the cost of advertising to expense as incurred.
Advertising expense for the period from April 1, 1998 (date operations
commenced) to December 31, 1998, for the period from January 1, 1998 to May 31,
1998 and for the years ended December 31, 1997 and 1996 were $812,000, $79,000,
$127,000 and $350,000, respectively.
 
  Stock-Based Compensation
 
     The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plans.
 
3.  RECENT ACCOUNTING PRONOUNCEMENTS
 
     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS No. 130 in 1998, which had no
effect on the consolidated financial statements.
 
     In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company adopted
SFAS No. 131 in 1998, which had no effect on the consolidated financial
statements since the Company operates in one business segment.
 
     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in fiscal
years beginning after June 15, 1999. Management does not anticipate that the
adoption of the new standard will have a significant effect on the results of
operations, financial condition or cash flows of the Company.
 
4.  ACQUISITIONS
 
     In April and June 1998, CCPR acquired the stock of Digicom, Inc. and
certain operating assets and related liabilities of JeffRand Corp. (known as the
Wireless Outlet) and OCOM Corporation. CCPR contributed these businesses to the
Company. These acquisitions were accounted for as purchases by CCPR, and,
accordingly, the net assets and results of operations of the acquired businesses
have been included in the consolidated financial statements from the dates of
acquisition. The contribution of the assets from CCPR to the Company was
accounted for at historical cost in a manner consistent with a transfer of
entities under common control which is similar to that used in a "pooling of
interests". The Company's financial statements include the results of the
contributed companies for all periods owned by CCPR. In November 1998, a wholly-
owned subsidiary of the Company acquired substantially all of the assets and
certain liabilities of Stratos Internet Group, Inc. ("Stratos"), an ISP in the
Cleveland-Akron, Ohio area. This acquisition has been accounted for as a
purchase, and, accordingly, the net assets and results of operations of Stratos
have been included in the consolidated financial statements from the date of
acquisition.
 
                                      F-12
<PAGE>   38
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
4.  ACQUISITIONS (CONTINUED)
     A summary of the allocation of the aggregate purchase price is as follows:
 
<TABLE>
<S>                                                             <C>
Cash........................................................    $4,887,000
Note payable................................................       362,000
                                                                ----------
Aggregate purchase price....................................     5,249,000
Net assets acquired:
Current assets..............................................     1,600,000
Fixed assets................................................     1,817,000
Current liabilities.........................................    (2,251,000)
Capital lease obligations...................................      (275,000)
                                                                ----------
                                                                   891,000
                                                                ----------
Excess purchase price.......................................     4,358,000
Allocated to:
Noncompetition agreements...................................       100,000
                                                                ----------
Goodwill....................................................    $4,258,000
                                                                ==========
</TABLE>
 
     The pro forma unaudited consolidated results of operations for the years
ended December 31, 1998 and 1997 assuming consummation of the acquisitions and
receipt of the capital contributions from CCPR as of January 1, 1997 are as
follows. The pro forma net (loss) and basic and diluted net (loss) per share do
not give effect to interest income that may have been earned had the
$150,000,000 cash capital contribution from CCPR been made on January 1, 1997.
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                                     -------------------------
                                                        1998           1997
                                                     -----------    ----------
                                                            (UNAUDITED)
<S>                                                  <C>            <C>
Total revenue......................................  $11,499,000    $9,829,000
Net (loss).........................................  (19,132,000)   (7,303,000)
Basic and diluted net (loss) per share.............        (1.45)         (.56)
</TABLE>
 
5.  LMDS LICENSE COSTS
 
     A wholly-owned subsidiary of CCPR, Cortelyou Communications Corp.
("Cortelyou") was the successful bidder, for an aggregate of $25,241,000, for 15
Block A LMDS licenses in Ohio. LMDS frequencies are expected to be used for the
provision of voice, data, video and Internet services to businesses and homes in
competition with incumbent local exchange telephone companies and/or cable
television operators. The FCC has allocated two blocks of frequencies to be
licensed in each of the 493 Basic Trading Areas in the United States and its
territories based on an auction that commenced in February 1998 and ended in
March 1998. In June 1998, CCPR funded Cortelyou's payment of its bid and the FCC
issued the licenses. Costs of $125,000 were incurred in connection with the
auction and the license acquisition. CCPR contributed Cortelyou to the Company.
 
                                      F-13
<PAGE>   39
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
6.  FIXED ASSETS
 
     Fixed assets consist of:
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Operating equipment.........................................  $  720,000    $       --
Computer hardware and software..............................   2,450,000     1,640,000
Other equipment.............................................     987,000       566,000
Construction in progress....................................       5,000            --
                                                              ----------    ----------
                                                               4,162,000     2,206,000
Accumulated depreciation....................................    (580,000)     (937,000)
                                                              ----------    ----------
                                                              $3,582,000    $1,269,000
                                                              ==========    ==========
</TABLE>
 
7.  ACCRUED EXPENSES
 
     Accrued expenses consist of:
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Payroll and related.........................................  $1,263,000    $  433,000
Professional fees...........................................     527,000       204,000
Taxes excluding income taxes................................   1,246,000       108,000
Advertising.................................................     175,000       115,000
Other.......................................................   1,036,000       202,000
                                                              ----------    ----------
                                                              $4,247,000    $1,062,000
                                                              ==========    ==========
</TABLE>
 
8.  NOTE PAYABLE
 
     The Company issued a note payable in the amount of $362,000 in connection
with the Stratos acquisition. Interest on the note accrues at 5.542% per annum.
The note is payable in twelve consecutive quarterly payments of principal and
interest of $33,000 commencing in May 1999 and is collateralized by the assets
acquired from Stratos. The Company recorded approximately $1,000 of interest
expense in 1998. As of December 31, 1998, $80,000 of the balance was included in
current liabilities and $283,000 was recorded as note payable.
 
                                      F-14
<PAGE>   40
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
9.  LEASES
 
     The Company has capital leases for certain of its operating equipment. At
December 31, 1998, leased property included in operating equipment aggregated
$258,000 with accumulated depreciation of $7,000. Future minimum annual payments
under these leases at December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S>                                                           <C>
1999........................................................  $ 81,000
2000........................................................    81,000
2001........................................................    81,000
2002........................................................    81,000
2003........................................................    21,000
                                                              --------
                                                               345,000
Interest at 11.5%...........................................   (74,000)
                                                              --------
Present value of minimum obligations........................   271,000
Current portion.............................................   (53,000)
                                                              --------
                                                              $218,000
                                                              ========
</TABLE>
 
     As of December 31, 1998, the Company had leases for office space and
equipment which extend through 2009. Total rent expense for the period from
April 1, 1998 (date operations commenced) to December 31, 1998, the period from
January 1, 1998 to May 31, 1998 and for the years ended December 31, 1997 and
1996 under operating leases was $354,000, $98,000, $131,000 and $60,000,
respectively.
 
     Future minimum annual lease payments under noncancellable operating leases
at December 31, 1998 are: $1,559,000 (1999); $1,764,000 (2000); $1,740,000
(2001); $1,753,000 (2002); $1,467,000 (2003) and $5,909,000 thereafter.
 
10.  COMPENSATION CHARGE
 
     The compensation charge of $4,586,000 in 1998 is a non-cash charge recorded
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," as a one time charge related to the issuance of the Company's stock
options to holders of CCPR's stock options in connection with the Company's
distribution to CCPR's shareholders.
 
11.  RELATED PARTY TRANSACTIONS
 
     Certain officers and directors of the Company are also officers or
directors of NTL Incorporated ("NTL"). NTL provides certain corporate
management, financial, legal and technical services to the Company. Amounts
charged to the Company by NTL consist of salaries and direct costs where
identifiable and 30% of NTL's corporate overhead. It is not practicable to
determine the amount of expenses that would have been incurred had the Company
operated as an unaffiliated entity. In the opinion of management, this
allocation method is reasonable. In 1998, NTL charged the Company $313,000 which
is included in general and administrative expenses.
 
     The Company's relationship with CCPR is governed by agreements entered into
in connection with the distribution, including a Tax Disaffiliation Agreement.
The Tax Disaffiliation Agreement details the respective obligations concerning
various tax liabilities and provides for cooperation with respect to certain tax
matters, the exchange of information and the retention of records.
 
                                      F-15
<PAGE>   41
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
11.  RELATED PARTY TRANSACTIONS (CONTINUED)
     OCOM provided, and now a subsidiary of the Company provides, billing and
software development services to subsidiaries of CCPR and subsidiaries of NTL.
Certain officers and directors of the Company are officers and directors of
CCPR. Beginning in 1997, the Company charged amounts in excess of its costs to
provide these services. General and administrative expenses were reduced by
$275,000, $138,000, and $217,000 for the period from April 1, 1998 (date
operations commenced) to December 31, 1998, the period from January 1, 1998 to
May 31, 1998 and for the year ended December 31, 1997, respectively, as a result
of these charges.
 
     At December 31, 1998, due from affiliates included $128,000 due from CCPR
and $1,826,000 due from NTL.
 
12.  401(k) PLAN
 
     A subsidiary of the Company sponsors a 401(k) Plan in which all full-time
employees of that subsidiary who have completed 90 days of employment and are 21
years of age may participate. The Company's matching contribution is determined
annually by the Board of Directors. Participants may make salary deferral
contributions of 1% to 15% of their compensation not to exceed the maximum
allowed by law. The expense for the period from April 1, 1998 (date operations
commenced) to December 31, 1998, the period from January 1, 1998 to May 31, 1998
and for the years ended December 31, 1997 and 1996 was $103,000, $29,000,
$126,000 and $46,000, respectively.
 
13.  SHAREHOLDERS' EQUITY
 
  Shareholder Rights Plan
 
     The Rights Agreement provides that one Right will be issued with each share
of common stock issued on or after the date of distribution. The Rights become
exercisable upon the occurrence of certain potential takeover events and will
expire in December 2010 unless previously redeemed by the Company. When
exercisable, each Right entitles the owner to purchase from the Company 1/100 of
a share of Series A Junior Participating Preferred Stock ("Series A Preferred
Stock") at a purchase price of $100.
 
     The Series A Preferred Stock will be entitled to a minimum preferential
quarterly dividend payment of $.01 per share and will be entitled to an
aggregate dividend of 100 times the dividend, if any, declared per share of
common stock. In the event of liquidation, the holders of Series A Preferred
Stock will be entitled to a minimum preferential liquidation payment of $100 per
share and will be entitled to an aggregate payment of 100 times the payment made
per share of the common stock. Each share of Series A Preferred Stock will have
100 votes and will vote together with the common stock. In the event of any
merger, consolidation or other transaction in which shares of common stock are
changed or exchanged, each share of Series A Preferred Stock will be entitled to
receive 100 times the amount received per share of common stock. The rights are
protected by customary antidilution provisions.
 
     The 1,000,000 authorized shares of Series Preferred Stock are designated
Series A Preferred Stock. No shares of Series A Preferred Stock are issued or
outstanding.
 
  Warrants and Stock Options
 
     In connection with the distribution of the Company to CCPR's shareholders,
the Company issued warrants to purchase shares of common stock to holders of
CCPR stock options who elected to receive warrants as follows: (1) warrants to
purchase an aggregate of 1,913,000 shares of common stock at an exercise price
of $13.18 per share which expire in 2005, (2) warrants to purchase an aggregate
of 4,000 shares of
 
                                      F-16
<PAGE>   42
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
13.  SHAREHOLDERS' EQUITY (CONTINUED)
common stock at an exercise price of $13.18 per share which expire in 2003 and
(3) warrants to purchase an aggregate of 819,000 shares of common stock at an
exercise price of $15.82 which expire in 2005. As of December 31, 1998, there
were 2,735,000 shares of common stock reserved for issuance upon the exercise of
warrants.
 
     There are 6,000,000 shares of common stock reserved for issuance under the
1998 Stock Option Plan (the "Plan"). The Plan provides that incentive stock
options be granted at the fair market value of the Company's common stock on the
date of grant, and nonqualified stock options be granted at a price determined
by the Compensation and Option Committee. Options are exercisable as to 20% of
the shares subject thereto on the date of grant and become exercisable as to an
additional 20% of the shares subject thereto on each January 1 thereafter, while
the optionee remains an employee of the Company. Options will expire ten years
after the date of the grant.
 
     In connection with the distribution of the Company to CCPR's shareholders,
the Company issued approximately 834,000 options to purchase shares of the
Company's common stock to holders of CCPR stock options who elected to receive
options.
 
     Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for its
employee warrants and stock options under the fair value method of that
Statement. The fair value for these warrants and options was estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for 1998: risk-free interest rate of 5.02%,
dividend yield of 0%, volatility factor of the expected market price of the
Company's common stock of .810, and a weighted-average expected life of the
warrants and options of 8.1 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 warrants and 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 warrants and stock
options.
 
     For purposes of pro forma disclosures, the estimated fair value of the
warrants and options is amortized to expense over the warrants and options'
vesting periods. Following is the Company's pro forma information for the period
from April 1, 1998 (date operations commenced) to December 31, 1998:
 
<TABLE>
<S>                                                             <C>
Pro forma net (loss)........................................    $(48,015,000)
Pro forma net (loss) per share -- basic and diluted.........    $      (3.64)
</TABLE>
 
                                      F-17
<PAGE>   43
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
13.  SHAREHOLDERS' EQUITY (CONTINUED)
     A summary of the Company's warrants and stock option activity and related
information for the period from April 1, 1998 (date operations commenced) to
December 31, 1998 follows:
 
<TABLE>
<CAPTION>
                                                   NUMBER OF         WEIGHTED-
                                                  WARRANTS AND        AVERAGE
                                                    OPTIONS        EXERCISE PRICE
                                                  ------------    ----------------
<S>                                               <C>             <C>
Granted.........................................   4,341,000           $12.39
Exercised.......................................      (1,000)           13.18
Forfeited.......................................          --               --
                                                   ---------
Outstanding -- end of period....................   4,340,000           $12.39
                                                   =========
Exercisable at end of period....................   3,056,000           $13.52
                                                   =========
</TABLE>
 
     Weighted-average fair value of warrants and options, calculated using the
Black-Scholes option pricing model, granted during 1998 is $9.74.
 
     The following table summarizes the status of the stock options outstanding
and exercisable at December 31, 1998:
 
<TABLE>
<CAPTION>
                                  STOCK OPTIONS OUTSTANDING             STOCK OPTIONS EXERCISABLE
                          ------------------------------------------   ----------------------------
                                       WEIGHTED-
                                       REMAINING    WEIGHTED-AVERAGE
                          NUMBER OF   CONTRACTUAL       EXERCISE       NUMBER OF   WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES   OPTIONS       LIFE            PRICE          OPTIONS     EXERCISE PRICE
------------------------  ---------   -----------   ----------------   ---------   ----------------
<S>                       <C>         <C>           <C>                <C>         <C>
$ 0.05 to $ 0.66........    414,000    9.7 Years        $ 0.382          83,000        $ 0.382
$ 6.22 to $ 6.81........     43,000    9.7 Years        $ 6.660           8,000        $ 6.660
$11.88 to $13.18........  1,148,000    9.7 Years        $13.157         230,000        $13.157
                          ---------                                     -------
          Total.........  1,605,000                                     321,000
                          =========                                     =======
</TABLE>
 
14.  INCOME TAXES
 
     The provision for income taxes for the period from April 1, 1998 (date
operations commenced) to December 31, 1998 consists of the following:
 
<TABLE>
<S>                                                           <C>
Current:
  Federal...................................................  $     --
  State and local...........................................   440,000
                                                              --------
Total current...............................................   440,000
                                                              --------
Deferred:
  Federal...................................................        --
  State and local...........................................        --
                                                              --------
Total deferred..............................................        --
                                                              --------
                                                              $440,000
                                                              ========
</TABLE>
 
     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.
 
                                      F-18
<PAGE>   44
                       CORECOMM LIMITED AND SUBSIDIARIES
             AND ITS PREDECESSOR OCOM CORPORATION TELECOMS DIVISION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
14.  INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1998 are as follows:
 
<TABLE>
<S>                                                             <C>
Deferred tax liabilities:
  Tax over book depreciation and amortization...............    $    58,000
 
Deferred tax assets:
  Net operating losses......................................      5,419,000
  Allowance for doubtful accounts...........................        301,000
  Amortization of goodwill..................................         24,000
                                                                -----------
                                                                  5,744,000
  Valuation allowance for deferred tax assets...............     (5,686,000)
                                                                -----------
Net deferred tax assets.....................................         58,000
                                                                -----------
Net deferred tax liabilities................................    $        --
                                                                ===========
</TABLE>
 
     At December 31, 1998, the Company had net operating loss carryforwards of
approximately $13,400,000 for federal income tax purposes that expire in 2018.
Since the Company cannot file a consolidated federal income tax return, the net
operating loss carryforward can only be utilized by the subsidiary that
generated the loss. The net deferred tax assets of $5,686,000 have been fully
offset by a valuation allowance due to the uncertainty of realizing such tax
benefit.
 
     The reconciliation of income taxes computed at U.S. federal statutory rates
to income tax expense for the period from April 1, 1998 (date operations
commenced) to December 31, 1998 is as follows:
 
<TABLE>
<S>                                                           <C>
Benefit at federal statutory rate (35%).....................  $ 5,689,000
State and local income taxes................................      440,000
Expenses not deductible for tax purposes....................   (1,623,000)
Foreign income not subject to U.S. tax......................      846,000
U.S. losses with no benefit.................................   (4,912,000)
                                                              -----------
                                                              $   440,000
                                                              ===========
</TABLE>
 
15.  COMMITMENTS AND CONTINGENT LIABILITIES
 
     As of December 31, 1998, the Company has purchase commitments of
approximately $2,200,000 outstanding.
 
     The Company is involved in various disputes, arising in the ordinary course
of its business, which may result in pending or threatened litigation. None of
these matters are expected to have a material adverse effect on the Company's
financial position, results of operations or cash flows.
 
                                      F-19
<PAGE>   45
 
                       CORECOMM LIMITED AND SUBSIDIARIES
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                COL. A                      COL. B              COL. C              COL. D          COL. E
---------------------------------------  ------------   -----------------------   -----------   --------------
                                                               ADDITIONS
                                                        -----------------------
                                                           (1)          (2)
                                                        ----------   ----------
                                                                     CHARGED TO
                                          BALANCE AT    CHARGED TO     OTHER
                                         BEGINNING OF   COSTS AND    ACCOUNTS-    DEDUCTIONS-   BALANCE AT END
DESCRIPTION                                 PERIOD       EXPENSES     DESCRIBE     DESCRIBE       OF PERIOD
-----------                              ------------   ----------   ----------   -----------   --------------
<S>                                      <C>            <C>          <C>          <C>           <C>
For the period from April 1, 1998 (date
  operations commenced) to December 31,
  1998:
Allowance for doubtful accounts........       $--        $501,000        $--       $241,000(a)     $742,000
</TABLE>
 
---------------
(a) Uncollectible accounts written off, net of recoveries, of $117,000 offset by
    $358,000 allowance for doubtful accounts as of acquisition date from
    business combinations.
 
                                      F-20
<PAGE>   46
 
                       OCOM CORPORATION TELECOMS DIVISION
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                COL. A                     COL. B              COL. C              COL. D          COL. E
--------------------------------------  ------------   -----------------------   -----------   --------------
                                                              ADDITIONS
                                                       -----------------------
                                                          (1)          (2)
                                                       ----------   ----------
                                                                    CHARGED TO
                                         BALANCE AT    CHARGED TO     OTHER
                                        BEGINNING OF   COSTS AND    ACCOUNTS-    DEDUCTIONS-   BALANCE AT END
DESCRIPTION                                PERIOD       EXPENSES     DESCRIBE     DESCRIBE       OF PERIOD
-----------                             ------------   ----------   ----------   -----------   --------------
<S>                                     <C>            <C>          <C>          <C>           <C>
For the period from January 1, 1998 to
  May 31, 1998:
  Allowance for doubtful accounts.....    $46,000       $92,000         $--        $60,000(a)     $78,000
For the year ended December 31, 1997:
  Allowance for doubtful accounts.....    $    --       $46,000         $--        $    --        $46,000
</TABLE>
 
---------------
(a) Uncollectible accounts written off, net of recoveries.
 
                                      F-21