SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

            Annual Report Pursuant to Section 13 or 15(d) of the Securities 
            Exchange Act of 1934 for the fiscal year ended December 31, 1997

                                     1-12571
                                     -------
                              (Commission File No.)

                                INTELLICELL CORP.
             (Exact name of registrant as specified in its charter)

                   Delaware                      95-4467726
            -----------------------           ------------------
            (State of incorporation)          (I.R.S. Employer
                                              Identification No.)

                 9314 Eton Avenue, Chatsworth, California 91311
                 ----------------------------------------------
          (Address of principal executive offices including zip code)

     Registrant's telephone number, including area code: (818) 709-2300
                                                         --------------

         Securities registered pursuant to Section 12(b) of the Act:

Title of Class                            Name of Each Exchange Which Registered
--------------                            --------------------------------------
Common Stock, $0.01 par value             Boston Stock Exchange

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

                                 Title of Class
                                 --------------
                        Warrants to purchase Common Stock

      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 as required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.  YES |X|   NO: |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant' s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

      The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 31, 1998 was approximately $7,870,200 (based on the
closing sales price of such stock as of such date on the Nasdaq SmallCap Market
on March 31, 1998). No other capital stock is outstanding. Shares of Common
Stock held by each officer and director and by each person who owned 10% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily conclusive and may not apply for other purposes.

      As of March 31, 1998 there were 4,415,902 shares of the registrant's
Common Stock outstanding.
<PAGE>

                                     PART I


Item 1.  Business.

            The statements which are not historical facts contained in this
      Annual Report are forward looking statements that involve risks and
      uncertainties, including but not limited to, possible delays in the
      Company's expansion efforts, changes in wireless communication markets 
      and technologies, the nature of possible supplier or customer 
      arrangements which may become available to the Company in the future, 
      possible technological obsolescence, uncollectible accounts receivable, 
      slow moving inventory, lack of adequate financing, increased 
      competition and unfavorable general economic conditions. The Company's 
      actual results may differ materially from the results discussed in any
      forward looking statement.

      General

      Intellicell Corp. (the "Company") is engaged in the wholesale distribution
of wireless communications products. The Company offers cellular telephones and
accessories from leading manufacturers featuring brand names such as AT&T,
Audiovox, Ericsson, Mitsubishi, Motorola, Nokia, NEC, OKI, Panasonic, Pioneer,
Qualcomm, Samsung and Sony. The Company also offers a proprietary line of
accessory products under the Intellicell name. The Company has developed a
customer base of more than 2,100 wholesalers, carriers, agents, dealers and
retailers.

      The Company's objective is to capitalize on wireless communications
opportunities in markets in which the Company believes it can achieve
significant growth. The Company intends to implement its business strategy by
(i) offering a broad product selection, (ii) targeting emerging foreign markets,
(iii) establishing strategic relationships and (iv) expanding through
acquisitions.

      Recent Developments

      In March 1998, in response to the significant losses sustained during the
fiscal year ended December 31, 1997 and continuing intense competition
encountered by the Company, the Company reduced its work force by fourteen (14)
employees or thirty five (35%) percent. The Company is also seeking to
effectuate other cost-savings measures.

      The losses incurred by the Company are attributable to various factors,
including the intense price competition in the wireless communications industry.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company has failed to sustain significant supplier
relationships with leading manufacturers of analog and


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<PAGE>

digital cellular products. The Company's supplier relationships have been
primarily other wholesale distributors. As a result, the Company's supply of
product is inconsistent, of higher cost and does not typically include price
protection and promotional allowances when compared to the products which are
obtained directly from manufacturers. In addition, the wide acceptance of the
digital personal communications services ("PCS") format has had an adverse
effect on the demand for the analog and digital cellular products sold by the
Company. Manufacturers in the digital PCS market have selected distribution
channels which do not currently include the Company. There can be no assurance
that the Company will establish additional strategic relationships with
manufacturers of analog and digital cellular products or secure any strategic
relationships allowing it to access digital PCS products directly. The Company's
financial results will continue to be adversely affected if it is unable to
secure (i) additional supplier relationships with manufacturers of analog and
digital cellular products and (ii) a consistent supply of digital PCS products
at commercially competitive rates. See "Competition."

      In March 1998, the Company signed a non-exclusive distribution agreement
with Sony Electronic Inc Wireless Telecommunications Company ("Sony"), pursuant
to which the Company will distribute analog and cellular digital telephones and
accessories to carriers and retailers.

      In February 1998, the Company relocated its executive offices and
warehouse facilities. The leased facility, located in Chatsworth, California, is
comprised of approximately 36,000 square feet of office, operations and
warehouse. See "Item 2 Properties."

      In January 1998, the Company entered into a revolving line of credit
agreement (the "Credit Agreement") with BankAmerica Business Credit, Inc.
("BankAmerica") which expires in January 2001 and provides for borrowings of up
to a maximum of $12 million based on a maximum of 80% of eligible accounts
receivable and the lesser of $6 million or 50% of eligible inventory as defined
in the Credit Agreement. Borrowings under the Credit Agreement bears interest at
prime rate plus one half of one percent (0.5%) per annum. The Credit Agreement
is collateralized by substantially all of the assets of the Company. The Credit
Agreement prohibits the Company from paying dividends or incurring additional
indebtedness except for trade indebtedness and, initially, requires the Company
to maintain a tangible net worth of no less than $5.5 million and annual
earnings before interest, taxes, depreciation and amortization of $500,000.

      The Company was in violation of the tangible net worth covenant under the
Credit Agreement at December 31, 1997. In April 1998, BankAmerica waived such
default of the tangible net worth covenant and revised the Credit Agreement by
amendment (the "Amendment"). Pursuant to the Amendment, the maximum borrowing
has been reduced from $12 million to $6 million, with such borrowings limited to
80% of eligible accounts receivable and the lesser of $1 million or 50% of
eligible telephone inventory as defined in the Amendment. Borrowings under the
Amendment bear interest at the prime rate plus two and one-half percent (2.5%)
per annum. The Credit Agreement, as amended, requires the Company to meet
monthly


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<PAGE>

levels of tangible net worth and earnings before interest, taxes, depreciation
and amortization. All other provisions of the Credit Agreement remain in effect.

      On November 18, 1997, the Board of Directors of the Company declared the
payment of a dividend to its shareholders in the form of a warrant to purchase
Common Stock of the Company. Record owners of Common stock as of December 10,
1997, received one warrant for every two shares of Common Stock held. Each
warrant entitles the holder to purchase one share of Common Stock at a price of
$4.00 per share for a three year period, subject to adjustment in certain
circumstances. The warrants are redeemable by the Company, upon notice of not
less than 30 days, at a price of $.10 per warrant in the event the closing bid
quotation of the Common Stock on all 20 of the trading days ending on the third
day prior to the day on which the Company gives notice has been at least $7.00
per share; provided, however, that no such right of redemption or exercise shall
exist prior to the time that such shares of Common Stock underlying the warrants
have been registered under the Securities Act of 1933, as amended. Ben Neman,
Chairman, Chief Executive Officer and President of the Company waived his rights
to receive dividends on the shares of Common Stock held by him. The Company's
independent public accountants determined the fair market value of the warrants
to equal $1,983,000. This amount has been charged to retained earnings and
credited to additional paid-in capital.

The Wireless Communications Industry

      The wireless communications industry provides voice and data
communications services through cellular telephone, PCS, satellite, enhanced
specialized mobile radio ("ESMR") and paging services. Advances in system
technology and equipment, combined with lower equipment prices and service
charges, have increased consumer acceptance and driven dramatic increases in
worldwide demand for wireless communications products and services.

      United States Market

      The domestic market for wireless communications products and services has
grown substantially. According to the Cellular Telecommunications Industry
Association, the number of Cellular subscribers in the United States has
increased from approximately 4.4 million in 1990 to approximately 48.7 million
by June 1997, growing by more than 5.8 million, or approximately 12.3%, in the
last six months of 1997 alone. The number of cellular and PCS subscribers in the
United States is projected to reach approximately 93.2 million by the year 2000.
It is estimated that market penetration for cellular subscribers in the United
States, based on population, was approximately 17.6% at December 31, 1997.

      The Company believes that the United States cellular market is expanding
primarily due to decreases in monthly services fees and retail prices for
cellular telephones and a significant product replacement cycle. Many cellular
service providers are upgrading their existing cellular systems from analog
radio frequency to digital radio frequency technology. Digital systems offer
certain advantages over analog systems, including improved quality of voice and
data


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transmission and greater system capacity, thereby enabling carriers to add
additional subscribers. The Company believes that proliferation of digital
systems will increase demand for cellular service and new cellular products.

      International Market

      The markets for cellular products and services outside the United States
also have grown significantly. According to industry sources, wireless
subscribers increased by 65 million, or 48%, to 200 million total subscribers
from 1996 to 1997. The Company has been successful in expanding its
international sales, with such sales as a percentage of total net sales
increasing from 5.2% for the year ended December 31, 1996 to 17.6 % for the year
ended December 31, 1997. It is estimated that market penetration for cellular
subscribers outside the United States, based on population, was less than 4% at
the end of 1997.

      The Company expects that rapid growth in international markets will
continue as low market penetration, economic growth and high population density
result in increased demand for cellular communications products and services.
The Company also believes that cellular systems in certain of these countries
offer lower-cost alternatives to the construction of conventional telephone
facilities because they do not require substantial investment in infrastructure.
Due to these factors and the limited availability and quality of land-line
service, the Company believes that consumers in many countries outside of the
United States will increasingly utilize wireless services. These markets present
attractive expansion opportunities.

      Emerging Wireless Technologies

    In addition to growth in the cellular market, the emergence of new wireless
communications technologies and services, such as the PCS, EMR and satellite
communications systems, is expected to increase the capabilities associated with
wireless communications including seamless roaming, increased service coverage,
improved signal quality and greater data transmission capacity. PCS consists of
cellular type services, including advanced voice and data transmissions using
small, light-weight wireless telephones or hand-held computers. PCS also offers
greater functionality resulting in lower cost service options and lighter
handsets with longer battery life. PCS has been introduced in markets throughout
the United States. Upon the widespread commercial introduction of these
services, demand for wireless communications products and services is expected
to increase.

      Prior to 1995, the United States Federal Communications Commission (the
"FCC") allowed two carriers to provide cellular service to each metropolitan
service area. In connection with the auctioning of PCS licenses in 1995 and
1996, the FCC added three PCS carriers to each metropolitan service area,
increasing the total number of potential carriers to five per market. The
Company believes that this increase in the number of wireless service providers
will increase competition and the demand for wireless communications products
and services through lower prices, increased advertising and improved service
quality.


                                       -4-
<PAGE>

      During late 1994, the FCC awarded mobile satellite licenses to major
corporations that are investing in satellites which will enable them to provide
wireless phone, data, fax and paging services on a global basis. In addition,
other corporations announced their intention to enter the mobile satellite
market and launch networks, which would permit computers to bypass local
telephone exchanges and connect directly to the Internet.

      Regulatory Trends

          The Company believes that the Telecommunications Act of 1996 will
ultimately serve to reverse the trends associated with the breakup of AT&T and
the Bell System that separated long distance and local telephone service. This
Act permits long distance, cable and wireless companies to compete in local
markets. The Company believes that such deregulation will significantly increase
competition that will translate into lower costs and increased numbers of
subscribers.

Strategy

      The Company's objective is to capitalize on wireless communication
opportunities in markets in which the Company believes it can achieve
significant growth. The Company has developed a strategy which includes certain
key elements. There can be no assurance that the Company's objectives can be
achieved given the Company's current financial condition and the significant
competitive conditions which the Company encounters. The key elements are as
follows:

      Expand Through Acquisitions. Assuming financing is available, of which no
assurance can be given, the Company is seeking to expand through acquisitions of
companies, which the Company believes will provide significant growth potential.
Any decision to make an acquisition will be based upon the business prospects
and competitive position of the acquisition candidate and the extent to which
any business would enhance the Company's prospects and maximize revenues.
Potential acquisition candidates may include companies with alternative
distribution channels for cellular products.

      On December 24, 1997, the Company signed a non-binding letter of intent to
acquire all of the outstanding stock of Wholesale Cellular Latina del Peru, S.A.
("WCL"), a wholesale distributor of wireless communications products based in
Peru, for $3.5 million. The parties are currently renegotiating the purchase
price downward as a result of WCL's results of operations for the fiscal year
ended December 31, 1997. The purchase price would be paid through the issuance
of unregistered shares of the Company's common stock, subject to post-closing
adjustment. The acquisition, if consummated, would be accounted for using the
purchase method. The purchase price would be allocated principally to goodwill
which would be amortized over 20 years. The acquisition is conditioned upon
obtaining the approval of BankAmerica. BankAmerica has indicated that it will
not provide the necessary consent to the


                                       -5-
<PAGE>

transaction. Accordingly, the acquisition of WCL cannot be consummated unless
the Company obtains the consent of BankAmerica or can arrange an alternate
credit facility with a lender that consents to the transaction.

      Target Emerging Foreign Markets. The Company is targeting emerging foreign
markets in which cellular products are believed to have potential for
significant market penetration. The Company believes that certain markets are
likely to achieve greater penetration based on anticipated economic growth and
the increasing numbers of carriers. Many of these markets, particularly in Latin
American countries, are characterized by low penetration rates, high population
densities and inadequate land-line service. The Company anticipates that it will
initially seek to achieve penetration in regions with fast-growing economies and
wireless markets. Additionally, the Company will seek to further establish a
position in Latin America by developing relationships with established carriers
and industry participants.

      Establish Strategic Relationships. The Company will seek to establish
strategic marketing arrangements with partners who will provide knowledge,
experience and financial resources appropriate to a specific opportunity and who
will enhance the Company's ability to achieve significant penetration in
particular markets. The Company will also seek to obtain maximum exposure of
wireless products by targeting alternative distribution channels, including mass
merchandisers and retailers with access to significant consumer markets. In
March, 1998, the Company entered into an agreement with Sony Electronic Inc.,
Wireless Telecommunications Company ("Sony") pursuant to which it will
distribute cellular telephones and accessories to carriers and retailers.

      Offer Broad Product Selection. The Company distributes a broad selection
of popular brand name products and accessories. The Company analyzes customer
purchasing patterns and industry trends to anticipate demand for new products.
The emergence of new wireless communications technologies, including digital
cellular technology, PCS and satellite communications systems, is expected to
dramatically increase demand for wireless products and services. The Company
intends to evaluate cost, effectiveness and the potential of future wireless
services as primary considerations in selecting products for particular markets.
The Company is making an effort to develop relationships with equipment
manufacturers and other potential providers of emerging wireless products and
services which will position it to capitalize on evolving industry standards and
trends. No relationships have been developed to date and no assurance can be
given that such relationships with key players in the emerging wireless product
and service industry will be developed.

      The Company's strategy and current and future marketing plans are subject
to change as a result of a number of factors, including inability to obtain
products at commercially competitive rates, adequate financing, progress or
delays in the Company's expansion efforts, changes in wireless communications
markets and technologies, the nature of possible supplier or customer
arrangements which may become available to it in the future, and competitive
factors. There can


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<PAGE>

be no assurance that the Company will be able to successfully expand its
operations or achieve its other strategic objectives.

Products

      The Company offers a broad selection of wireless products from leading
manufacturers. The Company's product offerings include a variety of hand-held
and mobile cellular telephones featuring prominent brand names such as AT&T,
Ericsson, Mitsubishi, Motorola, Nokia, NEC, Audiovox, OKI, Panasonic, Pioneer,
Qualcomm, Samsung and Sony. The Company continually reviews and evaluates
cellular products in determining the mix of products purchased for resale to
customers and seeks to acquire distribution rights for products which the
Company believes have the potential for significant market penetration. For the
years ended December 31, 1995, 1996, and 1997, approximately, 80.0%, 74.6% and
92.0%, respectively, of the Company's revenues were derived from sales of
cellular telephones. For such periods, a significant portion of the Company's
cellular telephone sales represented Motorola and Audiovox products. Motorola
products (63% of 1997 telephone sales) are not available to the Company directly
from the manufacturer and as such the Company does not obtain price protection,
cooperative advertising and marketing allowances on such products.

      In addition, the Company offers brand name and proprietary lines of
cellular accessory products under the Intellicell name, consisting principally
of batteries, battery eliminators, conditioner and plug-in chargers, cases,
antennas and "hands-free" kits. For the years ended December 31, 1995, 1996, and
1997, sales of accessories accounted for approximately 20.0%, 25.4% and 7.9%,
respectively, of the Company's revenues. The Company commenced marketing its
proprietary line of accessory products in 1995. For the years ended December 31,
1995, 1996, and 1997, sales of proprietary accessory products accounted for
approximately 5.6%, 2.9%, and 2.6%, respectively, of the Company's revenues. The
Company does not intend on focusing its marketing activities on the sale of
proprietary accessory products.

Customers

      The Company has developed a customer base of more than 2,100 wholesalers,
carriers, agents, dealers and retailers. The Company believes that these
categories of customers will continue to be the primary purchasers of the
Company's products.

      For the years ended December 31, 1995, 1996 and 1997, sales of cellular
products to the Company's five largest customers accounted for approximately
48.7%, 48.8% and 36.2%, respectively, of the Company's revenues. For the year
ended December 31, 1995, sales of cellular products to Downtown Cellular
Distributors ("Downtown") and Brightpoint Inc. ("Brightpoint") accounted for
approximately 24.7% and 10.4%, respectively, of the Company's revenues. For the
year ended December 31, 1996, sales to Brightpoint and Downtown accounted for
approximately 17.1% and 15.9%, respectively, of the Company's revenues. For the
year ended December 31, 1997, sales to Downtown and Brightpoint accounted for
approximately


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<PAGE>

11.7% and 11.4%, respectively, of the Company's revenues. For such periods, no
other customer accounted for more than 10% of the Company's revenues.

      In February 1998, the Company learned that the business and associated
assets of Downtown had been assumed by Cellstar Corporation ("Cellstar") a
supplier/customer and competitor of the Company, which the Company believes
maintained a first priority security interest in and to the assets of Downtown.
As a result, in 1997, the Company expensed $1,665,000 to bad debt expense to
reserve the unpaid receivable from Downtown. The Company is in the process of
investigating its legal remedies in connection with the foregoing.

      Brightpoint and Cellstar are two of the Company's primary
customer/supplier competitors. Failure or delay by these or other
customer/suppliers in purchasing and/or supplying competitive products on
favorable terms, or at all, would materially adversely affect the Company's
sales, operating margins and the Company's ability to obtain and deliver
products on a timely and competitive basis. See "Competition."

      The Company generally sells its products pursuant to customer purchase
orders and ships product orders received by 4:00 P.M. local time the same day.
Unless otherwise requested, substantially all of the Company's products are
delivered within two days of receipt of customer orders by common carrier.
Because orders are filled shortly after receipt, backlog is not material to the
Company's business.

      The Company sells its products to customers in foreign markets, including
Israel, Paraguay, Mexico, Peru, Brazil and Canada and to United States-based
exporters of cellular products. For the years ended December 31, 1995, 1996 and
1997, sales of the Company's products to customers in foreign markets accounted
for 0.4%, 5.2%, and 17.6% respectively, of the Company's revenues. The 1997
foreign sales of 17.6% is comprised as follows: Peru-8.3%, Brazil-4%,
Paraguay-2.3%, Other Foreign Countries-3%. During the 1997 fiscal year, no other
country accounted for more than 10% of the Company's foreign market sales. The
Company is seeking to continue to expand product sales in foreign markets. No
assurance can be given that the Company will be able to do so.

Suppliers

      The Company has established relationships with leading manufacturers and
distributors of wireless products. The Company generally negotiates directly
with suppliers in an effort to obtain adequate inventories of popular brand name
products on favorable pricing terms. Inventory purchases are based on quality,
price, service, customer demand, product availability and brand name
recognition. Product manufacturers typically provide warranties, which the
Company extends to its customers.

      For the years ended December 31, 1995, 1996 and 1997, the Company's four
largest suppliers accounted for approximately 67.0%, 54.1% and 43.9%,
respectively, of product purchases. For the year ended December 31, 1995,
Brightpoint, Cellstar, Pacific Unplugged


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<PAGE>

Communications ("Unplugged") and Best Cellular Distributors ("Best Cellular")
accounted for approximately 28.3%, 13.7%, 13.6% and 11.4%, respectively, of
product purchases, with Brightpoint, Best Cellular, Sony and Cellstar accounting
for approximately 26.1%, 10.2%, 9.6% and 8.2%, respectively, of product
purchases for the year ended December 31, 1996. For the year ended December 31,
1997, Brightpoint, Progressive Concepts, Inc. and Audiovox, accounted for
approximately 11.9%, 11.8%, and 11.0% respectively, of product purchases. For
these periods, none of the Company's other suppliers accounted for more than 10%
of product purchases. Brightpoint and Cellstar are two of the Company's primary
competitors. Failure or delay by these or other suppliers in supplying
competitive products on favorable terms, or at all, could materially adversely
affect the Company's operating margins and the Company's ability to obtain and
deliver products on a timely and competitive basis. See "Competition."

      The Company has entered into non-exclusive arrangements with Audiovox,
NEC, OKI Telecom, Panasonic Telecommunications and Systems Company and Sony
pursuant to which the Company distributes cellular telephones and accessories to
carriers, retailers and, with the exception of Sony products, wholesalers. Such
arrangements are terminable on short notice. The Company purchases products from
the above manufacturers and other distributors pursuant to purchase orders
placed from time to time in the ordinary course of business. The Company
believes that its relationships with its suppliers are satisfactory, although it
is seeking to establish more supplier relationships with manufacturers.

      The Company generally places orders to its suppliers by facsimile on a
daily basis. Purchase orders are typically filled within one to seven days and
cellular products are shipped to the Company's warehouses by common carrier.

      The Company obtains all of its proprietary accessory products from
manufacturers in Taiwan and is dependent on such manufacturers to provide
sufficient quantities of products on favorable terms. The Company currently pays
import duties of between 2.4% and 5.9% of the cost of its accessory products.

Sales, Marketing and Distribution

      The Company's executive officers and sales staff of twelve (12) persons
are responsible for all of the Company's marketing and sales efforts. The
Company's sales personnel are paid a base salary plus commission (generally 15%
of gross profit represented by their sales). In addition, the Company's Vice
President, Business Development is paid a base salary plus a bonus based on
certain performance levels. The Company maintains agreements with its sales
personnel, which contain confidentiality provisions and prohibit such
individuals from competing with the Company.

      The Company's sales staff consists of ten account executives. The Company
has assigned specific customers to each account executive, who is responsible
for maintaining all customer relations with their assigned group of customers.
Because of the service-oriented nature of the Company's business, the Company's
executive officers devote a substantial amount of time to


                                       -9-
<PAGE>

developing and maintaining continuing personal relationships with the Company's
customers. The Company's ability to expand its customer base may be limited by
the number of marketing personnel and will be largely dependent upon the efforts
of such individuals.

      In an effort to increase its sales in foreign markets, primarily Latin
America, the Company in November 1997, began operation in a 12,800 square foot
warehouse and office facility in Miami, Florida. The facility will handle sales
into the southeastern region of the United States and Latin America.

      The Company believes that product recognition by customers and consumers
is an important factor in the marketing of the products sold by the Company.
Accordingly, the Company promotes its product lines through advertising in trade
publications and attendance at national and regional trade shows. The Company
also solicits customers through direct mail and telemarketing activities. The
Company's manufacturers and dealers use a variety of methods to promote their
products directly to consumers, including print and media advertising.

Asset Management

      Accounts. For the years ended December 31, 1995, 1996 and 1997,
approximately 63.5% , 79.3% and 93.6%, respectively, of the Company's sales were
made on open account. The Company generally offers 30-day open account terms to
its customers. As of December 31, 1996 and 1997, trade accounts receivable
averaged 35.6 and 31.5 days for sales made on open account, respectively. As a
result of the Company's aggressive sales practices, the Company experienced bad
debt expense in 1997 of $3,627,000 (4.4% of 1997 sales) as compared to $380,000
for 1996 (0.5% of 1996 sales). The Company engages credit rating associations
that provide credit rating information in connection with individual customer
accounts, attempts to monitor its customer's creditworthiness and seeks to
obtain advance payment or letters of credit from its foreign customers. All
foreign sales are made in United States dollars. As direct and indirect foreign
sales increase, the Company will become subject to risks inherent in foreign
trade, including credit risk, shipping delays, trade restrictions, international
political, regulatory and economic developments.

      Inventory. On average, the Company has historically turned inventory
approximately 14.2 times per year. The Company takes physical inventory on a
quarterly basis. On an annual basis, cumulative physical inventory adjustments
have accounted for less than 1% of total purchases during the years ended
December 31, 1995, 1996 and 1997.

      Management Information Systems. The Company believes that inventory
control and other information systems are important factors in providing
customers with competitive prices and rapid delivery of variety of products.
Accordingly, the Company currently maintains financial, accounting and
management controls for its operations through the use of a centralized
accounting system and a computerized management information system. The
Company's management information system is designed to enable the Company to
adapt to new product developments and to enhance corporate productivity through
the integration of sales inventory


                                      -10-
<PAGE>

controls, purchasing and financial and credit control. The Company believes that
the system allows the Company to provide value to its customers through general
efficiency, and timely and accurate product and pricing information. Internally,
the system provides management and other key employees with detailed account
information, including buying and credit histories and current account status,
as well as pricing and product availability information. During fiscal 1997, the
Company made significant investment in maintenance and in upgrading its computer
system and anticipates continuing to make such investment. The Company believes
that the management information system will support its anticipated level of
operations.

      Year 2000 Compliance. During 1997, the Company began converting its
computer systems to be year 2000 compliant (e.g., to recognize the difference
between '99 and '00 as one year instead of negative 99 years). At December 31,
1997, approximately 50% of the Company's systems were compliant, with all
systems expected to be compliant by the end of 1998. The total cost of the
project is not expected to exceed $100,000. Maintenance or modification costs
will be expensed as incurred, while the costs of new software will be
capitalized and amortized over the software's useful life. As of December 31,
1997, approximately $26,000 has been spent on new software. This entire amount
has been capitalized and will be amortized over the software's useful life.

Competition

      The markets for wireless communication products are characterized by
intense price competition and significant price erosion over the life of a
product. The Company competes principally on the basis of price and product
availability. The Company competes with numerous well-established wholesale
distributors and manufacturers of wireless equipment, including the Company's
customers and suppliers, as well as with providers of cellular services, most of
which possess substantially greater financial, marketing, personnel and other
resources than the Company and have established reputations for success in the
sale and service of cellular products. Certain of these competitors have the
financial resources necessary to enable them to withstand substantial price
competition and implement extensive advertising and promotional campaigns, both
generally and in response to efforts by additional competitors to enter into new
markets or introduce new products.

      The Company has experienced and expects to continue to experience
significant price competition in the sale of analog and cellular digital
products. The Company believes this price competition is reflective of the lack
of direct supplier relationships of high demand digital cellular product and the
advent and customer acceptance of digital PCS products. The primary suppliers of
product and the primary customers of the Company have been other wholesale
distributors. The supply of product from other wholesale distributors as
compared to supplies from manufacturers is inconsistent, of higher cost, on less
favorable terms and typically is without price protection and promotional
allowances. The Company will continue to seek to establish supplier
relationships with leading manufacturers of analog and digital cellular
products. No assurance can be given that the Company will be able to establish
such relationships. The Company expects its competitors to offer new and
existing products and


                                     -11-
<PAGE>

services at prices necessary to gain and retain market share. Certain of the
Company's competitors have substantial financial resources, which enable them to
withstand sustained price competition or market downturn better than the
Company. Furthermore, no assurance can be given that competitors of the Company
(many of which are the Company's suppliers) will not develop enhanced services
that the Company will not be able to match based on its industry and financial
position.

      Additionally, it is the Company's belief that the wide acceptance of the
digital PCS format has had a negative impact on the demand for analog and
cellular digital product. The Company has not secured a strategic relationship
allowing it to access digital PCS products directly. Manufacturers currently in
the digital PCS market have selected distributors and distribution channels
other than the Company. As other manufacturers present their products to the
digital PCS market they may compete directly with the Company, or enter into
joint ventures or strategic relationships with the Company's competitors, in
which case the Company's ability to access and sell such products could be
reduced or eliminated. The Company's results of operations, net sales,
profitability and financial condition have been and will continue to be
adversely impacted until access to a consistent supply of digital PCS products
at commercially competitive rates is established.

      The cellular distribution industry is characterized by low barriers to
entry and frequent introduction of new products. The industry is evolving with
value-added services becoming of increased importance to the market. This
evolution will increase entry barriers as value added services require increased
human resources, management information systems and equipment. The Company's
ability to continue to compete successfully will be dependent on its ability to
anticipate and respond both strategically and financially to various competitive
factors affecting the industry, including new products and services, changes in
consumer preferences, demographic trends, international, national, regional and
local economic conditions particularly recessionary conditions adversely
affecting consumer spending and discount pricing strategies and promotional
activities by carriers.

      The Company's primary competitors include Brightpoint, Cellstar, Com-Quest
Wireless Distributing Company, Arizona Wholesale Supply Company (a/k/a QDI),
Unplugged and Progressive Concepts, Inc. ("Progressive"). For the year ended
1997, the Company purchased from the foregoing entities 64.5% of its Motorola
product purchases, with such products comprising 63.5% of the Company's
telephone sales for the 1997 year. The occurrence of either increased price
competition and/or the lack of supply of such products would have an adverse
effect on the Company.

      The markets for wireless communications products are characterized by
rapidly changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. Accordingly, the Company's
success is dependent upon its ability to anticipate technological changes in the
industry and to continually identify, obtain and successfully market new
products that satisfy evolving industry and customer requirements. The use of
alternative wireless technologies, including PCS and satellite communications
systems,


                                     -12-
<PAGE>

will reduce demand for existing cellular products, increasing risk associated
with the granting of credit and inventory obsolescence Upon widespread
commercial introduction, PCS, satellite communications systems and other new
wireless technologies could materially change the types of products sold by the
Company and its suppliers and result in significant price competition. There can
be no assurance that the Company will be able to continue to compete
successfully, or will have the financial capability to sustain its business
particularly as domestic cellular markets mature and the Company seeks to enter
into new markets and market new products and services.

Trademark

      The Company currently holds a federal trademark registration for the name
"Intellicell" for use in connection with wireless accessory products.

Employees

      As a result of the Company's recent workforce reduction, at March 31,
1998, the Company had twenty six employees, of which two are in executive
positions, ten are engaged in sales and marketing, five are engaged in warehouse
operations and nine are engaged in accounting and administrative activities.
There are no employees covered by a collective bargaining agreement. The Company
believes that its relations with its employees are satisfactory.

Item 2. Properties

      In February 1998, the Company moved its executive offices and warehouse to
a 36,000 square foot leased facility in Chatsworth, California. This facility
provides 23,000 square feet of warehouse and 13,000 square feet of operations
and office space. The lease is for a three year term beginning February 1, 1998,
and provides for an initial monthly rental of $18,495 with annual escalation
based on the Consumer Price Index. At the end of the initial lease term, the
Company has an option to extend the lease for a period of three years.

      In November 1997, the Company commenced operations out of a 12,800 square
foot leased warehouse and office facility in Miami, Florida. The facility will
handle sales into the southeastern region of the United States and Latin
America. The lease has an initial monthly rental of $7,441 with annual
escalation. At the end of the initial lease term of 5 years and 2 months, the
Company has an option to extend the lease for a period of five years.

      The Company believes that its existing facilities are adequate for its
current and future requirements and that additional space will be available as
needed to accommodate future expansion of its operations.

Item 3. Legal Proceedings


                                      -13-
<PAGE>

      In October 1996, ArrayComm Incorporated, ("ArrayComm"), filed an action
against the Company in United States District Court for the Northern District of
California seeking a judgment to cancel the Company's trademark registration of
the name "Intellicell". In January 1998, the parties settled the action wherein
both parties recognized the others right to use the name "Intellicell" for the
products listed in their respective trademark registrations. Under this
settlement the Company will not contest the use of variations of the mark by
ArrayComm such as "Intellawave" and ArrayComm will not contest the use of the
Company's name, Intellicell Corp. No damages or monetary settlement were
incurred or awarded.

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

      No matters were submitted to security holders through the solicitation of
proxies or otherwise during the fourth quarter of the fiscal year covered by
this Report.


                                      -14-
<PAGE>

                                     PART II


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

      The Company's Common Stock has traded on the Nasdaq SmallCap Market
("Nasdaq") under the symbol "FONE" since the Company's initial public offering
on December 18, 1996. The following table sets forth, for the period indicated,
the high and low sales prices of the Company's Common Stock as reported by
Nasdaq. Such prices may include inter-dealer prices, without retail mark-up,
markdown or commission and may not necessarily represent actual transactions.

                                               High      Low
                                               ----      ---
      Year Ended December 31, 1996
      ----------------------------
          Fourth Quarter (commencing
          December 18, 1996)                   $8.00    $5.00
   
      Year Ended December 31, 1997
      ----------------------------
          First Quarter                        $9.38    $6.25
          Second Quarter                       $7.88    $4.25
          Third Quarter                        $9.75    $7.13
          Fourth Quarter                       $7.75    $2.75
                                         
      Such quotations reflect inter-dealer bids, without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.

      On March 31, 1998, the closing price of the Common Stock on Nasdaq was
$3.125. As of March 31, 1998, there were approximately twenty four holders of
record of the Company's Common Stock. The Company believes that there are in
excess of 400 beneficial owners of its Common Stock whose shares are held in
"street name."

Dividend Policy

      To date, other than S corporation distributions made prior to its initial
public offering, the Company has not paid any cash dividends on its Common
Stock. The payment of cash dividends, if any, in the future is within the
discretion of the Company's Board of Directors and will depend upon the
Company's earnings, its capital requirements and financial condition and other
relevant factors. The Board of Directors does not intend to declare any cash
dividends in the foreseeable future, but instead intends to retain all earnings,
if any, for use in the Company's business operations. The payment of cash
dividends is restricted under the terms of the


                                      -15-
<PAGE>

Company's loan agreement with BankAmerica. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Recent Sales of Unregistered Securities

      There were no sales of unregistered securities of the Company during the
fiscal year ended December 31, 1997.


Item 6.  Selected Financial Data

      The following selected financial data are derived from the Financial
Statements of the Company which have been audited by BDO Seidman, LLP,
independent certified accountants for the years ended December 31, 1997 and 1996
and Richard A. Eisner & Company, LLP, for the years ended December 31, 1995,
1994, and 1993. Such selected financial data should be read in conjunction with
the Company's financial statements and related notes set forth herein commencing
on page F-1.

Statement of Operations Data:

                 (in thousands, except share and per share data)
                 Year ended December 31,

<TABLE>
<CAPTION>
                                           1993           1994           1995           1996           1997
                                        -----------    -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>            <C>
Net Sales                               $    20,496    $    56,447    $    69,850    $    81,225    $    81,401
Cost of sales                                19,846         54,402         67,485         77,555         77,862
Gross profit                                    650          2,045          2,365          3,670          3,539
Selling, general and  administrative
expenses                                        647          1,505          1,877          2,747          7,630
Non-recurring legal, auditing and
professional fees                                --             --             --             --          1,300
Income (loss)                                     3            540            488            923         (5,391)
Other income (expense)                          (25)          (103)           (86)          (392)          (391)
Income (loss) from operations                   (22)           437            402            531         (5,782)
Income tax expense (benefit)                     --             --             --           (308)           334
Net income - historical                 $       (22)   $       437    $       402    $       839    $    (6,116)
Pro forma net income (loss) (1)         $       (19)   $       257    $       236    $       315    $    (6,116)
</TABLE>


                                      -16-
<PAGE>

<TABLE>
<S>                                     <C>            <C>            <C>            <C>            <C>
Pro forma net income (loss) per share
(basic and diluted) (2)                 $    (0.01)    $     0.13     $     0.12    $      0.15    $     (1.37)
Weighted average number of
common shares outstanding (basic)        2,030,000      2,030,000      2,030,000      2,113,674    $ 4,451,182
Weighted average number of
common shares outstanding (diluted       2,030,000      2,030,000      2,030,000      2,114,641      4,451,182
</TABLE>

Balance Sheet Data:
                                 (in thousands)
                                 As of December 31,
<TABLE>
<CAPTION>
                                           1993            1994           1995           1996           1997
                                        -----------    -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>            <C>        
Working capital (deficiency)            $      (151)   $      (175)   $      (243)   $     8,432    $     3,596
Total assets                                  2,077          7,250          8,604         16,025         11,414
Short-term debt                                  --            445          2,490             --          3,402
Total liabilities                             2,212          7,392          8,590          7,216          7,381
Stockholders' equity (capital
deficiency)                                    (135)          (142)            14          8,809          4,033
</TABLE>

(1)   Includes pro forma adjustments for income taxes. See Note 9 to Notes to
      Financial Statements.

(2)   Based on pro forma net income and the weighted average number of shares of
      Common Stock outstanding.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

      The statements which are not historical facts contained in this Annual
      Report are forward looking statements that involve risks and
      uncertainties, including but not limited to, possible delays in the
      Company's expansion efforts, changes in wireless communications markets
      and technologies, the nature of possible supplier or customer arrangements
      which may become available to the Company in the future, possible product
      obsolescence, uncollectible accounts receivable, slow moving inventory,
      lack of adequate financing, increased competition and unfavorable general
      economic conditions. The Company's actual results may differ materially
      from the results discussed in any forward looking statement.


                                      -17-
<PAGE>

Results of Operations

      In connection with the audit of the Company's financial statements for the
year ended December 31, 1996, in fiscal 1997, the Company incurred non-recurring
expenses of $1,024,000, consisting primarily of professional fees, including the
fees of its prior auditor, fees of special counsel and a special auditor
retained by the Company's Audit Committee. See "Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure" (Item 9). Additionally,
the Company incurred $276,000 of legal and professional fees associated with the
negotiation and investigation of the acquisition of Unplugged. This potential
acquisition was abandoned in December 1997.

      In February 1998, the Company became aware that the business and
associated assets of one of its major customers had been assumed by another
creditor of this customer. As a result, in 1997, the Company expensed $1,665,000
to bad debt expense to reserve the unpaid receivable from this customer. The
Company is in the process of investigating its legal remedies in connection with
the foregoing.

      The following table sets forth for the periods indicated, the percentage
of net sales represented by certain items reflected in the Company's statement
of operations. The statement of operations contained in the Company's financial
statements and the following table include pro forma adjustment for income
taxes. See Note 9 to Notes to the Financial Statements.

                            Percentages of Net Sales
                             Year Ended December 31,


                                          1995      1996      1997
                                         ------    ------    ------
Net sales                                100.0%    100.0%    100.0%
Cost of sales                             96.6      95.5      95.6
Gross profit                               3.4       4.5       4.4
Selling, general and administrative
expenses                                   2.7       3.4       9.4
Non-recurring legal and auditing
fees                                        --        --       1.6
Income (loss) from operations               .7       1.1      (6.6)
Interest expense                            .1        .5        .5
Net (loss) income                           .6       1.0      (7.5)
Pro forma net (loss) income                 .3        .4      (7.5)


                                      -18-
<PAGE>

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

      Net sales were essentially flat from year to year increasing by
approximately $176,000, or 0.22%, from 1996 to 1997. For 1997, domestic sales
were $67,048,000 (82.4%) and foreign sales were $14,353,000 (17.6%) as compared
to domestic sales of $77,034,000 (94.8%) and foreign sales of $4,191,000 (5.2%)
for 1996. For the year ended December 31, 1997, accessory sales decreased by
$14,186,000 or 68.6%, with such decrease offset by increased phone sales of
$14,362,000, a 23.7% increase from such sales for the prior year.

      Gross profit decreased by $131,000, or 3.6%, from 1996 to 1997 and as a
percentage of net sales decreased from approximately 4.5% to approximately 4.4%
respectively, during these periods. The decrease in gross profit from 1996 to
1997 is primarily the result of an increase in the inventory obsolescence
provision for 1997 of $197,000 (0.2% of 1997 sales) over such provision for
1996. In future periods, gross profit may be adversely affected by merchandise,
freight and other costs, price competition and by changes in the mix of products
offered by the Company.

      Selling, general and administrative expenses increased by approximately
$4,883,000 or 177.8%, from 1996 to 1997, and increased from 3.4% to 9.4%, as a
percentage of net sales. The most significant items accounting for this increase
are an increase in bad debt expense for doubtful accounts receivable of
$2,508,000 and doubtful notes receivable of $739,000, payroll and related costs
of $625,000, (with such increase comprised of $110,000 for executive officers,
$150,000 for accounting and administration and $365,000 for sales and marketing
compensation). The increase in payroll and payroll related costs for 1997 as
compared to 1996 was primarily the result of having three accounting and one
executive position filled for only part of 1996 while the increase in
compensation expense related to sales and marketing reflects both increased
compensation levels and the number of personnel involved in this effort.
Additional increases for 1997 over 1996 were associated with expense for
non-capitalizable equipment repair and maintenance of $258,000 primarily
associated with the Company's computer system, legal, auditing and professional
fees of $141,000, and increased loan fee expense associated with the replaced
line of credit of $172,000.

      In 1997, the Company incurred non-recurring expenses totaling $1,300,000.
Of this amount $1,024,000 was incurred in connection with the audit of the
Company's financial statements for the year ended December 31, 1996, consisting
primarily of professional fees, including the fees of its prior auditor, fees of
special counsel and a special auditor retained by the Company's Audit Committee.
See "Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" (Item 9). In December 1997, the Company terminated acquisition
negotiations with Pacific Unplugged Communications, Inc.. Such negotiations had
been ongoing since a non-binding letter of intent was signed by the parties in
August 1997. In connection with the proposed acquisition the Company incurred
and expensed, as non-recurring, $276,000 of professional and legal fees.

      Income from operations was $923,000 for 1996, as compared to an operating
loss of $5,391,000 for 1997, a decrease of $6,314,000 or 684%. The 1997
operating loss is primarily due


                                      -19-
<PAGE>

to increased selling, general and administrative expenses and non-recurring
expenses for 1997, as described above.

      Interest expense for 1996 and 1997 was $431,000 and $444,000,
respectively. Interest expense is primarily attributable to borrowings under the
Company's line of credit with CIT which during 1997, averaged $3,016,000
(1996-$3,700,000) at an average interest rate of 10.25% (1996- 10%) per annum.
At December 31, 1997, there was $3,402,000 (1996 - nil) of borrowing under this
credit line.

      Historical net income decreased from $839,000 for 1996 to a historical net
loss of $6,116,000 for 1997, a decrease of $6,955,000 or 829%. The decrease in
net income resulted from an increase in selling, general and administrative
expenses and non-recurring legal and auditing and professional fees and expenses
and the reversal of a deferred tax benefit recorded in December 1996 in
accordance with FASB 109, "Accounting for Income Taxes". A net deferred tax
benefit of $330,000 was recognized upon termination of the Company's S
corporation election in December 1996. At December 31, 1997, the Company has
recorded a net deferred tax asset of $2,626,000 representing the future benefit
of net operating losses and timing differences and has established a valuation
reserve in an equal amount reflecting current assessment of the uncertain
realizability of this asset.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

      Net sales increased by $11,375,000, or 16.3%, from 1995 to 1996. The
increase in net sales was primarily attributable to the expanded level of the
Company's operations and primarily reflects higher-volume sales. For 1996,
domestic and foreign net sales were $77,034,000 and $4,191,000, respectively, or
94.8% and 5.2%, respectively, of the Company's net sales.

      Gross profit increased by $1,305,000, or 55.2%, from 1995 to 1996 and as a
percentage of net sales increased from 3.4% to 4.5% during these periods. The
increase in gross profit as primarily due to the purchase of inventories at
lower per unit costs as a result of volume discounts and, to a lesser extent,
increased sales of higher-margin cellular telephones. In future periods, gross
profit may be adversely affected by merchandise, freight and other costs, price
competition and by changes in the mix of products offered by the Company.

      Selling, general and administrative expenses increased by $870,000, or
46.4%, from 1995 to 1996, and increased from 2.7% to 3.4%, as a percentage of
net sales. The increase in absolute dollars was attributable to the Company's
expanded level of operations and reflects increases in payroll and related costs
and bad debt and collection expense. The Company expects these expenses will
continue to increase in absolute dollars in connection with higher levels of
sales.

      Income from operations was $488,000 for 1995, as compared to $923,000 for
1996, an increase of $435,000, or 89.1%. Income from operations as a percentage
of net sales increased from 0.7% to 1.1% during these periods. The increase as
primarily attributable to the increase in gross profit, partially offset by an
increase in selling, general and administrative expenses.


                                      -20-
<PAGE>

      Interest expense increased by $364,000, or 543%, from 1995 to 1996. The
increase was attributable to borrowings under the Company's line of credit with
CIT, used to finance expanded levels of operations. Borrowings under the line of
credit averaged $3,700,000 at an average rate of 10% per annum. There were no
borrowings under this line of credit at December 31, 1996.

      Historical net income increased from $402,000 for 1995 to $839,000 for
1996, an increase of $437,000, or 108.7%. The increase in net income resulted
from an increase in gross profit, and a deferred tax benefit in accordance with
FASB 109, "Accounting for Income Taxes," partially offset by higher selling,
general and administrative expense and higher interest expense. A net deferred
tax benefit of $330,000, was recognized upon termination of the Company's S
corporation election. No valuation allowance has been established as it is more
likely than not that the deferred tax asset will be realized. Net income as a
percentage of net sales increased from 0.6% in 1995 to 1.0% in 1996. Pro forma
net income increased from $236,000 in 1995 to $315,000 in 1996, an increase of
33.5%.

Liquidity and Capital Resources

      Typically, the Company's primary cash requirements have been to fund
increased levels of inventories, accounts receivable and operations. The Company
has historically satisfied its working capital requirements principally through
cash flow from operations and borrowings. At December 31, 1997, the Company had
working capital of $3,596,000 compared to working capital of $8,432,000 at
December 31, 1996. The decrease in working capital is primarily attributable to
increased borrowings under the Company's credit line and increased allowances
for doubtful accounts and notes receivable. The losses sustained from operations
including the effect of $3,627,000 of bad debt expense during 1997, has
significantly reduced the Company's liquidity. Additionally, as a result of the
Company's operating losses, certain vendors have restricted credit to the
Company.

     Net cash used in operating activities was $5,374,000 in 1997, and
$6,716,000 in 1996. The decrease in cash used for 1997 was primarily
attributable the net loss, an increase in accounts receivable and a decrease in
accounts payable which were partially offset by decreases in inventories,
deposits for purchase of inventory, increases in the allowances for doubtful
accounts and notes receivable and proceeds from the repayment of other
receivables. Net cash provided by investing activities was $1,505,000 in 1997,
and $510,000 in 1996. The increase in cash provided by investing activities was
primarily attributable to proceeds from the repayment of notes receivable. Net
cash provided by financing activities was $3,869,000 in 1997, and $6,206,000 in
1996. The decrease was primarily attributable to the proceeds of the Company's
initial public offering of Common Stock in December 1996 and a decrease in the
bank overdraft position at December 31, 1997, partially offset by the payment of
loans payable and S corporation distributions in 1996. In 1996 the Company
received net proceeds from its initial public offering of $8,047,000, of which
$2,715,000 was used to repay indebtedness and $5,332,000 was used in connection
with expansion, primarily inventory purchases and payments of accounts payable.
In January 1997, the managing underwriter exercised an over-allotment option
(the "Over-allotment


                                      -21-
<PAGE>

Option") to purchase an additional 300,000 shares, resulting in net proceeds of
$1,341,000. At December 31, 1997, the Company had a bank overdraft position of
$250,000.

      Net cash used in operating activities was $6,716,000 in 1996, as compared
to net cash provided by operating activities of $246,000 in 1995. The increase
in cash used was primarily attributable to increased levels of inventory and
accounts receivable. Net cash provided by investing activities was $510,000 in
1996, as compared to net cash used of $579,000 in 1995. The increase in cash
provided by investing activities was attributable to proceeds from the repayment
of notes receivable and advances to officers, employees and others. Net cash
provided by financing activities was $6,206,000 in 1996, as compared to net cash
used in financing activities of $25,000 in 1995. The increase was attributable
to the proceeds of the Company's initial public offering of Common Stock in
December 1996 and the bank overdraft position, partially offset by the payment
of loans payable and S corporation distributions. At December 31, 1996, the
Company had a bank overdraft position of $1,012,000. The Company received net
proceeds from its initial public offering of $8,047,000, of which $2,715,000 was
used to repay indebtedness and $5,332,000 was used in connection with expansion,
primarily inventory purchases and payments of accounts payable.

      In January 1998, the Company entered into a new loan agreement with
BankAmerica Business Credit, Inc. ("BankAmerica") which provides for borrowings
under a line of credit of up to $12,000,000. Advances under the line of credit
are based on a borrowing formula equal to the sum of (i) 80% of eligible
accounts receivable and (ii) the lower of $6,000,000 or 50% of eligible
inventory. Interest accrues on such advances at the prime lending rate plus one
half of one percent (.5%) per annum and is payable monthly. The credit line
expires in January 2001. At March 31, 1998, $2,885,000 was outstanding under the
line of credit.

      All of the Company's assets (including inventories and receivables) are
pledged as collateral for the loan with BankAmerica, and the Company is
prohibited from incurring additional indebtedness, except for trade
indebtedness, which could limit the Company's ability to expand its operations.
In addition to financial covenants requiring the Company to maintain a tangible
net worth of $5.5 million and annual earnings of $500,000 before interest,
taxes, depreciation and amortization, the Company's agreement with BankAmerica
limits or prohibits the Company, subject to certain exceptions, from declaring
or paying cash dividends, making capital distributions or other payments to
stockholders, merging or consolidating with another corporation, selling assets
(other than in the ordinary course of business), creating liens or security
interests on the Company's assets and entering into transactions with
affiliates.

      At December 31, 1997, the Company was in violation of the tangible net
worth covenant. In April 1998, BankAmerica waived the December 31, 1997 default
of the tangible net worth covenant and revised the Credit Agreement by
amendment. See "Item 1 - Business--Recent Developments."

      At December 31, 1996, Ben Neman, Chairman, President and Chief Executive
Officer of the Company, personally guaranteed up to $500,000 of the Company's
indebtedness to CIT its


                                      -22-
<PAGE>

former finance company. Pursuant to the terms of the Company's loan agreement
with CIT, such guarantee was released in April 1997. There can be no assurance
that any such personal guarantee will be available to the Company in the future.

      In connection with the loan agreement with its former finance company, the
Company issued to CIT warrants to purchase 15,000 shares of Common Stock at an
exercise price of $5.00 per share. Such warrants remain outstanding as of the
date of this report.

      In December 1995, the Company converted $2,000,000 of a trade payable
balance to Brightpoint, Inc. into a loan bearing interest at the rate of 9.1%
per annum repayable in twelve equal monthly installments of $175,000. Payments
under such loan were made through May 1996 and, in July 1996, the Company issued
a promissory note evidencing the remaining outstanding principal balance of
$1,188,577. In December 1996, $1,000,000 of the principal amount of such note
was converted into 223,464 shares of Common Stock, and the remaining $234,000 of
principal and accrued interest was repaid. During 1997, Brightpoint Inc. sold
its Common Stock holdings in the Company.

      The Company has increasingly emphasized the sale of products on open
account and has purchased increased levels of inventories to support an
expanding customer base. For the years ended December 31, 1995, 1996 and 1997,
63.5%, 79.3% and 93.6% of the Company's sales were made on open account.
Inventory turns decreased from 20.2 times during fiscal 1995 to 15.9 times
during fiscal 1996 and to 14.2 times during 1997 reflecting increased average
inventories of $3.3 million for 1995, $4.8 million for 1996 and $5.4 million for
1997.

      The Company's trade accounts receivable, less allowances for doubtful
accounts at December 31, 1997, was $6,578,000 as compared to $6,287,000 at
December 31, 1996. As of December 31, 1997, accounts 90 days past due were
approximately 9.9% of aggregate trade accounts receivable as compared to 14.7%
of aggregate trade accounts receivable at December 31, 1996.

      The allowance for doubtful accounts receivable was $2,697,000 at December
31, 1997, and $428,000 at December 31, 1996. The increase in the allowance for
doubtful accounts receivable results primarily from the Company's largest
customer (11.7% of total 1997 sales) sustaining severe financial difficulties.
The Company currently believes that this customer is out of business and that
its assets have been taken over by another supplier/customer and competitor. The
Company is in the process of investigating its legal remedies in connection with
the foregoing. Other significant increases in the allowance for doubtful account
receivable relate to 44 domestic accounts aggregating $577,000 and 7 foreign
accounts aggregating $456,000.

      At December 31, 1997, notes receivable, less the allowance for doubtful
notes receivable was $195,000 as compared to $337,000 at December 31, 1996. The
allowance for doubtful notes receivable at December 31, 1997, was $739,000 while
at December 31, 1996, no such allowance was recorded. Notes receivable are the
result of converting aged accounts receivable into interest


                                      -23-
<PAGE>

bearing promissory notes with a fixed maturity. Of the notes receivable for
which an allowance is provided, one note due from a foreign customer accounts
for 71% of the total.

      Bad debt expense for trade accounts receivable and notes receivable
equaled $3,627,000 or 4.5% of the Company's revenues for 1997, and was less than
1% of revenues for 1996.

      The Company believes the allowances for doubtful accounts receivable and
doubtful notes receivable are adequate for the size and nature of its
receivables. Nevertheless, further delays in the collection or the
uncollectibility of accounts receivable will continue to have an adverse effect
on the Company's liquidity and working capital position. Because of market
considerations the Company will offer open account terms to additional
customers, which will subject the Company to increased credit risks,
particularly in foreign markets, and could require the Company to increase its
allowance for doubtful accounts. The Company attempts to minimize losses on
credit sales by monitoring its customers' creditworthiness. The Company seeks to
obtain letters of credit or similar security in connection with open account
sales to customers located in foreign markets.

      At December 31, 1997, the Company's inventory reserve was $550,000, which
the Company believes is currently adequate for obsolescence and net realizable
value, given the size and nature of its inventories. The amounts the Company
will ultimately realize could, however differ materially from the amounts
estimated in arriving at the inventory reserve.

      Prior to its initial public offering in December 1996, the Company elected
to be taxed as an S corporation and, accordingly, was not subject to income
taxes. Net income had been taxed for federal and state income purposes directly
to the Company's stockholders. For the years ended December 31, 1994, 1995 and
1996, the Company made S corporation distributions to its stockholders in the
amounts of $444,000, $166,000 and $1,091,000, respectively. Excess distributions
for the year ended December 31, 1996 to the Company's President in the amount of
$454,000 were repaid by the delivery of 101,562 shares of the Company's Common
Stock held by the Company's President for cancellation. See Item 13 "Certain
Transactions."

      In October 1996, ArrayComm Incorporated, ("ArrayComm"), filed an action
against the Company in United States District Court for the Northern District of
California seeking a judgment to cancel the Company's trademark registration of
the name "Intellicell". In January 1998, the parties settled the action wherein
both parties recognized the others right to us the name "Intellicell" for the
products listed in their respective trademark registrations. Under this
settlement the Company will not contest the use of variations of the mark by
ArrayComm such as "Intellawave" and ArrayComm will not contest the use of the
Company's name, Intellicell Corp. No damages or monetary settlement were
incurred or awarded.

      The Company relocated its executive offices and warehouse to larger
facilities in February 1998. This new facility located in Chatsworth, California
is comprised of approximately 13,000 square feet of office and operations area
and 23,000 square feet of warehouse. The facility is leased with an initial term
of three years with one three year option to extend. The Company has


                                      -24-
<PAGE>

incurred approximately $200,000 in capital expenditures in 1998 for leasehold
improvements, furniture, fixtures and equipment associated with these
facilities.

      In November 1997 the Company opened a Miami, Florida office comprised of
10,000 square feet of warehouse and 2,000 square feet of office space. The
facility is leased with an initial term of five years and two months with a
option to extend for an additional five years.

      The Company has no other material commitments for capital expenditures.

      Based on currently proposed plans and assumptions relating to its
operations, the Company believes that projected cash flow from operations and
available cash resources, including its revolving line of credit, may be
(although no assurance can be given that it will be), sufficient to satisfy its
near-term cash requirements. The Company currently does not have significant
borrowing availability under its credit facility. Under the Company's line of
credit, the Company is prohibited from incurring additional indebtedness, except
for trade indebtedness. There can be no assurance that additional financing will
be available to the Company on commercially reasonable terms, or at all. In
addition, in response to the significant losses sustained during the fiscal year
ended December 31, 1997 and continuing intense competition encountered by the
Company, the Company reduced its work force by fourteen (14) employees or thirty
five (35%) percent. The Company is also seeking to address its liquidity
concerns by attempting to secure more favorable contracts for supply of products
with manufacturers of digital PCS and digital cellular equipment. In addition,
the Company intends on establishing more stringent criteria to evaluate
creditworthiness prior to extending credit to customers. No assurance can be
given that these measures will help to alleviate the liquidity concerns faced by
the Company.

Seasonality

      Sales of the Company's products are seasonal and are a function of
consumer sales with peak product shipments typically occurring in the third and
fourth quarters.

Inflation

      Inflation has historically not had a material effect on the Company's
operations.

Year 2000 Compliance

      See "Item 1 - Business -- Asset Management --Year 2000 Compliance."

New Accounting Pronouncements

      Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", (SFAS No. 130) issued by the Financial Accounting
Standards Board (FASB) is effective for financial statements with fiscal years
beginning after December 15, 1997. Earlier application is


                                      -25-
<PAGE>

permitted. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company does not expect adoption of SFAS No. 130 to
have a material effect, if any, on its financial position or results of
operations.

      Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", (SFAS No. 131) issued by the
FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 131 requires that
public companies report certain information about operating segments, products,
services and geographical areas in which they operate and their major customers.
The Company does not expect adoption of SFAS No. 131 to have a material effect,
if any, on its financial position or results of operations.

Item 8.  Financial Statements and Supplementary Data

      The financial statements appear in a separate section of this report as
pages F-1 through F- 27 following Part IV. The unaudited Quarterly Results of
Operations are as follows (in thousands except per share data):

<TABLE>
<CAPTION>
1997                                      First      Second       Third      Fourth
<S>                                     <C>         <C>         <C>         <C>     
Net sales                               $ 21,782    $ 19,211    $ 20,512    $ 19,896
Gross profit                               1,292       1,180         622         445
Pro forma net loss                          (382)        (48)     (2,033)     (3,653)
Pro forma net loss per share               (0.08)      (0.01)      (0.46)      (0.82)

<CAPTION>
1996                                      First      Second       Third      Fourth
<S>                                     <C>         <C>         <C>         <C>     
Net sales                               $ 22,288    $ 20,182    $ 23,519    $ 15,236
Gross profit                                 952         923       1,262         533
Pro forma net income (loss)                  150         218         129        (182)
Pro forma net income (loss) per share       0.07        0.10        0.06       (0.08)
</TABLE>

Item 9   Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

      On April 9, 1997, Richard A. Eisner & Company, LLP ("Eisner"), the
accounting firm that audited the Company's financial statements at December 31,
1994 and 1995 and for the years ended December 31, 1993, 1994 and 1995, resigned
as the Company's independent auditor. The report of Eisner for the fiscal years
ended December 31, 1993, 1994 and 1995 did not contain an adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope or accounting principles. During the audit period for the fiscal years
ended December 31, 1993, 1994 and 1995, and during the interim period prior to
Eisner's resignation, there were no disagreements with Eisner on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure. However, in its letter of resignation addressed to the


                                      -26-
<PAGE>

Company's Board of Directors, Eisner concluded that it was "unable to rely on
the integrity of management." In a subsequent letter filed as an Exhibit to the
Company's Current Report on Form 8-K, Eisner stated that its resignation
followed an expanded scope investigation in response to allegations with respect
to the 1996 financial statements made to Eisner by the Company's controller, and
that during Eisner's investigation evidence came to its attention that
contradicted statements made to Eisner by management.

      Effective April 19, 1997, the Company engaged BDO Seidman, LLP as
independent auditors to audit the Company's annual financial statements. During
the Company's two fiscal years, and the subsequent interim period prior to its
engagement, neither the Company nor any person acting on behalf of the Company
consulted BDO Seidman, LLP regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements or
(ii) any matters that were either the subject of a disagreement or a reportable
event.

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant

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

     Name                 Age       Position
     ----                 ---       --------
Ben Neman                 40        Chairman of the Board, President
                                    and Chief Executive Officer

James E. Bunting          49        Executive Vice President, Chief
                                    Operating Officer and Director

John C. Snyder II         52        Vice President and Chief Financial Officer

Vinay Sharma              50        Director

J. Sherman Henderson      53        Director


      Ben Neman, a founder of the Company, has been Chairman, President and
Chief Executive Officer of the Company since its inception. From September 1983
to January 1991, Mr. Neman was owner and President of Car Tronics of California,
a company engaged in the retail sale of cellular and other automotive electronic
consumer products.

      James E. Bunting has been Executive Vice President and Chief Operating
Officer of the Company since July 1996 and a director since October 1996. From
July 1996 until April 1997, Mr. Bunting served as the Company's Chief Financial
Officer. Prior to joining the Company, Mr.


                                      -27-
<PAGE>

Bunting served as the financial officer of AirTouch Teletrac, a subsidiary of
AirTouch Communications, a company engaged in vehicle location and wireless
communications, from February 1990 to January 1996.

      John C. Snyder II has been Vice President and Chief Financial Officer of
the Company since April 30, 1997. Prior to joining the Company, Mr. Snyder was
Chief Financial Officer of Cleveland Wrecking Company, a nationwide demolition
and environmental contractor, from March 1995 through April 1997. From January
1993 to March 1995 Mr. Snyder was engaged in financial business consulting
activities through J. Snyder & Associates. Prior thereto, Mr. Snyder was Chief
Financial and Administrative Officer of Pedus Services, a human resources
provider, from 1982 to 1992.

      Vinay Sharma has been a director of the Company since October 1996. Mr.
Sharma has been a partner with the law firm Sharma & Herron since March 1992.
Mr. Sharma received his Masters in Business Administration in June 1974 and
Juris Doctor degree in May 1982 from the University of California at Berkeley.

      J. Sherman Henderson has been a director of the Company since February
1998. Since 1993, Mr. Henderson has been President, CEO and founder of UniDial
Communications, a long-distance phone service reseller and full service
distributor of telecommunications products and services. Prior to this time and
until 1989, Mr. Henderson was a principal and founder of Charter Network, a
Midwest long distance phone carrier.

      All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.

      Messrs. Sharma and Henderson are members of the Company's Audit Committee.

      In addition to the Company's executive officers and directors, Mr. Meir
Abramov is a key employee of the Company. Mr. Abramov, age 29, has been a Vice
President of the Company in charge of purchasing and large account sales for
more than the past four years.

      The Company has agreed, until December 17, 1999, if so requested by Sands
Brothers & Co., Ltd. ("Sands"), the Representative of the several underwriters
of the Company's initial public offering, to nominate and use its best efforts
to elect a designee of Sands as a director or, at Sands' option, as a non-voting
advisor to the Company's Board of Directors. Sands exercised its right to
designate Mr. Alan M. Bluestine, a managing director of Sands Brothers, as a
nonvoting advisor to the Company's Board of Directors on June 6, 1997.

Business of the Board of Directors


                                      -28-
<PAGE>

      During the fiscal year ended December 31, 1997, the Company's Board of
Directors held ten meetings. All Directors attended these meetings.

Item 11.    Executive Compensation

      The following table discloses the compensation for the persons serving as
the Company's principal executive officer and operating officer during the
fiscal years ended December 31, 1996 and 1997. No other officer of the Company
received compensation in excess of $100,000 for the Company's fiscal years ended
December 31, 1996 and 1997.

                           Summary Compensation Table

                               Annual Compensation
                               -------------------
                                                                  Compensation
                                                                     Awards
                                                                   Securities
                                                                   Underlying
                                 Year    Salary($)    Bonus($)     Options(#)

Ben Neman                        1997      72,000
      Chief Executive Officer    1996      72,000                    12,000
                                 1995      75,000
James E. Bunting
      Chief Operating Officer    1997      70,000      75,000
                                 1996      35,000                    50,000


Option Grants in Fiscal Year Ended December 31, 1997

      No options were granted to applicable Officers during the fiscal year
ended December 31, 1997.

Option Exercises in 1997 Fiscal Year

      There were no options for the purchase of Common Stock exercised during
the year ended December 31, 1997.

      The following table sets forth information concerning the value of
unexercised stock options held by the Chief Executive and Operating Officers as
of December 31, 1997. No options were exercised during the fiscal year ended
December 31, 1997.


                                      -29-
<PAGE>

                    Aggregated Fiscal Year End Option Values

                 Number of Securities Underlying   Value of Unexercised
                 Unexercised Options               In-the-Money Options
                 At December 31, 1997              At December 31, 1997*
               
Name             Exercisable     Unexercisable     Exercisable     Unexercisable
             
Ben Neman            4,000            8,000             $-0-           $-0-
James E. Bunting    16,667           33,333             $-0-           $-0-

* Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the year-end market value
of the Common Stock which was $5.00 on December 31, 1997.

Employment Agreements

      The Company has entered into a three-year employment agreement with Mr.
Neman, effective December 17, 1996, which is automatically renewable and
provides for an annual base compensation of $72,000 and such bonus as the Board
of Directors may from time to time determine. The employment agreement provides
for employment on a full-time basis and contains a provision that Mr. Neman will
not compete or engage in a business competitive with the current or anticipated
business of the Company during the term of the employment agreement and for a
period of one year thereafter. The agreement provides that if Mr. Neman is
terminated without cause (including as a result of a change in control), he will
be entitled to receive severance pay equal to the base compensation through the
term of the agreement, provided that if he is terminated during the third year
or the last year of any renewal term, he will be entitled to receive additional
compensation equal to the base compensation received from the Company during the
one-year period prior to the date of termination.

      The Company has entered into a three-year agreement, dated as of July 1,
1996, with Mr. Bunting which provides for an annual base compensation of $70,000
and such bonus as the Board of Directors may from time to time determine. The
employment agreement contains a confidentiality provision, and a covenant not to
compete with the Company for a period of one year following termination of
employment. The agreement provides that if Mr. Bunting is terminated without
cause (including as a result of a change in control), the employee will be paid
an amount equal to four months of his annual salary in consideration of his
agreement not to compete with the Company and an amount equal to two months of
his annual salary as severance. In connection with such employment agreement,
the Company granted to Mr. Bunting an option to purchase an aggregate of 50,000
shares of Common Stock at an exercise price of $5.00 per share. The options are
exercisable as to one-third of the shares covered thereby on the first, second
and third anniversaries of the date of grant.


                                      -30-
<PAGE>

      The Company has entered into a three-year employment agreement with Mr.
Abramov, effective as of December 17, 1996, which provides for an annual base
compensation of $66,000 and an annual bonus of $66,000.

      The Company has entered into a three-year agreement, dated as of April 30,
1997, with Mr. Snyder which provides for an annual base compensation of $70,000
and an annual bonus of $50,000. The employment agreement contains a
confidentiality provision, and a covenant not to compete with the Company for a
period of one year following termination of employment. The agreement provides
that if Mr. Snyder is terminated without cause (including as a result of a
change in control), the employee will be paid an amount equal to six months of
his annual salary and bonus in consideration of his agreement not to compete
with the Company. In June 1997, the Agreement was amended to allow termination
of employment only upon the unanimous consent of the Company's independent
directors. In connection with such employment agreement, the Company granted to
Mr. Snyder an option to purchase an aggregate of 50,000 shares of Common Stock
at an exercise price of $6.63 per share. The options are exercisable as to
one-third of the shares covered thereby on the first, second and third
anniversaries of the date of grant.

      In January 1998, the Board of Directors approved a salary adjustment for
Messrs. Neman and Bunting to $100,000 and $140,000 per year, respectively.
However, the Board of Directors is currently discussing a rollback or reduction
in the salaries of certain executive officers' salaries.

Stock Option Plans

      In October 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"), as amended, and in February 1998 the Board of Directors of the Company
adopted the 1998 Stock Option Plan (the "1998 Plan; together with the 1996 Plan
hereinafter the "Plans") pursuant to which 460,000 and 540,000 shares of Common
Stock respectively are currently reserved for issuance upon the exercise of
options designated as either (i) options intended to constitute incentive stock
options ("ISOs") under the Internal Revenue Code of 1986, as amended (the
"Code") or (ii) non-qualified options. Until such time as the shareholders of
the Company approve the 1998 Plan, only non-qualified stock options can be
issued thereunder.

      Under the Plans (subject, however, to the above-referenced shareholder
approval with respect to the 1998 Plan), ISOs may be granted under the Plans to
employees and officers of the Company. Non-qualified options may be granted to
consultants, directors (whether or not they are employees), employees or
officers of the Company.

      The Plans are intended to qualify under Rule 16b-3 under the Securities
Exchange Act of 1934, and are administered by the Board of Directors. The Board,
within the limitations of the Plans, determines the persons to whom options will
be granted, the number of shares to be covered by each option, whether the
options granted are intended to be ISOs, the duration and rate of exercise of
each option, the option purchase price per share and the manner of exercise, and
the


                                      -31-
<PAGE>

time, manner and form of payment upon exercise of an option. Unless sooner
terminated the 1996 Plan and the 1998 Plan will expire in October 2006 and
February 2008, respectively.

      ISOs granted under the Plans may not be granted at a price less than the
fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company) may not exceed
$100,000. Non-qualified options granted under the Plans may not be granted at a
price less than the fair market value of the Common Stock on the date of grant.
Options granted under the Plans will expire not more than ten years from the
date of grant (five years in the case of ISOs granted to persons holding 10% or
more of the voting stock of the Company). All options granted under the Plans
are not transferable during an optionee's lifetime but are transferable at death
by will or by the laws of descent and distribution. In general, upon termination
of employment of an optionee, all options granted to such person which are not
exercisable on the date of such termination immediately terminate, and any
options that are exercisable terminate 90 days following termination of
employment.

      The Plans contain anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of the
cessation of employment are available for further grants. No shares of Common
Stock of the Company may be issued to any optionee until the full option price
has been paid. The Board may grant individual options under the Plans with more
stringent provisions than those specified in the Plans.

      As of the date of this Annual Report, options to purchase an aggregate of
338,750 shares of Common Stock are outstanding under the 1996 Plan. Of such
options, options to purchase have been granted to the following individuals at
the indicated price; Mr. Neman, 12,000 at $5.50, Mr. Bunting, 50,000 at $5.00,
and Mr. Snyder, 50,000 at $6.63.

      As of the date of this Annual Report, options to purchase an aggregate of
300,000 shares of Common Stock are outstanding under the 1998 Plan. Of such
options, 100,000 options were granted at $3.81 per share to: Messrs. Henderson
and Sharma, and to Sands Brothers & Co., Ltd., the Company's investment banker.

      The Company also granted, in October 1996, options to purchase 65,000
shares outside of the 1996 Plan at an exercise price of $5.00 per share, all of
which are outstanding as of the date of this report.

Item 12.    Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth information as of March 31, 1998, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of


                                      -32-
<PAGE>

Common Stock by (i) each person known by the Company to be the beneficial owner
of more than five percent of the outstanding shares of Common Stock, (ii) the
Company's Chief Executive Officer, (iii) each of the Company's directors and
(iv) all executive officers and directors as a group:

                                       Amount and Nature       Percentage of
Name and Address                       Of Beneficial           Outstanding
Of Beneficial Owner                    Ownership (3)           Shares Owned
                                
Mellon Bank Corporation (1)                357,500                8.1%
Ben Neman (2)(4)                         1,824,105               40.0
James E. Bunting(2)(5)                      21,667                0.5
Vinay Sharma (6)                                --                 --
J. Sherman Henderson (7)                    20,000                0.4
Meir Abramov(8)                             72,333                1.6
                                         ---------               ----
All executive officers and                                    
Directors as a group (five persons)(9)   1,938,105               42.5
                                                       

(1)   The principal business office is c/o One Mellon Bank Center, Pittsburgh,
      Pennsylvania 15258.

(2)   The address for each of such individuals is in care of the Company, 9314
      Eton Avenue, Chatsworth, California 91311.

(3)   A person is deemed to be the beneficial owner of securities that can be
      acquired by such person within 60 days from March 31, 1998 upon the
      exercise of options or warrants. Each beneficial owner's percentage
      ownership is determined by assuming that options or warrants that are held
      by such person (but not those held by any other person) and which are
      exercisable within 60 days of March 31, 1998 have been exercised. Unless
      otherwise indicated, the Company believes that all persons named in the
      table have sole voting and investment power with respect to all shares of
      Common Stock beneficially owned by them.

(4)   Excludes 72,333 shares of outstanding Common Stock transferable upon
      exercise of options granted by Mr. Neman to Mr. Abramov, an employee of
      the Company. Such options total 217,000 and are exercisable as to
      one-third of the shares covered thereby commencing October 1997. Includes
      4,000 shares issuable upon exercise of options held by Mr. Neman. Does not
      include options to purchase 8,000 shares of Common Stock.

(5)   Includes 16,667 shares issuable upon exercise of options. Does not include
      options to purchase 33,333 shares of Common Stock.

(6)   Does not include options to purchase 100,000 shares of Common Stock.


                                      -33-
<PAGE>

(7)   Does not include options to purchase 100,000 shares of Common Stock and
      warrants to purchase 10,000 shares of common stock.

(8)   Includes 72,333 shares of outstanding Common Stock transferable upon
      exercise of options granted by Mr. Neman to Mr. Abramov, an employee of
      the Company. Does not include 144,667 of such options.

(9)   Includes an aggregate of 20,667 shares issuable upon exercise of options.
      Does not include options to purchase an aggregate of 291,333 shares of
      Common Stock.

Item 13.  Certain Relationships and Related Transactions.

      Between January 1, 1995, and June 30, 1996, the Company made aggregate
non-interest bearing advances to Mr. Neman of $454,145. In December 1996, the
Company repurchased 36,000 shares of Common Stock from Mr. Neman in
consideration of the cancellation of $180,000 of such indebtedness, and Mr.
Neman repaid the remaining balance of such indebtedness.

      Excess S corporation distributions for the year ended December 31, 1996,
to Mr. Neman in the amount of $454,000 were repaid by the delivery to the
Company of 101,562 shares of the Company's Common Stock held by Mr. Neman for
cancellation. The shares of Common Stock delivered by Mr. Neman were valued at
the initial public offering price of the Company's Common Stock less
underwriting discounts and commissions.

      Mr. Neman had personally guaranteed up to $500,000 of the Company's
indebtedness to CIT, the Company's former finance company, with such guarantee
released in April 1997.

      Cellular Specialists, a company controlled by Mr. Neman's brother, is a
customer of the Company. For the year ended December 31, 1997, the Company sold
$254,000 of cellular products to Cellular Specialists on terms no less favorable
than to an unaffiliated third party. In December 1996, the Company granted
options to purchase 35,000 shares of Common Stock at an exercise price of $5.00
per share to Mr. Neman's brother.

      Digicell International Inc. ("Digicell"), a company controlled by two of
Mr. Neman's cousins, is a customer and a supplier to the Company. For the year
ended December 31, 1997, the Company sold to Digicell $1,455,000 and purchased
from Digicell $299,000 of cellular products on terms no less favorable to the
Company than could be obtained from an unaffiliated third party.

      Vinay Sharma, a director of the Company, is a partner with the law firm
Sharma & Herron, one of the Company's attorneys. The Company paid such firm
approximately $14,000 during the year ended December 31, 1997, for legal
services rendered. In March 1998, options to purchase an aggregate of 100,000
shares of Common Stock at $3.81 per share were granted to Mr. Sharma under the
1998 Plan. At the same time options to purchase 50,000 shares of Common Stock
(3,000


                                      -34-
<PAGE>

shares at $5.00 and 47,000 shares at $8.25 granted in 1996 and 1997,
respectively) under the 1996 Plan were canceled.


                                      -35-
<PAGE>

                                     PART IV

Item. 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1)      The Financial Statements are filed as a part of this report as pages
            F-1 through F-27 following the signature page.

(a)(2)      Financial Statement Schedules

            Schedule II - Valuation and Qualifying accounts page F-28

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

(a)(3)      Exhibits

            The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation of S-K and paragraph (C) of this Item 14.

Exhibit
Number      Description
------      -----------

1.1   Form of Underwriting Agreement (1)

3.1   Certificate of Incorporation (1)

3.2   Certificate of Merger and Plan and Agreement of Merger, between Cellular
      Telecom Corporation, a California corporation, and the Registrant (1)

3.3   Bylaws (1)

4.1   Specimen form of Common Stock Certificate (2)

4.2   Form of Representative's Warrant Agreement (2)

4.3   Form of Warrant issued as a dividend to Common Stock holders of Registrant
      (3)

4.4   Warrant Agreement, between the Company and Continental Stock Transfer
      Trust Company, as Warrant Agent dated December 17, 1997 (3)

10.1  Form of 1996 Stock Option Plan of Registrant (1)


                                      -36-
<PAGE>

10.2  Form of Employment Agreement between the Registrant and Ben Neman (1)

10.3  Form of Employment Agreement between the Registrant and James E. Bunting
      (1)

10.4  Lease Agreement between the Registrant and California Cosmetics (1)

10.5  Credit Facility and Security Agreement, dated June 18, 1996, by and
      between the Registrant and CIT Group/Credit Finance, Inc. and related
      documents (1)

10.6  Form of Employment Agreement between the Registrant and John C. Snyder II,
      dated April 30, 1997 (4)

10.7  Lease Agreement between the Company and Northpark Industrial, dated
      December 22, 1997 (4)

10.8  Lease Agreement between the Company and AMB Industrial Income Fund, Inc.,
      dated July 18, 1997 (4)

10.9  Loan and Security Agreement, dated January 12, 1998, by and between the
      Registrant and BankAmerica Business Credit Inc. (4)

10.10 Form of Amendment to Loan and Security Agreement referred to in Exhibit
      10.9 (4)

10.11 Form of 1998 Stock Option Plan (4)

27    Financial Data Schedule (for SEC only) (4)

----------
(1)   Incorporated by reference to Registrant's Form S-1 Registration Statement
      filed with the Commission on November 4, 1996.

(2)   Incorporated by reference to Registrants Amendment No. 1 to Form S-1
      Registration Statement filed with the Commission on December 9, 1996.

(3)   Incorporated by reference to Registrant's Form 8-A Registration Statement
      filed with the Commission on December 5, 1997.

(4)   Filed herewith.

(b)   Reports on Form 8-K:


                                      -37-
<PAGE>

Report on Form 8-K, dated November 25, 1997, with the Securities and Exchange
Commission reporting the declaration of a dividend to shareholders in the form
of a warrant to purchase Common Stock of the Company under Item 5.


                                      -38-
<PAGE>

                                   SIGNATURES

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

                                            INTELLICELL CORP
Dated: April 13 , 1998

                                            By: /s/ Ben Neman
                                                -------------
                                                Ben Neman
                                                Chief Executive Officer

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

      Signature                      Title                  Date

/s/ Ben Neman               Chief Executive Officer,        April 13, 1998
-------------               President and Chairman of the
 Ben Neman                  Board, (Principal Executive
                            Officer)

/s/ James E. Bunting        Executive Vice President,       April 13, 1998
--------------------        Chief Operating Officer and
 James E. Bunting           Director

/s/ John C. Snyder II       Vice President and Chief        April 13, 1998
---------------------       Financial Officer (Principal
 John C. Snyder II          Financial and Accounting
                            Officer)

/s/ J. Sherman Henderson    Director                        April 13, 1998
------------------------
 J. Sherman Henderson

/s/ Vinay Sharma            Director                        April 13, 1998
----------------
 Vinay Sharma


                                      -39-
<PAGE>

                                Intellicell Corp.


                                                            Financial Statements
                                          Years Ended December 31, 1996 and 1997
<PAGE>

                                Intellicell Corp.


                                                            Financial Statements
                                          Years Ended December 31, 1996 and 1997
<PAGE>

                                Intellicell Corp.

                          Index to Financial Statements


<TABLE>
<S>                                                                                         <C>    
Report of Independent Certified Public Accountants                                          F-2

Report of Independent Auditors                                                              F-3

Balance sheets as of December 31, 1996 and 1997                                             F-4

Statements of operations for the years ended December 31, 1995,
      1996 and 1997                                                                         F-6

Statements of changes in stockholders' equity (capital deficiency) for the years
      ended December 31, 1995, 1996 and 1997                                                F-7

Statements of cash flows for the years ended December 31, 1995,  
      1996 and 1997                                                                         F-8

Notes to financial statements                                                              F-10

Report of Independent Auditors on Schedule                                                 F-27

Schedule II - Valuation and qualifying accounts                                            F-28
</TABLE>


                                      F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
Intellicell Corp.
Chatsworth, California


      We have audited the accompanying balance sheets of Intellicell Corp. as of
December 31, 1996 and 1997 and the related statements of income, stockholders'
equity, and cash flows for each of the years then ended. We have also audited
the schedule listed in the accompanying index. 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 and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. 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 Intellicell Corp. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the years then ended in conformity with generally accepted
accounting principles.

      Also, in our opinion, the schedule presents fairly in all material
respects, the information set forth therein.



                                            BDO SEIDMAN, LLP



Los Angeles, California
March 6, 1998
Except for Notes 5 and 13
  which are as of April 10, 1998


                                      F-2
<PAGE>

REPORT OF INDEPENDENT AUDITORS



Board of Directors and Stockholders Intellicell Corp.
Chatsworth, California


      We have audited the accompanying statements of operations, changes in
stockholders' equity (capital deficiency), and cash flows for Intellicell Corp.
for the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 provides a reasonable basis for our opinion.

      In our opinion, the financial statements enumerated above presented
fairly, in all material respects, the results of the operations and cash flows
of Intellicell Corp. for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.



Richard A. Eisner & Company, LLP


New York, New York
September 13, 1996


                                      F-3
<PAGE>

                                Intellicell Corp.

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                    December 31,
                                                            -------------------------
                                                                1996          1997
                                                            -----------   -----------
<S>                                                         <C>           <C>        
Assets

Current assets:
  Accounts receivable, net of allowance for doubtful
    accounts of $428,000 and $2,697,000                     $ 6,287,000   $ 6,578,000
  Inventories, net of reserve of $442,000 and $550,000        6,437,000     3,494,000
  Notes receivable, net of allowance for doubtful
    notes of $0 and $739,000                                    337,000       195,000
  Other receivables                                             500,000            --
  Deposits for purchase of inventory                          1,443,000       271,000
  Deferred tax asset                                            353,000            --
  Prepaid expenses and other current assets                     268,000       439,000
                                                            -----------   -----------

         Total current assets                                15,625,000    10,977,000


Property and equipment, net of accumulated depreciation
  of $36,000 and $98,000                                        156,000       286,000
Goodwill, net of accumulated amortization of $13,000
  and $23,000                                                    87,000        77,000
Deferred financing costs, net of accumulated amortization
  of $58,000                                                    118,000            --
Other assets                                                     39,000        74,000
                                                            -----------   -----------

  Total assets                                              $16,025,000   $11,414,000
                                                            ===========   ===========
</TABLE>

                 See accompanying notes to financial statements.


                                      F-4
<PAGE>

                                Intellicell Corp.

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                 ----------------------------
                                                                     1996            1997
                                                                 ------------    ------------
<S>                                                              <C>             <C>         
Liabilities and Stockholders' Equity

Current liabilities:
  Bank overdraft                                                 $  1,012,000    $    250,000
  Revolving credit facility                                                --       3,402,000
  Accounts payable                                                  5,994,000       3,425,000
  Accrued expenses                                                    187,000         304,000
                                                                 ------------    ------------

         Total current liabilities                                  7,193,000       7,381,000

Deferred tax liability                                                 23,000              --
                                                                 ------------    ------------

         Total liabilities                                          7,216,000       7,381,000
                                                                 ------------    ------------

Commitments and contingencies (Note 8)

Stockholders' equity
  Preferred stock - $.01 par value, 1,000,000 shares
    authorized and none issued                                             --              --
  Common stock - $.01 par value, 15,000,000 shares authorized,
    4,217,464 and 4,415,902 shares issued and outstanding
    at December 31, 1996 and 1997                                      42,000          44,000
  Additional paid-in capital                                        8,925,000      11,792,000
  Retained earnings                                                   296,000      (7,803,000)
  Due from officer                                                   (454,000)             --
                                                                 ------------    ------------

         Total stockholders' equity                                 8,809,000       4,033,000
                                                                 ------------    ------------

  Total liabilities and stockholders' equity                     $ 16,025,000    $ 11,414,000
                                                                 ============    ============
</TABLE>

                See accompanying notes to financial statements.


                                      F-5
<PAGE>

                                Intellicell Corp.

                            Statements of Operations

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                        --------------------------------------------
                                            1995            1996            1997
                                        ------------    ------------    ------------
<S>                                     <C>             <C>             <C>         
Net sales                               $ 69,850,000    $ 81,225,000    $ 81,401,000

Cost of sales                             67,485,000      77,555,000      77,862,000
                                        ------------    ------------    ------------

Gross profit                               2,365,000       3,670,000       3,539,000

Selling, general and administrative
  expenses                                 1,877,000       2,747,000       7,630,000

Non-recurring legal and auditing fees             --              --       1,300,000
                                        ------------    ------------    ------------

Income (loss) from operations                488,000         923,000      (5,391,000)

Other income (expense):
  Interest (expense)                         (67,000)       (431,000)       (444,000)
  Other income (loss)                        (19,000)         39,000          53,000
                                        ------------    ------------    ------------

Income (loss) before income taxes            402,000         531,000      (5,782,000)

Taxes on income                                   --        (308,000)        334,000
                                        ------------    ------------    ------------

Net income (loss) - Historical          $    402,000    $    839,000    $ (6,116,000)
                                        ============    ============    ============

Basic earnings (loss) per share         $       0.20    $       0.40    $      (1.37)
                                        ============    ============    ============
Diluted earnings (loss) per share       $       0.20    $       0.40    $      (1.37)
                                        ============    ============    ============


Pro forma amounts (unaudited):
Income (loss) before income taxes       $    402,000    $    531,000    $ (5,782,000)

Taxes on income                              166,000         216,000         334,000
                                        ------------    ------------    ------------

Net income (loss)                       $    236,000    $    315,000    $ (6,116,000)
                                        ============    ============    ============

Basic earnings (loss) per share         $       0.12    $       0.15    $      (1.37)
                                        ============    ============    ============
Diluted earnings (loss) per share       $       0.12    $       0.15    $      (1.37)
                                        ============    ============    ============
</TABLE>

                 See accompanying notes to financialstatements.


                                      F-6
<PAGE>

                                Intellicell Corp.
       Statements of Changes in Stockholders' Equity (Capital Deficiency)
                  Years Ended December 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>

                                                                                         Retained
                                               Common Stock             Additional       Earnings
                                       ----------------------------       Paid-in      (Accumulated     Due From
                                          Shares          Amount          Capital        Deficit)        Officer           Total
                                       ------------    ------------    ------------    ------------    ------------    ------------
<S>                                       <C>          <C>             <C>             <C>             <C>             <C>          
Balance at January 1, 1995                2,030,000    $         --    $         --    $   (142,000)   $         --    $   (142,000)

Distributions to stockholders                    --              --              --        (166,000)             --        (166,000)

Capital contribution                             --         100,000              --              --              --         100,000

Net income for the year                          --              --              --         402,000              --         402,000

Advances to officer                              --              --              --              --        (180,000)       (180,000)
                                       ------------    ------------    ------------    ------------    ------------    ------------

Balance at December 31, 1995              2,030,000         100,000              --          94,000        (180,000)         14,000

Net income for the period January 1,
  1996 to December 21, 1996                      --              --              --         543,000              --         543,000

Withdrawal of undistributed S
  corporation earnings                           --              --              --        (637,000)       (454,000)     (1,091,000)

Reorganization with $.01 par value
  common stock                                   --         (80,000)         80,000              --              --              -- 

Common stock issued as consideration
  for note payable                          223,464           2,000         998,000              --              --       1,000,000

Common stock acquired from officer
  as settlement of balance due from
  officer and retirement of such shares     (36,000)             --        (180,000)             --         180,000              -- 

Common stock issued pursuant to initial
  public offering (net of expense)        2,000,000          20,000       8,027,000              --              --       8,047,000

Net income for the period December 22,
  1996 to December 31, 1996                      --              --              --         296,000              --         296,000
                                       ------------    ------------    ------------    ------------    ------------    ------------

Balance at December 31, 1996              4,217,464          42,000       8,925,000         296,000        (454,000)      8,809,000

Common stock issued pursuant to initial
  public offering over-allotment
  provisions                                300,000           3,000       1,337,000              --              --       1,340,000

Common stock acquired from officer as
  settlement of balance due from
  officer and retirement of such shares    (101,562)         (1,000)       (453,000)             --         454,000              -- 

Stock warrant dividend (Note 6)                  --              --       1,983,000      (1,983,000)             --              -- 

Net loss for the year                            --              --              --      (6,116,000)             --      (6,116,000)
                                       ------------    ------------    ------------    ------------    ------------    ------------

Balance at December 31, 1997              4,415,902    $     44,000    $ 11,792,000    $ (7,803,000)   $         --    $  4,033,000
                                       ============    ============    ============    ============    ============    ============
</TABLE>

                 See accompanying notes to financial statements.


                                      F-7
<PAGE>
                                Intellicell Corp.

                            Statements of Cash Flows

<TABLE>
<CAPTION>
Increase (Decrease) in Cash                                       Years Ended December 31, 
                                                        --------------------------------------------
                                                            1995            1996            1997 
                                                        ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>          
Cash flows from operating activities:
  Net income (loss) - historical                        $    402,000    $    839,000    $ (6,116,000)
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                            5,000          91,000         303,000
      Provision for doubtful accounts receivable             305,000         380,000       2,888,000
      Provision for doubtful notes receivable                     --              --         739,000
      Provision for inventory reserves                       123,000         410,000         607,000
      Change in net deferred tax (asset) liability                --        (330,000)        330,000
      Proceeds from sale of marketable securities             57,000              --              -- 
      Loss on marketable securities                           19,000              --              -- 
      Changes in operating assets and liabilities:
        Increase in accounts receivable                   (1,588,000)     (2,615,000)     (5,474,000)
        (Increase) decrease in inventories                   (78,000)     (3,532,000)      2,336,000
        (Increase) decrease in deposits for purchases
         of inventory                                             --      (1,443,000)      1,172,000
        (Increase) decrease in other receivables                  --        (500,000)        500,000
        (Increase) decrease in prepaid expenses and
         other current assets                                 29,000        (246,000)       (171,000)
        (Increase) decrease in other assets                  (84,000)         53,000         (35,000)
        Increase (decrease) in accounts payable and
         accrued expenses                                  1,056,000         177,000      (2,453,000)
                                                        ------------    ------------    ------------

Net cash provided by (used in) operating activities          246,000      (6,716,000)     (5,374,000)
                                                        ------------    ------------    ------------

Cash flows from investing activities:
  Purchases of property and equipment                        (44,000)       (111,000)       (193,000)
  Advances to officer                                       (324,000)             --              -- 
  Repayments of advances to officer                               --         192,000              -- 
  Loans to employees and third parties                      (211,000)             --              -- 
  Repayments of loans to employees and third parties              --         211,000              -- 
  Repayments of notes receivable                                  --         218,000       1,698,000
                                                        ------------    ------------    ------------

Net cash provided by (used in) investing activities         (579,000)        510,000       1,505,000
                                                        ------------    ------------    ------------

Cash flows from financing activities:
  Net proceeds from sale of common stock                          --       8,047,000       1,341,000
  Bank overdraft (payments)                                   96,000         916,000        (762,000)
  Proceeds from loans payable                                490,000              --              -- 
  Payments on loans payable                                 (445,000)     (1,490,000)             -- 
  Distributions to stockholders                             (166,000)     (1,091,000)             -- 
  Deferred financing costs                                        --        (176,000)       (112,000)
  Advances under credit facility                                  --      43,923,000      80,096,000
  Repayments under credit facility                                --     (43,923,000)    (76,694,000)
                                                        ------------    ------------    ------------

  Net cash provided by (used in) financing activities        (25,000)      6,206,000       3,869,000
                                                        ------------    ------------    ------------

Net increase (decrease) in cash                             (358,000)             --              -- 

Cash - beginning of period                                   358,000              --              -- 
                                                        ------------    ------------    ------------

Cash - end of period                                    $         --    $         --    $         -- 
                                                        ============    ============    ============
</TABLE>

                 See accompanying notes to financial statements.


                                      F-8
<PAGE>

                                Intellicell Corp.

                            Statements of Cash Flows
                                   (Continued)

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                          ------------------------------------
                                                             1995         1996         1997
                                                          ----------   ----------   ----------
<S>                                                       <C>          <C>          <C>       
Supplemental disclosures of cash flow information:
  Cash paid for interest                                  $   67,000   $  431,000   $  444,000
  Cash paid for income taxes                                   5,000       20,000      223,000

Supplemental schedule of non-cash financing activities:
  Conversion of trade payable into loan payable            2,000,000           --           -- 
  Goodwill recorded in connection with shares
    purchased by officer                                     100,000           --           -- 
  Conversion of trade receivables into notes receivable           --      555,000    2,295,000
  Common stock acquired from officer as settlement of
    balance due from officer and retirement of such
    shares                                                        --      180,000      454,000
  Issuance of common stock as consideration for note
    payable                                                       --    1,000,000           -- 
  Reorganization of common stock                                  --       80,000           -- 
  Note receivable issued for excess distribution                  --      454,000           -- 
  Fair value of stock warrant dividends                           --           --    1,983,000
</TABLE>

                 See accompanying notes to financial statements.


                                      F-9
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements


NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION

Intellicell Corp. (the "Company") was incorporated in California during March
1994, under the name Cellular Telecom Corporation. The Company is successor to
the wholesale distribution business of Cellular Telecom Partnership (the
"Partnership"), a California general partnership organized in 1991 to engage in
the retail and wholesale distribution of cellular products and accessories. In
March 1994, the Partnership, in effect transferred all of the assets, subject to
the liabilities (which exceeded the assets by $82,000), of its wholesale
distribution business to the Company in exchange for which the partners of the
Partnership received all of the outstanding shares of common stock of the
Company. The ownership percentages of each owner in the Partnership and the
Company before and immediately after this transaction were the same. As such,
the Company accounted for this transaction as a combination of entities under
common control similar to a pooling of interests. The Partnership, which had the
same ownership as the Company, continued its retail operations through August
1996, at which time it was dissolved.

In October 1996, the Company effected a 10,150 for 1 stock split. The financial
statements give retroactive effect to this transaction.

In connection with the Company's initial public offering in December 1996, the
Company reorganized under the laws of the State of Delaware and changed its name
to Intellicell Corp. The Company's authorized capital stock consists of
15,000,000 shares of common stock, par value $.01 per share and 1,000,000 shares
of preferred stock, par value $.01 per share.

The Company has developed a customer base of more than 2,100 wholesalers,
carriers, agents, dealers and retailers in both the domestic and international
market place. The Company is engaged in the wholesale distribution of cellular
products and accessories. International sales were $4,191,000 and $14,353,000
for the years ended December 31, 1996 and 1997, respectively.

NOTE 2 - SUMMARY OF 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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

Inventories

Inventories, consisting of cellular telephones and accessories, are stated at
the lower of cost or market. Cost is determined using the weighted average cost
method. Management has recorded an inventory reserve for obsolescence based on
estimated net realizable value. The amounts the Company will ultimately realize
could differ materially from the amounts estimated in arriving at the reserves.


                                      F-10
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenues Recognition

Revenue is recognized when wireless communication equipment is shipped to
customers.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The average
lives used for depreciation range from three to five years. Maintenance and
repairs that neither materially add to the value of the property or equipment or
prolong its life are expensed. Betterment's or renewals are capitalized when
incurred.

Promotional

Advertising costs are expensed as incurred.

Income Taxes

The Company elected to be treated as an S corporation under the Internal Revenue
Code for the years ended December 31, 1995 and for the period January 1, 1996
through December 21, 1996. In lieu of corporate income taxes, the shareholders
of an S corporation are taxed on their proportionate share of the Company's
taxable income. Upon completion of its initial public offering in December 1996,
the Company terminated its election as an S corporation and became subject to
both federal and state income taxes. Therefore, no provision or liability for
federal or state income taxes has been included in the historical financial
statements through the termination of the Company's status as an S corporation.
See Note 9 for pro forma information regarding the income tax provision which
would have been recorded if the Company had been a taxable corporation, based on
the tax laws in effect during those periods.

Earnings Per Share

In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128, Earnings per Share (SFAS No. 128). SFAS No. 128
specifies the computation, presentation and disclosure requirements for earnings
per share and is effective for periods ending after December 15, 1997. The
statement requires the restatement of all prior period earnings per share (EPS)
data presented. The new standard requires a reconciliation of the numerator and
denominator of basic EPS computation to the numerator and denominator of the
diluted EPS computation. During the year the Company adopted this statement and
restated EPS for the prior year accordingly. Under SFAS 128, earnings per share
for 1996 changed from $0.14 to $0.15 per share and for 1995, earnings per share
remained the same.

Staff Accounting Bulletin 98 (SAB 98) requires historical earnings (loss) per
share to be presented.


                                      F-11
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company extends credit to a
substantial number of its customers and performs ongoing credit evaluations of
those customers' financial condition while, as is customary in the industry,
requiring no collateral. Customers that have not been extended credit by the
Company are on a cash-on-delivery basis.

The Company maintains substantially all of its cash in one commercial bank.

Fair Value of Financial Instrument

The carrying amounts of trade receivables, other current assets, trade accounts
payable, bank overdraft, revolving credit facility, accrued expenses and notes
receivable approximate fair value because of the short maturity of those
instruments.

Amortization of Intangible Assets

Deferred financing costs are being amortized on a straight-line basis over the
term of the revolving credit facility.

Goodwill is being amortized on a straight-line basis over a ten year period.

Impairment of Long-Lived Assets

In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (SFAS No. 121), the Company is required to recognize impairment
losses for long-lived assets used in operations and certain identifiable
intangibles when events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. SFAS No. 121 also requires that long-lived
assets and certain identifiable intangibles held for sale, other than those held
for discontinued operations, be reported at the lower of carrying amount or fair
value less cost of disposal. Adoption of the Statement and its application did
not have an impact on the Company's financial position or results of operation.

Stock-Based Compensation

As of January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
established a fair value method of accounting for stock-based compensation
plans. In accordance with SFAS 123, the Company has chosen to continue to
account for stock-based compensation utilizing the intrinsic value method
prescribed in APB 25. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair


                                      F-12
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation (CONTINUED)

market price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock. Also, in accordance with SFAS 123, the
Company has provided footnote disclosure with respect to stock-based employee
compensation. The cost of stock-based employee compensation is measured at the
grant date based on the value of the award and recognizes this cost over the
service period. The value of the stock-based award is determined using a pricing
model whereby compensation cost is the excess of the fair market value of the
stock as determined by the model at grant date or other measurement date over
the amount an employee must pay to acquire the stock.

New Accounting Pronouncements

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", (SFAS No. 130) issued by the Financial Accounting Standards Board
(FASB) is effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company does not
expect adoption of SFAS No. 130 to have a material effect, if any, on its
financial position or results of operations.

Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information", (SFAS No. 131) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. Earlier application is permitted. SFAS No. 131 requires that public
companies report certain information about operating segments, products,
services and geographical areas in which they operate and their major customers.
The Company does not expect adoption of SFAS No. 131 to have a material effect,
if any, on its financial position or results of operations.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

                                                              December 31,
                                                        -----------------------
                                                          1996           1997
                                                        --------       --------
Office equipment, furniture and fixtures                $ 26,000       $ 78,000
Computer equipment                                       138,000        196,000
Computer software                                          4,000         31,000
Other equipment                                           10,000         54,000
Leasehold improvements                                    14,000         25,000
                                                        --------       --------
                                                         192,000        384,000
Accumulated depreciation                                  36,000         98,000
                                                        --------       --------

Balance                                                 $156,000       $286,000
                                                        ========       ========

Depreciation expense was $5,000, $21,000 and $63,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.


                                      F-13
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 4 - NOTES RECEIVABLE

Notes receivable result from the conversion of aged accounts receivable into
interest bearing promissory notes with a fixed maturity. During 1997, the
Company converted $2,295,000 ($555,000 in 1996) of trade accounts receivable
into notes receivable. These notes are not collateralized, bear interest at
rates ranging from 0% to 10% and are repayable in periods ranging from four to
twenty-four months. At December 31, 1997, notes receivable were $934,000 with an
associated allowance for doubtful notes receivable of $739,000. At December 31,
1996, the Company had a note receivable of $377,000 with an allowance for
doubtful note receivable of $0.

NOTE 5 - CREDIT FACILITY AND LOAN PAYABLE

Credit Facility

In October 1996, the Company entered into a revolving line of credit agreement
with a finance company, with an expiration in June 1998, and provided for
borrowings of up to a maximum of $7,500,000 based on a maximum of 82% of
eligible accounts receivable and 50% of eligible inventory as defined in the
agreement. Borrowings under the agreement bear interest at prime rate plus one
and three-quarters percent (1.75%) per annum. At December 31, 1997, the Company
was paying interest on advances at a rate of 10.25% per annum. The credit
facility is collateralized by substantially all of the assets of the Company,
prohibits the Company from paying dividends or incurring additional
indebtedness, except for trade indebtedness, and requires the Company to
maintain a tangible net worth of $4,500,000 and working capital of $1,500,000
subsequent to the closing of the initial public offering.

In January 1998, the Company entered into a new revolving line of credit
agreement with a different finance company which expires in January 2001, and
provides for borrowings of up to a maximum of $12,000,000 based on a maximum of
80% of eligible receivables and the lesser of $6,000,000 or 50% of eligible
inventory as defined in the agreement. Borrowing under the agreement bears
interest at prime rate plus one half of one percent (0.5%) per annum. The credit
facility is collateralized by substantially all of the assets of the Company.
The agreement prohibits the Company from paying dividends or incurring
additional indebtedness except for trade indebtedness and, initially, requires
the Company to maintain a tangible net worth of no less than $5,500,000 at
December 31, 1997, and annual earnings before interest, taxes, depreciation and
amortization of $500,000.

The Company was in violation of the tangible net worth covenant at December 31,
1997.

In April 1998, BankAmerica waived the December 31, 1997, default of the tangible
net worth covenant, and revised the January 1998 credit agreement. Under the
revised credit agreement the maximum borrowing is reduced from $12 million to $6
million, with such borrowings limited to 80% of eligible accounts receivable and
the lesser of $1 million or 50% of eligible telephone inventory as defined in
the agreement. Borrowing under the revised credit agreement bears interest at
the prime rate plus two and one-half percent (2.5%) per annum. The revised
credit agreement requires the Company to meet monthly levels of tangible net
worth and earnings before interest, taxes, depreciation and amortization. All
other significant restrictive covenants and prohibitions of the January 1998
agreement are included in the April 1998 revised agreement (Note 13).

The Company expensed in 1997, the remaining unamortized deferred financing costs
and an early termination fee associated with the replaced revolving line of
credit totaling $124,000 (see Note 12).


                                      F-14
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 5 - CREDIT FACILITY AND LOAN PAYABLE

Loan Payable

At December 31, 1996 and 1997, the Company had no notes payable. In December
1995, the Company converted $2,000,000 of its trade payable balance to its
largest supplier who is also a significant customer discussed in Note 8, into a
loan payable bearing interest at a rate of approximately 9.1% per annum and
repayable in twelve monthly payments of $175,000. In July 1996, the Company
issued a $1,189,000 note payable in order to satisfy the then outstanding
balance of the loan payable. Of this amount, $1,000,000 automatically converted
into 223,464 shares of common stock at $4.475 per share on the effective date of
the initial public offering which represented 5.3% of the then outstanding
common stock and the principal balance including accrued interest was repaid
prior to December 31, 1997. Such shares were subsequently divested (see Note 6).

NOTE 6 - STOCKHOLDERS' EQUITY

Common Stock

In March 1994, 100 shares (pre-stock split) of the Company's common stock were
issued to each of its two stockholders, one of whom is the Company's President
and Chief Executive Officer (the "President"). In August 1995, pursuant to a
stockholders' agreement, the President purchased all of the shares owned by the
other stockholder for an aggregate of $115,000 and agreed to assume all
guarantees made to suppliers by the other stockholder on behalf of the Company.
In connection therewith goodwill in the amount of $100,000 was recorded for the
excess of the amount paid over the proportionate share of the net assets
obtained by the President.

See Note 1 for details of the Company's stock split and reorganization, which
resulted in the recording of 2,030,000 shares of Common Stock.

In December 1996, the Company consummated its initial public offering of
2,000,000 shares of common stock at $5.00 per share, with net proceeds to the
Company (after underwriting discounts, commissions and offering expenses) of
$8,047,000 ($9,347,000 including the exercise of the underwriter's over
allotment option for 300,000 shares in January 1997).

In 1996, on the effective date of the Company's initial public offering,
$1,000,000 of the principal amount of a note payable (see Note 5) was
automatically converted into 223,464 shares of common stock. Additionally, the
Company acquired and retired 36,000 shares of common stock from the President as
settlement of $180,000 due from such officers.

During 1997 the President repaid 1996 excess S corporation distributions in the
amount of $454,000 by delivering to the Company 101,562 shares of the Company's
common stock held by him. These shares were subsequently cancelled (see Note 7).


                                      F-15
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

1996 Stock Option Plan

In October, 1996 the Company adopted a stock option plan (the "1996 Plan"),
pursuant to which as amended, options to purchase up to 460,000 shares of common
stock may be granted as either incentive stock options ("ISOs") under the
Internal Revenue Code of 1986, as amended, or nonqualified stock options. ISOs
may be granted under the 1996 Plan to employees and officers of the Company.
Nonqualified stock options may be granted to consultants, directors (whether or
not they are employees), employees or officers of the Company. The 1996 Plan is
administered by a committee of the Board of Directors which, within the
limitations of the 1996 Plan, determines the persons to whom options will be
granted, the number of shares to be covered by each option, whether the options
are intended to be ISOs, the duration and rate of exercise of each option, the
exercise price and manner of exercise, and the time, manner and form of payment
upon exercise of an option. Options granted under the 1996 Plan may not be
granted at a price less than the fair market value of the common stock on the
date of grant and will expire not more than ten years from the date of grant. Of
the options to purchase common stock by the Company in October 1996, 12,000
shares were granted to the President at $5.50 per share.

Options to purchase Common Stock of the Company granted under the 1996 Plan were
102,000 in 1997 and 280,750 in 1996 with such options granted at the closing
market value at the date of grant. Of the options granted under the 1996 Plan,
options forfeited were 103,000 in 1997 and 0 in 1996.

Other Stock Options

In October 1995, the President granted, to an employee, options to purchase
217,000 of his (split adjusted) shares of common stock at $1.00 per share (see
Note 8). The options will vest as to one-third in each of October 1997, 1998 and
1999. Management believes that the exercise price of these options reflects the
fair value of the stock on the date of grant, and accordingly, no compensation
has been recorded. All of these options remain outstanding at December 31, 1997.

In addition, on October 31, 1996, the Company issued to other individuals
options to purchase 65,000 shares of common stock at $5.00 per share. All of
these options remain outstanding at December 31, 1997.

The Company applies APB Opinion 25 and related interpretations in accounting for
its options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the measurement
date, no compensation cost is recorded. Had compensation cost for the Company's
stock option grants to employees been determined based on the fair value at the
grant date consistent with the method of SFAS 123, the Company's net income
(loss) and earnings (loss) per share for the years ended December 31, 1996 and
1997 would not be materially different.

FASB Statement 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. The Company estimates the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996: dividend yield of 0
percent; expected volatility of 40 percent; risk-free interest rate of 5.68
percent; and expected lives of 2 years and for grants in 1997: dividend yield of
0 percent; expected volatility of 17 percent; risk-free interest rate varying
between 5.5 and 5.9 percent; and expected lives of 2 years.


                                      F-16
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

Other Stock Options (Continued)

Under the accounting provisions of FASB Statement 123, the Company's net income
and earnings per share for 1997 and 1996 would have been reduced to the pro
forma amounts indicated below:

                                                       1996             1997
                                                   -----------      -----------
      Net income (loss)
         As reported                               $   839,000      $(6,116,000)
         Pro forma                                 $   807,000      $(6,252,000)
      
      Basic earnings (loss) per share
         As reported                               $      0.40      $     (1.37)
         Pro forma                                 $      0.38      $     (1.40)
                                                                  
      Diluted earnings per share                                  
         As reported                               $      0.40      $     (1.37)
         Pro forma                                 $      0.38      $     (1.40)
                                                             
Due to the fact that the Company's stock option programs vest over many years
and additional awards are made each year, the above proforma numbers are not
indicative of the financial impact had the disclosure provisions of FASB 123
been applicable to all years of previous option grants.

A summary of the status of the Company's stock option and related information
for the years ending December 31, 1996 and 1997 is presented below:

                                                                        Weighted
                                                                        Average
                                          Number          Price Per     Exercise
                                        of Shares           Share        Price
                                       -----------      -----------      -----
Outstanding at beginning of year               --            --            --
Granted                                    345,750      $5.00-$5.50      $5.02
                                       -----------      -----------      -----
Balance at December 31, 1996               345,750      $5.00-$5.50      $5.02
Granted                                    102,000      $6.63-$8.25      $7.45
Forfeited                                 (103,000)        $5.00         $5.00
                                       -----------      -----------      -----
Balance at December 31, 1997               344,750      $5.00-$8.25      $5.74
                                       ===========      ===========      =====

At December 31, 1996 and 1997, there were 114,250 and 115,250 options to
purchase Common Stock of the Company available for grant, respectively. At
December 31, 1996, no outstanding options to purchase Common Stock of the
Company were exercisable. At December 31, 1997, there were 140,583 of such
options exercisable at prices ranging from $5.00 to $5.50 with a weighted
average exercise price of $5.02, and a weighted average fair value of options
granted during the year of $1.21.


                                      F-17
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

Other Stock Options (Continued)

The following schedule summarizes information about fixed stock options
outstanding at December 31, 1997.

<TABLE>
<CAPTION>
                              Options Outstanding                Options Exercisable
                     -----------------------------------     ---------------------------
                                               Weighted                      Weighted
                                                Average                      Average
                        Number     Exercise    Remaining       Number        Exercise
Date of Grant         of Shares      Price    Life (Years)   of Shares        Price
----------------------------------------------------------------------------------------
<S>                     <C>         <C>            <C>          <C>       <C>           
October 31, 1996        230,750     $ 5.00         3.8          136,583   $         5.00
October 31, 1996         12,000     $ 5.50         3.8            4,000   $         5.50
April 30, 1997           50,000     $ 6.63         4.3               --               --
July 8, 1997             47,000     $ 8.25         4.6               --               --
September 15, 1997        5,000     $ 8.25         4.7               --               --
                     ----------     -------     --------     ----------   --------------
                                                           
                        344,750     $ 5.74         3.0          140,583   $         5.02
                     ==========     =======     ========     ==========   ==============
</TABLE>
                                                         
Warrants

Pursuant to the revolving line of credit agreement, the Company issued to its
former finance company warrants to purchase 15,000 shares of common stock at an
exercise price of $5.00 per share. The warrants are exercisable after one year
from the grant date and have an expiration date of December 2001. The above
mentioned warrants were outstanding at December 31, 1997.

In connection with the Company's initial public offering in December 1996,
warrants to purchase 200,000 shares of common stock at an exercise price of
$5.50 per share were sold to the underwriter of such offering, at nominal cost.
Such warrants were outstanding at December 31, 1997.

On November 18, 1997, the Company declared the payment of a dividend to its
shareholders in the form of a warrant to purchase Common Stock of the Company.
Record owners of Common Stock as of December 10, 1997, received one warrant for
every two shares of Common Stock held. Each warrant entitles the holder to
purchase one share of Common Stock at $4.00 per share for a three year period,
subject to adjustment in certain circumstances. The warrants are redeemable by
the Company, upon notice of not less than 30 days at $.10 per warrant in the
event the closing bid quotation of the Common Stock on all 20 of the trading
days ending on the third day prior to the day on which the Company gives notice
has been at least $7.00 per share; provided however that no such right of
redemption or exercise shall exist prior to the time that such shares of Common
Stock underlying the warrants have been registered under the Securities Act of
1933, as amended. The President of the Company has agreed to waive his rights to
receive 946,219 warrant dividends on the 1,892,438 shares of Common Stock held
by him. Accordingly, amounts equal to fair market value of $1,983,000, (based on
the black scholes model using quoted market prices as adjusted) of the
additional shares issued have been charged to retained earnings and credited to
additional paid-in capital.


                                      F-18
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

Warrants (Continued)

The table below summarizes the transactions related to the Company's warrants to
purchase common stock:

                                                                       Weighted-
                                                                        Average
                                                           Number       Exercise
                                                         of Shares       Price
                                                         ---------     ---------

Warrants declared at December 17, 1996                     215,000       $5.47
                                                         ---------       -----

Balance at December 31, 1996                               215,000       $5.47
Warrants declared December 10, 1997                      1,261,732       $4.00
                                                         ---------       -----

Balance at December 31, 1997                             1,476,732       $4.22
                                                         =========       =====

All warrants are exercisable as of December 31, 1997.

Computation of Earnings Per Share

<TABLE>
<CAPTION>
                                                         For the Year ended December 31, 1997
                                                         ------------------------------------
                                                    
                                                         Income          Shares      Per Share
                                                       (Numerator)    (Denominator)   Amount
                                                     (Historical and
                                                        Pro Forma)
                                                       -----------    -------------  --------
Basic loss per share:                               
<S>                                                    <C>              <C>          <C>      
  Net loss attributable to common stockholders         $(6,116,000)     4,451,182    $  (1.37)
                                                       ===========    ===========    ========
</TABLE>                                         

Options and warrants to purchase 1,821,482 shares were outstanding at December
31, 1997, but were not included in the computation of diluted loss per common
share because the effect would be antidilutive.

<TABLE>
<CAPTION>
                                                       For the Year ended December 31, 1996
                                                       ------------------------------------
                                                         Income         Shares      Per Share
                                                       (Numerator)  (Denominator)    Amount
                                                       -----------  -------------    ------\
<S>                                                     <C>           <C>           <C>     
Basic earnings per share:
  Historical net income attributable to common
    stockholders                                        $ 839,000     2,113,674     $   0.40
                                                                                  
Effect of dilutive securities:                                                    
  Weighted average options outstanding at end of year          --           967           --
                                                        ---------     ---------     --------
                                                                                  
Diluted earnings per share:                                                      
  Historical income available to common stockholders    $ 839,000     2,114,641     $   0.40
                                                        =========     =========     ========
</TABLE>
                                                                                

                                      F-19
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

Computation of Earnings Per Share (Continued)

<TABLE>
<CAPTION>
                                                            For the Year ended December 31, 1996
                                                            ------------------------------------
                                                          Income           Shares          Per Share
                                                        (Numerator)     (Denominator)        Amount
                                                        ---------         ---------         --------
<S>                                                     <C>               <C>               <C>     
Basic earnings per share:
  Pro forma net income attributable to
    common stockholders                                 $ 315,000         2,113,674         $   0.15
                                                                                          
Effect of dilutive securities:                                                            
  Weighted average options outstanding at end of year          --               967               --
                                                        ---------         ---------         --------
                                                                                          
Diluted earnings per share:                                                              
  Pro forma income available to common stockholders     $ 315,000         2,114,641         $   0.15
                                                        =========         =========         ========
</TABLE>
                                                             
Options to purchase 212,000 shares of common stock at $5.50 per share were
outstanding during the second half of 1996 and were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares. The options,
which expire in 2001, remained outstanding at the end of the year.

<TABLE>
<CAPTION>
                                                  For the Year ended December 31, 1995
                                                  ------------------------------------
                                                  Income         Shares        Per Share
                                                (Numerator)   (Denominator)     Amount
                                                 ---------      ---------      --------
<S>                                              <C>            <C>            <C>     
Basic and diluted earnings per share:
  Historical net income attributable to
    common stockholders                          $ 402,000      2,030,000      $   0.20
                                                 =========      =========      ========
                                                                             
Basic and diluted earnings per share:                                                    
  Pro forma net income attributable to                                       
    common stockholders                          $ 236,000      2,030,000      $   0.12
                                                 =========      =========      ========
</TABLE>
                                                                           
There were no options to purchase shares of common stock outstanding at December
31, 1995.

NOTE 7 - DUE FROM OFFICER

During 1996, the Company made excess S corporation distributions of $454,000 to
the President, who then owned 100% of the Company's outstanding stock. As a
result, the Company reflected as "Due from officer", a component of equity, the
amount of $454,000 at December 31, 1996. The President repaid this amount by the
delivery of 101,562 shares of the Company's common stock held by him, to the
Company. Such shares were subsequently cancelled (see Note 6).


                                      F-20
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 8 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

Operating Leases

In November 1997, the Company began operation in a 12,800 square foot leased
warehouse and office facility in Miami, Florida. The facility will handle sales
into the southeastern region of the United States and Latin America. The lease
has an initial monthly rental of $7,441 with annual escalation. At the end of
the initial lease term of 5 years and 2 months, the Company has an option to
extend the lease for an additional 5 years.

Subsequent to December 31, 1997, the Company moved its executive offices and
warehouse to a 36,000 square foot leased facility in Chatsworth, California. The
lease is for a three year term beginning February 1, 1998, and provides for an
initial monthly rental of $18,495 with annual escalation based on the Consumer
Price Index. At the end of the initial lease term the Company has an option to
extend the lease for a period of three years.

The Company is obligated under long-term operating leases for office and
warehouse facilities in Chatsworth, California and Miami, Florida through the
year 2002. Future minimum lease payments due under non-cancelable operating
lease agreements are as follows:

      Year ending
      December 31,                                                  Amount
      ------------                                                  ------

        1998                                                       $292,735
        1999                                                        314,801
        2000                                                        318,516
        2001                                                        118,934
        2002                                                        122,562

Rent expense for the years ended December 31, 1995, 1996 and 1997, was $73,000,
$84,000 and $124,000, respectively.

Employment Agreements and Officers' Salaries

During the years ended December 31, 1995, 1996 and 1997, directors' and
officers' salaries, aggregated $150,000, $107,000 and $297,000, respectively.

The Company has an employment agreement with the President which provides for a
three-year term which commenced on December 17, 1996, minimum annual
compensation of $72,000 ($100,000 effective January 1, 1998) and such bonus as
the Board of Directors may from time to time determine.

The Company has an employment agreement with an officer for a three-year term
which commenced on July 1, 1996, and provides for minimum annual compensation of
$70,000 ($140,000 effective January 1, 1998) and such bonus as the Board of
Directors may from time to time determine and the granting of options to
purchase up to an aggregate of 50,000 shares, of common stock at an exercise
price of $5.00 per share. The options are exercisable as to one-third of the
shares covered thereby on the first, second and third anniversaries of the date
on which they were granted.


                                      F-21
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 8 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)

Employment Agreements and Officers' Salaries (Continued)

The Company also has an employment agreement with an employee which commenced in
December 1996, and provides for a three-year term and annual compensation of
$132,000. This employee has options to purchase 217,000 shares of the
President's common stock (see Note 6).

The Company has an employment agreement with an officer for a three-year term
which commenced on April 30, 1997, and provides for minimum annual compensation
of $120,000 and the granting of options to purchase up to an aggregate of 50,000
shares, of common stock at an exercise price $6.63 per share. The options are
exercisable as to one-third of the shares covered thereby on the first, second
and third anniversaries of the date on which they were granted.

Major Customers

During the years ended December 31, 1995, 1996 and 1997, a single customer
accounted for 25%, 16% and 12% of the Company's sales, respectively.

During the years ended December 31, 1995, 1996 and 1997, a second customer, who
is also the largest supplier discussed below and was a debt/equity holder until
1997, (see Note 5) accounted for 10%, 17% and 11%, of the Company's sales,
respectively.

Concentration of Suppliers

The Company is dependent on third-party equipment manufacturers and distributors
for all of its supply of cellular telephones and accessories. One supplier, who
is also the second largest customer discussed above, and a debt/equity holder
until 1997 (see Note 5), accounted for 28%, 26% and 12% of the Company's
purchases during the years ended December 31, 1995, 1996 and 1997, respectively.
Such manufacturers and distributors may at any time impose price increases or
otherwise determine not to continue to sell product to the Company on
commercially reasonable terms, or at all. A change in suppliers could cause a
delay in the supply of product and a possible loss of sales, which may adversely
affect the Company's operating results. Although there are a limited number of
suppliers, management believes other suppliers could provide sufficient
quantities of products on commercially reasonable terms.

The Company obtains substantially all of its proprietary accessory products from
manufacturers in Taiwan and is dependent on such manufacturers to provide
sufficient quantities of products on favorable terms. Any change in suppliers
may cause a delay in sales which would adversely affect operating results.

Supplier/Customer Transactions

Due to the limited supply of merchandise and the nature of the competitive
environment, the Company may purchase and sell inventory from/to the same
supplier/customer. These types of same supplier/customer transactions are often
at low gross profit margins. Such transactions are included in sales and
amounted to approximately $5,300,000 and $1,900,000 for the years ended December
31, 1996 and 1997, respectively.


                                      F-22
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 8 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)

Litigation

In October 1996, an action was filed against the Company seeking a judgement to
cancel the Company's trademark registration for the name "Intellicell". In
January 1998, the parties settled the action wherein both parties recognize the
others right to use the name "Intellicell" for the products listed in their
respective trademark registrations. Under this settlement no damages or monetary
settlement was incurred or awarded.

NOTE 9 - PRO FORMA INCOME TAXES (BENEFIT)

In December 1996, as a result of the Company's initial public offering, its
election to be treated as an S corporation for federal and California tax
purposes was terminated. As an S corporation, the Company's income was subject
to tax at the shareholder level, not the corporate level. Accordingly, the
accompanying financial statements include unaudited pro forma adjustments for
income taxes required to be provided had the Company's S corporation status not
been in effect. The provision for income taxes consists of the following:


                                                Year ended December 31,
                                       -----------------------------------------
                                          1995           1996             1997
                                      (pro forma,     (pro forma,
                                       unaudited)      unaudited)
                                       ---------       ---------       ---------
Current:
  Federal                              $ 164,000       $ 415,000       $      --
  State                                   50,000         113,000              --
                                       ---------       ---------       ---------
                                         214,000         528,000              --
                                       ---------       ---------       ---------
Deferred:
  Federal                                (41,000)       (271,000)        280,000
  State                                   (7,000)        (41,000)         54,000
                                       ---------       ---------       ---------

                                         (48,000)       (312,000)        334,000
                                       ---------       ---------       ---------
Pro forma taxes on income              $ 166,000       $ 216,000       $      --
                                       =========       =========       =========

Provision for income taxes             $      --       $      --       $ 334,000
                                       =========       =========       =========


                                      F-23
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 9 - PRO FORMA INCOME TAXES (BENEFIT) (CONTINUED)

Income tax expense (benefit) differed from the amounts computed by applying the
statutory federal income tax rate of 34% as a result of the following:

<TABLE>
<CAPTION>
                                                     Year ended December 31,
                                             ---------------------------------------
                                                1995          1996           1997
                                             (pro forma    (pro forma
                                              unaudited)    unaudited)
                                             -----------   -----------   -----------
<S>                                          <C>           <C>           <C>         
Income taxes at the federal statutory rate   $   139,000   $   181,000   $(1,966,000)
State taxes, net of federal taxes                 25,000        31,000      (338,000)
Nondeductible expenses                             2,000         4,000        12,000
Less: valuation allowance                             --            --     2,626,000
                                             -----------   -----------   -----------
As per statements of operations              $   166,000   $   216,000   $   334,000
                                             ===========   ===========   ===========
</TABLE>

As a result of the Company's change in tax status in December 1996, the Company
implemented Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." As a result of its implementation, the Company recorded an income
tax benefit of $308,000 for the year ended December 31, 1996, which included
recognition of a net deferred tax asset of $330,000 and a tax expense in that
year of $22,000. No valuation allowance was established at December 31, 1996 as
management believed it was more likely than not the net deferred tax asset would
be realized.

Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Management established a 100%
valuation allowance as of December 31, 1997, because it cannot be determined if
it is more likely than not that the net deferred tax asset will be realized in
future periods. Significant components of the Company's deferred tax position
are as follows:

<TABLE>
<CAPTION>
                                                         As of December 31,
                                                    ---------------------------
                                                        1996            1997
                                                    -----------     -----------
<S>                                                 <C>             <C>        
Deferred tax asset:
  Inventory reserves                                $   177,000     $   219,000
  Accounts and notes receivable allowances              172,000       1,368,000
  Net operating loss carryforward                            --       1,017,000
  Other                                                   4,000          41,000
                                                    -----------     -----------
Deferred tax asset                                      353,000       2,645,000

Deferred tax (liability):
  Depreciation                                          (23,000)        (19,000)
                                                    -----------     -----------
  Net deferred tax asset                                330,000       2,626,000
  Valuation allowance                                        --      (2,626,000)
                                                    -----------     -----------

Net deferred tax asset                              $   330,000     $        --
                                                    ===========     ===========
</TABLE>


                                      F-24
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)


NOTE 9 - PRO FORMA INCOME TAXES (BENEFIT) (CONTINUED)

For tax purposes the Company has available a Federal net operating loss
carryforward of approximately $2,552,000. The loss carryforward will expire in
2017. For State purposes, the Company has available a net operating loss
carryforward of $1,276,000.

NOTE 10 - RELATED PARTY TRANSACTIONS

During the year the Company paid $14,000 in legal fees to a law firm of one of
the directors. Also the Company granted to this director options to purchase
47,000 common shares at $8.25 per share (1996 -3000 common shares at $5.00 per
share) under the 1996 stock option plan (Note 6).

The retail division of the Partnership described in Note 1 was a customer of the
Company. For the year ended December 31, 1995, the Company sold approximately
$42,000 of cellular products to the Partnership at cost. The Company made no
sales to the Partnership during the year ended December 31, 1996. In August
1996, the Partnership was dissolved and all amounts due from the Partnership
were assumed by the President.

During the years ended December 31, 1995, 1996 and 1997, the Company sold
approximately $675,000, $423,000 and $254,000, respectively, of cellular
products to a company, which is owned by the President's brother. In December
1996, the Company granted options to purchase 35,000 shares of common stock at
an exercise price of $5.00 per share to the President's brother.

A company owned by the President's cousins purchased cellular products from the
Company in the amounts of $87,000 and $1,455,000 for the years ended December
31, 1996 and 1997, respectively. The Company purchased cellular products from
this entity in the amount of $299,000 in 1997 and made no purchases in 1996.

NOTE 11 - NON-RECURRING LEGAL AND AUDITING FEES

During 1997, in connection with the audit of the Company's financial statements
for year ended December 31, 1996, (see 1997 Form 10-K, Item 9) the Company
incurred non-recurring expenses of $1,024,000 consisting primarily of
professional fees, including the fees of its prior and current auditors, fees of
special counsel and a special auditor retained by the Company's Audit Committee.

In August 1997, the Company entered into a non-binding letter of intent to
acquire all of the outstanding stock of Pacific Unplugged Communications, Inc.
and Unplugged de Mexico (Unplugged). In December 1997, the Company terminated
its negotiations with Unplugged. As a result the Company expensed $276,000 of
professional and legal fees incurred associated with the proposed acquisition.

NOTE 12 - FOURTH QUARTER ADJUSTMENTS

During the fourth quarter of 1997, the Company recorded additional reserves to
its allowance for doubtful accounts receivable of $2,015,000, primarily to
reflect the financial difficulties of one of its major customers, a $299,000
($388,000 in fourth quarter 1996) increase to its inventory reserve to reflect
an adjustment for obsolescence and net realizable value, a $276,000 write-off of
deferred acquisition costs, primarily legal and professional fees, associated
with an abandoned acquisition, $124,000 write-off of deferred financing costs
and early termination fee associated with a replaced credit facility and a
$330,000 provision for income taxes to increase the deferred tax asset valuation
allowance to reflect current assessment of realizability.


                                      F-25
<PAGE>

                                Intellicell Corp.

                          Notes to Financial Statements
                                   (Continued)

NOTE 13 - SUBSEQUENT EVENTS

Acquisition

In December 1997, the Company signed a non-binding letter of intent to acquire
all of the outstanding stock of Wholesale Cellular del Peru S.A. (WCL), a
Peruvian wholesale distributor of cellular phones and accessories. In
March/April of 1998, the Company signed an acquisition agreement calling for
closing date in the month of April 1998. The purchase price will consist of
unregistered shares of the Company's common stock valued at $3,500,000 subject
to adjustment.

The acquisition will be accounted for using the purchase method. The purchase
price will be allocated principally to goodwill which will be amortized over 20
years.

The acquisition is conditioned upon obtaining the approval of BankAmerica.
BankAmerica has indicated that it will not provide the necessary consent to the
transaction. Accordingly, the acquisition of WCL will not be consummated unless
the Company can arrange an alternate credit facility with a lender that consents
to the transaction.

1998 Stock Option Plan

In February 1998, the Company adopted a stock option plan (the "1998 Plan"),
pursuant to which, options to purchase up to 540,000 shares of common stock may
be granted as either incentive stock options ("ISOs") under the Internal Revenue
Code of 1986, as amended, or nonqualified stock options. ISOs may be granted
under the 1998 Plan to employees and officers of the Company. Nonqualified stock
options may be granted to consultants, directors (whether or not they are
employees), employees or officers of the Company. The 1998 Plan is administered
by the Board of Directors which, within the limitations of the 1998 Plan,
determines the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options are intended to be ISOs, the
duration and rate of exercise of each option, the exercise price and manner of
exercise, and the time, manner and form of payment upon exercise of an option.
Options granted under the 1998 Plan may not be granted at a price less than the
fair market value of the common stock on the date of grant and will expire not
more than ten years from the date of grant.

On March 5, 1998, options to purchase an aggregate of 300,000 shares of Common
Stock were granted and were outstanding under the 1998 Plan. Of such options,
100,000 options were granted at $3.81 per share to each of Messrs. Henderson and
Sharma and to Sands Brothers & Co., Ltd.


                                      F-26
<PAGE>

REPORT OF INDEPENDENT AUDITORS ON SCHEDULE



Board of Directors and Stockholders Intellicell Corp.
Chatsworth, California


      The audit referred to in our report dated September 13, 1996 included
Schedule II for the year ended December 31, 1995.

      In our opinion, such schedule presents fairly the information set forth
therein in compliance with the applicable accounting regulation of the
Securities and Exchange Commission.



Richard A. Eisner & Company, LLP


New York, New York
September 13, 1996


                                      F-27
<PAGE>

                                Intellicell Corp.

                 Schedule II - Valuation and Qualifying Accounts


<TABLE>
<CAPTION>
                                                                  Additions
                                               Balance      -----------------------                     Balance
                                                at the      Charged to   Charged to                      at the
                                              Beginning      Cost and      Other                         End of
            Description                       of Period      Expenses     Accounts    Deductions       the Period
-----------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>         <C>              <C>       
For the year ended December 31, 1995:
Allowance for doubtful accounts receivable    $   80,000    $  305,000    $     --    $  185,000(a)    $  200,000

Reserve for inventory obsolescence               146,000       123,000          --       237,000(b)        32,000

For the year ended December 31, 1996:
Allowance for doubtful accounts receivable    $  200,000    $  380,000    $     --    $  152,000(a)    $  428,000

Reserve for inventory obsolescence                32,000       410,000          --            --          442,000

For the year ended December 31, 1997:
Allowance for doubtful accounts receivable    $  428,000    $2,888,000    $     --    $  619,000(a)    $2,697,000

Allowance for doubtful notes receivables              --       739,000          --            --          739,000
Reserve for inventory obsolescence               442,000       607,000          --       499,000(b)       550,000
</TABLE>

(a)   Accounts written off
(b)   Inventory written off


                                      F-28