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                      SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                FORM 10-K/A No. 2

         Annual Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934 for the fiscal year ended December 31, 1998

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

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

     The aggregate market value of the registrant's common stock held by
non-affiliates as of March 26, 1999 was approximately $10,229,000 (based on
the closing sales price of such stock as of such date on the Nasdaq SmallCap
Market on March 26, 1999). No other capital stock is outstanding.

     As of March 26, 1999 there were 6,915,902 shares of the registrant's
Common Stock outstanding.

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                                     PART I

ITEM 1.  BUSINESS.

       The statements which are not historical facts contained in this Annual
Report for Intellicell Corp. (the "Company") 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, risks associated with foreign
markets and currencies, possible technological obsolescence, uncollectible
accounts receivable, slow moving inventory, lack of adequate financing,
increased competition and any future unfavorable general economic conditions.
The Company's actual results may differ materially from the results discussed in
any forward-looking statement.

       GENERAL

       The Company is engaged in the wholesale distribution of wireless
communications products. The Company offers wireless telephones and accessories
from leading manufacturers, featuring brand names such as AT&T, Audiovox,
Ericsson, Mitsubishi, Motorola, Nokia, NEC, Panasonic, 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 has
historically acquired most of its inventory products from, and has sold a
substantial portion of this inventory to, other distributors.

       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) strategically aligning with certain key manufacturers and network operators
to provide value-added services, (ii) transitioning to a service-based company
offering a broad selection of services related to distribution, including "just
in time" delivery of wireless handsets and accessories, purchasing, selling,
warehousing, picking, packing and shipping and value added services, including
inventory management, marketing, kitting and customized packaging, private
labeling, light assembly, accounts receivable management, end user support
services and warranty servicing. As part of this strategy, the Company is
targeting emerging foreign markets and may seek to expand through acquisitions
of companies in businesses related to that of the Company.

       RECENT DEVELOPMENTS

       The Company experienced a significant decline in revenues and incurred
substantial operating losses in 1998. 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." Prior to March 1998,
the Company had failed to sustain significant supplier relationships with any of
the leading manufacturers of analog and digital cellular products. The Company's
supplier relationships have consisted of primarily other wholesale distributors.
As a result, the Company's supply of product has been inconsistent and of higher
cost. Furthermore, product obtained from other distributors does not typically
include price protection and promotional allowances when compared to the product
which are acquired directly from manufacturers. In March 1998, the Company
signed a non-exclusive distribution agreement with Sony Electronic Inc Wireless
Telecommunications Company ("Sony"), pursuant to which the Company was able to
distribute analog and cellular digital telephones and accessories to its
customer base. The relationship with Sony does include price protection and
promotional allowances, however, the Company was not granted open credit terms.
As a result, goods purchased from Sony are on a prepaid basis. The


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wide acceptance of the digital technology in wireless handsets, which
included personal communications services ("PCS"), TDMA and CDMA formats has
had an adverse effect on the demand for the analog cellular products sold by
the Company. Manufacturers in the PCS market have selected distribution
channels, which do not currently include the Company and distribute directly
to the end user. There can be no assurance that the Company will establish
additional strategic relationships with manufacturers of digital wireless
products or secure any strategic relationships allowing it to access digital
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 wireless products and
(ii) a consistent supply of digital products at commercially competitive
rates. See "Competition."

       In November 1998, the Company consummated a private placement (the
"Offering") with an investor group (the "Investor Group") and agreed to certain
related transactions as follows:

       (a) The Company issued $1,500,000 of unsecured, subordinated convertible
notes. The notes were convertible, at the option of the Company, upon
ratification of the Offering by the Company's shareholders, into 1,500,000 units
(the "Units"), and this conversion was effected by the Company in December 1998.
Each Unit consists of one share of common stock plus one warrant to purchase
two-thirds of a share of common stock at an exercise price of $1 per share, or a
total of 1,500,000 shares and warrants to purchase 1,000,000 shares of common
stock. The 1,000,000 warrants had a term of three years and were redeemable by
the Company under certain conditions. The Investor Group exercised all of these
warrants in March 1999.

       (b) In conjunction with the Offering, the Company issued the options
to purchase 100,000 shares of common stock to a director who had previously
cancelled options to purchase 100,000 shares of common stock, but at the
lower exercise price of $1 per share for the new options and repriced the
exercise price to $1 for options to purchase 100,000 shares of common stock
previously granted to another outside director. The Company paid a financial
advisor, Sands Brothers, $50,000 upon the closing of the Offering and issued
warrants to purchase 150,000 shares of common stock at an exercise price of
$1, with the options to purchase 100,000 shares granted to Sands Brothers in
March 1998 being rescinded and cancelled.

       (c) Options to purchase 200,000 shares of common stock at $1 per share
were each granted to John Swinehart, who became the Company's Chief Executive
Officer and a director in November 1998, to another individual who became a
director of the Company in November 1998 and to an individual who served as a
finder in the Offering. Of the options issued, five-sixths vested upon issuance,
with the remaining one-sixth vested upon exercise of the Unit warrants in March
1999.

       (d) In December 1997, the Company declared a dividend in the form of a
warrant to its existing shareholders (except the Company's President and
Chairman). For every two shares held, a warrant to purchase one share was issued
with an exercise price of $4 per share. These warrants were redeemable by the
Company if the closing bid price of the Common Stock remains above $7 per share
for a defined period. In conjunction with the Offering, the Board of Directors
agreed to reprice these warrants to an exercise price of $1 per share. In
addition, existing shareholders of record as of February 16, 1999 (other than
the Company's President and Chairman and the Investor Group) will receive an
additional warrant (which may only be exercisable after the Company registers
the shares issuable upon exercise) to purchase one share of common stock at $1
per share, for every two shares held. This new warrant will be redeemable by the
Company if its shares trade for a period, as defined, above $2 per share.

       (e) The common stock issued upon conversion of the notes and upon
exercise of the warrants issued upon conversion of the notes, together with the
common stock issuable upon exercise of the options and warrants issued to
officers and directors of the Company and Sands Brothers will be registered,
together with the shares of common stock owned by the Chairman and President.


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       In January 1998, the Company entered into a revolving line of credit
agreement (the "Credit Agreement") with BankAmerica Business Credit, Inc.
("BankAmerica") which provided 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. Subsequent to entering into the Credit Agreement, the Company was
in violation of the tangible net worth covenant of the Credit Agreement (with
BankAmerica providing a waiver of this default in exchange for reducing the
amount available to be loaned to the Company). In November 1998, the Company
paid off all amounts owing under and terminated the Credit Agreement. The
Company is seeking and has received a preliminary letter of interest from
another financial institution to provide a revolving line of credit for a
maximum of $5,000,000, although there can be no assurance that the Company
will be able to enter into a definitive agreement with this bank.

THE WIRELESS COMMUNICATIONS INDUSTRY

       The wireless communications industry provides voice and data
communications services through wireless 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

       Wireless communications technology encompasses wireless communications
devices such as handheld, mobile and transportable handsets, pagers and two-way
radios. However, the Company currently sells only handsets and accessories for
handsets. Since its inception in 1983, the wireless handset market has grown
rapidly. The Company believes that the wireless communications industry will
continue its rapid growth for several reasons. Economic growth, increased
service availability and lowering cost of wireless service will continue to
create demand for wireless communications products. The Company further believes
the shift for most major markets from analog based signals to digital signals
will lower the cost for network operators and encourage consumers to purchase
the next generation of products. In addition, certain markets have seen a
significant increase in choices of wireless services. This increase in choices
has, in turn, resulted in increased demand for wireless communications products.
The proliferation of new manufacturers is expected to service the demand,
expanding the sales channels while lowering prices and increasing product
selection.

       INTERNATIONAL MARKET

       The markets for wireless products and services outside the United
States also have grown significantly. 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 wireless
communications products and services. The Company also believes that wireless
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 for the Company, which will seek to reduce collection
loss problems it has encountered in its prior foreign sales through the use
of insurance.

       EMERGING WIRELESS TECHNOLOGIES


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       In addition to growth in the wireless market, the emergence of the new
digital wireless communications technologies and services, such as the TDMA,
CDMA, 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. These technologies include cellular type services,
including advanced voice and data transmissions using small, light-weight
wireless telephones or hand-held computers. Digital format also offers greater
functionality, resulting in lower cost service options and lighter handsets with
longer battery life. Digital based technology 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 licenses in 1995 and 1996,
the FCC added three Digital 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 generate additional demand for wireless
communications products and services through lower prices, increased advertising
and improved service quality.

       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 have 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
statute permits long distance, cable and wireless companies to compete in local
markets. The Company believes that such deregulation will significantly increase
competition, which should translate into lower costs and increased numbers of
subscribers.

STRATEGY

       The Company's strategy is to achieve and thereafter maintain
profitability by significantly expanding its revenues and by focusing on
products and services that can generate higher profit margins. The Company's
objective is to capitalize on wireless communication opportunities in markets
in which the Company believes it can achieve significant growth. The key
elements of the Company's strategy 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
the acquired business would enhance the Company's prospects and maximize
revenues. Potential acquisition candidates may include companies with
alternative distribution channels for wireless products. Although the Company
has recently identified several potential acquisition candidates, it has not
entered into any agreements to acquire any companies.


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       VALUE ADDED DISTRIBUTOR. The Company believes that to be successful as a
distributor, it must offer services such as inventory management, warehousing,
repair and refurbishment services, credit risk management, transparent order
processing, customized kitting, packaging, handset software programming, and the
development of new alternative distribution channels. In addition to offering an
expansive menu of services, the Company must have access to an information
system capable of integrating, tracking and reporting all of the activities of
its customers. The Company's strategy is provide these services, which the
Company believes will provide higher profit margins than the Company's
traditional product distribution activities, to network operators and wireless
manufacturers.

       TARGET EMERGING FOREIGN MARKETS. The Company is targeting emerging
foreign markets in which wireless 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
Mexico and other 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.

       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
wireless 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 new wireless products
and services so as to position the Company 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 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, Panasonic, Samsung and
Sony. The Company continually reviews and evaluates wireless 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, 1996, 1997, and 1998, approximately, 74.6%, 92.0%, and 92.3%,
respectively, of the Company's revenues were derived from sales of wireless
telephones. A significant portion of the Company's sales were of Motorola,
Ericsson and Nokia products (approximately 63% in 1997 and 47% in 1998).
Motorola, Ericsson and Nokia products are not available to the Company
directly from these manufacturers. Since the Company purchases these

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handsets from third parties, it does not obtain price protection, cooperative
advertising and marketing allowances on such 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, 1996, 1997 and 1998, sales of
cellular products to the Company's five largest customers accounted for
approximately 48.8%, 36.2% and 28.6%, 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 11.7% and 11.4%, respectively, of
the Company's revenues. For the year ended December 31, 1998, sales to
Brightpoint and Celluphone accounted for approximately 6.1% and 8.0%,
respectively, of the Company's revenues. For the years ending December 31,
1996 and 1997, no other customer accounted for more than 10% of the Company's
revenues, and no single customer accounted for more than 10% of the Company's
revenues for the year ended December 31, 1998.

       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 charged $1,665,000 to bad debt expense to
reserve the unpaid receivable from Downtown. In 1998, the Company determined
that collecting any amounts from this account was not economically viable for
the Company and therefore ceased collection efforts.

       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 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 wireless products. For the years ended December 31, 1996, 1997 and
1998, sales of the Company's products to customers in foreign markets accounted
for 5.2%, 17.6% and 8.0%, respectively, of the Company's revenues. Approximatley
77% of the Company's 1998 foreign sales of $2.2 million were made in Mexico,
with no other country accounting 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 or with terms that limit the Company's exposure to collection risks. In 1998,
all sales to foreign countries were made in US dollars.

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


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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, 1996, 1997 and 1998, the Company's four
largest suppliers accounted for approximately 54.1%, 43.9% and 41.0%,
respectively, of product purchases. For the year ended December 31, 1996,
Brightpoint, Best Cellular, Sony and CellStar accounted for approximately 26.1%,
10.2%, 9.6% and 8.2%, respectively, of product purchases. 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 the year ended December 31, 1998, Sony, Audiovox and Brightpoint,
accounted for approximately 22.4%, 6.9%, and 6.5% 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 Sony,
Audiovox, NEC, and Panasonic Telecommunications and Systems Company pursuant to
which the Company distributes wireless 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
wireless 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 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
between 8% and 15% of gross profit represented by their sales). 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 eight 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 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 of a 12,800-square foot
warehouse and office facility in Miami, Florida.


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However, in May 1998, in an effort to cut costs, the Company closed this
facility, and the Company now services all its sales out if its Chatsworth,
California facility.

       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, 1996, 1997 and 1998,
approximately 79.3%, 93.6% and 86.5%, 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, 1997 and 1998, trade accounts receivable
averaged 35.6, 31.5 and 28.3 days for sales made on open account, respectively.
The Company experienced bad debt expense in 1998 of $108,000 (0.4% of 1998
sales), as compared to $3,627,000 in 1997 (4.4% of 1997 sales) and 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. In
September 1998, the Company obtained credit insurance on its accounts
receivable. Although this insurance is subject to certain limitations and
deductibles, the Company believes that the risk of bad debts from uncollectible
accounts receivable will be substantially reduced through the use of this
insurance.

       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, 1996, 1997 and 1998.

       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 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 1997, the Company made
significant investments in maintenance and in upgrading its computer system.
In 1999, the Company anticipates continuing to make upgrading and maintenance
investments in its computer system to support its new strategy. The Company
believes that with the foregoing investment, the Company's management
information system will be sufficient to support its anticipated level of
operations.

COMPETITION


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       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. A number 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 wireless 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 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 additional 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 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 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 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 products
at commercially competitive rates is maintained at levels to sustain growth
and profitability.

       The wireless 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 is expected to 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 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


                                      10
<PAGE>

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 digital and satellite
communications systems, will reduce demand for existing cellular products,
increasing risk associated with the granting of credit and inventory
obsolescence. Upon widespread commercial introduction, digital, 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 further 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.

       The Company's current primary competitors include Brightpoint, CellStar,
Com-Quest Wireless Distributing Company, Arizona Wholesale Supply Company (a/k/a
QDI), and Progressive Concepts, Inc. ("Progressive"). For the year ended 1998,
the Company secured from the foregoing entities 21.0% of its product purchases,
with such products comprising 27.1% of the Company's telephone sales for the
1998 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.

TRADEMARK

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

EMPLOYEES

       At March 15, 1999, the Company had 25 employees, of which six are in
executive positions, eight are engaged in sales and marketing, four are engaged
in warehouse operations and seven 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.

RISK FACTORS

       In addition to the other information in this Annual Report, the following
factors should be considered carefully in evaluating the Company's business and
prospects:

       ABSENCE OF PROFITABILITY; FUTURE OPERATING RESULTS. The Company has
operated on a high-volume, low-margin basis. The Company has achieved only
limited profitability for limited periods of time, has incurred operating losses
for 1997 and 1998 and expects to incur further operating losses for at least the
first half of 1999. The Company's operating expenses have increased and can be
expected to increase significantly in connection with the Company's contemplated
expansion of its operations, which will require the Company to make substantial
up-front expenditures to finance increased levels of inventories and accounts
receivable and increased marketing efforts. A recent trend by original equipment
manufacturers to reduce prices of wireless products has had and could continue
to have an adverse effect on the Company's profit margins. Future events,
including unanticipated expenses, increased price competition, unfavorable
economic conditions, product returns and recalls and uncollectible accounts,
could have a material adverse effect on the Company's future operating results.
There can be no assurance that the Company's future operations will be
profitable.


                                      11
<PAGE>

       NEED FOR ADDITIONAL WORKING CAPITAL. The Company believes that it will
require additional working capital to significantly expand the level of its
operations as part of its strategy to generate operating profits and
implement its new strategies. The Company is seeking to obtain a line of
credit that will be secured by its accounts receivable and inventory.
Although the Company is in discussions with several financial institutions to
provide such a line of credit and has received a preliminary letter of
interest from one of these lenders, there can be no assurance that the
Company will be successful in obtaining this financing, which may also
contain various customary covenants that limit the Company's activities. If
the Company is unable to secure a line of credit or if it additional working
capital is required after obtaining a line of credit, it may seek additional
debt or equity financing, although it does not have any commitment from any
third party to provide this financing. There can be no assurance that
additional financing will be available to the Company on acceptable terms, or
at all.

       RISKS ASSOCIATED WITH NEW STRATEGY TO PROVIDE DISTRIBUTION SERVICES. The
Company believes that it will require significant capital expenditures and
working capital to implement its strategy to become a value added distributor
providing services to manufacturers and network operators. Expansion efforts may
be required in the Company's warehousing facilities, computer systems and
equipment for repair and refurbishing and working capital to support increased
levels of inventory and accounts receivable. The Company plans on outsourcing
the aforementioned service elements until such time that the Company has
adequate capital. However, if the Company is unable to secure vendors to provide
these services on a cost-effective basis, the Company may be required to expend
its capital in their development, increasing general and overhead expenses,
including depreciation. There can be no assurance that the Company will be
successful in obtaining contracts to provide services to manufacturers and
network operators to absorb these extra costs, which would adversely affect the
Company's operating results. In addition, there can be no assurance that the
Company's sources for working capital, which may include a revolving line of
credit, would be available to support the Company's new strategy.

       RISKS ASSOCIATED WITH REVENUE FLUCTUATIONS The Company has experienced
significant increases and contractions from time to time in its revenues,
which has placed and is expected to continue to place a strain on its
management, administrative, operational, financial, management information
systems and other resources. An expansion of the Company's operations as part
of a plan to generate operating profits will be largely dependent upon its
ability to maintain its operating and gross margins; secure an adequate
supply of competitive products on a timely basis and on commercially
reasonable terms; hire and retain skilled marketing and other personnel; and
successfully manage growth (including monitoring operations, controlling
costs and maintaining effective management, inventory and credit controls).
The Company has limited experience in effectuating expansion and there can be
no assurance that the Company will be able to successfully expand its
operations or manage growth. The Company's growth prospects will be
significantly affected by its ability to continue to successfully develop and
maintain relationships with leading manufacturers, dealers, agents, carriers
and sub-agents of wireless products. The Company's prospects could be
adversely affected by a decline in the wireless industry generally or in
particular geographic markets or related market segments, which could result
in reduction or deferral of expenditures by prospective customers.

       RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS. The Company intends to
pursue opportunities by seeking to enter into marketing and distribution
alliances and by making acquisitions of businesses which the Company believes
will enhance its prospects. While the Company has from time to time evaluated
possible acquisition opportunities, the Company has no plans, agreements,
commitments, understandings or arrangements with respect to any such
acquisition. There can be no assurance that the Company will ultimately effect
any acquisition or that the Company will be able to successfully integrate into
its operations any business which it may acquire. Any inability to do so,
particularly in instances in which the Company has made significant capital
investments, could have a material adverse effect on the Company.


                                      12
<PAGE>

       DEPENDENCE ON PRINCIPAL SUPPLIERS. The Company is dependent on
third-party equipment manufacturers and distributors for all of its supply of
cellular telephones and accessories. The Company is dependent on the ability of
its suppliers to provide adequate inventories of currently popular brand name
products on a timely basis and on favorable pricing terms. The Company generally
does not maintain supply agreements and purchases products pursuant to purchase
orders placed from time to time in the ordinary course of business. There can be
no assurance that suppliers will continue to offer competitive products to the
Company on favorable terms or that the Company will not be subject to the risk
of price fluctuations and periodic delays. Failure or delay by principal
suppliers in supplying competitive products to the Company on favorable terms
would materially adversely affect the Company's operating margins and the
Company's ability to obtain and deliver products on a timely and competitive
basis.

       The Company has failed to sustain significant relationships with leading
manufacturers of analog and 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 technologies and their short supply, has had an
adverse effect on the demand for the analog products sold by the Company and the
supply for digital product. In addition, network operators of PCS products have
selected distribution channels which do not currently include the Company.
Although the Company's business strategy now targets establishing strategic
supply relationships with a number of large manufacturers, 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 or 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
products at commercially competitive rates.

       INTENSE INDUSTRY COMPETITION. The markets for wireless communications
products are characterized by intense price competition and significant price
erosion over the life of a product. 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
wireless services, many of which possess greater financial, marketing, personnel
and other resources than the Company. Brightpoint and CellStar, historically two
of the Company's principal suppliers, are also two of the Company's primary
competitors. Certain of the Company's competitors have the financial resources
necessary to enable them to withstand substantial price competition and
implement extensive advertising and promotional programs, both generally and in
response to efforts by additional competitors to enter into new markets and
introduce new products. The wireless distribution industry is also characterized
by low barriers to entry and frequent introduction of new products. The
Company's ability to compete successfully will be largely dependent on its
ability to maintain its current vendor relationships and anticipate and respond
to various competitive factors affecting the industry, including new products
which may be introduced, changes in consumer preferences, demographic trends,
international, national, regional and local economic conditions (particularly
recessionary conditions adversely affecting consumer spending), discount pricing
and promotional strategies by carriers and consolidating trends in the industry.
There can be no assurance that the Company will be able to compete successfully,
particularly as domestic wireless markets mature and the Company seeks to enter
into new markets and market new products.

       DEPENDENCE ON SALES OF CELLULAR TELEPHONES; INCREASING SALES
CONCENTRATION AND ACCOUNTS RECEIVABLE; COLLECTION AND CREDIT RISKS. A
substantial portion of the Company's revenues are derived from the sale of
cellular telephones, a decline in the sale of which would have an adverse effect
on the Company. An increasing portion of the Company's revenues has been derived
from a limited customer


                                      13
<PAGE>

base. The loss of one or more of these customers or other principal customers
could have a material adverse effect on the Company's financial condition and
results of operations. The Company has been required to write off significant
accounts receivable balances in the past. The Company's accounts receivable,
less allowance for doubtful accounts, at December 31, 1998 were approximately
$2,155,000, as compared to approximately $6,578,000, at December 31, 1997. At
December 31, 1998, the Company's allowance for doubtful accounts was
$251,000, which the Company believes is currently adequate for the size and
nature of its receivables. Nevertheless, delays in collection or
uncollectibility of accounts receivable could have a material adverse effect
on the Company's liquidity and working capital position. Substantially all of
the Company's sales are made on open account terms. In connection with the
Company's proposed expansion of sales, the Company intends to offer open
account terms to additional customers, which will subject the Company to
increased credit risk, particularly in the event that any such receivables
represent sales to a limited number of customers or are concentrated in
foreign markets, and could require the Company to continually increase its
allowance for doubtful accounts.

       EVOLVING INDUSTRY STANDARDS AND TRENDS AND RAPID TECHNOLOGICAL CHANGE.
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 marketing
strategy and ultimate 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. In connection with the Company's proposed expansion, the Company
intends to make increased commitments of capital to purchase product
inventories. Increased concentrations of capital in inventory increase the risk
of loss from possible inventory obsolescence. There can be no assurance that
competitors or manufacturers of wireless products will not market products which
have perceived advantages over the Company's products or which render the
products currently sold by the Company obsolete or less marketable.

       The use of alternative wireless communications technologies, including
digital, PCS and satellite communications systems, which are expected to
continue to successfully compete with analog wireless systems, may reduce demand
for existing wireless products. The Company expects that companies which have
developed or are developing new technologies or products in related market
segments will commercialize technologies which would compete with or replace
existing analog wireless technology. Certain of such technologies, upon
widespread commercial introduction, 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's existing customers or
consumers will be willing, for financial or other reasons, to purchase new
equipment necessary to utilize these new technologies or that product
obsolescence will not result in significant unsold inventories. Moreover,
complex hardware and software contained in new wireless and digital equipment
could contain defects which become apparent subsequent to widespread commercial
use resulting in product recalls and returns.

       FOREIGN TRADE RISKS. Sales of wireless products to customers in foreign
markets, primarily in Latin America, have accounted for a portion of the
Company's revenues. For the year ended December 31, 1998, sales to customers
outside of the United States accounted for 8% of the Company's total revenues.
The Company is seeking to increase product sales in foreign markets and believes
that such markets present significant growth opportunities. Although the Company
maintains credit insurance with respect to a portion of its current foreign
sales, there can be no assurance that the Company will be able to continue to do
so or that any such markets will ultimately prove to be viable. To the extent
that the Company is able to successfully increase its foreign sales, it will
become increasingly subject to certain risks inherent in foreign trade,
including increased credit risks, customs duties and import quotas and other
trade restrictions, currency rates, shipping delays, failure or material
interruption of wireless


                                      14
<PAGE>

systems and services and international political, regulatory and economic
developments, all of which, particularly in light of the historical and
political instability of many countries in Latin America, Asia and the Middle
East, could have a material adverse effect on the Company. Although all
foreign sales are currently made in United States dollars, an increase in the
value of the dollar in relation to foreign currencies may nevertheless have
an adverse effect on potential demand for wireless products. For competitive
reasons, the Company may make certain future foreign sales in local
currencies, exposing the Company to additional currency fluctuation risks.
The Company currently does not intend to engage in foreign currency hedging
transactions.

       POSSIBLE FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY. The Company's
operating results may vary from period to period as a result of purchasing
patterns of potential customers, the timing of introduction of new products by
the Company's suppliers and competitors, variations in sales by distribution
channels, product availability and pricing and the seasonal nature of the
Company's business. Sales of the Company's products are seasonal, with peak
product shipments occurring in the third and fourth quarters. Unanticipated
events, including delays in securing adequate inventories of competitive
products at the time of peak sales, or significant decreases in sales during
such periods, could result in losses which would not be easily reversed before
the following year. There can be no assurance that the foregoing factors will
not result in significant fluctuations in operating results in the future.

       DEPENDENCE ON FOREIGN MANUFACTURERS. The Company currently obtains
product from several manufacturers who are based or affiliated with companies
in Asia that have been affected by the recent and well publicized Asian
financial crises, including Japan and Korea. The Company is dependent on such
manufacturers to provide sufficient quantities of products on favorable
terms. Failure or delay by such manufacturers in supplying products to the
Company would have an adverse effect on the Company. In addition, countries
in Asia may from time to time impose duties, tariffs, quotas or other
restrictions on exports or the United States may impose increased import
duties or tariffs on the import of products, which could adversely affect the
Company's operations.

       POSSIBLE ADVERSE EFFECT OF TRADE SANCTIONS. The United States has from
time to time been involved in trade disputes relating to, among other things,
the opening of certain international markets to products (including wireless
telephones) manufactured in the United States. Although the Company believes
that the United States has resolved such disputes, there can be no assurance
that trade disputes will not arise in the future or that the United States will
not impose tariffs on wireless products and components manufactured abroad. Any
imposition of significant tariffs on such products and components manufactured
abroad, resulting in increased product costs, would reduce the Company's
operating margins and possibly render the marketing of such products
uneconomical.

       POSSIBLE MEDICAL RISKS ASSOCIATED WITH WIRELESS TELEPHONES.
Lawsuits have been filed against manufacturers of wireless telephones alleging
possible medical risks, including brain cancer, associated with electromagnetic
fields emitted by portable hand-held cellular telephones. To date, there has
been only limited research in this area, and such research has not been
conclusive as to what effects, if any, exposure to electromagnetic fields
emitted by portable cellular telephones has on human cells. The Company
recognizes, however, that the perception that health risks may exist could
adversely affect the Company's ability to market portable wireless telephone
products. Inasmuch as a substantial portion of the Company's revenues is derived
from sales of portable wireless telephones, future studies confirming possible
health risks associated with the use of such products could have a material
adverse effect on the wireless communications industry and the Company. As a
distributor of wireless telephones, the Company may be subject to lawsuits filed
by plaintiffs alleging health risks. A successful claim against the Company
could have a material adverse effect on the Company, which does not carry
product liability insurance.


                                      15
<PAGE>

       DEPENDENCE ON KEY PERSONNEL. The success of the Company has been largely
dependent on the personal efforts of John Swinehart, its Chief Executive
Officer; Ben Neman, its Chairman and President; Stephen Jarrett, its Executive
Vice President of Sales; David Kane, its Chief Financial Officer; Meir Abramov,
a vice president; and other key personnel. The Company also has recently hired
Michael Hedge as its Executive Vice President and General Manager and Michael
King as its Vice President of Marketing and Business Development. The loss or
interruption of the services of such individuals or other key employees could
have a material adverse effect on the Company's business and prospects. Mr.
Swinehart has no prior experience as a senior executive in a publicly-held
company and has limited experience in the cellular phone industry. In March
1998, the Company reduced its workforce by approximately 35% as a cost-cutting
measure. Any expansion of the Company's operations may require the hiring of
additional personnel, which could be made more difficult by the Company's prior
workforce reduction.

       POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM. The Company's Common
Stock is currently traded on the Nasdaq SmallCap Market. In order to continue to
be listed on Nasdaq, however, the Company must maintain certain requirements. In
January 1999, the Company received a notice from Nasdaq that it planned to
delist the Company's Common Stock based on Nasdaq's determination that the
Company would be unable to continue to maintain compliance with Nasdaq's minimum
net worth requirement. The Company has appealed this determination to a Nasdaq
panel hearing that will be held in April 1999. Although the Company is currently
in compliance with Nasdaq's net worth requirement and believes that it has
presented to Nasdaq a viable business plan for maintaining compliance with this
requirement, there can be no assurance that the Company will succeed in its
appeal. If Nasdaq were to delist the Company's Common Stock, an investor could
find it more difficult to dispose of, or to obtain accurate quotations as to the
market value of the Common Stock and the lack of a Nasdaq listing of its
securities could make it more difficult for the Company to do any equity
financings in the future.

       CONTROL BY CURRENT STOCKHOLDER. As of December 31, 1998, Mr. Neman owned
approximately 30% of the Company's outstanding Common Stock. Accordingly, Mr.
Neman will be able to exert significant control over the election of the
Company's directors, decisions to increase the authorized capital, dissolve,
merge, or sell the assets of the Company and any other actions affecting the
affairs of the Company.

       INDEMNIFICATION AND EXCULPATION PROVISIONS. The Company's amended
Certificate of Incorporation provides for indemnification of officers and
directors to the fullest extent permitted by Delaware law. In addition, under
the Company's amended Certificate of Incorporation, no director shall be liable
personally to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that the Certificate of Incorporation
does not eliminate the liability of a director for (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) acts or omissions in respect of certain unlawful
dividend payments or stock redemptions or repurchases; or (iv) any transaction
from which such director derives improper personal benefit. As a result of such
provisions in the Certificate of Incorporation and the By-Laws of the Company,
stockholders may be unable to recover damages against the directors and officers
of the Company for actions taken by them which constitute negligence, gross
negligence or a violation of their fiduciary duties, which may reduce the
likelihood of stockholders instituting derivative litigation against directors
and officers and may discourage or deter stockholders from suing directors,
officers, employees and agents of the Company for breaches of their duty of
care, even though such an action, if successful, might otherwise benefit the
Company and its stockholders.

       AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK. The
Company's Certificate of Incorporation authorizes the issuance of up to
1,000,000 shares of "blank check" preferred stock with


                                      16
<PAGE>

such designations, rights and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company.

       YEAR 2000 COMPLIANCE. As is true for most companies, the Year 2000
computer problem creates a risk for the Company. If systems do not correctly
recognize the date information when the year changes to 2000, there could be an
adverse impact on the Company's operations. The Company, however, may not be
able to identify or remedy all Year 2000 compliance issues with respect to its
internal systems. As a result, the Year 2000 problem could have a materially
adverse effect on the Company's financial condition or results of operations.
Although the Company currently expects its information systems to be Year 2000
compliant by the end of 1999, no assurance can be given that the products the
Company distributes, including products manufactured and or developed by the
Company's suppliers and vendors, will contain all necessary date code changes
necessary to prevent processing errors potentially arising from calculations
using the Year 2000 date. The Company also believes that the purchasing patterns
of customers and potential customers may be affected by Year 2000 issues in a
variety of ways. If any of the above systems or products are not Year 2000
compliant, the Company's business, financial condition and results of operations
could be materially adversely affected.

       The Company cannot be sure that it will not suffer business
interruptions, either because of its own Year 2000 problems or those of its
customers or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the Company. The Company is
continuing to evaluate Year 2000 related risks and will take such further
corrective actions as may be required.


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 rent 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 May
1998, the Company subleased approximately one-third of the Chatsworth,
California facility for the same remaining lease term as the underlying lease.

       In January 1999, the Company assumed the lease of a 2000-square foot
office and warehouse in Mexico City, Mexico. This facility handles sales into
Mexico. The lease is month-to-month with rent of $980 per month.

       In November 1997, the Company commenced operation of a 12,800 square
foot leased warehouse and office facility in Miami, Florida. The facility
handled sales into the southeastern region of the United States and Latin
America. In July 1998, the Company terminated its Miami-Based operations and
assigned the lease for it Miami operations to a third party. The Company is
contingently liable for the obligations of this lease if the assignee
defaults.

       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.


                                      17
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

       The Company is not a party to any material legal proceedings.

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

       On December 30, 1998, the Company held its Annual Meeting of

       Stockholders. At the meeting, the stockholders elected as directors Ben
Neman (with 4,182,020 affirmative votes and 55,400 withheld), Vinay Sharma (with
4,182,020 affirmative votes and 55,400 withheld), Stephen Jarrett (with
4,182,020 affirmative votes and 55,400 withheld), J. Sherman Henderson (with
4,182,020 affirmative votes and 55,400 withheld), John Swinehart (with 4,182,020
affirmative votes and 55,400 withheld), and Mark M. Laisure (with 4,182,020
affirmative votes and 55,400 withheld).

       The stockholders also ratified the adoption of the Company's 1998 Stock
Option Plan (with 2,237,678 shares voting for, 62,100 against, and 44,600
abstaining).

       The stockholders also ratified the Company's private placement of
$1,500,000 of three-year unsecured and subordinated convertible notes and
approved certain transactions related thereto (with 2,308,678 shares voting for,
28,800 against, and 6,900 abstaining).

       The stockholders also ratified the appointment of Hollander, Lumer & Co.
LLP as the independent auditors for the Company for the fiscal year ending
December 31, 1998 (with 4,167,780 shares voting for, 20,640 against, and 5,700
abstaining).


                                      18

<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.

<TABLE>
<CAPTION>
                                                   HIGH            LOW
                                                   ----           -----
  <S>                                              <C>            <C>
  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

  Year Ended December 31, 1998
  ----------------------------
           First Quarter                           $5.50          $3.00
           Second Quarter                          $3.25          $0.50
           Third Quarter                           $1.88          $0.13
           Fourth Quarter                          $6.88          $0.50
</TABLE>

       Such quotations reflect inter-dealer bids, without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.

       On March 26, 1999, the closing price of the Common Stock on Nasdaq was
$2.50. As of March 26, 1999, there were approximately 24 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

       During the two most recent fiscal years, 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

RECENT SALES OF UNREGISTERED SECURITIES

       In November 1998 the Company consummated a private placement of
$1,500,000 of convertible notes pursuant to Section 4(2) of the Securities
Act of 1933 to six individuals who are accredited investors. The notes were
converted on December 31, 1998 to units consisting of a total of 1,500,000
shares and three-year warrants to purchase 1,000,000 shares of common stock
at an exercise price of $1 per share. Sands Bros served as the Company's
financial advisor in connection with this private placement.

ITEM 6.  SELECTED FINANCIAL DATA


                                      19
<PAGE>

       The following selected financial data are derived from the Financial
Statements of the Company which have been audited by Hollander, Lumer & Co.
LLP for the years ended December 31, 1996, 1997 and 1998. 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>
                                  1994             1995              1996             1997              1998
                                 ------           ------            ------           ------            ------
<S>                       <C>                  <C>              <C>               <C>                  <C>
Net Sales                    $    56,447         $  69,850      $    81,225       $    81,401           27,787

Cost of sales                     54,402            67,485           77,555            77,862           26,152

Gross profit                       2,045             2,365            3,670             3,539            1,635

Selling, general and
   administrative
   expenses                        1,505             1,877            2,747             7,630            4,167

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

Income (loss) from operations        540               488              923            (5,391)          (2,532)

Other income (expense)              (103)              (86)            (392)             (391)            (237)

Income (loss) before income
   tax expense (benefit)             437               402              531            (5,782)          (2,769)

Income tax expense
   (benefit)                          --                --             (308)              334               --

Net (loss) Income
   - historical              $       437         $     402      $       839       $     (6,116)       $ (2,769)

Pro forma net income
   (loss)(1)                 $       257         $     236      $       315       $    (6,116)        $ (2,769)

Pro forma net income
   (loss) per share
   (basic and diluted)(2)    $      0.13         $    0.12      $      0.15       $     (1.37)        $  (0.63)

Weighted average number of
   common shares
   outstanding (basic)         2,030,000         2,030,000        2,113,674         4,451,182        4,415,902

Weighted average number of
   common shares
   outstanding (diluted)       2,030,000         2,030,000        2,114,641         4,451,182        4,415,902
</TABLE>


                                      20
<PAGE>

BALANCE SHEET DATA:

                                 (in thousands)
                               As of December 31,
<TABLE>
<CAPTION>
                            1994         1995          1996         1997          1998
                           ------       ------        ------       ------        ------
<S>                        <C>         <C>          <C>           <C>          <C>
Working capital
   (deficiency)            $  (175)     $  (243)    $  8,432      $  3,596     $  2,490

Total assets                 7,250        8,604       16,025        11,414        4,178

Short-term debt                445        2,490           --         3,402           --

Total liabilities            7,392        8,590        7,216         7,381        1,329

Stockholders' equity
   (capital deficiency)       (142)          14        8,809         4,033        2,849
</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.

RESULTS OF OPERATIONS

       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 has abandoned collection efforts as being economically non viable.

       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.

                            PERCENTAGES OF NET SALES
                             YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
                                                     1996         1997         1998
                                                    ------       ------       ------
<S>                                                 <C>          <C>          <C>
Net sales                                           100.0%        100.0%      100.0%

Cost of sales                                        95.5          95.6        94.1

Gross profit                                          4.5           4.4         5.9

Selling, general and administrative expenses          3.4           9.4        15.0

Non-recurring legal and auditing fees                 --            1.6        --

Income (loss) from operations                         1.1          (6.6)       (9.1)

Other income (expense)                               (0.5)         (0.5)       (0.9)


                                      21
<PAGE>

Income tax expense (benefit)                         (0.4)          0.4        --

Net (loss) income                                     1.0          (7.5)      (10.0)

Pro forma net (loss) income                            .4          (7.5)      (10.0)
</TABLE>

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

       Net sales decreased from $81,401,000 in 1997 to $27,787,000 in 1998, a
decrease of $53,614,000 or 65.9%. The primary reason for the decrease in
sales was the Company's lack of product from suppliers of the newest
generation digital products. The sales in 1997 were based on analog product
which was more readily available compared to 1998's paradigm where digital
product replaced analog's dominance and market share. In 1998, digital
product was not readily available on a consistent basis to the Company. Even
though the Company was able to obtain product from selected manufacturers and
other distributors of digital product on a non-exclusive basis, it was only
available in limited quantities.

       Gross profit decreased by $1,904,000, or 53.8%, from 1997 to 1998 and
as a percentage of net sales increased from approximately 4.5% to
approximately 5.9% respectively, during these periods. The decrease in gross
profit from 1997 to 1998 is in line with the decrease in sales. The increase
in gross profits as percentage of sales is due to a somewhat more favorable
mix of products offered by the Company in 1998 versus 1997.

       Selling, general and administrative expenses decreased by approximately
$3,463,000 or 45.4%, from 1997 to 1998, but increased from 9.4% to 15.0%, as a
percentage of net sales. The most significant items accounting for this decrease
are decrease in personnel of $473,000 and decrease in bad debt expense for
doubtful accounts receivable and doubtful notes receivable of $3,519,000. The
decrease in payroll and payroll related costs for 1998 as compared to 1997 was
primarily the result of having cost cutting measures initiated in 1998 by
reducing the size of the Company's workforce to compensate for waning sales and
lack of product.

       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.
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.

       Loss from operations was $5,391,000 for 1997, as compared to an operating
loss of $2,532,000 in 1998, a decrease in loss of $2,859,000 or 53%. The 1997
operating loss is primarily due to increased selling, general and administrative
expenses and non-recurring expenses for 1997, as described above. The 1998 loss
was primarily due to decreased sales.

       Interest expense for 1997 and 1998 was $444,000 and $204,000,
respectively. Interest expense is primarily attributable to borrowings under the
Company's prior line of credit with BankAmerica, which during 1997, averaged
$3,016,000 at an average interest rate of 10.25% per annum. At December 31,
1997, there was $3,402,000 of borrowing under this credit line. During 1998, the
borrowings averaged $2,376,000 at an average interest rate of 7.1% per annum.
For most of 1998, the Company was not in compliance with covenants of the
BankAmerica line of credit, and several amendments to the line of credit
agreement reduced the Company's ability to borrow funds for most of 1998.

       Historical net loss decreased from $6,116,000 for 1997 to a historical
net loss of $2,769,000 for 1998, a decrease of $3,347,000 or 55%. The decrease
in net loss resulted from decrease in selling, general and administrative
expenses and non-recurring legal and auditing and professional fees and
expenses. At


                                      22
<PAGE>

December 31, 1998, the Company has recorded a net deferred tax asset of
$3,395,000, 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, 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 was 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.

       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
was 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.
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 was primarily due 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.


                                      23
<PAGE>

       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 had
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.

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, 1998, the Company had
working capital of $2,490,000 compared to working capital of $3,596,000 at
December 31, 1997. The decrease in working capital is primarily attributable to
decreased accounts receivables from lower sales and lower inventory caused by a
short supply of product offset by lower borrowings under the Company's former
credit line. The losses sustained from operations have 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 provided by (used in) operating activities was $2,930,000 in
1998, and ($5,374,000) in 1997. The increase in cash provided by operations
for 1998 was primarily attributable to the reduced net loss, and decrease in
accounts receivable and inventory. Net cash used in investing activities was
$278,000 in 1998, versus cash provided by investing activities of $1,505,000
in 1997. The decrease in cash provided by investing activities was primarily
attributable to proceeds from the collection of notes receivable in 1997. Net
cash provided by(used in) financing activities was ($2,290,000) in 1998 and
$3,869,000 in 1997. The decrease was primarily attributable to the advances
of the Company's line of credit in 1997 whilst in 1998, the Company repaid
and terminated this line of credit with a portion of the proceeds from its
private placement of convertible notes. In January 1997, the managing
underwriter exercised an over-allotment option (the "Over-allotment Option")
to purchase an additional 300,000 shares of common stock, resulting in net
proceeds of $1,341,000. In November 1998, the Company consummated a private
placement of convertible notes for resulting in net proceeds of $1,288,000
($1,500,000 net of $212,000 offering costs).

       In January 1998, the Company entered into a new loan agreement with
BankAmerica Business Credit, Inc. ("BankAmerica") which provided for
borrowings under a line of credit of up to $12,000,000. Advances under the
line of credit were 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 accrued on such advances at the prime lending
rate plus one half of one percent (.5%) per annum and was payable monthly. In
November 1998, the Company paid off the remaining balance owing to
BankAmerica and terminated this agreement.

                                      24
<PAGE>

       The Company has increasingly emphasized the sale of products on open
account to maintain competitive other distributors who routinely grant credit.
For the years ended December 31, 1996, 1997 and 1998, 79.3%, 93.6% and 86.5% of
the Company's sales were made on open account. Inventory turns decreased from
14.2 times during 1997 to 10.1 times during 1998.

       The Company's trade accounts receivable, less allowances for doubtful
accounts at December 31, 1998, was $2,155,000, as compared to $6,578,000 at
December 31, 1997 and as compared to $6,287,000 at December 31, 1996. As of
December 31, 1998, accounts 90 days past due were approximately 21.9% of
aggregate trade accounts receivable as compared to 9.9% of aggregate trade
accounts receivable at December 31, 1997.

       The allowance for doubtful accounts receivable was $251,000 at December
31, 1998, and $2,697,000 at December 31, 1997. The decrease in the allowance for
doubtful accounts receivable results primarily from the Company's largest
customer in 1997 (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 has abandoned its pursuit in connection with the
foregoing and wrote off the account in 1998. Other significant decreases in the
allowance for doubtful account receivables relate to 44 domestic accounts
aggregating $577,000 and 7 foreign accounts aggregating $456,000 included in the
1997 balance, written off in 1998.

       At December 31, 1998, notes receivable, less the allowance for doubtful
notes receivable was nil as compared to $195,000 at December 31, 1997. The
allowance for doubtful notes receivable at December 31, 1998, was $1,521,000 as
compared to $739,000 at December 31, 1997. Notes receivable are the result of
converting aged accounts receivable into interest 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 $108,000 or 0.4% of the Company's revenues for 1998 and $3,627,000 or
4.5% of the Company's revenues for 1997.

       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, 1998, the Company's inventory reserve was $592,000, which
the Company believes is currently adequate for obsolescence and net realizable
value, given the size and nature of its


                                      25
<PAGE>

inventories. The amounts the Company will ultimately realize could, however
differ materially from the amounts estimated in arriving at the inventory
reserve.

       Based on currently proposed plans and assumptions relating to its
operations, the Company believes that with the funds raised in both the
Offering and the subsequent exercise of $1,000,000 warrants, projected cash
flow from operations and available cash resources, should be sufficient to
satisfy its near-term cash requirements. However, the Company is seeking
to obtain a new line of credit to finance future growth. There can be no
assurance that additional financing will be available to the Company on
commercially reasonable terms, or at all. 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 wireless
equipment. In addition, the Company intends on establishing more stringent
criteria to evaluate creditworthiness prior to extending credit to customers
and limit the risk of additional bad debt with credit insurance. No assurance
can be given that these measures will help to alleviate the liquidity
concerns faced by the Company.

       The Company's Common Stock is currently traded on the Nasdaq SmallCap
Market. In order to continue to be listed on Nasdaq, however, the Company must
maintain certain requirements. In January 1999, the Company received a notice
from Nasdaq that it planned to delist the Company's Common Stock based on
Nasdaq's determination that the Company will be unable to continue to maintain
compliance with Nasdaq's minimum net worth requirement. The Company has appealed
this determination to a Nasdaq panel hearing that will be held in April 1999.
Although the Company is currently in compliance with Nasdaq's net worth
requirement and believes that it has presented to Nasdaq a viable business plan
for maintaining compliance with this requirement, there can be no assurance that
the Company will succeed in its appeal. If Nasdaq were to delist the Company's
Common Stock, the lack of a Nasdaq listing of its securities could make it more
difficult for the Company to do any equity financings in the future.

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

       OVERVIEW AND BACKGROUND
       The Company is implementing a project (the Project) to address the Year
2000 readiness of its information technology as well as its non-information
technology systems (e.g. telephones, alarm systems, office machines, etc.) which
have embedded technology (collectively referred to as Systems). Additionally,
the Project includes assessment of the Year 2000 readiness of the Company's
significant suppliers and customers.

       STATUS OF THE PROJECT
       The Project is divided into four separate phases - Planning and
Awareness, Inventory, Assessment and Renovate.

       The Planning and Awareness phase began in November 1998 and is scheduled
for completion in early May 1999. This phase included: (I) development and
approval of the Project charter, (ii) formation of a


                                      26
<PAGE>

Project management team to carry out the Project charter, (iii)
identification and assessment of overall Project risks and (iv) development
of a Project budget. Because the Company does not believe that its customers'
Year 2000 compliance issues will have a significant impact on the Company,
the Company plans on conducting informal conversations about Year 2000 issues
with its customers.

       In April 1999, the Company will implement the Inventory phase of the
Project, which involves: (i) identification of significant Systems to be
assessed and (ii) identification of all significant suppliers and customers.

       The Assessment phase is scheduled to begin in May 1999, with an
anticipated completion date of August 1999. This phase involves (i) contacting
vendors of significant Systems to assess the Year 2000 readiness of those
Systems, (ii) testing of the assertions made by significant Systems vendors,
(iii) contacting significant suppliers, customers and wireless network operators
in order to ascertain their state of Year 2000 readiness, (iv) assessment of
assertions made by significant suppliers and customers, (v) determination of the
extent to which renovation will be required to insure Year 2000 readiness and
(vi) development of contingency plans to the extent considered necessary.

       Once the Assessment phase is completed for each System, the Renovation
phase will commence for those Systems identified as not Year 2000 compliant. The
Renovation phase is projected to be completed by mid 1999. The activities that
will be performed during Renovation include (i) repairing, replacing or
reprogramming all significant Systems that do not comply with Year 2000
readiness, (ii) testing and validation of renovated Systems and (iii)
establishment and completion of action plans to address any Year 2000 issues
with significant customers and suppliers.

       COSTS
       The Company will rely primarily on internal resources to implement and
fund the Project. Costs incurred to insure the Company's systems are Year 2000
compliant are not expected to exceed $25,000 or to be material to the Company's
results of operations, financial position or cash flows since the Company has
already been in the process of upgrading certain Systems to keep pace with new
computer and software technologies. Project costs are and will be expensed as
incurred.

       RISKS AND CONTINGENCIES
       The Company believes that the Project will meets its Year 2000 objectives
in a timely manner. However, the Company has not completed significant portions
of the Project. The ability of suppliers and customers with which the Company
transacts to timely convert their systems to be Year 2000 compliant is
uncertain. Lastly, disruptions in the economy generally resulting from Year 2000
issues could also have an adverse affect on the Company's operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial position.

       The Company is dependent on wireless equipment manufacturers for supply
of wireless handsets and accessories. Additionally, demand for the Company's
products (wireless handsets and accessories) by the Company's customers is
dependent on the ability of network operators to provide wireless network
services to the end-users of those products. Failure in the products and/or
systems of the wireless equipment manufacturers or network operators, including
those resulting from a lack of Year 2000 compliance, could have a material
adverse effect on the Company.

       The estimated completion dates for the various phases and estimated costs
are dependent upon management's assumptions of certain future events, such as
compliance efforts, the availability of personnel and ability to locate and
renovate all Systems. There can be no assurance that third parties which the
Company significantly relies upon will succeed in their Year 2000 compliance
efforts or that failure by third parties would not have a material adverse
effect on the Company's results of operations or financial condition.


                                      27
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       The financial statements appear in a separate section of this report as
pages F-1 through F-30 following Part IV. The unaudited Quarterly Results of
Operations are as follows (in thousands except per share data):

<TABLE>
<CAPTION>
1998                                       FIRST            SECOND            THIRD            FOURTH
<S>                                       <C>              <C>               <C>              <C>
Net sales                                  $9,931           $8,685            $4,142           $5,029

Gross profit                                  374              649               122              490

Net loss                                   (1,175)            (562)             (840)            (192)

Net loss per share                          (0.27)           (0.13)            (0.19)           (0.04)

<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

Net loss                                     (382)             (48)           (2,033)          (3,653)

Net loss per share                          (0.08)           (0.01)            (0.46)           (0.82)

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
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 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 most recent fiscal years, the


                                      28
<PAGE>

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.

       On May 10, 1998, BDO Seidman, LLP the accounting firm that audited the
Company's financial statements at December 31, 1996 and 1997 and for the
years ended December 31, 1996 and 1997, resigned as the Company's independent
auditor. The report of BDO Seidman, LLP for the fiscal years ended December
31, 1996 and 1997 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, 1996 and 1997, and during the interim period prior to BDO
Seidman LLP's resignation, there were no disagreements on any matter of
accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of BDO Seidman, LLP would have caused it to make a reference to
the subject matter of the disagreements in connection with its reports.

       The Company did not consult with BDO Seidman, LLP in relation to any
financial statements or filings subsequent to May 10, 1998, including the
Company's quarterly reports on Form 10-Q filed during 1998 and the Offering.
BDO Seidman, LLP has disclaimed any association with such filings and
Offering.

       Effective May 10, 1998, the Company engaged Hollander, Lumer & Co. LLP
as its independent auditors to audit the Company's annual financial
statements for the year ended December 31, 1998. During the Company's two
most recent fiscal years, and the subsequent interim period prior to the
engagement of Hollander, Lumer & Co. LLP, neither the Company nor any person
acting on behalf of the Company consulted Hollander, Lumer & Co. 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.

       The Company engaged its current auditors, Hollander, Lumer & Co. LLP,
that audited the Company's financial statements for the year ended December
31, 1998, to re-audit the Company's financial statements for the years ended
December 31, 1997 and 1996.

                                      29

<PAGE>

                          PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding the executive
officers, directors, and key employee of the Company as of March 26, 1999:

<TABLE>
<CAPTION>

          Name               Age                      Position
---------------------------  ---  ----------------------------------------------
<S>                          <C> <C>
Executive Officers and Directors:
Ben Neman..................  41  Chairman of the Board and President
John Swinehart.............  42  Chief Executive Officer and Director
Stephen Jarrett............  45  Executive Vice President of Sales and Director
Michael Hedge..............  43  Executive Vice President
David Kane.................  36  Chief Financial Officer
Michael King...............  35  Vice President of Marketing and Business
                                   Development
Vinay Sharma(1)(2).........  51  Director
J. Sherman Henderson(1)(2).  54  Director
Mark M. Laisure............  29  Director

Key Employee:
Meir Abramov...............  29  Vice President

</TABLE>

(1) Member of the Audit Committee
(2) Member of the committee administering grants to executive officers under
the Company's stock option plans.

     Ben Neman, a founder of the Company, has been Chairman and President of
the Company since its inception in January 1991 and served as the Company's
Chief Executive Officer from the Company's inception through November 1998.
From September 1983 to January 1991, Mr. Neman was the owner and President of
Car Tronics of California, a company engaged in the retail sale of cellular
and other automotive electronic consumer products.

      John Swinehart was appointed as Chief Executive Officer and a director
of the Company in November 1998. Mr. Swinehart has also served as President
and Chief Financial Officer of Biltmore Homes, a midwestern homebuilder and
developer, since March 1996. From 1986 to March 1996, Mr. Swinehart served as
Vice President of Allied Broadcast Equipment, an international broadcast-
equipment distribution company. In 1980, Mr. Swinehart received his certified
public accountant certificate.

      Stephen Jarrett became Executive Vice President of the Company in
January 1998 and a director of the Company in March 1998. From 1994 to
January 1998, Mr. Jarrett served as Western Zone Regional Sales Manager for
Sony Wireless.

      Michael Hedge was appointed Executive Vice President in January 1998.
From 1987 to 1997, Mr. Hedge was employed by Cellstar Corporation, a leader
in telecommunications distribution.  He served in various roles at Cellstar,
including Vice President of U.S. Sales and Marketing and as a director.

      David Kane was appointed Chief Financial Officer of the Company in
August 1998. Prior to joining the Company, Mr. Kane was Chief Financial
Officer of Grand Havana Enterprises from January 1997 to February 1998. From
July 1995 to

                                       30

<PAGE>

November 1996, Mr. Kane was the Director of Finance for Virgin Records
America. From May 1994 to June 1995, Mr. Kane was the controller of Hemdale
Home Video. Prior to such time, Mr. Kane was a certified public accountant
with Arthur Andersen & Co.

      Michael King was appointed Vice President of Marketing and Business
Development in January 1998.  Prior to joining Intellicell, Mr. King served
in key positions at leading telecommunications companies, most recently as
Accessory Strategic Director for Philips Consumer Communications.  Prior to
joining Phillips, Mr. King acted as Director of Marketing at Cellstar
Corporation.

      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 and CEO of UniDial
Communications, a long-distance phone service reseller and full service
distributor of telecommunications products and service founded by Mr.
Henderson.

      Mark M. Laisure was appointed as a director of the Company in November
1998. Since 1995, Mr. Laisure has been a Vice President of Shields & Company,
an investment brokerage firm. In addition, Mr. Laisure has acted as a
consultant to (a) Inktomi Corporation, a developer and marketer of network
information and infrastructure applications, since June 1996, (b) Milcom, a
technology development company which invests in new technology companies,
since September 1997, (c) Stat Health Care, a provider of emergency room
management services, since June 1991, and (d) Starstruck Records since August
1995. From 1994 to 1995, Mr. Laisure was a senior investment manager at Paine
Webber.

      In addition to the Company's executive officers and directors, Meir
Abramov is a key employee of the Company. Mr. Abramov joined the Company in
1993 and serves as a Vice President of the Company in charge of purchasing
and large account sales.

      Directors serve until the next annual meeting or until their successors
are elected and qualified, or appointed. Officers are elected by and serve at
the discretion of the Board of Directors. There are no family relationships
among the officers or directors of the Company.

ARRANGEMENTS AND UNDERSTANDINGS WITH DIRECTORS
----------------------------------------------

      In connection with a private placement of notes in November 1998 (the
"Note Offering"), the Company agreed to appoint two persons designated by the
investors in the Note Offering to the Company's Board of Directors. In
November 1998, the Company increased the size of the Board to six and
appointed John Swinehart and Mark M. Laisure (the persons designated by the
investors in the Note Offering) to the Board of Directors.

      The Company also formed an advisory committee to the Board of Directors
in connection with the Note Offering. This committee has no formal powers or
responsibilities but assists the Board of Directors in providing strategic
planning for the Company. Members of this committee receive no compensation
for service on such committee. The current members of this

                                       31
<PAGE>


committee are Mark M. Laisure, John Swinehart, Alan
Bluestine, Ben Neman, Stephen Jarrett, Paul Skjodt and David Kane.

      The Company agreed, until December 17, 1999, if so requested by Sands
Brothers & Co., Ltd. ("Sands"), the representative of the underwriters of the
Company's initial public offering and the Company's financial advisor, 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 Alan M. Bluestine, a
managing director of Sands, as a non-voting advisor to the Company's Board of
Directors on June 6, 1997.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------------------------------------

      Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and certain of its officers, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "Commission"). Officers, directors and greater than
10% stockholders are required by the Commission's regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon a
review of the copies of the forms furnished to the Company and the
representations made by the reporting persons to the Company, the Company
believes that during the year ended December 31, 1998, its directors,
officers and 10% stockholders complied with all filing requirements under
Section 16(a) of the Exchange Act, with the exception of the following:
Stephen Jarrett made two late filings reporting four transactions, Michael
King made one late filing reporting one transaction, Michael Hedge made one
late filing reporting one transaction, Paul Skjodt made one late filing
reporting one transaction, Mark M. Laisure made two late filings reporting
one transaction, John Swinehart made two late filings reporting one
transaction, David Kane made two late filings reporting two transactions, J.
Sherman Henderson made one late filing reporting three transactions, and
Vinay Sharma made one late filing reporting four transactions.

ITEM 11.  EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION
----------------------

      The following table sets forth the compensation for the years ended
December 31, 1996, 1997 and 1998 paid by the Company to its chief executive
officers and to one other executive officer of the Company who received
compensation in excess of $100,000 for the year ended December 31, 1998 (the
"named executive officers").  No other executive officers received
compensation exceeding $100,000 during the last fiscal year.

<TABLE>
<CAPTION>

                                Summary Compensation Table
                                --------------------------
                                                                                   Long-Term
                                                                                  Compensation
                               Annual Compensation(1)                                Awards
                               ----------------------                             ------------
                                                                     Other         Securities
        Name and                                                     Annual        Underlying
   Principal Position          Fiscal Year   Salary($)    Bonus   Compensation    Options (#)
   ------------------          -----------   ---------    -----   ------------    -----------
<S>                              <C>          <C>            <C>       <C>           <C>
Ben Neman                        1998         70,170         --        --                --
  Chairman of the Board,         1997         72,000         --        --                --
  President, and Chief           1996         72,000         --        --            12,000(4)
  Executive Officer(2)

</TABLE>

                                       32
<PAGE>

<TABLE>

<S>                              <C>         <C>         <C>           <C>          <C>
John Swinehart                   1998          5,210         --        --           200,000(5)
  Chief Executive Officer
  and Director(3)

Stephen Jarrett                  1998        115,000     20,000        --           100,000(6)
  Executive Vice President

</TABLE>

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

(1)  The compensation described in this table does not include medical
insurance, retirement benefits and other benefits received by the executive
officers which are available generally to all employees of the Company and
perquisites and other personal benefits received by these executive officers
of the Company, the value of which does not exceed the lesser of $50,000 or
10% of the executive officer's cash compensation in the table.
(2)  Mr. Neman served in the capacity of Chief Executive Officer only through
November 1998.
(3)  Mr. Swinehart became Chief Executive Officer in November 1998.
(4)  The options have an exercise price of $5.50 per share and vest one-third
each year for three years.
(5)  The options have an exercise price of $1.00 per share.  Of these
options, 5/6 were immediately exercisable and 1/6 were to vest upon exercise
of the warrants issued upon the conversion of the notes offered in the
November 1998 private placement. These warrants were exercised in full in
March 1999 making all of these options currently exercisable.
(6)  The options were granted in two separate grants of options to purchase
50,000 shares of common stock.  The first grant was made with an exercise
price of $4.375, a ten year expiration, and vesting one-third each year for
three years.  These options were later repriced to $1.00.  The second grant
was made with an exercise price of $0.375 per share, a five year expiration,
and vesting one-third each year for three years.

STOCK OPTION GRANTS AND EXERCISES IN 1998
-----------------------------------------

      The following table sets forth the grants of stock options to the named
executive officers during 1998.

<TABLE>
<CAPTION>
                                    Option Grants During 1998
                                    -------------------------

                               Percentage
                               of Total
                   Number of   Options                          Potential Realizable Value at
                   Securities  Granted to                       Assumed Annual Rates of Stock Price
                   Underlying  Employees  Exercise              Appreciation for Option Term(3)
                   Options     During     Price Per Expiration ------------------------------------
Name               Granted     1998       Share     Date           0%           5%          10%
----               ---------- ---------- ---------  ---------- ----------- ------------ -----------
<S>                 <C>           <C>       <C>     <C>        <C>         <C>           <C>
Ben Neman..........       0       --        --           --         --          --           --
John Swinehart(1).. 200,000       50%       $1.00   10/14/08    $50,000    $207,224      $448,436
Stephen Jarrett(2).  50,000       12.5%     $1.00    1/08/08   $168,750(4) $306,321(4)   $517,381(4)
                     50,000       12.5%     $0.375  10/14/03    $43,750     $61,018       $81,907

</TABLE>

-----------
(1)  The options have an exercise price of $1.00 per share and were granted
on October 14, 1998.  Of these options, 5/6 were immediately exercisable and
1/6 were to vest upon exercise of the warrants issued upon the conversion of
the notes offered in the November 1998 private placement.  These warrants
were exercised in full in March 1999, making all of these options currently
exercisable.
(2)  The options were granted in two separate grants of options to purchase
50,000 shares of common stock.  The first grant was made on January 9, 1998
with an exercise price of $4.375, a ten year expiration, and vesting
one-third each year for three years.  These options were later repriced to
$1.00.  The second grant was made on October 14, 1998 with an exercise price
of $0.375 per share, a five year expiration, and vesting one-third each year
for three years.
(3) Potential realizable values are computed by multiplying the number of
shares of common stock subject to a given option by closing market price on
the date of grant for a share of common stock, assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rate shown in the table for the entire five or ten-year term of the option
and subtracting from that result the aggregate option exercise price. The 5%
and 10% assumed annual rates of stock price appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future common stock prices.
(4) Although these options were granted at the fair market value of $4.375 on
January 8, 1998, these numbers assume that the exercise price was $1.00 on
January 8, 1998 in order to reflect the value of the repricing.

      There were no stock options exercised by Messrs. Neman, Swinehart or
Jarrett during 1998.

                                       33
<PAGE>


      The following table sets forth information concerning the value of
unexercised stock options held by the named executive officers as of December
31, 1998:

<TABLE>
<CAPTION>

                             Aggregated Fiscal Year-End Option Values
                             ----------------------------------------

                          Number of Securities
                         Underlying Unexercised         Value of Unexercised
                                Options                In-the-Money Options At
                       Held At Fiscal Year-End(#)      Fiscal Year-End ($) (1)
                       ---------------------------   ---------------------------
Name                   Exercisable   Unexercisable   Exercisable   Unexercisable
-----                  -----------   -------------   -----------   -------------
<S>                     <C>             <C>           <C>             <C>
Ben Neman                 8,000          4,000              $0              $0
John Swinehart          200,000              0        $400,000              $0
Stephen Jarrett          16,667         83,333              $0        $231,250

</TABLE>
-----------
(1)  Based on the difference between the exercise price and the fair market
value (the closing price of $3.00 reported by the Nasdaq SmallCap Market on
December 31, 1998).

DIRECTOR COMPENSATION
---------------------

      Directors do not currently receive any cash compensation for serving on
the Board of Directors.  Directors are eligible to participate in the
Company's stock option plans.  The Company granted J. Sherman Henderson and
Vinay Sharma each options to purchase 100,000 shares of common stock with an
exercise price of $3.81.  These options were later repriced to an exercise
price of $1.00.  The Company also granted options to purchase 200,000 shares
of common stock to Mark M. Laisure with an exercise price of $1.00.

EMPLOYMENT AGREEMENTS
---------------------

      The Company entered into a three-year employment agreement with Ben
Neman, the Company's then Chairman of the Board, Chief Executive Officer and
President, effective December 1996, which was automatically renewable and
provided for an annual base salary of $72,000 per year and bonus as
determined by the Board of Directors. The agreement provided that in the
event of termination without cause or as a result of a change in control, Mr.
Neman would receive a severance payment equal to his base compensation
through the term of the agreement. In November 1998, the Company entered into
a new employment agreement with Mr. Neman (the "Neman Agreement") that
superseded the prior employment agreement. Pursuant to the Neman Agreement,
Mr. Neman will serve as the Chairman of the Board and President of the
Company, but will no longer serve as its Chief Executive Officer. Mr. Neman
will receive an annual salary of $72,000 and may receive bonuses as
determined by the Board of Directors. The term of the Neman Agreement will
expire in November 2001; provided, however, that the Neman Agreement may be
earlier terminated by the Company under certain circumstances. Upon a
termination without cause as defined in the Neman Agreement, the Company will
make a severance payment to Mr. Neman of $500,000.

      The Company entered into a two-year employment agreement with Stephen
Jarrett, effective January 1998, for employment as Vice President of Business
Development with automatic renewals for successive one year periods, unless
either party gives notice otherwise.  Under the agreement, Mr. Jarrett will
receive a salary of $120,000 per year and incentive bonuses/commissions based
on quantity purchase criteria.

                                       34
<PAGE>


STOCK OPTION PLANS
------------------

      In October 1996, the Company adopted the 1996 Stock Option Plan, as
amended (the "1996 Plan"), and in February 1998 the Company adopted the 1998
Stock Option Plan, as amended (the "1998 Plan"), pursuant to which 460,000
and 540,000 shares of common stock, respectively, are currently authorized
for issuance upon the exercise of options designated as either (1) options
intended to constitute incentive stock options under the Internal Revenue
Code of 1986, as amended or (2) non-qualified options. Under the 1996 Plan
and the 1998 Plan, incentive stock options may be granted 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.

REPRICING OF OPTIONS
--------------------

      The following table sets forth certain information concerning the
repricing of the options of any executive officer during the last ten fiscal
years:

<TABLE>
<CAPTION>

                                         Ten-Year Option Repricings

                                                                                     Length
                           Number of                                                 of Original
                           Securities     Market Price    Exercise                   Option Term
                           Underlying     of Stock at     Price at     New           Remaining at
                           Options        Time of         Time of      Exercise      Date of
Name               Date    Repriced(#)    Repricing($)    Repricing    Price         Repricing
---------------    -----   ------------   -------------   ----------   -----------   ---------------
<S>              <C>         <C>             <C>           <C>           <C>          <C>
Stephen Jarrett  10/14/98    50,000          1.25          $4.375        $1.00        9.2 years

</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------

      During the fiscal year ended December 31, 1998, the full Board of
Directors decided all matters related to compensation, with the exception of
the grant of options to executive officers under the Company's stock option
plans.  Vinay Sharma and J. Sherman Henderson are the members of the
committee administering these grants under the stock option plans.  During
1998, two directors participated in deliberations on executive compensation
while they also served as executive officers:  Ben Neman (Chairman of the
Board, President and Chief Executive Officer until November 1998) and James
Bunting (Chief Operating Officer, Executive Vice President and director until
March 1998).  There are no interlocks between the Company and other entities
involving the Company's executive officers and directors who served as
executive officers or board members of other entities.

REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
----------------------------------------------------------

      The full Board of Directors decided all matters related to the
compensation of the executive officers of the Company, except for grants of
options to executive officers under the Company's stock option plans that
were made after formation of a committee to oversee such grants.  The current
Board of Directors consists of Ben Neman, John Swinehart, Vinay Sharma, Stephen

                                       35
<PAGE>


Jarrett, J. Sherman Henderson and Mark M. Laisure. Messrs. Swinehart and
Laisure became directors in November 1998, Mr. Jarrett became a director in
March 1998 and Mr. Henderson became a director in February 1998. Mr. Neman
serves as the Chairman of the Board and President of the Company. Mr.
Swinehart serves as the Chief Executive Officer of the Company. Mr. Jarrett
serves as Executive Vice President of the Company.

      The Company entered into a three-year employment agreement with Ben
Neman, the Company's then Chairman of the Board, Chief Executive Officer and
President, effective December 1996 (the "1996 Agreement"). Mr. Neman's
compensation for 1997 was governed by such agreement, which agreement was
superseded by a new three-year employment agreement in November 1998. Under
the 1996 Agreement, Mr. Neman received an annual salary of $72,000 per year
and such bonus as determined by the Board of Directors. In determining the
salary and bonus for the Chief Executive Officer, the Board of Directors
based its decisions upon the performance of the Company, as well as a review
of the performance of the Chief Executive Officer. During 1998, the Company
performed substantially below its performance during 1997, and the Board of
Directors did not award any bonus to Mr. Neman for 1998. Mr. Neman did not
participate in any decisions by the Board of Directors concerning his
compensation.

      The Company entered into a three-year employment agreement with James
Bunting, the Company's then Chief Operating Officer and Executive Vice
President, effective July 1996. Mr. Bunting's compensation for 1998 was
governed  by agreement, which provided for an annual salary of $70,000 per
year and such bonus as determined by the Board of Directors. In determining
the salary and bonus for the Chief Operating Officer, the Board of Directors
based its decisions upon the performance of the Company, as well as a review
of the performance of the Chief Operating Officer. During 1998, the Company
performed substantially below its performance during 1997, and the Board of
Directors did not award Mr. Bunting any bonus for 1998. Mr. Bunting did not
participate in any decisions by the Board of Directors concerning his
compensation. In March 1998, Mr. Bunting's employment as Chief Operating
Officer and Executive Vice President terminated and he resigned from the
Board of Directors.

      The Company entered into a three-year employment agreement with John C.
Snyder II, the Company's then Chief Financial Officer and Vice President,
effective April 1997. Mr. Snyder's compensation for 1997 was governed by such
agreement, which provided for an annual salary of $70,000 per year and an
annual bonus of $50,000. In providing for this salary and bonus for the Chief
Financial Officer, the Board of Directors based its decisions upon the market
rate of compensation for chief financial officers in similarly situated
companies and upon the experience and qualifications of Mr. Snyder. In March
1998, Mr. Snyder's employment as Chief Financial Officer terminated.

      The Company entered into a two-year employment agreement with Stephen
Jarrett, effective January 1998, for employment as Vice President of Business
Development with automatic renewals for successive one year periods, unless
either party gives notice otherwise.  Under the agreement, Mr. Jarrett will
receive a salary of $120,000 per year and incentive bonuses/commissions based
on quantity purchase criteria.  The repricing of the exercise price for
50,000 of Mr. Jarrett's options on October 14, 1999 from $4.375 to $1.00 was
intended to provide an appropriate incentive to Mr. Jarrett, because the
Board of Directors believed his salary was below the comparable industry
level.

      The Company believes that equity ownership by executive officers
provides incentive to build stockholder value and aligns the interests of
executive

                                       36
<PAGE>


officers with the interests of stockholders. Upon the hiring of executive
officers and other key employees, the Board of Directors will typically
recommend stock option grants to those persons under the Company's stock
option plans, subject to applicable vesting periods. Thereafter, the Board of
Directors will consider awarding grants on a periodic basis. The Board of
Directors believes that these additional grants will provide an incentive for
executive officers to remain with the Company. Generally, options will be
granted at the market price of the common stock on the date of grant and,
consequently, will have value only if the price of the common stock increases
over the exercise price. In determining the size of the periodic grants, the
Board of Directors will consider various factors, including the amount of any
prior option grants, the executive's or employee's performance during the
current fiscal year and his or her expected contributions during the
succeeding fiscal year.

      Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to publicly held companies for compensation exceeding $1 million
paid to certain of the corporation's executive officers. However,
compensation which qualifies as "performance-based" is excluded from the $1
million limit if, among other requirements, the compensation is payable upon
attainment of pre-established, objective performance goals under a plan
approved by the stockholders.

      The compensation paid to the Company's executive officers for the year
ended December 31, 1998 fiscal year did not exceed the $1 million limit per
officer, nor is it expected that the compensation to be paid to the Company's
executive officers for 1999 will exceed that limit. Because it is very
unlikely that the cash compensation payable to any of the Company's executive
officers in  the foreseeable future will approach the $1 million limit, the
Board of Directors has decided at this time not to take any action to limit
or restructure the elements of cash compensation payable to the Company's
executive officers. The Board of Directors will continue to monitor the
compensation levels potentially payable under the Company's cash compensation
programs, but intends to retain the flexibility necessary to provide total
cash compensation in line with competitive practice, the Company's
compensation philosophy and the Company's best interests.

      The foregoing report on executive compensation is provided by the Board
of Directors:  Ben Neman,  John Swinehart, Vinay Sharma, Stephen Jarrett, J.
Sherman Henderson and Mark M. Laisure.

PERFORMANCE GRAPH
-----------------

      The chart below sets forth a line graph comparing the performance of
the Company's common stock against Nasdaq Market Index and the Media General
Financial Service's Electronics Wholesale Index ("MG Group Index") for the
period from December 18, 1996 (the date on which the market price of the
Company's shares was first quoted by the Nasdaq SmallCap Market following the
Company's initial public offering) through December 31, 1998. The indices
assume that the value of an investment in the Company's common stock and each
index was 100 on December 18, 1996 and that dividends, if any, were
reinvested.

                               [GRAPHIC OMITTED]

                                       37
<PAGE>

<TABLE>
<CAPTION>

                            12/18/96      12/31/96      12/31/97      12/31/98
--------------------------------------------------------------------------------
   <S>                        <C>           <C>           <C>           <C>
   Intellicell Corp.          100.00        111.32         75.47         45.28
--------------------------------------------------------------------------------
   MG Group Index             100.00        100.00        108.94         89.74
--------------------------------------------------------------------------------
   Nasdaq Market Index        100.00        100.00        122.32        172.52
--------------------------------------------------------------------------------

</TABLE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of March 26, 1999, by
(i) each person who is known by the Company to own beneficially more than 5%
of the Company's outstanding common stock; (ii) each named executive officer;
(iii) each of the Company's directors; and (iv) all executive officers and
directors of the Company as a group.


<TABLE>
<CAPTION>
                                                  Amount and
                                                  Nature of
                                                  Beneficial       Percent of
   Name and Address(1)                            Ownership        Ownership(10)
-------------------------------------------     ----------------   ------------
<S>                                               <C>                  <C>
Ben Neman...................................      1,816,764(2)         26.2%
John Swinehart...............................       200,000(3)          2.8%
Stephen Jarrett.............................         16,667(4)          0.2%
Vinay Sharma................................        100,000(5)          1.4%
J. Sherman Henderson........................        120,000(6)          1.7%
Mark M. Laisure.............................        200,000(7)          2.8%
Paul Skjodt.................................      1,116,667(8)         15.7%
All executive officers and directors
 as a group (9 persons).....................      2,453,431(9)         31.7%

</TABLE>

-----------
(1)   Unless otherwise indicated, the address of each stockholder is c/o the
Company at 9314 Eton Avenue, Chatsworth, California 91311.

(2)   Includes 217,000 shares of outstanding common stock, which are
transferable to Meir Abramov (Vice President of the Company), upon the
exercise of stock options granted to Mr. Abramov by Mr. Neman.  Includes
8,000 shares issuable upon the exercise of currently exercisable stock
options, and excludes 4,000 shares issuable upon the exercise of stock
options, which will not be exercisable within 60 days of March 26, 1999.

(3)   Includes 200,000 shares issuable upon the exercise of currently
exercisable stock options.

(4)  Includes 16,667 shares issuable upon the exercise of currently
exercisable stock options, and excludes 83,333 shares issuable upon the
exercise of stock options, which will not be exercisable within 60 days of
March 26, 1999.

(5)  Includes 100,000 shares issuable upon the exercise of currently
exercisable stock options.

(6)  Includes 100,000 shares issuable upon the exercise of currently
exercisable stock options, and excludes 10,000 shares issuable upon the
exercise of warrants, which will not be exercisable within 60 days of March
26, 1999.  Mr. Henderson's address is 9931 Corporate Campus Drive,
Louisville, Kentucky 40223.

                                       38
<PAGE>

(7)  Includes 200,000 shares issuable upon the exercise of currently
exercisable stock options.

(8)  Includes 200,000 shares issuable upon the exercise of currently
exercisable stock options.  Mr. Skjodt's address is 25 West 9th Street,
Indianapolis, Indiana 96204.

(9)  Includes 824,667 shares issuable upon the exercise of currently
exercisable options and warrants, and excludes 297,333 shares issuable upon
the exercise of stock options and warrants, which will not be exercisable
within 60 days of March 26, 1999.

(10) Based on 6,915,902 shares of common stock outstanding on March 26, 1999.
 Shares issuable pursuant to currently exercisable stock options or warrants
are added to the number of outstanding shares for the purpose of calculating
each individual's percentage of ownership.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Cellular Specialists, a company controlled by Mr. Neman's brother, is a
customer of the Company.  For the year ended December 31, 1998, the Company
sold $307,696 of wireless products to this Company.  As of March 15, 1999,
$119,000 remains unpaid and is over 300 days past due.

      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, 1998, the Company sold to Digicell $1,577,000 and
purchased from Digicell $817,000 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 the firm
approximately $28,518 during the year ended December 31, 1998, 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 stock option plan and later repriced to $1.00 per share.  At the
time, options to purchase 50,000 shares of common stock (3,000 shares at
$5.00 granted in 1996, and 47,000 shares at $8.25 granted in 1997) under the
1996 stock option plan were canceled.

                                       39

<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-30 following the signature page.

(a)(2)   Financial Statement Schedules

         Schedule II - Valuation and Qualifying accounts page F-30

         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.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER  DESCRIPTION
------  -----------
<S>     <C>
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)

10.2    Form of Employment Agreement between the Registrant and Ben
        Neman, dated November 9, 1998. (1)

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

10.4    1998 Stock Option Plan (5)

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)


                                      40
<PAGE>

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   Amendment No. 3. to Loan and Security Agreement referred to in Exhibit
        10.9 (5)

10.12   Amendment No.4 to Loan and Security Agreement referred to in Exhibit
        10.9 (5)

10.13   Amendment No. 5 to Loan and Security Agreement referred to in Exhibit
        10.9 (5)

10.14   Termination Agreement and Mutual General Release to Loan and Security
        Agreement referred to in Exhibit 10.9 (5)

10.15   Redeemable Warrant to Purchase Common Stock dated November 19, 1998
        between the Registrant and members of the Investor Group. (5)

10.16   Employment Agreement between the Registrant and Ben Neman, dated
        November 25, 1998. (5)

10.17   Assignment of lease to Cellular Wholesalers, Inc of Lease Agreement
        referred to in Exhibit 10.8 (5)

10.18   Employment Agreement between the Registrant and Michael King, dated
        January 8, 1999. (5)

10.19   Employment Agreement between the Registrant and Michael Hedge, dated
        January 29, 1999. (5)

10.20   Registration Rights Agreement dated November 19, 1998 between the
        Registrant and the Investor Group. (5)

10.21   Subordinated Convertible Note dated November 19, 1998 between the
        Registrant and members of the Investor Group in the Company's November
        1998 private placement. (5)

27.     Financial Data Schedule (5)
</TABLE>
-------------------

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


                                      41
<PAGE>

(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)      Incorporated by reference to Registrant's Form 10-K filed with the
         Commission on April 15, 1998.

(5)      Incorporated by reference to Registrant's Form 10-K filed with the
         Commission on March 30, 1999.

(b)      Reports on Form 8-K:

         No report on Form 8-K were filed during the last quarter of fiscal 1998


                                      42
<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 amendment no. 2 to
the annual report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                         INTELLICELL CORP

Dated: August 4, 1999

                                         By: /s/ MICHAEL HEDGE
                                         ----------------------------
                                         Michael Hedge
                                         Chief Executive Officer


                                       43
<PAGE>

                                INTELLICELL CORP.

                                                            Financial Statements
                                    Years Ended December 31, 1996, 1997 and 1998


                                      F-1
<PAGE>

                                INTELLICELL CORP.

                          Index to Financial Statements

<TABLE>
<S>                                                                        <C>
Report of Independent Auditors                                              F-3

Balance sheets as of December 31, 1997 and 1998                             F-4

Statements of operations for the years ended December 31,
      1996, 1997 and 1998                                                   F-6

Statements of changes in stockholders' equity
      for the years ended December 31, 1996, 1997 and 1998                  F-7

Statements of cash flows for the years ended December 31,
      1996, 1997 and 1998                                                   F-8

Notes to financial statements                                              F-10

Schedule II - Valuation and qualifying accounts                            F-30
</TABLE>


                                      F-2
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Intellicell Corp.
Chatsworth, California

       We have audited the accompanying balance sheets of Intellicell Corp.
as of December 31, 1998 and 1997 and the related statements of operations,
changes in stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1998. We have also audited the financial
statement schedule listed in the accompanying Index. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement 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, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.

                                       HOLLANDER, LUMER & CO. LLP

Los Angeles, California
May 14, 1999


                                      F-3
<PAGE>

                                INTELLICELL CORP.

                                 Balance Sheets
                           December 31, 1997 and 1998

<TABLE>
<CAPTION>
                                                                                  1997                   1998
                                                                          ---------------------  ---------------------
<S>                                                                       <C>                    <C>
ASSETS
Current Assets:
     Cash                                                                   $                -     $          362,000
     Accounts receivable, net of allowance for doubtful
       accounts of $2,697,000 and $251,000                                           6,578,000              2,155,000
     Inventories, net of reserves of $550,000 and $592,000                           3,494,000                837,000
     Notes receivable, net of allowance for doubtful
       notes of $739,000 and $1,521,000                                                195,000                      -
     Deposits for purchase of inventory                                                271,000                254,000
     Prepaid expenses and other current assets                                         439,000                211,000
                                                                          ---------------------  ---------------------

 Total current assets                                                               10,977,000              3,819,000
Property and equipment, net of accumulated
  Depreciation of $98,000 and $242,000                                                 286,000                359,000
Goodwill, net of accumulated amortization of
 $23,000 and $100,000                                                                   77,000                      -
Deferred financing costs, net of accumulated
  amortization of $288,000 and $362,000                                                 74,000                      -
                                                                          ---------------------  ---------------------

  Total assets                                                              $       11,414,000     $        4,178,000
                                                                          ---------------------  ---------------------
                                                                          ---------------------  ---------------------
</TABLE>


                 See accompanying notes to financial statements.


                                      F-4

<PAGE>

                                INTELLICELL CORP.

                            Balance Sheets, continued
                           December 31, 1997 and 1998
<TABLE>
<CAPTION>
                                                                                   1997                         1998
                                                                        --------------------------   --------------------------
<S>                                                                     <C>                          <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Bank overdraft                                                       $                250,000     $                     -
     Revolving credit facility                                                           3,402,000                           -
     Accounts payable                                                                    3,425,000                   1,150,000
     Accrued expenses                                                                      304,000                     179,000
                                                                        ---------------------------  --------------------------

  Total current liabilities                                                              7,381,000                   1,329,000
                                                                        ---------------------------  --------------------------
Commitments and contingencies                                                                    -                           -
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, 4,415,902 and 5,915,902 shares
       issued and outstanding                                                               44,000                      59,000
     Additional paid-in capital                                                          9,809,000                  11,379,000
     Accumulated deficit                                                                (5,820,000)                 (8,589,000)
                                                                        ---------------------------  --------------------------

   Total stockholders' equity                                                            4,033,000                   2,849,000
                                                                        ---------------------------  --------------------------
                                                                        ---------------------------  --------------------------

   Total liabilities and stockholders' equity                             $             11,414,000     $             4,178,000
                                                                        ---------------------------  --------------------------
                                                                        ---------------------------  --------------------------
</TABLE>


                 See accompanying notes to financial statements.


                                      F-5
<PAGE>

                                INTELLICELL CORP.

                            Statements of Operations
                  Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
                                                                1996                    1997                    1998
                                                       ---------------------   ----------------------  ----------------------
<S>                                                    <C>                     <C>                     <C>
Net sales                                               $         81,225,000    $          81,401,000   $          27,787,000

Cost of sales                                                     77,555,000               77,862,000              26,152,000
                                                       ---------------------   ----------------------  ----------------------

Gross profit                                                       3,670,000                3,539,000               1,635,000

Selling, general and administrative expenses                       2,747,000                7,630,000               4,167,000

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

Income (loss) from operations                                        923,000              (5,391,000)             (2,532,000)

Other income (expense):
   Interest expense                                                (431,000)                (444,000)               (204,000)

   Other income (expense)                                             39,000                   53,000                (33,000)
                                                       ---------------------   ----------------------  ----------------------

Income (loss) before income
      tax expense (benefit)                                          531,000              (5,782,000)             (2,769,000)

Income tax expense (benefit)                                       (308,000)                  334,000                       -
                                                       ---------------------   ----------------------  ----------------------

Net income (loss) - Historical                          $            839,000    $         (6,116,000)   $         (2,769,000)
                                                       ---------------------   ----------------------  ----------------------
                                                       ---------------------   ----------------------  ----------------------

Basic earnings (loss) per share                                                 $              (1.37)   $              (0.63)
                                                                                ----------------------  ----------------------
                                                                                ----------------------  ----------------------

Diluted earnings (loss) per share                                               $              (1.37)   $              (0.63)
                                                                                ----------------------  ----------------------
                                                                                ----------------------  ----------------------

Pro forma amounts (unaudited)
  Income before income tax expense                     $             531,000
  Income tax expense                                                 216,000
                                                       ---------------------
  Net Income                                           $             315,000
                                                       ---------------------
                                                       ---------------------
  Basic earnings per share                             $                0.15
                                                       ---------------------
                                                       ---------------------
  Diluted earnings per share                           $                0.15
                                                       ---------------------
                                                       ---------------------

</TABLE>


                 See accompanying notes to financial statements.


                                      F-6
<PAGE>

                                INTELLICELL CORP.
                  Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                                          RETAINED
                                                 COMMON STOCK                                             EARNINGS
                                         ------------------------------   ADDITIONAL      (ACCUMULATED    DUE FROM
                                             SHARES        AMOUNT      PAID-IN CAPITAL    DEFICIT)        OFFICER        TOTAL
                                         -------------  -------------  ---------------  --------------- -------------  ---------
<S>                                   <C>               <C>            <C>              <C>             <C>            <C>
Balance at January 1, 1996                2,030,000     $ 100,000      $         -      $     94,000     $  (180,000)  $14,000,000

Net income for the period
       January 1, 1996 to
       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             -

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

Balance at December 31, 1997              4,415,902        44,000        9,809,000        (5,820,000)              -     4,033,000

Non-Cash compensation expense                     -             -          297,000                 -               -       297,000

Common stock issued
       pursuant to conversion
       of convertible notes offered
       in private placement
       (net of expense)                   1,500,000        15,000        1,273,000                 -               -     1,288,000

Net loss for the year                             -             -                -        (2,769,000)              -    (2,769,000)
                                      --------------    ----------     ------------     -------------     ----------  -------------

Balance at December 31, 1998              5,915,902     $  59,000      $ 11,379,000     $ (8,589,000)    $         -   $ 2,849,000
                                      --------------    ----------     ------------     ------------     -----------  -------------
                                      --------------    ----------     ------------     ------------     -----------  -------------
</TABLE>

                See accompanying notes to financial statements

                                      F-7

<PAGE>

                                INTELLICELL CORP.
                            Statements of Cash Flows
                 For the Years Ended December 1996, 1997 and 1998

<TABLE>
<CAPTION>
                                                                            1996                1997                1998
                                                                      ------------------  -----------------   -----------------
<S>                                                                   <C>                 <C>                 <C>
Cash flows from operating activities:
Net income (loss)                                                     $      839,000       $ (6,116,000)       $ (2,769,000)
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities
Depreciation and amortization                                                 91,000            303,000             234,000
Loss on disposal of fixed assets                                                   -                  -              48,000
Non cash compensation Expense                                                      -                  -             297,000
Provision for doubtful accounts receivable                                   380,000          2,888,000             108,000
Provision for inventory reserves                                             410,000            607,000             190,000
Provision for doubtful notes receivable                                            -            739,000                   -
Change in net deferred tax asset                                            (330,000)           330,000                   -
Changes in operating assets and liabilities:
  (Increase) decrease in accounts receivable                              (2,615,000)        (5,474,000)          4,510,000
  (Increase) decrease in inventories                                      (3,532,000)         2,336,000           2,467,000
  (Increase) decrease in deposits for purchases of inventory              (1,443,000)         1,172,000              17,000
  (Increase) decrease in other receivables                                  (500,000)           500,000                   -
  (Increase) decrease in prepaid  expenses and other current assets         (246,000)          (171,000)            228,000
  (Increase) decrease in other assets                                         53,000            (35,000)                  -
  Increase (decrease) in accounts payable and accrued expenses               177,000         (2,453,000)         (2,400,000)
                                                                      ---------------  -----------------   -----------------
Net cash provided by (used in) operating activities                       (6,716,000)        (5,374,000)          2,930,000
                                                                      ---------------  -----------------   -----------------
Cash flows from investing activities:
   Collection of notes receivable                                            218,000          1,698,000                   -
   Collection of advances to officer                                         192,000                  -                   -
   Collection of loans to employees and third parties                        211,000                  -                   -
   Acquisition of property and equiptment                                   (111,000)          (193,000)           (318,000)
   Proceeds from the sale of property and equiptment                               -                  -              40,000
                                                                      ---------------  -----------------   -----------------
Net cash provided by (used in) investing activities                          510,000          1,505,000            (278,000)
                                                                      ---------------  -----------------   -----------------
Cash flows from financing activities:
  Bank overdraft (payments)                                                  916,000           (762,000)           (250,000)
  Payments on loans payable                                               (1,490,000)                 -                   -
  Distributions to stockholders                                           (1,091,000)                 -                   -
  Deferred financing costs                                                  (176,000)          (112,000)             74,000
  Advances under credit facility                                          43,923,000         80,096,000          26,133,000
  Repayments under credit facility                                       (43,923,000)       (76,694,000)        (29,535,000)
  Proceeds from the sale of common stock                                   8,047,000          1,341,000           1,288,000
                                                                      ---------------  -----------------   -----------------
Net cash provided by (used in) financing activities                        6,206,000          3,869,000          (2,290,000)
                                                                      ---------------  -----------------   -----------------
Net increase in cash                                                               -                  -             362,000
Cash - beginning of period                                                         -                  -                   -
                                                                      ---------------  -----------------   -----------------
Cash - end of period                                                  $            -       $          -        $    362,000
                                                                      ---------------  -----------------   -----------------
                                                                      ---------------  -----------------   -----------------
</TABLE>


                 See accompanying notes to financial statements

                                      F-8
<PAGE>


                                INTELLICELL CORP.
                            Statements of Cash Flows
                                  (Continued)
<TABLE>
<CAPTION>
                                                                      1996                1997                1998
                                                                ------------------  -----------------   -----------------
<S>                                                             <C>                 <C>                 <C>
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
       Interest                                                 $         431,000   $        444,000    $        204,000
       Income taxes                                                        20,000            223,000                   -
Common stock acquired from officer as settlement
   of balance due from officer and retirement of such
   shares                                                                 180,000            454,000                   -
Conversion of trade receivable into notes receivable                      555,000          2,295,000             859,000
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           2,044,000
</TABLE>


                 See accompanying notes to financial statements


                                      F-9

<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


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 wireless (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 $4,985,000, $14,353,000 and
$2,237,000 for the years ended December 31, 1996, 1997 and 1998, 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 wireless handsets and accessories, are stated at
the lower of cost or market. Cost is determined using the weighted average
cost method. The Company has provided for 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)


REVENUE RECOGNITION

Revenue is recognized when wireless communication equipment is shipped to
customers. The Company generally does not allow returns unless goods are
defective and warrantied by the manufacturer.

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
lives used for depreciation range from three to seven 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 year 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 ended December 31, 1997 the Company
adopted this statement and restated EPS for the prior year accordingly. Under
SFAS No. 128, pro forma earnings per share for 1996 changed from $0.14 to $0.15
per share.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to credit risk
consist principally of trade

                                      F-11
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


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 several bank accounts at two commercial banks. Accounts at
banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000. The amount in excess of the FDIC limit totaled $215,000 as of December
31, 1998.

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.
However, in 1998, the Company recorded amortization of the remaining balance
of Goodwill.

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 a material impact on the Company's financial position or results of
operations.

STOCK-BASED COMPENSATION

As of January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123),
which established a fair value method of accounting for stock-based compensation
plans. In accordance with SFAS No. 123, the Company has chosen to continue to
account for stock-based compensation utilizing the intrinsic value method
prescribed in Accounting Principles Board (APB) Opinion No. 25. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock. Also, in accordance with SFAS No. 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.


                                      F-12
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


SEGMENT INFORMATION

As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information", (SFAS No. 131) issued by the FASB. 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 is one business segment, the wholesale distribution of wireless
products and accessories.

RECLASSIFICATION

Certain items in 1997 have been reclassified to conform with the 1998
presentation.

NOTE 3 -- PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:


                                      F-13
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                -----------------------------
                                                    1997              1998
                                                -----------       -----------
<S>                                             <C>               <C>
Office equipment, furniture and fixtures        $    78,000       $   197,000
Computer equipment                                  196,000           249,000
Computer software                                    31,000            31,000
Other equipment                                      54,000            51,000
Leasehold improvements                               25,000            73,000
                                                -----------       -----------

                                                    384,000           601,000
Accumulated depreciation                             98,000           242,000
                                                -----------       -----------

Balance                                         $   286,000       $   359,000
                                                -----------       -----------
                                                -----------       -----------
</TABLE>

Depreciation expense was $21,000, $63,000 and $157,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.

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 and 1998,
the Company converted $2,295,000 and $859,000, respectively, 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 and 1998, notes receivable
were $934,000 and $1,521,000 respectively


                                      F-14
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


with an associated allowance for doubtful notes receivable of $739,000 and
$1,521,000, respectively.

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 bore 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 was collateralized by substantially all of the
assets of the Company, prohibited the Company from paying dividends or
incurring additional indebtedness, except for trade indebtedness, and
required the Company to maintain a tangible net worth of $4,500,000 and
working capital of $1,500,000 subsequent to the closing of its initial
public offering.

In January 1998, the Company entered into a revolving line of credit
agreement with BankAmerica Business Credit, Inc. ("BankAmerica") which
provided 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 accrued interest at prime rate plus one half of one percent (0.5%)
per annum. The credit facility was collateralized by substantially all of the
assets of the Company. The agreement prohibited the Company from paying
dividends or incurring additional indebtedness except for trade indebtedness
and, initially, required 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 was 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 bore interest at the prime rate plus two and one-half percent
(2.5%) per annum. The revised credit agreement required 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 were included in the April
1998 revised agreement.

In August 1998, the Company executed a third amendment to the credit agreement
which reduced the maximum borrowing permitted under the agreement from $4
million to $1.2 million as of August 17, 1998 and to $1 million on September 1,
1998 , with such borrowings limited to the sum of 80% of eligible accounts
receivable and the lesser of $750,000 or 50% of eligible telephone inventory as
defined in the agreement. A $50,000 extension fee that the Company had
previously agreed to was restructured, with the Company paying $10,000 of such
fee on August 1, 1998 and agreeing that in the event that the obligations under
the BankAmerica loan were not paid in full prior to August 24, 1998, the Company
would be obligated to pay an additional extension fee of $15,000, on September
4, 1998 and subsequent monthly extension fees of $25,000 on the first day of
each month thereafter until all obligations under the loan were paid in full.
All other significant restrictive covenants and prohibitions of the credit
agreement, as amended were included in the August 1998 revised agreement.

In August 1998, BankAmerica waived the default of the tangible net worth
covenant through June 30, 1998 and revised the credit agreement. In this fourth
amendment, the Company and BankAmerica agreed that either party may terminate
the credit agreement, as amended at any time after October 31, 1998. In October
1998, BankAmerica and the Company further amended the agreement, extending the
term through November 30, 1998 and further limiting the borrowings to $400,000.

On November 24, 1998, utilizing a portion of the funding of the Company's
convertible note private placement (the "Offering"), the Company terminated its
credit agreement with BankAmerica paying the remaining outstanding balance of
the borrowings.

                                      F-15
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)

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
payable 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 former 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.

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 officer.

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 owned by him. These shares were subsequently cancelled (see Note
7).

PRIVATE PLACEMENT OF CONVERTIBLE NOTES

In November 1998, the Company consummated the Offering with an investor group
(the "Investor Group") and agreed to certain related transactions as follows:

ISSUANCE OF CONVERTIBLE DEBT

The Company issued $1,500,000 of unsecured, subordinated convertible notes
bearing interest of 2% per annum. The notes were convertible, at the option of
the Company and upon ratification of the Offering by the Company's stockholders,
into 1,500,000 units (the "Unit"). Each Unit consisted of one common share plus
one warrant to purchase two-thirds of a share of common stock at an exercise
price of $1 per share, or a total of 1,500,000 shares of common stock and
warrants to purchase 1,000,000 shares of common stock. Upon conversion of the
notes, the Company paid the accrued interest in cash.

The 1,000,000 warrants have a term of three years and are exercisable at any
time by the warrant-holders, but may be redeemed by the Company if the closing
bid price of the Company's common stock remains above $2 per share for a defined
period of time.

On December 30, 1998, the stockholders of the Company ratified the Offering
and as a result, the notes were converted into 1,500,000 shares of common
stock and the warrants described above were issued. On March 15, 1999, the
warrant holders exercised the warrants.

MANAGEMENT

The Company appointed a new Chief Executive Officer, with the former Chief
Executive Officer, continuing to hold the titles of President and Chairman of
the Board. This Chief Executive Officer will receive a salary of $50,000 per
year.

The Company has extended the employment agreement with the Company's President
and Chairman of the Board, for three years from November 1998. He will receive a
salary of not less than $72,000 per year and be subject to salary increases at
the discretion of the Board of Directors. In the case of a termination for
reasons other than cause, as defined, he shall be due severance of $500,000
payable upon said termination. In addition, during his employment, the President
has agreed to a lock-up agreement that restricts the amount of shares that he
can sell under certain circumstances.

                                      F-16
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)

REPRICING OF WARRANTS AND NEW WARRANT DIVIDEND

In November 1997, the Company declared a dividend in the form of a warrant to
its existing stockholders as of December 1997 (except the Company's President
and Chairman). For every two shares held, a warrant to purchase one share was
issued with an exercise price of $4 per share. These warrants are redeemable by
the Company if the closing bid price of the Common Stock remains above $7 per
share for a defined period. In conjunction with the Offering, the Board of
Directors agreed to reprice these warrants to an exercise price of $1 per share.
In addition, existing stockholders of record as of February 16, 1999 (other than
the President and Chairman and the Investor Group) will receive an additional
warrant to purchase one share at $1 per share, for every two shares held. This
new warrant will be redeemable by the Company if its common stock trade for a
period, as defined, above $2.00 per share. The repricing of the existing
warrants and issuance of the new warrants were ratified by the stockholders
on December 30, 1998. The warrants were valued at a total of $2,044,000
(based on Black-Scholes Model), which had no impact on the Company's results
of operations for the year ended December 31, 1998.

STOCK OPTIONS

Included in the options granted under the Company's stock option plans (the
"Plans"), the Company on March 5, 1998, granted five-year options to purchase an
aggregate of 300,000 shares of common stock under the 1998 Plan. Of such
options, 100,000 options were granted at an exercise price of $3.81 per share
(the fair market value of such stock on the date of grant) to each of two
outside directors of the Company and to a financial advisor. These options vest
in one year. A director subsequently agreed to the rescission and
cancellation of his granted 100,000 options prior to the options being vested.

In conjunction with the Offering, the Company issued 100,000 options to the
director who rescinded the 100,000 options discussed above, but at the lower
exercise price of $1 per share and repriced the exercise price to $1 for the
100,000 options previously granted to the other outside director. The Company
paid its financial advisor $50,000 upon the closing of the offering and
issued 150,000 warrants to purchase 150,000 shares of common stock at an
exercise price of $1, with the 100,000 options granted to the financial
advisor in March 1998 being rescinded and cancelled. On December 30, 1998,
these transactions were ratified by the stockholders. The new Chief Executive
Officer as described above received options to purchase 200,000 shares of
common stock at $1 per share. In addition, a new board member received
200,000 options of common stock at an exercise price of $1 per share. The
Company also granted options to purchase 200,000 shares of common stock as a
finders fee to an individual at an exercise price of $1 per share. All of the
foregoing 600,000 options were ratified by the stockholders on December 30,
1998. Of the options issued, 5/6ths will vest upon issuance, with the
remaining options of common stock vesting pro rata based on exercise and
redemption of the 1,000,000 Unit warrants. The 600,000 options were valued at
$486,000, of which non-cash compensation expense of $135,000 was recognized
for the options granted to an outside director that vested during 1998.

The Company accounted for the granted and non-cancelled options to outside
directors under the provisions of SFAS No. 123. The options vest in one year.
Non-cash compensation expense of $162,000 (based on Black Scholes Model) for
this was recognized during the year ended December 31, 1998.


                                      F-17
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)

STOCK OPTION PLANS

In October, 1996 and March, 1998 the Company adopted two stock option plans (the
"1996 Plan" and the "1998 Plan", the "Plans"), pursuant to which as amended,
options to purchase up to 1,000,000 shares ,cumulatively 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 Plans 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 Plans are administered by
a committee of the Board of Directors which, within the limitations of the

                                      F-18
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


Plans, determine 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 Plans 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.

Options to purchase Common Stock of the Company granted under the Plans were
280,750, 102,000 and 500,000 in 1996, 1997 and 1998, respectively, with such
options granted at the closing market value at the date of grant. Of the options
granted under the Plans, options forfeited were none, 103,000 and 288,000 in
1996, 1997 and 1998, respectively.

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, 1998.

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, 1998.

The Company applies APB No. 25 and related interpretations in accounting for its
options. Under APB No. 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.

SFAS No. 123, 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 SFAS No. 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, 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
and for grants in 1998: dividend yield of 0 percent; expected volatility of 180
percent; risk free interest rate varying between 4.25 and 4.55 percent; and
expected lives of 2 years.

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 No. 123. The Company's net income (loss) and earnings (loss) per share
for 1996, 1997 and 1998 would have been reduced (increased) to the pro forma
amounts indicated below:


                                      F-19
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


<TABLE>
<CAPTION>
                                          1996         1997           1998
                                        --------   -----------    ------------
<S>                                     <C>        <C>            <C>
  Net income (loss)
           As reported                  $839,000   $(6,116,000)   $ (2,769,000)
           Pro forma                    $807,000   $(6,252,000)   $ (2,948,000)

  Basic earnings (loss) per share
           As reported                    $ 0.40        $(1.37)        $ (0.63)
           Pro forma                      $ 0.38        $(1.40)        $ (0.67)

  Diluted earnings (loss) per share
           As reported                    $ 0.40        $(1.37)        $ (0.63)
           Pro forma                       $0.38        $(1.40)        $ (0.67)
</TABLE>

Due to the fact that the Company's stock option programs vest over many years
and additional awards are made each year, the above pro forma numbers are not
indicative of the financial impact had the disclosure provisions of SFAS No. 123
been applicable to all years of previous option grants.

Option valuation models require the input of highly subjective assumptions.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate in management's
opinion, the existing model does not necessarily provide a reliable single
measure of the fair value of its stock options.


                                      F-20

<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


A summary of the status of the Company's stock options and related information
for the years ended December 31, 1997 and 1998 is presented below:

<TABLE>
<CAPTION>
                                                                   WEIGHTED
                                                                    AVERAGE
                                          NUMBER      PRICE PER    EXERCISE
                                         OF SHARES      SHARE        PRICE
                                        ----------    ---------    --------
<S>                                     <C>          <C>           <C>
Outstanding at January 1, 1997            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
Granted                                 1,200,000    $0.38-$4.31     $1.19
Cancelled                                (200,000)      $3.81        $3.81
Forfeited                                (188,000)   $5.00-$8.25     $5.46
                                         ---------   -----------    ------
Balance at December 31, 1998            1,156,750    $0.38-$5.00     $1.48
                                        ----------   -----------    ------
                                        ----------   -----------    ------
</TABLE>

At December 31, 1996, 1997 and 1998 there were 114,250, 115,250 and 508,250
options to purchase common stock of the Company available for grant under the
plans, respectively. At December 31, 1998, there were 804,501 of such options
exercisable at prices ranging from $1.00 to $5.50 with a weighted average
exercise price of $1.52, and a weighted average fair value of options granted
during the year of $0.76.

The following schedule summarizes information about fixed stock options
outstanding at December 31, 1998.

<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            144,750          $5.00           2.8          96,500         $5.00
October 31, 1996             12,000          $5.50           2.8           8,000         $5.50
January 15, 1998             50,000          $1.00           4.0              --            --
October 14, 1998            120,000          $0.38           4.8              --            --
December 30, 1998           830,000          $1.00           8.6         700,001         $1.00
                            -------          -----           ---         -------         -----
                          1,156,750          $1.48           7.2         804,501         $1.52
                          ---------          -----           ---         -------         -----
                          ---------          -----           ---         -------         -----
</TABLE>

WARRANTS


                                      F-21
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


Pursuant its then outstanding revolving line of credit agreement, the Company
issued in October 1996 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,
1998.

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, 1998.

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. The warrants were valued at a
total of $1,983,000 (based on the Black-Scholes Model), which had no impact
on the Company's results of operations for the year ended December 31, 1997.
In December 1998, the stockholders ratified the Offering, which included the
repricing of these warrants' exercise price from $4.00 to $1.00.

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

<TABLE>
<CAPTION>
                                                             WEIGHTED-
                                                              AVERAGE
                                              NUMBER         EXERCISE
                                             OF SHARES         PRICE
                                             ---------       ---------
<S>                                          <C>             <C>
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         $1.00
                                             ---------       ---------
Balance at December 31, 1997                 1,476,732         $1.65
Warrants declared December 31, 1998          2,411,732         $1.00
                                             ---------       ---------


                                      F-22
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


<S>                                          <C>             <C>
Balance at December 31, 1998                 3,888,464         $1.25
                                             ---------       ---------
                                             ---------       ---------
</TABLE>

All warrants are exercisable as of December 31, 1998.

COMPUTATION OF EARNINGS (LOSS) PER SHARE

<TABLE>
<CAPTION>
                                                     FOR THE YEAR ENDED DECEMBER 31, 1998
                                                  -----------------------------------------
                                                     INCOME        SHARES       PER SHARE
                                                  (NUMERATOR)   (DENOMINATOR)    AMOUNT
                                                  -----------   -------------   ---------
<S>                                               <C>           <C>            <C>
Basic loss per share:
Net loss attributable to common stockholders       $(2,769,000)    4,415,902   $    (0.63)
                                                   ------------  -----------   -----------
                                                   ------------  -----------   -----------
</TABLE>

Options and warrants to purchase 5,045,214 shares were outstanding at December
31, 1998, 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, 1997
                                               -------------------------------------------------
                                                   INCOME        SHARES          PER SHARE
                                                 (NUMERATOR)   (DENOMINATOR)       AMOUNT
                                                 -----------   -------------      ---------
<S>                                              <C>           <C>              <C>
Basic loss per share:
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-23
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)

<TABLE>
<CAPTION>
                                                                     FOR THE YEAR ENDED DECEMBER 31, 1996
                                                              -------------------------------------------------
                                                                  INCOME            SHARES          PER SHARE
                                                                (NUMERATOR)      (DENOMINATOR)       AMOUNT
                                                                (PRO FORMA)
                                                                -----------      -------------      ---------
<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.

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
stockholders' 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 owned by him, to the Company. Such shares were subsequently cancelled (see
Note 6).

NOTE 8 -- COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

OPERATING LEASES

In November 1997, the Company began operations in a 12,800 square foot leased
warehouse and office facility in Miami, Florida. This lease was assigned to a
third party in June 1998. The lease had an initial monthly rental of $7,441 with
annual escalation. At the end of the initial lease term of five years and two
months, the Company had an option to extend the lease for an additional five
years.

In February 1998, 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.


                                      F-24
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


In May 1998, the Company subleased approximately one-third of its Chatsworth
facility for $6,694 per month through January 31, 2001 to a third party.

The Company is obligated under long-term operating leases for office and
warehouse facilities in Chatsworth, California through the year 2001. Future
minimum lease payments due under non-cancelable operating lease agreements are
as follows:

<TABLE>
<CAPTION>
     YEAR ENDING                                     SUBLEASE INCOME
     DECEMBER 31,                  AMOUNT                 INCOME
    -------------           -----------------        ---------------
    <S>                     <C>                      <C>
         1999                      203,445                  80,328
         2000                      203,445                  80,328
         2001                       18,495                   6,694
</TABLE>

Rent expense, net of sublease rental income for the years ended December 31,
1996, 1997 and 1998, was $84,000, $124,000 and $202,000, respectively.

Under the assignment of the Miami property, if the assignee defaults, the
Company will be obligated under the terms of the lease.

EMPLOYMENT AGREEMENTS AND OFFICERS' SALARIES

During the years ended December 31, 1996, 1997 and 1998, officers' salaries
aggregated $107,000, $297,000 and $352,000, respectively.

The Company's Board of Directors has extended the employment agreement of the
Company's President and Chairman of the Board, for three years from November
1998. He will receive a salary of not less than $72,000 per year and be subject
to salary increases at the discretion of the Board of Directors. In the case of
a termination for reasons other than cause, as defined, he shall be due
severance of $500,000 payable upon said termination. In addition, during his
employment, the president has agreed to a lock-up agreement that restricts the
amount of shares that he can sell.

The Company has entered into a three-year agreement, in January 1998, with an
officer and director which provides for an annual base compensation of $120,000.
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 if the employee 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.

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).


                                      F-25
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


MAJOR CUSTOMERS

During the years ended December 31, 1996 and 1997, a single customer accounted
for 16% and 12% of the Company's sales, respectively. The Company made nominal
sales in 1998 to this customer.

During the years ended December 31, 1996, 1997 and 1998, a second customer, who
is also the largest supplier discussed below and was a debt/equity holder until
1997 accounted for 17%, 11% and 6% 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, accounted for 26%, 12% and 6% of the Company's purchases during the
years ended December 31, 1996, 1997 and 1998, 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, $1,900,000 and $8,957,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.

LITIGATION

The Company is involved in various litigation matters that have resulted from
the normal course of business. In the opinion of Management, the aggregate
exposure or benefits of these matters will not have a material effect on the
Company's financial statements.


                                      F-26
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


NOTE 9 --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 stockholder 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:

<TABLE>
<CAPTION>
                                         YEAR ENDED DECEMBER 31,
                           ----------------------------------------------------
                                 1996             1997              1998
                              (PRO FORMA,
                              UNAUDITED)
                              -----------        ---------        ---------
<S>                           <C>                <C>              <C>
Current:
   Federal                     $ 415,000         $      --        $      --
   State                         113,000                --               --
                               ---------         ---------        ---------
                                 528,000                --               --
                               ---------         ---------        ---------
Deferred:
   Federal                      (271,000)          280,000               --
   State                         (41,000)           54,000               --
                               ---------         ---------        ---------
                                (312,000)          334,000               --
                               ---------         ---------        ---------
Pro forma taxes on income      $ 216,000         $      --               --
                               ---------         ---------        ---------
                               ---------         ---------        ---------
Provision for income taxes     $      --         $ 334,000               --
                               ---------         ---------        ---------
                               ---------         ---------        ---------
</TABLE>

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,
                                            ----------------------------------------------------
                                                   1996             1997              1998
                                               (PRO FORMA,
                                               (UNAUDITED)
                                               -----------      -----------       ----------
<S>                                            <C>              <C>               <C>
Income taxes at the federal statutory rate       $181,000       $(1,966,000)      $ (941,000)
State taxes, net of federal taxes                  31,000          (338,000)         (50,000)
Nondeductible expenses                              4,000            12,000          150,000
Adjustment to deferred tax asset                      ---               ---           72,000
Less: valuation allowance                              --         2,626,000          769,000
                                                ---------       -----------       ----------


                                      F-27

<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


<S>                                             <C>             <C>               <C>
As per statements of operations                  $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,
                                                       -------------------------------------
                                                            1997                   1998
                                                          ---------             ---------
<S>                                                   <C>                    <C>
Deferred tax asset:

   Inventory reserves                                  $    219,000          $    236,000
   Accounts and notes receivable allowances               1,368,000               706,000
   Net operating loss carryforward                        1,017,000             2,437,000
   Other                                                     41,000                21,000
                                                       ------------          ------------
Deferred tax asset                                        2,645,000             3,400,000
Deferred tax (liability):
   Depreciation                                             (19,000)               (5,000)
                                                       ------------          ------------
   Net deferred tax asset                                 2,626,000             3,395,000
   Valuation allowance                                   (2,626,000)           (3,395,000)
                                                       ------------          ------------
Net deferred tax asset                                 $         --          $         --
                                                       ------------          ------------
                                                       ------------          ------------
</TABLE>

For tax purposes the Company has available a federal net operating loss
carryforwards of approximately $6,602,000. The loss carryforwards will expire
through 2018. For state purposes, the Company has available net operating loss
carryforwards of approximately $3,300,000.

NOTE 10 -- RELATED PARTY TRANSACTIONS

During the years ended December 31, 1996, 1997 and 1998, the Company sold
approximately $423,000, $254,000 and $317,000, respectively, of products to a
company, that 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. On December 31, 1998, the Company
was


                                      F-28
<PAGE>

                                INTELLICELL CORP.

                          Notes to Financial Statements
                                   (Continued)


owed $139,000 by the company owned by the President's brother. This company
has agreed to a payment plan starting in March 1999, to settle this debt of
$10,000 per month bearing interest at 7% per annum.

A company owned by the President's cousins purchased cellular products from the
Company in the amounts of $87,000, $1,455,000 and $1,576,615 for the years ended
December 31, 1996, 1997 and 1998, respectively. The Company purchased cellular
products from this entity in the amount of $299,000 and $817,000 in 1997 and
1998, respectively and made no purchases in 1996.

During the year ended 1998, the Company paid legal fees to law firm where a
director is a partner in the amount of $28,518.

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,
in 1997 and $74,000 in 1998.

NOTE 12 -- GEOGRAPHIC AREA INFORMATION

The Company sells its products to customers in foreign countries. The
following summarized the sales to customers outside the United States:

<TABLE>
<CAPTION>
                                For the year Ending
                                    December 31,

                     1996               1997               1998
                     ----               ----               ----
<S>              <C>                <C>                 <C>
Mexico           $   560,000        $     65,000        $1,718,000
Peru                 239,000           6,723,000            68,000
Israel             1,341,000             571,000            30,000
Paraguay           1,782,000           1,825,000            88,000
Puerto Rico          348,000             325,000           109,000
Brazil               356,000           3,260,000            16,000
Colombia              59,000             388,000                -
Venezuela             26,000             882,000             1,000
Others               274,000             314,000           207,000
                 -----------        ------------        ----------
                 $ 4,985,000        $ 14,353,000        $2,237,000
                 -----------        ------------        ----------
                 -----------        ------------        ----------
</TABLE>


                                      F-29
<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        DEDUCTIONS          END OF
    DESCRIPTION                 OF PERIOD        EXPENSES           ACCOUNTS      (RECOUPMENTS)      THE PERIOD
----------------------------------------------------------------------------------------------------------------
<S>                             <C>             <C>               <C>             <C>               <C>
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

For the year ended
   December 31, 1998:
Allowance for doubtful
   accounts receivable        $2,697,000          $162,000   $     (859,000)(d)    $1,749,000(a)      $251,000
Allowance for doubtful
   notes receivables             739,000                --          859,000(d)        (77,000)(c)    1,521,000
Reserve for inventory
   obsolescence                  550,000           190,000               --          (148,000)(b)      592,000
</TABLE>

(a) Accounts written off
(b) Inventory written off
(c) Accounts collected of $54,000, accounts written off of $23,000
(d) Reclassification of reserve


                                     F-30