<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB

{X} Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended December 31, 1998. 

Or 

{ } Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Transition Period From __________ to ___________

Commission File Number 000-29032
                       ---------

                      CHAMPION COMMUNICATION SERVICES, INC.

           DELAWARE                                      76-0448005
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)

1610 WOODSTEAD COURT, SUITE 330
THE WOODLANDS, TEXAS                                       77380
(Address of Principal Offices)                           (Zip Code)

                                 (281) 362-0144
                (Issuer's Telephone Number, including area code.)

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

         Title of Each Class                Name of Exchange on which Registered
                 NONE                                      NONE

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

         Title of Each Class                Name of Exchange on which Registered
COMMON STOCK, PAR VALUE $.01 PER SHARE                    NONE

Check whether the issuer (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 periods that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. 
Yes [X]  No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B, and no disclosure will be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-KSB or any amendment to
this Form 10-KSB.
Yes [X]  No [ ]

State issuer's revenues for its most recent fiscal year.  $8,610,256

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)

As of March 18, 1999, there were 6,119,712 shares of common stock, $0.01 par
value, of the registrant issued and outstanding. The aggregate market value of
the voting stock held by non-affiliates of the registrant as of March 18, 1999
was $1,524,531 based upon the average bid and ask price of the common stock on
such date of U.S. $0.625 per share. For purposes of this computation, all
executive officers, directors and 10% shareholders were deemed affiliates. Such
a determination should not be an admission that such executive officers,
directors or 10% shareholders are affiliates.


<PAGE>   2

                      CHAMPION COMMUNICATION SYSTEMS, INC.


<TABLE>
<CAPTION>
                                      INDEX
                                                                                     PAGE NUMBER
                                                                                     -----------
<S>                                                                                  <C>
DOCUMENTS INCORPORATED BY REFERENCE .......................................................I

GLOSSARY OF TERMS ........................................................................II


                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS.........................................................1

ITEM 2.    DESCRIPTION OF PROPERTY........................................................13

ITEM 3.    LEGAL PROCEEDINGS..............................................................13

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF  SECURITY HOLDERS...........................13

                                     PART II

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................13

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS........14
             OF OPERATION.

ITEM 7.    FINANCIAL STATEMENTS...........................................................17

ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE......................................................17

                                    PART III

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;  COMPLIANCE
              WITH SECTION 16 (a) OF THE EXCHANGE ACT.....................................17

ITEM 10.   EXECUTIVE  COMPENSATION........................................................17

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................17

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................17

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K...............................................18

SIGNATURES................................................................................22
</TABLE>


<PAGE>   3

                       DOCUMENTS INCORPORATED BY REFERENCE


           The information required by Part III of this Annual Report on Form
10-KSB is incorporated by reference from the Registrant's definitive proxy
statement for the Registrant's 1999 annual meeting of shareholders.


<TABLE>
<S>         <C>                             <C>
Item  9     Directors and Executive         Incorporated by reference from "Nominees 
            Officers of the Registrant      for Election of Directors" of the Company's 
                                            definitive proxy statement to be filed pursuant 
                                            to Regulation 14A of the Securities Exchange Act 
                                            of 1934, as amended (the "Exchange Act"), for
                                            the Company's 1999 annual meeting of shareholders. The
                                            incorporated portions consist of all of the disclosures
                                            that appear in that Proxy Statement under the headings
                                            "Nominees for Election as Directors" and "Executive
                                            Officers."


Item 10    Executive Compensation           Incorporated by reference from "Executive
                                            Compensation" of the Company's definitive proxy
                                            statement to be filed pursuant to Regulation 14A of the
                                            Exchange Act for the Company's 1999 annual meeting of
                                            shareholders.

Item 11    Security Ownership of            Incorporated by reference from "Security
           Certain Beneficial Owners        Ownership of Certain Beneficial Owners and
           and Management                   Management" of the Company's definitive proxy
                                            statement to be filed pursuant to Regulation 14A of the
                                            Exchange Act for the Company's 1999 annual meeting 
                                            of shareholders.

Item 12    Certain Relationships and        Incorporated by reference from "Certain Relationships
           Related Transactions             and Related Transactions" of the Company's definitive
                                            proxy statement to be filed pursuant
                                            to Regulation 14A of the Exchange
                                            Act for the Company's 1999 annual
                                            meeting of shareholders.
</TABLE>



                                        i

<PAGE>   4



                                             GLOSSARY OF TERMS

Airtime Charges                      Charges to users of wireless communications
                                     services based on the actual minutes of 
                                     use.

Analog                               A transmission method employing a
                                     continuous(rather than pulsed or digital)
                                     electrical signal that varies in amplitude
                                     or frequency in response to changes in
                                     sound or other input impressed on a
                                     transducer in the sending device. Current
                                     SMR technology primarily uses analog
                                     transmission.

Bandwidth                            The relative range of frequencies that can
                                     be passed through a transmission medium
                                     between two defined limits without
                                     distortion. The greater the bandwidth, the
                                     more information the medium can carry.
                                     Bandwidth is measured in Hertz.

Base Station                         A station located at a specified site 
                                     authorized to communicate with mobile 
                                     units.

Cellular                             The wireless radio telephone service
                                     licensed by the FCC to provide services on
                                     a CMRS basis utilizing 50 MHz of spectrum
                                     in the 800 MHz band.

Channel                              A pathway for the transmission of
                                     information between a sending point and a
                                     receiving point; also referred to as
                                     "frequency." In SMR, a channel refers to a
                                     set of paired send and receive frequencies.
                                     Thus, a five-channel 800 MHz SMR actually
                                     has 10-25 kHz channels: five send channels
                                     and five receive channels.

Co-channel                           Relates to the authorization or operation
                                     of two transmitters on the same frequency,
                                     normally separated by some defined
                                     distance. Co-channel operators may not
                                     interfere with each other unless separated
                                     by sufficient distance or operated in a
                                     coordinated manner.

Commercial Mobile                    Mobile services that are provided for 
                                     profit, are interconnected to the PSN and 
                                     are available to the general public on a 
                                     non-discriminatory basis. These CMRS 
                                     providers historically have been referred
                                     to as "common carriers."

Community Repeater ("CR")            Conventional two-way radio systems 
                                     consisting of a control station, a repeater
                                     station and mobile and/or portable radios. 
                                     The repeater is shared by otherwise 
                                     unrelated users.

Conventional System                  A method of operation in which one or more
                                     radio frequency channels are assigned to 
                                     mobile and base stations but are not
                                     employed as a trunked group.

Digital                              A method of storing, processing and
                                     transmitting information through the use of
                                     distinct electronic or optical pulses.
                                     Digital transmission and switching
                                     technologies employ a sequence of discrete,
                                     distinct pulses to represent information,
                                     as opposed to the continuously variable
                                     analog signal.



                                       ii

<PAGE>   5



Dispatch                             A service provided to customers who want to
                                     transmit and receive short messages to and
                                     from a fleet of vehicles operating within
                                     range of the system's repeater.

800 MHz (SMR)                        As a group, the 280 channels of trunked SMR
                                     frequencies in the 800 MHz band with 25 kHz
                                     channel bandwidth.  The cellular radio
                                     frequencies are also in the 800 MHz band.

ESMR                                 Enhanced Specialized Mobile Radio. SMR
                                     multi-site digital networks, which are
                                     designed to provide integrated
                                     telecommunications services, including
                                     wireless, telephone, paging, data
                                     transmission and dispatch services. ESMR
                                     generally is used as a dispatch technology,
                                     although it also may be interconnected with
                                     the PSN to provide mobile telephone
                                     services. The Company does not provide ESMR
                                     services.

FCC                                  Federal Communications Commission.

Footprint                            The areas in which a company provides CR
                                     services. See Appendix I for the Company's
                                     footprint, i.e., a list of the 23 states
                                     and a map showing the location of the
                                     Company's CRs.

450-512 MHz Band                     450-470 MHz - A group of frequencies 
                                     operating with a narrow channel bandwidth,
                                     which is shared with an unlimited number of
                                     users (co-channel operation) utilizing an
                                     unlimited number of units.

                                     450-512 MHz - A group of frequencies
                                     operating with a narrow channel bandwidth,
                                     an unlimited number of users, and a limited
                                     number of units. Thus, user exclusivity on
                                     a particular frequency during a call is
                                     currently achievable in this band.

Hertz                                The unit for measuring the frequency with
                                     which an electromagnetic signal cycles
                                     through the zero-value state between lowest
                                     and highest state. One Hertz (abbreviated
                                     Hz) equals one cycle per second; kHz
                                     (kilohertz) stands for thousands of Hertz;
                                     MHz (megahertz) stands for millions of
                                     Hertz.

Loading                              The capacity utilization of a mobile
                                     communications system. The FCC requires
                                     licensees of trunked SMR systems to meet a
                                     one-time test of 70 units per channel
                                     within five years after receiving the
                                     license. If a licensee does not meet this
                                     loading requirement, the FCC may take back
                                     a proportionate number of the licensee's
                                     unloaded channels.

Major Metropolitan Areas             Metropolitan areas (as defined by the U.S.
                                     Office of Management  and Budget) with a
                                     population of 1,000,000 or more.

Major Trading Areas ("MTAs")         Service areas based on the 47 areas 
                                     contained in Rand McNally's 1992 Commercial
                                     Atlas and Marketing Guide, 123rd Edition, 
                                     except that: (1) Alaska is separate from 
                                     Seattle, (2) Guam and Northern Mariana 
                                     Islands are licensed as a single area, (3)
                                     Puerto Rico and the United States Virgin 
                                     Islands are licensed as a single area, and
                                     (4) American Samoa is licensed as a single
                                     MTA-like area. These modifications by the 
                                     FCC resulted in a total of 51 MTAs.



                                       iii
<PAGE>   6



900 MHz SMR                          As a group, the 200 channels of trunked SMR
                                     frequencies in the 900 MHz band with 12.5
                                     kHz channel bandwidth. The FCC initially
                                     licensed these channels only in the top 50
                                     markets. The FCC recently completed its
                                     auction of the remaining 900 MHz SMR
                                     channels for the 51 MTAs.

Paging                               A one-way communications service, from a
                                     base station to mobile or fixed receivers,
                                     that provides signaling or information
                                     transfer by such means as tone, tone-voice,
                                     tactile or optical readout. Paging services
                                     are provided on several bands, including
                                     the 450-512 MHz and 900 MHz bands.

PCS                                  Personal Communications Services. The
                                     newest technology in the wireless
                                     communication industry, PCS operates on the
                                     900 MHz (narrowband) and on the 2 GHz
                                     (broadband) frequency bands. PCSs are radio
                                     communications that encompass mobile and
                                     ancillary fixed communication that provide
                                     services to industry and business and that
                                     can be integrated with a variety of
                                     competing networks. Broadband PCSs, with a
                                     wider channel bandwidth, provide a greater
                                     variety of services than narrowband PCSs
                                     (e.g., broadband can provide a full voice
                                     and data transmission, but narrowband PCS
                                     generally is limited to one-way services).

Private Mobile Radio ("PMRs")        Two-way radio operations offering dispatch
                                     and other wireless communications services.
                                     These services generally cannot be
                                     interconnected to the PSN. An operator may
                                     provide such services on a discriminatory
                                     basis. Private Land Mobile Radio operators,
                                     which provide dispatch services in the
                                     bands below 800 MHz, are regulated as PMRS
                                     operators. These PMRS operators
                                     historically have been referred to as
                                     "private carriers."

PSN                                  Public Switched Network. Historically
                                     referred to as the "Public Switched
                                     Telephone Network" or "PSTN."

Repeater                             A device which automatically retransmits
                                     received signals on an outbound circuit,
                                     generally in an amplified form.

Roam(ing)                            A service offered by mobile communications
                                     providers which allows a subscriber to use
                                     a mobile phone while in the service area of
                                     another carrier.

Site                                 The location of a base station or repeater
                                     in a radio communications system.

Specialized Mobile Radio ("SMR")     A radio system authorized by the FCC in
                                     which licensees provide mobile
                                     communications services (other than radio
                                     location services) in the 800 MHz and 900
                                     MHz bands on a commercial basis to eligible
                                     entities, federal government entities and
                                     individuals. It is generally used as a
                                     dispatch technology. However, SMR may be
                                     interconnected with the PSN to provide
                                     telephone interconnect services.

Spectrum                             A term generally applied to radio
                                     frequencies.




                                       iv

<PAGE>   7



Switch                               A device that opens or closes circuits or
                                     selects the paths or circuits to be used
                                     for transmission of information. Switching
                                     is the process of interconnecting circuits
                                     to form a transmission path between users.

T-Band                               The group of channels operating at 470-512
                                     MHz previously assigned to the television
                                     segment.

Telephone Interconnect               Connection of a telecommunications device
                                     or service to the PSN. In SMR, telephone
                                     interconnect refers to the service provided
                                     to a customer which allows specified
                                     customer units to have the capability to
                                     connect directly to the PSN and thereby
                                     communicate with any other party that can
                                     be reached over the PSN.

Trunked System ("LTR")               A system that combines multiple channels
                                     with unrestricted access in such a manner
                                     that user demands for channels are
                                     automatically "queued" and then allocated
                                     to the first available channel. Compared to
                                     a conventional system, this method allows
                                     for the use of frequencies by more users
                                     and provides faster access than a
                                     conventional system, thereby reducing the
                                     likelihood of network congestion. LTR for
                                     "logic trunked radios" is one technology
                                     commonly used in trunked systems.

UHF                                  An ultra high frequency in the 450 - 512
                                     MHz bandwidth.

Unit                                 A base, mobile or hand held radio.



                                        v

<PAGE>   8



                                     PART I


ITEM 1.   DESCRIPTION OF BUSINESS

           This Annual Report on Form 10-KSB includes "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act") and Section 21E of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act."). All statements other than
statements of historical information provided herein are forward looking and may
contain information about financial results, economic conditions, trends and
known uncertainties. The Company cautions the reader that actual results could
differ materially from those expected by the Company, depending on the outcome
of certain factors, including those factors discussed in the Section of this
Annual Report on Form 10-KSB entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operation." Specifically, there can be no
assurance that the Company will be able to compete effectively, continue to sell
its licensed systems at a profit, increase its utilization on its 450 - 512 MHz
band systems, retain its key personnel or take any or all of the other actions
in this Annual Report. Readers are cautioned not to place undue reliance on
these forward looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to release to investors the result of any
revisions to these forward looking statements which may be made to reflect
events or circumstances after the date herein, including, without limitation,
changes in the Company's business strategy or planned capital expenditures, or
to reflect the occurrence of unanticipated events.

                                   THE COMPANY

           The Company provides high-powered CR and trunked SMR dispatch
services in the United States, currently serving approximately 3,900 customers
utilizing 30,000 subscriber units (either radio or base stations) in 22 states
in the United States. The Company's customers are principally businesses and
government agencies located in both metropolitan and rural geographic areas.

           Dispatch services are offered on the 450-512 MHz and 800 MHz bands.
Operators of these dispatch services are regulated as PMRS providers (i.e.,
private carriers) or as CMRS providers (i.e., common carriers). Under recent
changes to the FCC rules, an operator like the Company, provides service
pursuant to a frequency-specific, site-specific license issued by the FCC.
Additionally, an operator like the Company, will provide service to an entity
which is, itself licensed to operate on a specific frequency at a specific
location. A repeater that is operated as a PMRS is subject to more relaxed
regulatory requirements than a CMRS provider, such as cellular and certain SMR
or ESMR licensees. See "Current Business - Regulation."

           The Company primarily offers its dispatch services in the 450-512 MHz
bands. It also operates conventional and trunked dispatch services in the 800
MHz band. The Company is concentrating its business in the 450-512 MHz band
because it believes that it can exploit economies of scale by providing
extensive coverage, obtaining equipment at favorable prices and charging low
rates. However, there can be no assurance that this strategy will be effective.
In both the 450-512 MHz and 800 MHz bands, the Company operates CRs without a
license for individually licensed customers and it operates CRs and SMRs with
its own FCC license. None of the Company's Crs or SMRs are interconnected to
the PSN. All the Company's private carrier and SMR licenses are PMRS
licenses and thus are subject to less stringent regulatory requirements than
CMRS licenses. 

           The Company has determined that UHF trunking is its primary goal for
business operations in its targeted metropolitan areas. The pursuit of this
primary goal will transform the operations from a primarily conventional
community repeater business to trunked technology in selected major metropolitan
areas, eliminating single site repeaters and capitalizing upon the ability to
trunk numerous repeaters into a consolidated system with many channels offering
wide geographic coverage.

           In the past the Company has utilized independent dealers for sales
and service activities. In the future, the Company will play a greater part in
the management of its assets and customers by establishing



                                        1
<PAGE>   9
Company-owned sales and supporting services in the targeted markets. The Company
has purchased, and is negotiating purchases of dealerships in these markets to
fulfill this goal.

           Management has observed that over the last decade all spectrum has
increased in value, precipitated by a fixed supply and increasing utilization.
In the process of securing a limited number of licenses for its own use,
management of the Company discovered that it was highly successful at
identifying and acquiring exclusive licenses after obtaining requisite FCC
consent. The process is technical and lengthy. As a result of the Company's
successes from 1996 through 1998 in securing exclusive licenses, the Company was
able to obtain FCC consent to assignment and sale of licensed systems for in
excess of $5,700,000. Based on this experience, management recognizes the value
of spectrum and will continue to evaluate its position in each market to
maximize value to the Company.

           The Company is a Delaware corporation. Its principal place of
business is 1610 Woodstead Court, Suite 330, The Woodlands, Texas 77380. The
Company's telephone number is (281) 362-0144.


                                     HISTORY

           The Company was incorporated under the laws of the State of Delaware
on September 29, 1994, by Albert F. Richmond and David A. Terman. Pursuant to a
September 14, 1994, agreement with Motorola, the Company acquired 1,238 CRs in
November 1994. In December 1994, the Company acquired an additional 263 CRs from
Motorola through several agreements. There were no FCC licenses acquired through
this transaction. The Company acquired these CRs from Motorola on an "as is -
where is" basis for an aggregate purchase price of $5.29 million, which was paid
partly in cash and partly by proceeds due from Motorola to Champion
Communications Company, a company wholly owned by Mr. Richmond, in exchange for
the issuance of Common Stock to Messrs. Richmond and Terman and the delivery of
a promissory note to Champion Communications Company in the amount of
$3,177,505.

           Since acquiring the CRs from Motorola, the Company evaluated its
total mix of dispatch services. The Company identified markets in which it had
sufficient strength to build dispatch operations. The Company sold various
dispatch operations outside the markets identified for development (after
obtaining any necessary FCC consent). The Company established required support
systems, such as providing equipment rental and maintenance, licensing and
related services for customers for the markets targeted for development. In
particular, in an effort to increase its subscriber capacity, overall network
control and revenue potential, consistent with FCC rules, the Company has been
converting its systems in targeted markets to trunked systems. In both the
450-512 MHz band and the 800 MHz band, the Company, after obtaining any
necessary FCC consents, converted many of the individual licenses held by its
subscribers to consolidated licenses in its own name. As of March 1, 1999, the
Company operated 968 repeaters and held 239 exclusive licenses of which 57
licenses, or 24%, are in the 800 MHz band; 150 licenses, or 63%, are in the
470-512 MHz band; and 32 licenses, or 13%, are in the 450-470 MHz band. In
addition, the Company held 646 co-channeled licenses, of which 21 licenses are
in the 800 MHz band, 132 licenses are in the 470-512 MHz band, and 493 licenses
are in the 450-470 MHz band.

           In October 1994, the Company issued 658,000 shares to its employees,
officers and directors for $.50 per share, raising $329,000. In October 1995,
the Company entered into a letter of engagement with Britwirth Investment
Company, Ltd. ("Britwirth") pursuant to which Britwirth agreed to assist the
Company in raising capital. In November 1995, the Company raised $810,000
(resulting in net proceeds to the Company of $729,000 after payment of fees and
commissions) through the sale in Canada of warrants (the "Special Warrants") to
acquire Common Stock at $1.35 per Special Warrant. Britwirth received fees of
$81,000 and options to acquire up to 60,000 shares of Common Stock at CDN $3.70
per share exercisable until September 25, 1999. All of the Special Warrants were
converted automatically to Common Stock upon consummation of the Company's
initial public offering in Canada. No additional consideration was due on
conversion. In December 1995, the Company raised an additional $102,000 through
sales of its Common Stock to its existing stockholders, consultants and
employees at $1.35 per share and issued an additional 400,000 shares to Messrs.



                                        2
<PAGE>   10
Richmond and Terman in exchange for the November 15, 1995 cancellation of
$540,000 of the $3,177,505 indebtedness to Champion Communications Company,
which was incurred by the Company to finance the Company's acquisition of CRs
from Motorola. In September 1996, the Company raised approximately $1.5 million
in an underwritten public offering in Canada of 619,350 shares of its Common
Stock and warrants (the "Public Warrants") to acquire 619,350 shares of its
Common Stock. In connection with such offering, the Company registered its
Common Stock for trading on the Canadian Dealing Network. Also in connection
with this offering, the Company granted IPO Capital Corp. an Agent's Warrant
entitling IPO Capital Corp. to receive options to acquire 50,000 shares of
Common Stock at CDN $3.70 per share for a period of 18 months after completion
of the initial public offering. The Company exercised the Agent's Warrant on
behalf of IPO Capital Corp. upon the Ontario Securities Commission's issuance of
a receipt for the Company's prospectus. In September 1996, the Company raised
$410,865 through a private placement in the United States.

           The Public Warrants originally were scheduled to expire on March 28,
1998. The expiration date was extended by the Company to August 31, 1998 on
which date all of the unexercised public warrants expired.

           Since establishing its business in 1994, the Company experienced
operating losses for the years ended 1994, 1995 and 1996, and in 1997 and 1998
reported net income of over $2,281,000 and $56,000 respectively. The Company
currently has a negative working capital position. 


                              THE DISPATCH INDUSTRY

OVERVIEW

           Most businesses or service organizations with mobile work forces
require the ability to communicate with employees in order to conduct their
operations efficiently. They rely on radio communications as a tool to control
resources, personnel, materials and equipment in a cost-effective manner.
Dispatch services improve the efficiency and response time of such businesses
and organizations.

           The dispatch industry is a distinct segment of the wireless
communications industry, which also includes wireless telephone (cellular, PCS
and satellite), paging and data transmission services. Wireless telephone
services are designed for personal communications by providing two-way
communication among individuals. This segment of the industry refers to its
radios as "telephones" and is viewed as an extension of the traditional wireline
telephone network. Wireless telephones require a minimum seven digit dial-up
procedure and wireless telephone conversations typically average more than one
minute in duration. Paging services enable subscribers to contact an individual
or group of portable receivers which emit an audible, visual or tactile alert
and can sometimes record a numeric or alpha-numeric message. Paging systems
allow only the immediate transmission of a limited amount of information and
generally only provide one-way communication. Data transmission services are, at
present, primarily offered on data-only (non-voice) packet switched networks. In
contrast, dispatch services provide for the immediate transmission of
information, whether voice messages or data, to groups of mobile or portable
radio users. Companies use dispatch services to communicate among others and
provide task assignment and coordination. Dispatch services are designed to
provide bi-directional group communications and to allow the user to address
either entire groups, sub-groups or individuals with simple and rapid
push-to-talk call set-up procedures. Dispatch conversations are typically short
and allow for all participants to communicate with each other simultaneously.
Dispatch services are less expensive than other CMRs wireless communications
services, such as 800 MHz and 900 MHz SMR, cellular and PCS.



                                        3
<PAGE>   11
           Each segment of the wireless communications industry relies on a
different technology and serves distinct customer needs. The Company believes
that the various services address distinct markets and generally do not compete
effectively against each other. The Company believes the wireless communications
industry will continue to grow with the emergence of new technologies and
applications. There can be no assurance, however, that this growth will continue
or that the Company's targeted markets will flourish. A decrease in the growth
rate of the industry may have a material adverse effect on the Company's ability
to prosper.

HISTORY OF DISPATCH NETWORKS

           The dispatch industry is comprised of operator-licensed systems.
The Company currently provides both of these dispatch services. In the 800 MHz
and 900 MHz bands trunked dispatch systems are referred to as SMRs or ESMRs.
These systems are operated by licensees that provide dispatch services to others
for a monthly fee. In contrast, providers of dispatch services, such as the
Company, derive revenues from the sale, rental and servicing of end-user
equipment and from dispatch fees.

           The development of military wireless communications in the 1940s led
to the first dispatch systems for business and industrial use. Shared repeater
services, the predecessors to SMR systems, developed in the early 1970s as
available radio spectrum became increasingly scarce. By the mid-1980s, the
number of commercial users in major urban areas was surpassing the capacity of
shared repeater services, and trunked SMR systems were introduced to satisfy the
increasing demand for dispatch services.

           Implementation of emerging, spectrum-efficient digital switching and
transmission technologies will increase dispatch system capacity even further.
These new technologies are currently being implemented on ESMR systems. However,
the Company has no current plans to operate ESMR systems.


DISPATCH FREQUENCIES

           Under international agreements, specific bands of frequencies may be
used for radio communications: low band (which includes low ("LF"), medium
("MF") and high ("HF") frequencies), Very High Frequency ("VHF"), Ultra High
Frequency ("UHF") and Super High Frequencies ("SHF").

           In the United States, the FCC has exclusive responsibility for
allocating radio frequencies assigned to non-government use. The FCC has
established rules governing the licensing of, and operations on, such
frequencies. The FCC grants the use of radio frequencies pursuant to formal
applications from prospective users or operators, consistent with its spectrum
allocation. The dispatch industry operates various band segments, including
the 450-512 MHz and 800 MHz bands. Within each band, channels are created by the
allocation of specified bandwidths. See "Current Business - Regulation." The
wireless mobile communications industry operates primarily within the UHF
frequencies and can be categorized by operations in the following frequency
ranges:

           450-512 MHZ. Dispatch communications services are provided in the
450-512 MHz band to vehicle-mounted and hand-held portable two-way radio units.
These services operate at a higher transmitter power level than other wireless
services, such as cellular and PCS yielding a greater service area. This band,
which was developed in the 1950s, is populated by PMRS licensees, such as the
Company and its customers.

           Users of the 450-512 MHz band have begun to experience channel
congestion and spectrum crowding, especially in metropolitan areas. This
spectrum is frequently incapable of handling the demands



                                        4
<PAGE>   12
placed upon it, and users are often unable to find a clear channel. To remedy
this situation, the FCC recently adopted rules, and is considering additional
rules, to promote more effective and efficient use of the bands below 512 MHz.
These actions, which have been implemented as part of the FCC's ongoing
"refarming proceeding," increased opportunities for the Company to use higher
capacity trunking technology in these bands. See "Current Business -
Regulation."

           800 MHZ (SMR). Dispatch services are provided not only in the 450-512
MHz band, but also in the 800 MHz band. Due to recent technological
developments, 800 MHz band operators now may elect to convert their systems from
analog to digital. Conversion of systems to digital technology may make this
band more appropriate for services other than dispatch. See "Current Business -
Competition." In some cases the Company operates 800 MHz band systems in trunked
repeater format if the Company gains exclusive use of frequency channels and it
may request Trunking authority from the FCC.

           900 MHZ. The 900 MHz band (SMR) analog operating format is very much 
like the 800 MHz band format. Initially, the FCC awarded 900 MHz band SMR
licenses in the top 50 markets in the United States by lottery. In 1996, the FCC
completed auctions for the remaining 900 MHz band licenses to operate in 51 MTAs
in the United States, Puerto Rico, United States Virgin Islands, Guam - Northern
Mariana Islands and American Samoa. Specifically, 1,020 licenses were offered in
these 51 MTAs, or 20 channels per MTA. The Company participated in the 900 MHz
auction, but did not acquire licenses as a result of its participation.

NEW TECHNOLOGIES

           The limited number of available frequencies, particularly in urban
areas, has led to the introduction of new and advanced technologies and
applications that allow for better spectrum utilization. The first technology
developed for that purpose was "trunking," which was developed in the late 1970s
and which uses microprocessors to allow many users to share frequencies without
interfering with one another. In non-trunked conventional systems, the channels
assigned to each group of users are independent. If a channel is occupied by
another conversation, the user has to wait, even though another channel in the
system may be idle. The user may have to try several times before the channel is
free. In contrast, trunking allocates messages to various frequencies in the
most efficient way. In a "trunked" system, user calls are assigned to the first
available channel and a different channel may be assigned for each transmission
during the same conversation. The trunked system therefore can handle more call
traffic with a given number of channels. In addition, the channel "switching" on
a trunked system makes eavesdropping more difficult and therefore enhances the
privacy of conversations.

           More recently, digital technology was developed to improve spectrum
efficiency and provide for additional loading (the use of a channel by
subscriber radios). Use of digital rather than analog transmission expands
channel capacity by a factor of two, three or more times.

           The Company is currently using trunking technology to serve more
customers with either new or upgraded existing equipment. Depending upon cost
and competitive factors, the Company also might implement digital technology to
increase its customer base even further. However, the Company has no current
plans to convert to digital technology.


                                CURRENT BUSINESS

GENERAL

           The Company provides high-powered repeater dispatch services in 22
states in the United States. The Company currently serves 3,900 customers
utilizing 30,000 two-way radio units. The Company provides its customers,
primarily business and governmental agencies, with equipment, equipment rentals
and dispatch services. Under applicable FCC rules, the Company is not required
to obtain FCC licenses for those of its CR


                                        5
<PAGE>   13
systems serving individually-licensed customers. However, the Company is
licensed by the FCC to operate its trunked dispatch systems serving customers
which do not have their own licenses.

           Pursuant to several contracts with Motorola executed in September,
October, November and December 1994 (the "Motorola Agreements"), the Company
acquired 1,501 CRs. The Company historically has used its CRs exclusively for
dispatch purposes and plans to continue such use. Each CR is housed in a small
structure at the base of a communications tower or on a building rooftop. The
antenna is affixed to the tower structure or building and is connected to the CR
by coaxial cable.

           Equipment products for the 450-512 MHz band frequencies, where the
Company provides most of its services, and for the 800 MHz band, are available
from numerous manufacturers. Prices for this equipment range from $300 to $900
per unit, depending on the features offered and the warranty provided. The
Company's principal equipment suppliers are Motorola and Kenwood, and the
Company has entered into dealer agreements with both companies. Both dealer
agreements, however, may be terminated at any time by either party without cost.
Termination of either of these agreements would have a materially adverse effect
on the Company.

           The Company operates its dispatch repeaters primarily in the 450-512
MHz frequency band. The Company also has limited operations in the 800 MHz band.
However, the Company is not active in the 220 MHz band, 900 MHz band, cellular
or PCS segments of the wireless communications industry and it currently does
not intend to become active in those segments.

           450-512 MHZ REPEATER OPERATIONS. The Company conducts the majority of
its operations in the 450-512 MHz frequency band. The Company is actively
pursuing widespread utilization of trunking technology for its systems in this
band. A trunked 450-512 MHz band repeater is superior to a conventional repeater
in that trunked systems make more channels available to handle calls and thus
provide greater capacity than conventional systems. See "The Dispatch Industry -
New Technologies." The trunked repeater format also provides the customer with
more and faster calls than a conventional system. See "The Dispatch Industry -
New Technologies." These factors, in turn, allow a greater number of users to
make more calls than a conventional system, which should generate more revenues
to the Company. The trunked 450-512 MHz band repeaters function similarly to 800
MHz band trunked SMR systems. Although the Company's assets are not 
interconnected to PSN if they were they would be comparable to cellular 
telephone technology.

           To exploit the benefits of trunking, the Company has been converting
its 450-512 MHz band repeaters to the LTR trunking format. Over the next twelve
months the Company's objective is to convert or construct substantially all UHF
licenses in its targeted markets in a trunking format. Concurrently, the Company
is in the process of disposing of its community repeaters in non-core rural
areas. To date the Company has sold or decommissioned 1,069 repeaters and the
decommissioned assets were sold at an overall net gain. The planned conversion
to trunked operations generally involves obtaining FCC approval for the
assignment of licenses by the individual users and to claim licenses for unused
channels to achieve exclusive use of a frequency. There can be no assurance that
the Company will be able to obtain requisite licenses or take the other steps
necessary to complete this conversion process.

           The 470-512 MHz portion of the 450-512 MHz band is available in the
top 13 U.S. major metropolitan areas and is known commonly as the T-Band.
Operation on the T-Band is particularly advantageous as the T-band contains the
only frequencies in the 450-512 MHz band on which exclusive business radio
service channels are available. Exclusive channels are superior to co-channel
operations because an operator, such as the Company, has more available capacity
and less restrictions on service provision. As of March 1, 1999, the Company had
filed applications with the FCC for approximately 364 T-Bands in the Houston,
Dallas/Ft. Worth, San Francisco Bay, Washington/Baltimore and Chicago areas and
licenses for approximately 282 of T-Bands have been granted and are in good
standing. Through its efforts, the Company has made progress in its efforts to
gain exclusive control of channels in these areas (with appropriate FCC
approvals), and has begun installation of trunked repeaters in Houston,
Dallas/Ft. Worth, Northern California, Phoenix/Tucson, Washington/Baltimore



                                        6
<PAGE>   14
and Chicago. Thus far, the Company holds 150 exclusive use licenses and has an
interest in an additional 132 licenses. The Company's Spectrum Division has
dedicated considerable effort to removing dormant or otherwise unnecessary
co-channel non-exclusive licenses, generally through purchases or trades (with
FCC consent). There can be no assurance that the Company will be able to
continue to obtain exclusive control over all or substantially all of these
channels.

           800 MHZ REPEATER OPERATIONS. Under the Motorola Agreements, the
Company acquired 92 CRs in the 800 MHz band. As with the 450-512 MHz band CRs
which were acquired from Motorola, the 800 MHz band CR licenses were held by the
users. Through license filings and assignments, the Company has been successful
(with FCC consent) in obtaining a number of licenses for its own benefit in this
band. Twenty of these licenses were cleared to an exclusive status and sold in
1997 for in excess of $3,500,000 and in 1998 another five were sold for
$1,100,000. In late 1997, the FCC auctioned all 800 MHz band SMR licenses in the
175 economic areas, including those markets that had been subject to an
application freeze. The Company sold and traded others and currently operates 35
repeaters in the San Joaquin Valley of which 24 have been converted to SMR's.
The remainder continue to be operated in the community repeater format. It is
the intention of the Company to continue expanding its 800 MHz operations in
Northern California. There can be no assurance that the Company will be able to
obtain exclusive licenses, will obtain FCC approval for assignment and sales,
will be successful in concluding additional assignments or realize profit from
assignments. The Company's inability to carry out this strategy could have a
material adverse effect on its business.

BUSINESS STRATEGY

           The Company's business strategy includes the following:

           EXPANSION OF HOLDINGS. The Company seeks to expand its spectrum and
infrastructure holdings within its selected metropolitan markets through the
FCC-approved acquisition of operating and start-up 450-512 MHz band trunked
dispatch systems. Simultaneously, the Company, with FCC approval, has undertaken
a program to dispose of CRs in non-core areas.

           DEVELOPMENT OF EXISTING INTRINSIC VALUE. The intrinsic value of the
Company today lies in the value of its spectrum as measured by recent sales
and/or the potential cash flow capacity. When the Company was formed in 1994 for
the purpose of acquiring 1,500 CRs, no licenses were acquired. Subsequent to
that time 923 licenses have been acquired. In its overall strategy the Company 
sold assets relating to 38 systems for an average of $148,000 each.

           Today the Company has 239 exclusive and 646 co-channeled licenses.
Existing loading capacity is deemed to be 42,000 units, and when fully loaded
the Company anticipates revenues will be approximately $8,328,000 per year and
estimated gross operating margin will be approximately $5,794,000 per year. The
assets which give rise to this existing revenue potential are currently valued
on the balance sheet at $5,535,000. The Company anticipates that the expansion
necessary to achieve these results will take several years, however there is no
assurance that the Company will be successful in these efforts. It is the
intention of management to bring the intrinsic value to fruition by selling
non-strategic assets and creating cash flow through systematic loading.

           Under the Motorola Agreements, the Company also purchased 92
unlicensed 800 MHz band CRs. Of these, 26 exclusive licenses were assigned and 
trunked in four 800 MHz SMR systems. At that time, the Company believed that
if it acquired FCC consent to assignments of a sufficient number of 800 MHz band
licenses, it could obtain exclusivity over the related channels and could then
enhance the value of the assets. By enhancement of the value of the assets the 
Company has realized approximately $5.7 million from the assignment and sales 
since 1996.

           SPECTRUM.  Spectrum is critical in the communications business.  
Without spectrum on which to operate, the best communications equipment is
worthless. The Company is spending considerable funds to acquire FCC licenses
for stations to provide dispatch services. The Company is receiving assignments
of



                                        7
<PAGE>   15



these licenses, and the corollary right to use the spectrum, through purchase of
existing systems and through applications to the FCC for the grant of new
licenses. The Company anticipates that these efforts will be ongoing. There can
be no assurance that the Company will be successful in any or all of these
efforts to obtain the rights to use the spectrum.

           Specifically, the Company is actively pursuing additional licenses
from the FCC to operate on the 470-512 MHz T-Band channels. As the FCC grants
these licenses, the Company intends to construct such T-Band systems. The
Company anticipates that, after constructing T-Band systems, its next licensing
project will involve obtaining FCC consent to convert the individual 450-470 MHz
band customer licenses using the Company's CRs to FB-6 (Private Carrier)
Classification in the selected markets, which would result in the Company
becoming the licensee of a trunked system using the formerly
individually-licensed channels. The Company also participated in the filing for
offset channels (i.e., new narrowband channels located adjacent to existing
channels). As of March 1, 1999, the Company has been granted 54 licenses for
offset channels in the 470-512 MHz band.

           In 1997, the FCC adopted a consolidation plan and related rules for
the PMRS bands below 800 MHz. These rules changed how the frequencies are
assigned, established a method for PMRS users to implement highly efficient
trunked systems in the bands below 800 MHz and provided for operation of offset
channels in the 450-470 MHz band. See "Regulation."

           EQUIPMENT RENTAL. To augment its sales activities, the Company has
established a Rental Division. This division currently rents approximately 900
units. The Company provides equipment rental directly to customers, as well as
through approved dealers.


COMPETITION

           The Company faces intense competition from the following types of
operations:

           OTHER 450-512 MHZ BAND CR OPERATORS. The Company currently competes
with many other 450-512 MHz band CR operators. With FCC approval, the Company
has begun converting its 450-512 MHz band CRs from user-licensed conventional
operations to the trunked multi-channel format in metropolitan areas. Although
the Company believes that this conversion will help distinguish it from the
450-512 MHz conventional CR operators, there can be no assurance that the
Company will be able to expand its conversion to the trunked multi-channel
format or that such conversion will indeed distinguish the Company from
conventional CR operators. In addition, a limited number of paging operations
are provided in the 450-512 MHz band, but the Company does not anticipate that
these services will compete with its repeater dispatch services in this band.

           UHF TRUNKING. Since the FCC permitted the trunking of the UHF
channels in 1996, considerable competition has evolved in the UHF trunking
market.

           CELLULAR TELEPHONE SYSTEMS. The Company currently competes, and
believes that it will continue to compete, with cellular telephone systems to a
great extent. The Company charges a flat monthly rate for its services. By
contrast, cellular charges are primarily based on minutes of use. Additionally,
cellular service providers typically charge for a call whether the user placed
or received the call. Because many wireless calls are mobile-to-mobile, cellular
calls from one user to another result in two air time charges, one charge for
the caller and one charge for the receiver. Large fleet operators may find
cellular costs prohibitive, although extremely small fleets may be in a position
to justify the cost of cellular service. The Company believes that cellular
telephones are not an economical solution for medium to large dispatch users,
and that CRs offer a cost-effective alternative for high volume users of
cellular telephone services. Cellular is also limited to point to point
communication. Dispatch provides communication to entire worker groups, select
members of worker groups or one to one from among the members.





                                        8
<PAGE>   16



           800 MHZ BAND SMR OPERATORS. Due to recent technological developments,
800 MHz band SMR operators may now elect to convert their systems from analog to
digital. Nextel, the largest SMR operator in the United States, is in the
process of converting its analog technology to digital, beginning with its major
metropolitan area systems. Conversion to the digital technology requires capital
investment, and the Company believes that companies that convert may be required
to increase their prices to recoup their capital costs. These factors may price
digital 800 MHz band operators out of the dispatch market and into the cellular
telephone market. For this reason, the Company believes 800 MHz band SMR digital
operators will not represent a significant competitive threat. However, there
can be no assurance that this will be the case.

           The 800 MHz band SMR operators that retain analog technology probably
will continue to concentrate on dispatch services and therefore will continue to
compete with the Company. The Company believes that eventually many of these 800
MHz band SMR analog providers may be acquired by large digital operators,
interested in obtaining additional spectrum to maximize their loading capacity.
However, there can be no assurance that such acquisitions will take place or
that the 800 MHz band SMR operators will not continue to create significant
competition for the Company.

           900 MHZ BAND SMR OPERATORS. Operators of 900 MHz band SMR systems
currently provide the greatest dispatch service competition to the Company. Many
of these 900 MHz band system operators are using analog technology, thereby
minimizing capital costs so they can maintain rates at competitive levels. Rates
for these services could increase, however, because of higher capital costs for
auctioned systems and because of the costs of any conversion to digital
technology. However, there can be no assurance that these rates will increase or
that operation of 900 MHz band SMR systems will not continue to provide
significant competition to the Company.

           In addition to the existing 900 MHz band SMRs in the top 50 markets,
the FCC auctioned 900 MHz band systems in 51 MTAs during 1996. The Company
unsuccessfully participated in this auction. Per channel costs for the 900 MHz
band systems averaged in excess of $10,000 each in the auction. In contrast,
many licenses that the Company holds in the 450-512 MHz band cost less than
$1,000 per channel. There can be no assurance, however, that the Company will be
able to continue obtaining licenses for this price.

           Initially, the Company expects that the auctioned 900 MHz band
licensees will operate using analog technology. In some cases, the auction price
paid by the 900 MHz licensees per channel indicates that a higher rate may be
charged to each subscriber to produce a desired rate of return on the
investment. The Company believes that the comparative low cost of the Company's
dispatch services may result in lower, more competitive rates for its
subscribers. In addition, because of the high prices paid for spectrum in the
recent 900 MHz band auction, the Company believes it is unlikely that analog
technology based services, such as dispatch services, will be offered on the 900
MHz band on a long-term basis. However, there can be no assurance that 900 MHz
band services will be more expensive than the Company's services or that
dispatch will not continue to be offered by 900 MHz band operators. Competition
from 900 MHz band operators could have a material adverse effect on the Company.

           220 MHZ OPERATORS. The 220 MHz band has been available to potential
dispatch operators for several years. Although the Company is not aware of any
major equipment manufacturer that currently provides a full array of
communications equipment to operate at this frequency level, as spectrum becomes
more scarce, manufacturers will probably begin providing equipment for the 220
MHz band. If this occurs, 220 MHz band operators could become dispatch
competitors to the Company.

           PCS Operators. The Personal Communications Service was established by
the FCC in 1994, when it adopted Part 24 of its Rules. The FCC established two
classes of PCS, broadband and narrowband and awarded several authorizations in
each class in each Metropolitan Trading Area or Basic Trading Area.

           Broadband PCS is broadly defined by the FCC as radio communications 
that encompass mobile and ancillary fixed communication services that provide 
services to individuals and businesses and can be integrated with a variety of 
competing networks. The Broadband PCS authorizations awarded in the FCC's 
auctions granted the use 30 MHz of spectrum in the specified service area.

           The Broadband PCS authorizations awarded in the D, E, and F-Blocks 
each granted the licensee the use of 10 MHz of spectrum within the specified 
service area.

           Broadband PCS offers a cellular phone-like service for a 
significantly reduced price.

           Narrowband PCS is defined as a family of mobile or portable radio 
services that may be used to provide wireless telephony, data transmission, 
advanced paging and other services to individuals and businesses. Narrowband 
PCS may be integrated with a variety of competing networks.

           Narrowband PCS uses less than one voice grade channel. Narrowband 
PCS likely will be used to provide new services such as voice message paging, 
two-way acknowledgement paging and other text-based services. Licenses were 
awarded on a nationwide regional MTA and ETA basis. It is unknown when the FCC 
will auction the remaining narrowband facilities.

           A substantial number of the companies which were high-bidders at the 
PCS auctions were existing communication service providers or joint ventures 
involving existing communications service providers. The Company anticipates 
that PCS will be interchangeable with existing cellular and paging services. 

           At this time, the impact of the growth of PCS on the Company's 
business is uncertain. Although some PCS providers have also gained a
significant presence, cellular service providers have suffered the impact of
their presence most significantly. It is unclear whether PCS providers will
expand their service offerings to include dispatch-like services. Given the high
cost of entry, the Company anticipates that any entry into the low-cost dispatch
services will be delayed pending saturation of the higher-priced cellular
service market.

                                        9
<PAGE>   17

REGULATION

           The FCC regulates the construction, operation and acquisition of
wireless communications systems under the Communications Act of 1934, as amended
(the "Communications Act"), and pursuant to the FCC's rules and policies adopted
thereunder. The FCC rules governing wireless communications are highly technical
and subject to change. The Company believes it is in material compliance with
FCC licensing, loading and operating requirements. The Company has not received
any notification of problems or material deficiencies from the FCC.

           Under the Communications Act, dispatch operators, such as the
Company, generally are regulated as PMRS providers (i.e., private carriers)
rather than as CMRS providers (i.e., common carriers). A PMRS provider is
subject to less stringent regulations, both by the FCC and individual states,
than a CMRS provider. In contrast, cellular telephone, most paging services and
those SMR operators providing PSN telephone interconnect are, or will be,
regulated as CMRS providers. Generally, CMRS providers must provide services
under the same terms and conditions to any subscriber requesting services. These
CMRS providers also may be required to file tariffs and their revenues from
services may be regulated. As PMRS providers, dispatch operators, such as the
Company, may decline service to certain subscribers and may negotiate different
prices with each customer for "like" services. Certain changes to the
Communications Act and to the related FCC rules and policies could result in
minimizing or eliminating this distinction between PMRS and CMRS providers.
These changes could have a material adverse effect on the Company. See
"Regulatory Developments."

           LICENSING. In order to provide dispatch services, the Company does 
not need an FCC license if its customers are licensed. Most licenses in the
450-512 MHz, 800 MHz and 900 MHz bands are granted for 5-year or 10-year terms.
License renewals are generally pro forma, absent material licensee misconduct or
failure to meet applicable construction and loading requirements. To the extent
that the Company operates its own systems in the 450-512 MHz or 800 MHz bands,
it is subject to the same licensing and related requirements as its customers. 
All of the licenses issued to the Company and managed by the Company expire 
after May 24, 1999. While the FCC generally grants renewal of business radio 
licenses in routine fashion business radio licensees are not entitled to a 
renewal expectancy. There can be no assurance that the FCC will continue its 
current renewal practices.

           Prior FCC approval is a prerequisite to any license assignment or to
the transfer of control over a licensee. In certain instances, the FCC
conditions the assignment of a license or transfer of control over a



                                       10
<PAGE>   18
   


licensee upon meeting certain loading requirements. For its licensed systems,
the Company believes that it is in compliance with all applicable FCC rules,
including any loading requirements.

           SYSTEM CONSTRUCTION. Licensees in the 450-512 MHz, 800 MHz and 900
MHz bands are subject to certain deadlines for completing construction and
commencing operation. If the licensee does not meet these deadlines and does not
obtain an extension from the FCC, the license is subject to cancellation or
modification. The Company continually monitors its compliance with FCC
requirements for its licenses. This ongoing review assists the Company in
ensuring that it completes construction within the FCC's deadlines.

           CHANNEL LOADING REQUIREMENTS. Presently, the FCC does not require
that a 450-470 MHz band PMRS system operator load a system with a specified
number of radio units within a prescribed time frame. However, the 470-490 MHz
T-Band is subject to loading requirements. Loading requirements also apply to
800 MHz and 900 MHz band SMR licensees. If a licensee does not meet loading
levels, the FCC may take back channels or cancel the license. A licensee that
loses channels cannot reapply for any channels at that location for six months.
As discussed above under "System Construction," the Company continually monitors
its compliance with general FCC requirements, including loading requirements.

           SYSTEM OPERATION. Licensees in the 450-512 MHz, 800 MHz and 900 MHz
bands are subject to certain technical and other operating requirements. If a
licensee does not comply with these requirements, the FCC may impose a fine or,
if the violations are substantial, the FCC may revoke its license. For its
licensed systems, the Company continually monitors its operations and believes
that it is in material compliance with the FCC's requirements.
 
           INTERCONNECTION WITH PUBLIC SWITCHED NETWORK. Under the
Communications Act, wireless communications operators can provide their
customers with mobile radio services interconnected to the PSN. Because these
operators have access to the local telephone carrier, subscribers communicate
with non-subscribers. If the operator provides such interconnection to the PSN,
the FCC likely will regulate the operator as a CMRS provider. The Company does 
not offer interconnected service.

           REFARMING PROCEEDING. In its "refarming" proceeding, the FCC adopted
rules to relieve congestion in the land mobile bands below 800 MHz. These new
rules became effective August 1, 1996. The rules (i) increase the number of
channels available on an exclusive basis by requiring conversion to narrowband
technologies; (ii) provide a phased-in 10-year transition for operators and
manufacturers to comply fully with the new requirements; (iii) permit narrowband
licensees to aggregate channels so they can provide service on a wide area
basis; and (iv) protect existing operators from harmful interference. On
February 14, 1997, additional "refarming" rules became effective which clarify
certain initial rules, modify the transition plan for compliance with the new
rules and provide coordinators greater flexibility in assigning frequencies. In
addition, also in 1997, the FCC adopted rules providing for consolidation of
operations in the bands below 800 MHz, implementation of highly efficient
trunked systems, and disposition of offset channels in the 450-470 MHz band. See
"Business Strategy--Spectrum."

           In addition, as part of the "refarming" proceeding, the FCC has
proposed additional rules that, if adopted, could result in further regulatory
consolidation, imposition of user fees or implementation of license auctions.
These new proposed rules could make it easier for the Company to expand its
footprint and scope of operations but at greater expense. In particular, if the
FCC holds auctions in the 450-512 MHz band, the Company, as an established
provider of services in this band, may be able to secure exclusive license
status in some of its markets. However, there can be no assurance that the
proposed rules will be adopted, that the Company would be able to secure
exclusive licenses if they were made available, that the Company will be able
to expand its footprint or that the Company would be successful in any FCC
auction. In addition, the "refarming" proceeding has been controversial and
could take several years to complete. Thus, the impact this proposal may have
on the Company's operations is uncertain.




                                       11
<PAGE>   19



           REGULATORY RECLASSIFICATION. Under the Omnibus Budget Reconciliation
Act of 1993, the Communications Act was amended to establish two new regulatory
categories that involve certain Company businesses. Instead of distinguishing
between private carriers and common carriers, the FCC now must distinguish
between PMRS providers and CMRS providers. In general, CMRS providers are
subject to regulatory requirements comparable to the requirements for common
carriers and PMRS providers are subject to regulatory requirements comparable to
the requirements for private carriers. The FCC has classified all private
carrier licensees within the 450-512 MHz refarming bands, except Business Radio
Service licensees, as PMRS providers. One of the criteria for determining if a
carrier is subject to CMRS regulation, however, is if it provides
interconnection to the PSN. The Company is currently classified as a PMRS
provider and is generally free from the uniform rules applicable to CMRS
providers. If the Company decided to upgrade its services and provide
interconnection to the PSN, it likely then would be classified as a CMRS
provider. The interconnection to PSN, if deemed appropriate in the Company's
business strategy, could provide another source of revenue.

           SMR. The FCC has ruled that 800 MHz band SMR systems, to the extent
possible, should be licensed on a wide-area basis and should be subject to
auctions. Similar licensing requirements have been imposed upon 900 MHz band SMR
licensees. In addition, certain limits on aggregate spectrum held by CMRS
licensees, including SMR operators, have been imposed. As a result of these
changes, the Company believes that its licensed 800 MHz band systems may be
attractive to prospective purchasers.

           NEW ALLOCATIONS. The FCC has proposals pending from time to time
seeking the allocation of additional spectrum for wireless communications
services. The Company cannot predict whether or when any such allocation might
be made or the extent to which any future allocation of additional spectrum
would affect the Company's existing operations or its opportunity to expand.

           STATE REGULATION. State and local governments may exercise their
traditional regulatory powers (e.g., health, safety, consumer protection and
zoning regulation) over wireless communications systems. The Communications Act,
however, specifically preempts state and local government regulation of CMRS and
PMRS provider rate offerings and market entry.

           REGULATION OF RADIO TOWERS. The FCC and the Federal Aviation
Administration regulate radio towers with respect to geographic location,
height, construction standards and tower maintenance. Failure to maintain radio
towers in compliance with regulations can result in penalties to the tower owner
or operator. Compliance with lighting and painting requirements is particularly
important. The Company believes each tower it uses is in material compliance
with applicable regulations. The Company maintains liability insurance to
protect it from third party claims relating to non-compliance with tower
regulations.

           REGULATORY DEVELOPMENTS. The FCC is considering regulatory changes
that may affect the Company's businesses. These changes involve the procedures
for licensing the PMRS, including the institution of electronic filing. However,
it is uncertain at this time what impact, if any, these changes could have on
the Company's operations.


OPERATIONS

           The Company performs billing, maintenance of subscriber records, FCC
licensing activities and equipment leasing at its Woodlands, Texas headquarters.
A separate department is responsible for all FCC licensing and related
activities which will be expanded as previously discussed.

           The Company's operations are divided into five business regions as 
follows: Houston, Dallas/Ft. Worth, Northern California, Chicago, and Washington
D.C./Baltimore. A manager will oversee each region



                                       12
<PAGE>   20
which will eventually have a full staff of sales and service personnel. The
manager's responsibility is to sell and service customer's equipment and company
owned infrastructure.


EMPLOYEES

           As of March 1, 1999, the Company employed 32 people of whom all are
employed on a full-time basis. None of the Company's employees belongs to a
union.


ITEM 2.  DESCRIPTION OF PROPERTY

           The Company leases 5,550 square feet of office space and 1,525 square
feet of warehouse space in The Woodlands, Texas, a suburb of Houston, Texas,
where its principal offices are located. In addition, satellite regional offices
are located in Northern California, Chicago, and Dallas. As previously
discussed, these regional offices will be expanded to accommodate the sales and
service of equipment.

           The Company leases antenna and repeater space on approximately 412
tower sites. Other than its leases on the Sears Tower in Chicago, Illinois, and
Allied Tower in Houston, Texas, no one lease is material to the business of the
Company. The leases are generally for terms of one year and month-to-month
thereafter.


ITEM 3.  LEGAL PROCEEDINGS

           From time to time, the Company is involved in various legal
proceedings arising in the ordinary course of business. On November 13, 1998,
the Federal Communications Commission's ("Commission") Compliance and
Information Bureau ("CIB") for the Chicago, Illinois region, issued a Notice of
Violation ("Notice") to the Company, alleging that the Company operated the
single-channel shared community repeater station WIM351 in violation of the
commission's rules. On November 25, 1998, the Company defended the allegations,
and asserted that it operates in full compliance with the Commission's rules and
policies. The Company has substantial defenses to the Notice of Violation, based
upon informal letters and other documents published by the Commission that
appear to permit the practice at issue. The Company at this time is unable to
predict the outcome. Although the proceeding involves a single community
repeater station, an adverse decision in this proceeding could impact the
Company's decentralized trunking operation nationwide.

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

           Not Applicable.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

           The Company's Common Stock is currently traded on the Canadian
Dealing Network and trading commenced in July 1997 on the U.S. Bulletin Board.
During the year ended December 31, 1997, and December 31, 1998, the high and 
low bid prices were as follows:

<TABLE>
<CAPTION>

                            U.S. OTC Bulletin Board                    Canadian Dealing Network
                          (All amounts are in U.S. $)                 (All amounts are in CDN, $)
                           -------------------------                  ---------------------------
Date                        High            Low                           High          Low   
----                        ------         ------                        ------        ------ 
<S>                         <C>            <C>                           <C>           <C>    
March 31, 1997                  --             --                        $3.500        $2.250 
June 30, 1997                   --             --                        $2.500        $2.000 
September 30, 1997          $1.720         $1.125                        $2.000        $1.700 
December 31, 1997           $1.375         $1.250                        $1.700        $1.250 
March 31, 1998              $1.250         $0.625                        $1.500        $1.250 
June 30, 1998               $1.500         $0.812                        $1.750        $1.250 
September 30, 1998          $0.937         $0.500                        $1.000        $1.000 
December 31, 1998           $1.031         $0.312                        $1.250        $0.700 
                                                                         
</TABLE>

The quotations reflect inter-dealer prices, without retail and mark-up, 
markdown or commission and may not represent actual transactions.



                                       13
<PAGE>   21
As of March 1, 1999, the Company's Common Stock was held by 138 stockholders of
record.

           The Company has not declared or paid any dividends. The payment of
dividends in the future will depend on the Company's earnings, capital
requirements, operating and financial position and general business conditions.
The Company anticipates that earnings will be retained to finance future growth
and operations, including research and product development. As such, management
anticipates that no dividends will be paid on the Common Stock in the
foreseeable future.

           For information concerning recent sales of unregistered securities,
see Item 10, "Executive Compensation -- Outstanding Options." The fiscal 1998
options therein described were granted by the Company during the past fiscal
year to 21 of its officers, employees and directors. These transactions were
exempt from registration under the Securities Act pursuant to Section 4(2), as
not involving any public offering. At an appropriate time, the Company expects
to file a registration statement on Form S-8 to register the transactions
relating to the grant and exercise of these options. The following options were
granted as additional compensation for employee and non-employee director
services:

<TABLE>
<CAPTION>
                                  No. of Options                   Exercise
Date of Grant                        Granted                          Price
-------------                     ---------------                  --------
<S>                               <C>                              <C>  
April 13, 1998                         15,000                        $1.16
July 15, 1998                          30,000                        $1.25
November 5, 1998                       58,000                        $1.00
December 31, 1998                       3,000                        $1.00
</TABLE>


ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS.

           The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Report on Form 10-KSB. The discussion in this section of this
Report on Form 10-KSB contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, those
discussed in "Risk Factors" and those discussed elsewhere in this Report on Form
10-KSB.


RESULTS OF OPERATIONS

           Total revenues for 1998 decreased $1,911,000, or 18%, from 1997 as a
result of decrease in gross spectrum system sales from $3,986,000 in 1997 to
$1,333,000 in 1998. Spectrum system sales are sporadic in nature as they rely
upon the FCC approval for the transfer of licenses. Dispatch revenue in 1998
increased $660,000 or 13% from 1997, due in large part to loading on the trunked
systems in major metropolitan areas. There was a decrease in equipment sales of
$35,000 which reflects that 1998 equipment sales are through regional sales and
service facilities and the emphasis on sales to independent dealers has
lessened. Radio rental revenues increased from $292,000 to $382,000, a 31%
variance. Other revenue in 1998 increased by $27,000 compared to 1997.

           Costs of sales decreased to $4,826,000 from $4,848,000 in 1997. The
costs of spectrum systems sales decreased 31% from 1997 to $333,000 for the year
ended December 31, 1998 as a result of fewer spectrum system sales closed during
1998. The value of Spectrum is increasing and is reflected in the increased cost
of licenses transferred and sold in 1998 as compared with 1997. Dispatch costs
and expenses were $3,630,000 for 1998 as compared with $3,421,000 for 1997, an
increase of 6% or $209,000. The costs of equipment sales decreased



                                       14
<PAGE>   22
to $841,000 in 1998 from $903,000 in 1997 for a decrease of 7% corresponding to
reduced gross sales. Radio rental costs were $22,000 for 1998, a decrease from
$40,000 for 1997.

           Depreciation and amortization increased to $905,000 in 1998 from
$899,000 in 1997.

           General and administrative expenses increased $765,000 to $2,744,000
for 1998 from $1,979,000 for 1997. The increase in expenses was primarily due to
establishing offices in Dallas, Texas and San Jose, California during 1998.

           The Company incurred a net gain in 1998 of $52,000 on the sale and
removal of repeaters as compared with a net loss of $334,000 for 1997. This net
gain is a result of the sales of non-productive assets in the non-metropolitan
areas which is a phase of the Company's continuing overall business plan to
migrate from the rural community repeater areas to the metropolitan trunked
repeaters. Interest income for 1998 was $12,000 as compared with $24,000 for
1997. Interest expense for the year ended December 31, 1998 was $54,000, a
decrease of $30,000 from interest expense of $84,000 for 1997. This reduction in
interest expense reflects the savings from the retirement of two notes during
1998.

           The Company reported a net income for 1998 of $56,000 as compared to
net income of $2,281,000 for 1997, reflecting a 98% decrease in net income from
1997 to 1998 or a basic net income per common share for 1998 of $0.01 compared
with basic net income per common share of $0.37 for 1997. The decrease is due to
the sporadic nature of the spectrum sales which rely upon FCC approval for the
transfer of licenses.
 

LIQUIDITY AND CAPITAL RESOURCES

           As of December 31, 1998, the Company had cash and cash equivalents of
approximately $354,000.

           The working capital of the Company was a negative $543,000 at
December 31, 1998 as compared with a negative $319,000 at December 31, 1997. The
decrease is due to the capital improvements funded from operations.

           Net income increased by depreciation and amortization was $961,000
for 1998 compared with $3,180,000 for 1997, while the cash flows from operating
activities were $895,000 and $2,982,000 for the years 1998 and 1997,
respectively. Net cash provided by operating activities reflects the closing of
a contract upon the transfer of licenses for the sale of 20 systems in 1997. 

           Cash used in investing activities was $1,127,000 for 1998 as 
compared with $524,000 for 1997 reflecting expansion of the Company's 
infrastructure to accommodate the planned migration to trunking in the targeted 
markets. 

           Cash used in financing activities was $32,000 in 1998 and $2,927,000 
in 1997. During 1997 the Company repaid a note of $2,800,000. The Company had a 
decrease in cash and cash equivalents of $264,000 and $469,000 for the years 
1998 and 1997, respectively.

           The Company's negative working capital reflects the start-up of
various divisions and the subsequent efforts to develop, expand and procure
licensed systems to migrate the operations from the rural areas to the trunked
metropolitan markets targeted by the Company as well as to obtain systems for
resale.

           The Company closed on several sales of licensed systems in the 800
MHz band during 1998. The Company plans to continue to obtain licensed systems
for resale; however, there can be no assurance that these sales will continue in
this manner. Failure to do so could have a material adverse effect on the
Company's cash flow and available working capital.

           During 1998 the Company acquired $1,636,700 of communications and
related equipment. These capital expenditures were financed in part by
borrowings from commercial financing institutions. As of December 31, 1998, the
Company's current liabilities included $288,000 owed to four commercial lenders
and three individuals with varying repayment terms.



                                       15
<PAGE>   23
NEW ACCOUNTING PRONOUNCEMENTS

           In June 1998, the Financial Accounting Standards Board issued 

Statement of Financial Accounting Standard No. 133, "Accounting for Derivative 
Instruments and Hedging Activities" ("SFAS 133"). This statement standardizes 
the accounting for derivative instruments, including certain derivative 
instruments embedded in other contracts, by requiring that an entity recognize 
those items as assets or liabilities in the statement of financial position and 
measure them at fair value. The statement generally provides for matching the 
timing of gain or loss recognition on the hedging instrument with the
recognition of (a) the changes in fair value of hedged asset or liabilities
that are attributable to the hedged risk or (b) the earnings effect of the
hedged forecasted transaction. The statement is effective for all fiscal
quarters for all fiscal years beginning after June 15, 1999, with early
application encouraged, and shall not be applied retroactively to financial
statements of prior periods. Adoption of SFAS 133 is expected to have no
effect on the Company's financial statements.

           In June 1998 the Accounting Standards Executive Committee of the 
AICPA issued SOP 98-5, Reporting on the Costs of Start-up Activities. SOP 98-5 
requires all start-up and organizational costs to be expensed as incurred. It 
also requires all remaining historically capitalized amounts of these costs 
existing at the date of adoption to be expensed and reported as the cumulative 
effect of a change in accounting principles. SOP 98-5 is effective for all 
fiscal years beginning after December 15, 1998. The Company believes that the 
adoption of SOP 98-5 will not have a significant effect on its financial 
statements.

YEAR 2000

           The Company, like many companies, faces the Year 2000 Issue. This is
a result of computer programs being written using two digits rather than four
(for example, "98" for 1998) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among other things
a temporary inability to process transactions or engage in similar normal
business activities. The Company recognizes that it must take action to ensure
that its operations will be not adversely impacted by Year 2000 software
failures.

           The Company has completed an evaluation of the impact of Year 2000
issues, which identified Year 2000 problems that the Company believes are minor.
The Company is preparing an assessment remediation plan to address these issues
during the first quarter of 1999 and will begin implementation of the plan in
the second quarter. The total cost associated with the remediation plan is
currently estimated to be less than $75,000 and will be funded from operating
activities and expensed as incurred, other than equipment software purchases
which will be capitalized.

           The Company has also undertaken a plan to evaluate the effect of the
Year 2000 problem on the Company's most significant customers and suppliers, and
thus indirectly on the Company. At this time, the Company has not assessed the
potential adverse effect, if any, on the Company with respect to its customers
and suppliers. The Company will seek to obtain assurances from major suppliers
and customers regarding their compliance with the Year 2000 issue. To date, the
Company is not aware of any third party customer, supplier or vendor with a Year
2000 Issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that all third parties will be Year 2000 ready.

           In addition to reviewing the Company's information technology
systems, the Company will review its non-information technology and systems that
may include embedded chips for the Year 2000 compliance. The Company's
preliminary assessments indicate that, due to the nature of the Company's
operations, these technology systems do not represent an area of risk relative
to Year 2000 readiness.

           The Company has begun, but not yet completed, a comprehensive
analysis of the operational problems and costs (including loss of revenues) that
would be reasonably likely to result from the failure by the Company and certain
third parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999. In the event the Company does not
complete all phases, the Company may not be able to process customer
transactions which could have a material impact on the operations of the
Company. In addition, disruptions in the economy generally resulting from Year
2000 Issues could also materially adversely affect the Company.

           The risks that the Company anticipates may occur by reason of Year
2000 issues include normal billing and collection functions common to most
businesses, and additional risks that the Company's repeaters or specialized
mobile radio systems do not function properly. Based on the Company assessment
to date, there has been no indication that the Company's repeater or SMRs
contain embedded software that is likely to result in any disruption. However,
the Company is still assessing these systems to further verify these
conclusions, and to devise solutions if these conclusions are not correct.


EFFECTS OF INFLATION

           The Company believes that the relatively moderate rate of inflation
over the past few years has not had a significant impact on the Company's
results of operations.

                                       16
<PAGE>   24
ITEM 7.    FINANCIAL STATEMENTS

           (See Item 13).


ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.

           On January 4, 1999, the Board of Directors of the Company approved
the recommendation by the Audit Committee of the Board of Directors to (i)
engage BDO Seidman, LLP as the independent accountants for Champion
Communication Services, Inc., and (ii) accept the resignation of KPMG LLP as
such independent accountants.

           KPMG LLP was previously the principal accountants for Champion 
Communication Services, Inc. and subsidiaries. On December 31, 1998, that firm 
resigned. The decision to change accountants was approved by the Board of 
Directors.

           In connection with the audits of the two fiscal years ended December 
31, 1997 and the subsequent interim period through December 31, 1998, there 
were no disagreements with KPMG LLP on any matter of accounting principles or 
practices, financial statement disclosure, or auditing scope or procedures, 
which disagreements if not resolved to their satisfaction would have caused 
them to make reference in connection with their opinion to the subject matter 
of disagreement.           

                                    PART III


ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

           Information concerning Directors and Executive Officers of the
Company is incorporated in reference from the Company's definitive Proxy
Statement and related materials in connection with the annual meeting of
shareholders to be held on May 12, 1999. The incorporated portions consist of
all of the disclosures that appear in that Proxy Statement under the headings
"Nominees for Election as Directors" and "Executive Officers."


ITEM 10.   EXECUTIVE  COMPENSATION

           Information concerning Executive Compensation is incorporated by
reference from the Company's definitive Proxy Statement and related materials in
connection with the annual meeting of shareholders to be held on May 12, 1999.
The incorporated portions consist of all of the disclosures that appear in that
Proxy Statement under the heading "Executive Compensation."


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           Information concerning the Security Ownership of Certain Beneficial
Owners and Management is incorporated by reference from the Company's definitive
Proxy Statement and related materials in connection with the annual meeting of
shareholders to be held on May 12, 1999. The incorporated portions consist of
all of the disclosures that appear in that Proxy Statement under the heading
"Security Ownership of Certain Beneficial Owners and Management."


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           Information concerning Certain Relationships and Related Transactions
is incorporated by reference from the Company's definitive Proxy Statement and
related materials in connection with the annual meeting of shareholders to be
held on May 12, 1999. The incorporated portions consist of all of the
disclosures that appear in that Proxy Statement under the heading "Certain
Relationships and Related Transactions."





                                       17
<PAGE>   25



ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

(a)        Documents filed as part of this report.

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>                                                                                    <C>
1.         Financial Statements:

                  Reports of Independent Certified Public Accountants...................F-2

                  Balance Sheets, December 31, 1998 and 1997............................F-4

                  Statements of Operations, Years Ended December 31, 1998 and 1997 .....F-5

                  Statements of Changes in Stockholders' Equity, Years Ended
                           December 31, 1998 and 1997...................................F-6

                  Statements of Cash Flows, Years Ended December 31, 1998 and 1997......F-7

                  Notes to Financial Statements.........................................F-8
</TABLE>





                                       18
<PAGE>   26



2.         Exhibits:

<TABLE>
<CAPTION>
                                                                                 INCORPORATED BY
NUMBER                           DESCRIPTION                                       REFERENCE TO
------                           -----------                                       ------------
<S>           <C>                                                <C>
3.1           Certificate of Incorporation filed September       Exhibit 3.1 to the Registration Statement on
              29, 1994.                                          Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

3.2           Certificate of Amendment to Certificate of         Exhibit 3.2 to the Registration Statement on
              Incorporation filed January 26, 1996.              Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

3.3           Certificate of Amendment to Certificate of         Exhibit 3.3 to the Registration Statement on
              Incorporation filed April 23, 1996.                Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

3.4           By-laws dated September 29, 1994.                  Exhibit 3.4 to the Registration Statement on
                                                                 Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

4.1           Specimen Common Stock share certificate.           Exhibit 4.1 to the Registration Statement on
                                                                 Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

4.2           Pages from Certificate of Incorporation and        Exhibit 4.2 to the Registration Statement on
              By-laws defining rights of stockholders -          Form 10-SB effective February 13, 1997
              included in Exhibits 3.1, 3.2, 3.3 and 3.4.         (File No. 0-29032)

10.1          [omitted]                                          [omitted]

10.2          [omitted]                                          [omitted]

10.3          [omitted]                                          [omitted]

10.4          [omitted]                                          [omitted]

10.5          [omitted]                                          [omitted]

10.6          [omitted]                                          [omitted]

10.7          [omitted]                                          [omitted]

10.8          [omitted]                                          [omitted]

10.9          Lease Agreement dated November 10, 1994,           Exhibit 10.9 to the Registration Statement on
              between The Woodlands Corporation and the          Form 10-SB effective February 13, 1997
              Company.                                            (File No. 0-29032)

10.10         Modification and Modification of Lease dated       Exhibit 10.10 to the Registration Statement
              April 4, 1995, between The Woodlands               on Form 10-SB effective February 13, 1997
              Corporation and the Company.                        (File No. 0-29032)
</TABLE>




                                       19
<PAGE>   27



<TABLE>
<CAPTION>
                                                                                 INCORPORATED BY
NUMBER                           DESCRIPTION                                       REFERENCE TO
------                           -----------                                       ------------
<S>           <C>                                                <C>
10.11         Modification and Modification of Lease dated       Exhibit 10.11 to the Registration Statement
              July 24, 1995, between The Woodlands               on Form 10-SB effective February 13, 1997
              Corporation and the Company.                        (File No. 0-29032)

10.12         Modification and Modification of Lease dated       Exhibit 10.12 to the Registration Statement on
              May 1, 1996, between The Woodlands                 Form 10-SB effective February 13, 1997
              Corporation and the Company.                        (File No. 0-29032)

10.13         Radius Communication Products Reseller             Exhibit 10.13 to the Registration Statement on
              Agreement dated September 22, 1994, between        Form 10-SB effective February 13, 1997
              Motorola, Inc. and the Company; Amendment           (File No. 0-29032)
              to Reseller Agreement dated September 22,
              1994; and Master Amendment No. 1 dated
              September 30, 1996.

10.14         Motorola Authorized Two-Way Radio Dealer           Exhibit 10.14 to the Registration Statement on
              Agreement dated September 22, 1994, between        Form 10-SB effective February 13, 1997
              Motorola, Inc. and the Company; Paging              (File No. 0-29032)
              Product Sales to the United States Government
              Amendment dated on or about January 10,
              1996; Amendment dated on or about February
              13, 1996; and Per Unit Administrative
              Processing Charge Amendment dated
              September 30, 1996.

10.15         Motorola Master Radio Service Software             Exhibit 10.15 to the Registration Statement on
              License Agreement dated November 8, 1994,          Form 10-SB effective February 13, 1997
              between Motorola, Inc. and the Company.             (File No. 0-29032)

10.16         Master Dealer Agreement Land Mobile Radio          Exhibit 10.16 to the Registration Statement on
              Products, undated, between Kenwood                 Form 10-SB effective February 13, 1997
              Communications Corporation and the                  (File No. 0-29032)
              Company; Product Addendum dated February
              5, 1996; and Product Addendum, undated.

10.17         [omitted]                                          [omitted]

10.18         [omitted]                                          [omitted]

10.19         [omitted]                                          [omitted]

10.20         Letter of Engagement dated October 10, 1995,       Exhibit 10.20 to the Registration Statement on
              from Britwirth Investment Company, Ltd. to         Form 10-SB effective February 13, 1997
              the Company.                                        (File No. 0-29032)

10.21         Antenna Site License commencing November           Exhibit 10.21 to the Registration Statement on
              1, 1995, for a term of 36 months, between          Form 10-SB effective February 13, 1997
              Motorola, Inc. and the Company.                     (File No. 0-29032)
              (CONFIDENTIAL)
</TABLE>




                                       20
<PAGE>   28



<TABLE>
<CAPTION>
                                                                                 INCORPORATED BY
NUMBER                           DESCRIPTION                                       REFERENCE TO
------                           -----------                                       ------------
<S>           <C>                                                <C>
10.22         Antenna Site License commencing November           Exhibit 10.22 to the Registration Statement on
              1, 1995, for a term of 36 months, between          Form 10-SB effective February 13, 1997
              Motorola, Inc. and the Company.                     (File No. 0-29032)
              (CONFIDENTIAL)

10.23         Promissory Note dated November 15, 1995, in        Exhibit 10.23 to the Registration Statement on
              the original principal amount of $2,799,581.26     Form 10-SB effective February 13, 1997
              from the Company to Champion                        (File No. 0-29032)
              Communications Company; and Endorsement
              No. 1 dated August 18, 1996.

10.24         Security Agreement dated November 15, 1995,        Exhibit 10.24 to the Registration Statement on 
              between the Company and Champion                   Form 10-SB effective February 13, 1997 
              Communications Company; and Amendment              (File No. 0-29032) 
              No. 1 to Security Agreement dated
              August 15, 1996.

10.25         [omitted]                                          [omitted]

10.26         Asset Purchase Agreement dated August 30,          Exhibit 10.26 to the Registration Statement on
              1996, between Nextel Communications, Inc.          Form 10-SB effective February 13, 1997
              and the Company.                                    (File No. 0-29032)
              (CONFIDENTIAL)

10.27         Form of Indemnification Agreement between          Exhibit 10.27 to the Registration Statement on
              officers and director of the Company and the       Form 10-SB effective February 13, 1997
              Company.                                            (File No. 0-29032)

10.28         Escrow Agreement dated July 29, 1996               Exhibit 10.28 to the Registration Statement on
              between Albert F. Richmond, David A.               Form 10-SB effective February 13, 1997
              Terman, Equity Transfer Services, Inc. and the      (File No. 0-29032)
              Company.

10.29         Note and Security Agreement dated January 2,       Exhibit 10.29 to the Registration Statement on 
              1995 in the original principal amount of           Form 10-SB effective February 13, 1997 
              $3,177,505, executed by the Company, made          (File No. 0-29032) 
              payable to Champion Communications Company.

24.1          Power of Attorney                                  N/A


27.1          Financial Data Schedule.
</TABLE>

(b)        Reports on Form 8-K.

           None filed during the last quarter of the period.




                                       21
<PAGE>   29



                                                SIGNATURES

           Pursuant to the requirements of Section 13 or 15(d), the Securities
and Exchange Act of 1934, the Registrant has duly caused this Form 10-KSB,
Annual Report, for the year ending December 31, 1998, to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of The Woodlands, and
State of Texas, on the 31st day of March, 1999.

CHAMPION COMMUNICATION  SERVICES, INC.                                          
                                                                                
                                                                                
By: /s/ Albert F. Richmond              
    ----------------------------------  
    Albert F. Richmond,                 
    Chairman of the Board and Chief     
    Executive Officer                   
                                           

POWER OF ATTORNEY TO SIGN AMENDMENTS

           KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Albert F. Richmond his true and lawful
attorney-in-fact and agent for him and in his name, place and stead, in any and
all capacities, to sign any or all amendments to the Champion Communication
Services, Inc. Form 10-KSB, Annual Report, for year ending December 31, 1998,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully, to all intents and purposes,
as they or he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agents, or any of them, may lawfully do or cause
to be done by virtue hereof. This Power of Attorney been signed below by the
following persons in the capacities and on the dates indicated.

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

<TABLE>
<CAPTION>
              SIGNATURE                          TITLE                                DATE
              ---------                          -----                                ----
<S>                                       <C>                                    <C> 
      /s/ Albert F. Richmond               Chairman of the Board and             March 31, 1999
------------------------------------       Chief Executive Officer
Albert F. Richmond                         

      /s/ David A. Terman                  President and Director                March 31, 1999
------------------------------------       
David A. Terman

     /s/ Pamela R. Cooper                  Chief Financial Officer, Treasurer,   March 31, 1999
------------------------------------       and Controller
Pamela R. Cooper                           

     /s/ Peter F. Dicks                    Director                              March 31, 1999
------------------------------------       
Peter F. Dicks

     /s/ Randel R. Young                   Director                              March 31, 1999
------------------------------------     
Randel R. Young
</TABLE>



                                       22
<PAGE>   30



<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                               <C>  
Financial Statements:

         Reports of Independent Certified Public Accountants...........................F-2

         Balance Sheets, December 31, 1998 and 1997....................................F-4

         Statements of Operations, Years Ended December 31, 1998 and 1997 .............F-5

         Statements of Changes in Stockholders' Equity, Years Ended
              December 31, 1998 and 1997...............................................F-6

         Statements of Cash Flows, Years Ended December 31, 1998 and 1997..............F-7

         Notes to Financial Statements.................................................F-8
</TABLE>





                                       F-1
<PAGE>   31

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



The Board of Directors
Champion Communication Services, Inc.

We have audited the accompanying balance sheet of Champion Communication
Services, Inc. (the "Company") as of December 31, 1998, and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Champion Communication
Services, Inc. at December 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

/s/ BDO SEIDMAN, LLP
Houston, Texas
March 5, 1999



                                       F-2
<PAGE>   32


              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Champion Communication Services, Inc.

We have audited the accompanying balance sheet of Champion Communication
Services, Inc. (the "Company") as of December 31, 1997, and the related
statements of operations, stockholders' equity and cash flow for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Champion Communication
Services, Inc. at December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

KPMG LLP
Houston, Texas
February 20, 1998 



                                       F-3
<PAGE>   33



                      CHAMPION COMMUNICATION SERVICES, INC.
                                 BALANCE SHEETS
                           December 31, 1998 and 1997


<TABLE>
<CAPTION>
                               ASSETS                                             1998             1997 
                                                                               -----------      -----------
<S>                                                                            <C>              <C>        
Current Assets
     Cash and cash equivalents                                                 $   354,116      $   618,335
     Accounts receivable net of allowance of $46,408 and $42,712                   779,582          990,342
     Notes receivable                                                              122,620           26,270
     Inventories                                                                   526,665          604,522
     Prepaid expenses and other                                                    216,996          180,744
                                                                               -----------      -----------
         Total Current Assets                                                    1,999,979        2,420,213
                                                                               -----------      -----------
Communications equipment and related assets, net                                 4,355,347        4,313,910
Notes receivable, long-term                                                         25,816           54,340
Other assets, net of amortization of $213,467 and $40,917                        1,591,328        1,039,402
                                                                               -----------      -----------
                                                                               $ 7,972,470      $ 7,827,865
                                                                               ===========      ===========

                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Accounts payable                                                          $   733,536      $   547,995
     Accrued expenses                                                              723,236          774,055
     Deferred revenue                                                              798,207        1,213,701
     Current maturities of notes payable                                           288,364          203,599
                                                                               -----------      -----------
         Total Current Liabilities                                               2,543,343        2,739,350
                                                                               -----------      -----------
Long Term Liabilities
     Notes payable                                                                 339,254           68,353
     Customer deposits                                                               2,238            1,589
                                                                               -----------      -----------
         Total Long Term Liabilities                                               341,492           69,942
                                                                               -----------      -----------
Stockholders' Equity
     Common stock, $0.01 par value, 20,000,000 shares authorized,
          6,119,712 shares issued and outstanding at December 31, 1998
          and 6,103,412 shares issued and outstanding at December 31, 1997          61,197           61,034
     Additional paid-in capital                                                  5,179,265        5,166,184
     Accumulated Deficit                                                          (152,827)        (208,645)
                                                                               -----------      -----------
Total Stockholders' Equity                                                       5,087,635        5,018,573
                                                                               -----------      -----------
                                                                               $ 7,972,470      $ 7,827,865
                                                                               ===========      ===========
</TABLE>


See accompanying notes to financial statements


                                       F-4
<PAGE>   34

                      CHAMPION COMMUNICATION SERVICES, INC.
                            STATEMENTS OF OPERATIONS
                     Years ended December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                          1998              1997
                                                      ------------      ------------
<S>                                                   <C>               <C>         
Revenues                                              $  8,610,256      $ 10,521,740
                                                      ------------      ------------
Operating Expenses:
     Cost of Sales                                       4,825,986         4,848,029
     Provision for doubtful accounts                        72,000           116,500
     Depreciation and amortization                         905,245           898,570
     General and administrative expenses                 2,743,894         1,979,255
                                                      ------------      ------------
         Total Operating Expenses                        8,547,125         7,842,354
                                                      ------------      ------------
         Operating Income                                   63,131         2,679,386
                                                      ------------      ------------
Other income (expenses):
     Net gain ( loss) on disposal of fixed assets           51,550          (334,181)
     Interest income                                        12,408            23,515
     Interest expense                                      (53,710)          (84,152)
                                                      ------------      ------------
Income before income taxes                                  73,379         2,284,568
Income taxes                                                17,561             3,900
                                                      ------------      ------------
Net income                                            $     55,818      $  2,280,668
                                                      ============      ============
Weighted average common shares outstanding               6,115,916         6,103,412
                                                      ============      ============
Basic and diluted net income per common share         $       0.01      $       0.37
                                                      ============      ============
</TABLE>


See accompanying notes to financial statements.



                                       F-5

<PAGE>   35

                      CHAMPION COMMUNICATION SERVICES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                     Years ended December 31, 1998 and 1997





<TABLE>
<CAPTION>
                                   Common                         Additional                         Total 
                                   stock            Common         paid-in       Accumulated      Stockholders'
                                   shares           stock          capital         deficit           Equity
                                 -----------     -----------     -----------     -----------      -----------
<S>                              <C>             <C>             <C>             <C>              <C>        
Balance at December 31, 1996       6,103,412     $    61,034     $ 5,166,184     ($2,489,313)     $ 2,737,905
Net income for 1997                       --              --              --       2,280,668        2,280,668
                                 -----------     -----------     -----------     -----------      -----------

Balance at December 31, 1997       6,103,412          61,034       5,166,184        (208,645)       5,018,573
                                 -----------     -----------     -----------     -----------      -----------
Issuance of Common stock              16,300             163          13,081              --           13,244
Net income for 1998                       --              --              --          55,818           55,818
                                 -----------     -----------     -----------     -----------      -----------

Balance at December 31, 1998       6,119,712     $    61,197     $ 5,179,265     ($  152,827)     $ 5,087,635
                                 ===========     ===========     ===========     ===========      ===========
</TABLE>




See accompanying notes to financial statements.




                                       F-6
<PAGE>   36


                                      
                    CHAMPION COMMUNICATION SERVICES, INC.
                           STATEMENTS OF CASH FLOWS
                    Years ended December 31, 1998 and 1997



<TABLE>
<CAPTION>
                                                                                        1998             1997
                                                                                     -----------      -----------
<S>                                                                                  <C>              <C>        
Cash flows from operating activities:
     Net income                                                                      $    55,818      $ 2,280,668
     Adjustments to reconcile net income to net cash provided by 
       operating activities:                                                                                  
         Depreciation and amortization                                                   905,245          898,570
         Bad debt expense                                                                 72,000          116,500
         Common stock issued for services                                                 13,244               --
         Loss (gain) on disposal/sale of fixed assets                                    (51,550)         334,181
         Changes in assets and liabilities:
              Accounts receivable                                                        110,713         (233,051)
              Inventory                                                                   77,856         (147,113)
              Prepaid expenses                                                           (36,252)        (110,429)
              Notes receivable                                                            28,524           30,660
              Accounts payable                                                           185,541          101,469
              Accrued expenses                                                           (50,819)          83,337
              Deferred revenue                                                          (415,494)        (372,924)
                                                                                     -----------      -----------
                  Net cash provided by  operating activities                             894,826        2,981,868
                                                                                     -----------      -----------
Cash flows from investing activities:
     Additions to property and equipment                                              (1,009,783)        (480,209)
     Proceeds from sale of fixed assets                                                  451,243          461,168
     Additions to other assets, net                                                     (568,281)        (504,868)     
                                                                                     -----------      -----------
                  Net cash used in investing activities                               (1,126,821)        (523,909)    
                                                                                     -----------      -----------
Cash flows from financing activities:
     Proceeds from issuance of notes payable                                             443,464          590,399
     Repayment of notes payable                                                         (475,688)      (3,517,463)
                                                                                     -----------      -----------
                  Net cash used in financing  activities                                 (32,224)      (2,927,064)
                                                                                     -----------      -----------
Net decrease in cash and cash equivalents                                               (264,219)        (469,105)
Cash and cash equivalents at beginning of year                                           618,335        1,087,440
                                                                                     -----------      -----------
Cash and cash equivalents at end of year
                                                                                     $   354,116      $   618,335
                                                                                     ===========      ===========
Supplemental disclosure of cash flow information: Cash paid during the year for:
         Taxes                                                                       $    65,115      $        --
         Interest                                                                    $    48,147      $    87,997
</TABLE>


See accompanying notes to financial statements.



                                       F-7
<PAGE>   37

                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1998 and 1997


(1)   Summary of Significant Accounting Policies

      (a) Description of Business

               Champion Communication Services, Inc. (the Company) is a provider
          of high powered community repeater dispatch services operating within
          the 450 - 512 MHz and 800 MHz frequency band in the United States. The
          Company's customers consist primarily of business and government
          agencies located in both metropolitan and rural geographic regions.
          The Company provides customers with equipment sales and service, and
          radio rentals.

      (b) Basis of Presentation

               The accompanying financial statements have been prepared in
          accordance with accounting principles generally accepted in the United
          States. The differences between accounting principles generally
          accepted in the United States and Canada would not have a material
          impact on the accompanying financial statements.

      (c) Cash and Cash Equivalents

               For purposes of the statements of cash flows, the Company
          considers all highly liquid financial instruments purchased with an
          original maturity of three months or less to be cash equivalents.

      (d) Inventory

               The Company's inventory consists primarily of two-way radios,
          parts and accessories. The Company uses the average cost method of
          accounting for inventory. The balance recorded at December 31, 1998
          and 1997 is the lower of average cost or market. The Company has also
          included $68,000 of costs for spectrum expected to be sold in 1999 in
          current inventory.

      (e) Communications Equipment and Related Assets

               Communications equipment and related assets are recorded at cost.
          Depreciation is computed on a straight-line basis over the estimated
          useful lives of the assets ranging from five years for other fixed
          assets to ten years for communications equipment.

      (f) Other Assets

               Fees associated with obtaining Federal Communication Commission
          licenses for 450-470 MHz, 470-512 MHz and 800 MHz are deferred by the
          Company. Upon disposition, such costs are relieved based upon an
          average cost basis. Licenses that are used by the Company are
          capitalized and amortized under the straight line method for five
          years.

      (g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed 
          Of

               Management reviews long-lived assets and intangible assets for
          impairment whenever events or changes in circumstances indicate that
          the carrying amount of an asset may not be recoverable. Recoverability
          of assets to be held and used is measured by a comparison of the
          carrying amount of an asset to future net cash flows expected to be
          generated by the asset. If such assets are considered to be impaired,
          the impairment to be recognized is measured by the amount by which the
          carrying amount of the assets exceeds the fair value of the assets
          which considers the discounted future net cash flows. Assets to be
          disposed of are reported at the lower of the carrying amount or the
          fair value less costs of disposal. This analysis for the asset values
          as of December 31, 1998 and 1997 indicated there was no impairment to
          these assets carrying values.




                                       F-8
<PAGE>   38


                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS



(1)   Summary of Significant Accounting Policies, (continued)

      (h) Accrued Expenses

               Accrued expenses consist primarily of accrued tower rents of
          $470,000 and $401,000 at December 31, 1998 and 1997, respectively.

      (i) Income Taxes

               In accordance with U.S. generally accepted accounting principles,
          deferred tax assets and liabilities are recognized for the future tax
          consequences attributable to differences between the financial
          statement carrying amounts of existing assets and liabilities and
          their respective tax basis. Deferred tax assets and liabilities are
          measured using enacted tax rates expected to apply to taxable income
          in the years which those temporary differences are expected to be
          recovered or settled. The effect on deferred tax assets and
          liabilities of a change in tax rates is recognized in income in the
          period that includes the enactment date.

      (j) Fair Value of Financial Instruments

               Fair value estimates are made at discrete points in time based on
          relevant market information. These estimates may be subjective in
          nature and involve uncertainties and matters of significant judgment
          and therefore cannot be determined with precision.

               The Company believes that the carrying amounts of its current
          assets and current liabilities approximate the fair value of such
          items due to their short-term nature. The carrying amount of long-term
          debt approximates its fair value because the interest rates
          approximate market and there has been no significant change in the
          credit risk of the Company.

      (k) Stock Option Plan

               On January 1, 1996, the Company adopted Statement of Financial
          Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
          Compensation," which permits entities to recognize as expense over the
          vesting period the fair value of all stock-based awards on the date of
          grant. Alternatively, SFAS No. 123 also allows entities to continue to
          apply the provisions of Accounting Principles Board (APB) Opinion No.
          25 and provide pro forma net income and pro forma earnings per share
          disclosures for employee stock option grants made in 1995 and future
          years as if the fair-value-based method defined in SFAS No. 123 had
          been applied. The Company has elected to continue to apply the
          provisions of APB Opinion No. 25 and provide the pro forma disclosure
          provisions of SFAS No. 123.

      (l) Revenue Recognition

               The standard industry billing cycle for radio dispatch service is
          generally for three, six and twelve month intervals. The Company
          defers amounts billed in advance and recognizes revenue as the related
          services are provided.






                                       F-9
<PAGE>   39
 
                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS



(1)   Summary of Significant Accounting Policies, (continued)

      (m) Net Income Per Common Share

               For the years ended December 31, 1998 and 1997, the weighted
          average number of common shares outstanding was 6,115,916 and
          6,103,412, respectively. In calculating EPS for 1998 and 1997, options
          to purchase 326,000 and 373,000 shares of common stock, respectively
          at exercise prices ranging from $1.00 to CDN $3.70 were not included
          in the computation of diluted EPS because the options' exercise price
          was greater than the average market price of the Company's common
          shares.

      (n) Use of Estimates

               Management of the Company has made a number of estimates and
          assumptions relating to the reporting of assets and liabilities and
          the disclosure of contingent assets and liabilities to prepare these
          financial statements in conformity with generally accepted accounting
          principles. Actual results could differ from those estimates.

      (o) Reclassifications

               Certain reclassifications have been made to conform with current
          reporting practices.

      (p) Differences Between Generally Accepted Accounting Principles in the 
          United States and Canada

               The Company prepares its financial statements in accordance with
          generally accepted accounting principles (GAPP) in the United States. 
          There are no significant differences between the Unites States and 
          Canadian GAPP effecting the Company's financial statements.

      (q) New Accounting Pronouncements

                   In June 1998, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standard No. 133, "Accounting for
          Derivative Instruments and Hedging Activities" ("SFAS 133"). This
          statement standardizes the accounting for derivative instruments,
          including certain derivative instruments embedded in other contracts,
          by requiring that an entity recognize those items as assets or
          liabilities in the statement of financial position and measure them at
          fair value. The statement generally provides for matching the timing
          of gain or loss recognition on the hedging instrument with the
          recognition of (a) the changes in fair value of hedged asset or
          liabilities that are attributable to the hedged risk or (b) the
          earnings effect of the hedged forecasted transaction. The statement is
          effective for all fiscal quarters for all fiscal years beginning after
          June 15, 1999, with early application encouraged, and shall not be
          applied retroactively to financial statements of prior periods.
          Adoption of SFAS 133 is expected to have no effect on the Company's
          financial statements.

                   In June 1998 the Accounting Standards Executive Committee of
          the AICPA issued SOP 98-5, Reporting on the Costs of Start-up
          Activities, SOP 98-5 requires all start-up and organizational costs to
          be expensed as incurred. It also requires all remaining historically
          capitalized amounts of these costs existing at the date of adoption to
          be expensed and reported as the cumulative effect of a change in
          accounting principles. SOP 98-5 is effective for all fiscal years
          beginning after December 15, 1998. The Company believes that the
          adoption of SOP 98-5 will not have a significant effect on its
          financial statements.





                                      F-10
<PAGE>   40
                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS



(2)   Communication Equipment and Related Assets

          Communication equipment and related assets at December 31, 1998 and
1997 are comprised of the following:

<TABLE>
<CAPTION>
                                                                            December 31, 1998          
                                                               ----------------------------------------------
                                                 Asset                        Accumulated            Net
                                                  Life           Cost         depreciation          Balance
                                                 ------        ----------     ------------         ----------
<S>                                              <C>           <C>            <C>                  <C>       
      Base station and related equipment         5 - 10 yrs.   $5,535,213      $1,702,564          $3,832,649
      Rental radio equipment                     2 - 5 yrs.       619,737         326,996             292,741
      Other furniture, data processing and                 
        communication equipment                  2 - 5 yrs.       548,833         318,876             229,957
                                                              -----------     -----------         -----------

                                                               $6,703,783      $2,348,436          $4,355,347
                                                               ----------      ----------          ----------
</TABLE>

<TABLE>
<CAPTION>
                                                                            December 31, 1997          
                                                               ----------------------------------------------
                                                 Asset                        Accumulated            Net
                                                  Life           Cost         depreciation          Balance
                                                 ------        ----------     ------------         ----------
<S>                                              <C>           <C>            <C>                  <C>
      Base station and related equipment         5 - 10 yrs.   $5,348,799      $1,436,369          $3,912,430
      Rental radio equipment                     2 - 5 yrs.       427,848         251,234             176,614
      Other furniture, data processing and                  
        communication equipment                  2 - 5 yrs.       441,903         217,037             224,866
                                                              -----------     -----------         -----------

                                                               $6,218,550      $1,904,640          $4,313,910
                                                               ----------      ----------          ----------
</TABLE>

(3)   Notes Payable

          During the years ended December 31, 1998 and 1997, the Company
      incurred installment notes payable of $456,354 and $64,073, respectively,
      to finance certain communication equipment purchases. At December 31, 1998
      and 1997, the total balance outstanding related to the installment notes
      payable was $452,600 and $138,920, respectively. The notes are payable in
      monthly installments and mature from 1999 to 2003. The notes bear interest
      at rates ranging from 8.5% to 12.9% per year and are secured by
      communications equipment.

          During 1998, the Company entered into a revolving note payable with a
      maximum credit line of $700,000, bearing interest at the prime rate plus
      one percent per annum (8.75% at December 31, 1998) due October 6, 1999. At
      December 31, 1998, the outstanding balance on the credit line was $50,000.
      The credit line is being used to finance the acquisition of inventory and
      working capital. The amount due at the end of 1997 for the credit line
      used to finance inventory purchases and other notes payable totaling
      $133,034 was retired during 1998.

          In exchange for two promissory notes totaling $125,000, the company
      acquired communication assets in San Jose, California on May 1, 1998. The
      8% per annum $50,000 note was retired in January 1999. The remaining
      $75,000 note bears interest at 6% per annum payable monthly on the unpaid
      principal until maturing on May 1, 2002. The note has a conversion option
      during its term to convert the then outstanding principal amount into
      common shares of the Company based on each share valued at $1.50.



                                      F-11
<PAGE>   41
                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS



(3)   Notes Payable, (continued)

          The combined aggregate maturities of the notes payable for each of the
      five years following December 31, 1998 are as follows:

<TABLE>
<S>                                                     <C>      
                   1999                                 $ 288,364
                   2000                                   124,787
                   2001                                    75,190
                   2002                                   112,164
                   2003                                    27,113
                                                        ---------

                                                        $ 627,618
                                                        =========
</TABLE>

(4)   Income Taxes

          During 1998, the Company recorded state income taxes of $9,245 and
      federal income tax of $8,316, which includes $3,673 in deferred tax
      expense. For the years ended December 31, 1998 and 1997, the Company's
      effective income tax rate differed from the statutory tax rate as follows:

<TABLE>
<CAPTION>
                                                              1998        1997
                                                              ----        ----
<S>                                                           <C>         <C>
      Federal statutory tax rate                                34%         34%

      State income taxes, net of federal income tax effect       8           -

      Non-deductible expenses                                   10           2
      Alternative minimum tax                                   11           -
      Change in valuation allowance on net operating                           
      loss carryforwards                                       (39)        (36)
                                                               ---         ---
      Effective tax rate                                        24%        - %
                                                               ---         ---
</TABLE>

      As of December 31, 1998 and 1997, deferred tax assets and liabilities were
as follows:

<TABLE>
<CAPTION>
                                                       1998             1997
                                                     ---------        ---------
<S>                                                  <C>              <C>      
      Communications equipment                       $ 372,912        $ 865,468
                                                     ---------        ---------
          Total deferred tax liabilities               372,912          865,468
                                                     ---------        ---------

      Minimum tax credit carryforward                   55,840           55,840
      Net operating loss carryforward                  297,620          878,295
      Allowance for doubtful accounts                   15,779           14,522
                                                     ---------        ---------

          Total deferred tax assets                    369,239         948,857
                                                     ---------        ---------

      Valuation allowance                                   --          (83,189)
                                                     ---------        ---------

      Net deferred tax assets (liability)            ($  3,673)       $      -- 
                                                     ---------        ---------
</TABLE>


          In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all of
      the deferred tax assets will not be realized and a valuation allowance is
      recorded. The valuation allowance decreased $83,189 and increased $822,989
      during the years ended December 31, 1998 and 1997, respectively.




                                      F-12
<PAGE>   42
                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


(4)   Income Taxes, (continued)

          The December 31, 1998 net operating loss carryforward of approximately
      $875,400 will be available to offset future taxable income and expires in
      2009 through 2011. The Company has $55,840 in alternative minimum tax
      carryforwards available to use indefinately in the future.

(5)   Related Party Transactions

          During 1997, the Company exercised its option to purchase an 800 MHz
      trunking license belonging to Champion Communications Company ("CCC"), a
      company wholly owned by Mr. Richmond, for approximately $113,000. The 
      Company also retired a note payable to CCC for $2,799,581 paid on March 
      17, 1997.

(6)   Stockholders' Equity

          Upon the completion of the initial public filing in September 1996,
      a third party was granted options, in conjunction with a special warrant
      offering, to purchase 60,000 common shares during the period of three
      years from September 25, 1996 at a price of CDN $3.70 per share. The 
      unexercised public warrants issued under the offering expired in August 
      1998.

          Of the 6,119,712 issued and outstanding shares of common stock at
      December 31, 1998, 3,110,400 shares owned by the chief executive officer
      and president were placed in escrow with Equity Transfer Services, Inc.,
      in connection with the Company's initial public offering in Canada. Fifty
      percent of the securities were released from escrow during 1997 and 1998,
      and the remaining are to be released as follows: 20% on July 31, 1999 and
      30% on July 31, 2000.

          During 1998, 16,300 shares were issued for $.81 per share of which
      5,000 shares were issued to acquire a license, 6,000 shares to acquire
      certain net assets of a company, and 5,300 shares as employee 
      compensation.

(7)   Stock Options

          In 1996, the Company adopted the "1996 Incentive Plan" (the Plan) to
      provide incentive options, nonstatutory options, restricted stock awards
      and stock appreciation rights to certain key employees, non-employee
      directors and other persons. The Plan authorizes grants of options to
      purchase up to 500,000 shares of common stock. Stock options are granted
      with an exercise price equal to the stock's fair market value at the date
      of grant. All stock options issued under the Plan have 10-year terms.
      Options granted to employees vest and become fully exercisable after a
      range of two to six years from the date of grant. Options granted to
      non-employee directors vest and become exercisable immediately upon
      issuance. At December 31, 1998 and 1997, there were 234,000 and 237,000
      additional shares, respectively, available for grant under the Plan.

          During 1998 and 1997, the Company granted options to purchase 106,000
      and 165,000 shares of common stock, respectively, to employees and
      non-employee directors of the Company. The per share weighted-average
      value of stock options granted during 1998 and 1997 was $0.80 and $1.91,
      respectively, on the date of grant, using the Black Scholes model with the
      following assumptions: weighted-average risk-free interest rate of 5.39%
      and 6.7%, respectively, weighted-average expected life of ten and nine
      years, respectively, weighted-average expected volatility of 121% and
      51.96%, respectively, and no expected dividend yield.

          The Company applies APB Opinion No. 25 in accounting for its Plan and
      no compensation cost has been recognized for its stock options in the
      financial statements. Had the Company determined compensation cost based
      on the fair value at the grant date for its stock options under SFAS No.
      123, the Company's net income (loss) would have been reduced to the pro
      forma amounts indicated below:



                                      F-13
<PAGE>   43
                    CHAMPION COMMUNICATION SERVICES, INC.
                        NOTES TO FINANCIAL STATEMENTS



(7)   Stock Options, (continued)

<TABLE>
<CAPTION>
                                                    1998               1997
                                                -------------      -------------
<S>                                             <C>                <C>          
          Net income (loss)
                   As reported                  $      55,818      $   2,280,668
                   Pro forma                    $     (16,972)     $   2,222,952

          Income (Loss) per share
                   As reported                  $         .01      $         .37
                   Pro forma                    $         .00      $         .36
</TABLE>

The following table summarizes the information about the stock options as of 
December 31, 1998:

<TABLE>
<CAPTION>           
                                                  Weighted
                                                  Average
                         Number       Weighted    Remaining      Number       Weighted
          Range of     Outstanding    Average    Contracted    Exercisable    Average
          Exercise         at         Exercise      Life           at         Exercise
           Price       December 31     Price      (Years)      December 31     Price
         ---------     -----------    --------   ----------    -----------    --------
<S>                     <C>           <C>         <C>           <C>            <C>
            $ 1.00      61,000        $ 1.00       9.21          23,000       $ 1.00
            $ 1.16      15,000        $ 1.16       9.63              --       $ 1.16
            $ 1.25      33,000        $ 1.25       9.34           3,000       $ 1.25
            $ 2.00      69,000        $ 2.00       7.22          24,900       $ 2.00
            $ 2.22      78,000        $ 2.22       8.10              --       $ 2.22
            $ 2.75      10,000        $ 2.75       8.00           3,000       $ 2.75
            ------     -------        ------       ----         -------       ------
     $ 1.00 - 2.75     266,000        $ 1.73       8.38          53,900       $ 1.57
     ==============    =======        ======       ====         =======       ======
</TABLE>

<TABLE>
<CAPTION>
                                                       Number of      Weighted-average
                                                       Options        exercise price   
                                                     ------------     ----------------
<S>                                                  <C>               <C>         
         Balance at December 1996                         121,000      $       2.37
                   Granted                                165,000      $       2.22
                   Forfeited                              (23,000)     $       2.16
                                                     ------------      ------------

          Balance at December 1997                        263,000      $       2.32
                   Granted                                106,000      $       1.09
                   Forfeited                             (103,000)     $       2.13
                                                     ------------      ------------

          Balance at December 1998                        266,000      $       1.73
                                                     ============      ============
</TABLE>

          At December 31, 1998 and 1997, the number of options exercisable under
      the Plan was 53,900 and 26,000, respectively, and the weighted-average
      exercise price of these options was $1.57 and $2.59, respectively.

(8)   401(k) Plan

          In January 1996, the Company adopted a 401(k) Plan (the "401(k) Plan")
      under which all employees of the Company who have completed three months
      of service are eligible to participate. Participants may elect to defer
      the receipt of up to 15% of their annual compensation (up to a maximum
      dollar amount established in accordance with Section 401(k) of the
      Internal Revenue Code) and have such deferred amounts contributed to the
      401(k) Plan. The Company may, in its discretion, make matching
      contributions to the extent it deems appropriate. The Board of Directors
      at the March 9, 1999 Board meeting elected to match 1998 contributions by
      50% and contribute common stock of the Company to the Plan for an
      aggregate contribution of $24,192.




                                      F-14
<PAGE>   44
                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


(9)   Statement of Cash Flows

          During 1998 and 1997, the Company acquired communications equipment in
      exchange for the incurrence of $387,890 and $64,073 of debt, respectively
      (see note 3). During 1998 and 1997, the Company received a $100,000 and
      an $85,000 note receivable, respectively, for the sale of certain
      communications equipment. The 1998 note is due on November 1, 1999 and
      the 1997 note matures on October 20, 2000 earning interest at the rate of
      8.5% annually. Common stock valued at $13,244 was issued during 1998 in 
      exchange for assets and services.
        

(10)  Commitments and Contingencies

          At December 31, 1998 the Company has commitments under noncancellable
      operating lease agreements primarily for the rental of office space.
      Future minimum rental payments due under the lease are:

<TABLE>
<S>                                                             <C>    
                            1999                                122,642
                            2000                                 39,420
                            2001                                 22,995
                                                               --------

                                                               $185,057
                                                               ========
</TABLE>

          During the year ended December 31, 1998 and 1997, the Company incurred
      $144,148 and $99,153 in rental expense, respectively.

(11)  Major Suppliers

          The Company has entered into dealer agreements with three principal
      communication equipment suppliers. Both dealer agreements may be
      terminated at any time by the suppliers or the Company without cost.
      Termination of either of these agreements would have a materially adverse
      effect on the Company.




                                     F-15
<PAGE>   45

                                EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                                 INCORPORATED BY
NUMBER                           DESCRIPTION                                       REFERENCE TO
------                           -----------                                       ------------
<S>           <C>                                                <C>
3.1           Certificate of Incorporation filed September       Exhibit 3.1 to the Registration Statement on
              29, 1994.                                          Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

3.2           Certificate of Amendment to Certificate of         Exhibit 3.2 to the Registration Statement on
              Incorporation filed January 26, 1996.              Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

3.3           Certificate of Amendment to Certificate of         Exhibit 3.3 to the Registration Statement on
              Incorporation filed April 23, 1996.                Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

3.4           By-laws dated September 29, 1994.                  Exhibit 3.4 to the Registration Statement on
                                                                 Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

4.1           Specimen Common Stock share certificate.           Exhibit 4.1 to the Registration Statement on
                                                                 Form 10-SB effective February 13, 1997
                                                                  (File No. 0-29032)

4.2           Pages from Certificate of Incorporation and        Exhibit 4.2 to the Registration Statement on
              By-laws defining rights of stockholders -          Form 10-SB effective February 13, 1997
              included in Exhibits 3.1, 3.2, 3.3 and 3.4.         (File No. 0-29032)

10.1          [omitted]                                          [omitted]

10.2          [omitted]                                          [omitted]

10.3          [omitted]                                          [omitted]

10.4          [omitted]                                          [omitted]

10.5          [omitted]                                          [omitted]

10.6          [omitted]                                          [omitted]

10.7          [omitted]                                          [omitted]

10.8          [omitted]                                          [omitted]

10.9          Lease Agreement dated November 10, 1994,           Exhibit 10.9 to the Registration Statement on
              between The Woodlands Corporation and the          Form 10-SB effective February 13, 1997
              Company.                                            (File No. 0-29032)

10.10         Modification and Modification of Lease dated       Exhibit 10.10 to the Registration Statement
              April 4, 1995, between The Woodlands               on Form 10-SB effective February 13, 1997
              Corporation and the Company.                        (File No. 0-29032)
</TABLE>




<PAGE>   46



<TABLE>
<CAPTION>
                                                                                 INCORPORATED BY
NUMBER                           DESCRIPTION                                       REFERENCE TO
------                           -----------                                       ------------
<S>           <C>                                                <C>
10.11         Modification and Modification of Lease dated       Exhibit 10.11 to the Registration Statement
              July 24, 1995, between The Woodlands               on Form 10-SB effective February 13, 1997
              Corporation and the Company.                        (File No. 0-29032)

10.12         Modification and Modification of Lease dated       Exhibit 10.12 to the Registration Statement on
              May 1, 1996, between The Woodlands                 Form 10-SB effective February 13, 1997
              Corporation and the Company.                        (File No. 0-29032)

10.13         Radius Communication Products Reseller             Exhibit 10.13 to the Registration Statement on
              Agreement dated September 22, 1994, between        Form 10-SB effective February 13, 1997
              Motorola, Inc. and the Company; Amendment           (File No. 0-29032)
              to Reseller Agreement dated September 22,
              1994; and Master Amendment No. 1 dated
              September 30, 1996.

10.14         Motorola Authorized Two-Way Radio Dealer           Exhibit 10.14 to the Registration Statement on
              Agreement dated September 22, 1994, between        Form 10-SB effective February 13, 1997
              Motorola, Inc. and the Company; Paging              (File No. 0-29032)
              Product Sales to the United States Government
              Amendment dated on or about January 10,
              1996; Amendment dated on or about February
              13, 1996; and Per Unit Administrative
              Processing Charge Amendment dated
              September 30, 1996.

10.15         Motorola Master Radio Service Software             Exhibit 10.15 to the Registration Statement on
              License Agreement dated November 8, 1994,          Form 10-SB effective February 13, 1997
              between Motorola, Inc. and the Company.             (File No. 0-29032)

10.16         Master Dealer Agreement Land Mobile Radio          Exhibit 10.16 to the Registration Statement on
              Products, undated, between Kenwood                 Form 10-SB effective February 13, 1997
              Communications Corporation and the                  (File No. 0-29032)
              Company; Product Addendum dated February
              5, 1996; and Product Addendum, undated.

10.17         [omitted]                                          [omitted]

10.18         [omitted]                                          [omitted]

10.19         [omitted]                                          [omitted]

10.20         Letter of Engagement dated October 10, 1995,       Exhibit 10.20 to the Registration Statement on
              from Britwirth Investment Company, Ltd. to         Form 10-SB effective February 13, 1997
              the Company.                                        (File No. 0-29032)

10.21         Antenna Site License commencing November           Exhibit 10.21 to the Registration Statement on
              1, 1995, for a term of 36 months, between          Form 10-SB effective February 13, 1997
              Motorola, Inc. and the Company.                     (File No. 0-29032)
              (CONFIDENTIAL)
</TABLE>




<PAGE>   47

<TABLE>
<CAPTION>
                                                                                 INCORPORATED BY
NUMBER                           DESCRIPTION                                       REFERENCE TO
------                           -----------                                       ------------
<S>           <C>                                                <C>
10.22         Antenna Site License commencing November           Exhibit 10.22 to the Registration Statement on
              1, 1995, for a term of 36 months, between          Form 10-SB effective February 13, 1997
              Motorola, Inc. and the Company.                     (File No. 0-29032)
              (CONFIDENTIAL)

10.23         Promissory Note dated November 15, 1995, in        Exhibit 10.23 to the Registration Statement on
              the original principal amount of $2,799,581.26     Form 10-SB effective February 13, 1997
              from the Company to Champion                        (File No. 0-29032)
              Communications Company; and Endorsement
              No. 1 dated August 18, 1996.

10.24         Security Agreement dated November 15, 1995,        Exhibit 10.24 to the Registration Statement on 
              between the Company and Champion                   Form 10-SB effective February 13, 1997 
              Communications Company; and Amendment              (File No. 0-29032) 
              No. 1 to Security Agreement dated
              August 15, 1996.

10.25         [omitted]                                          [omitted]

10.26         Asset Purchase Agreement dated August 30,          Exhibit 10.26 to the Registration Statement on
              1996, between Nextel Communications, Inc.          Form 10-SB effective February 13, 1997
              and the Company.                                    (File No. 0-29032)
              (CONFIDENTIAL)

10.27         Form of Indemnification Agreement between          Exhibit 10.27 to the Registration Statement on
              officers and director of the Company and the       Form 10-SB effective February 13, 1997
              Company.                                            (File No. 0-29032)

10.28         Escrow Agreement dated July 29, 1996               Exhibit 10.28 to the Registration Statement on
              between Albert F. Richmond, David A.               Form 10-SB effective February 13, 1997
              Terman, Equity Transfer Services, Inc. and the      (File No. 0-29032)
              Company.

10.29         Note and Security Agreement dated January 2,       Exhibit 10.29 to the Registration Statement on 
              1995 in the original principal amount of           Form 10-SB effective February 13, 1997 
              $3,177,505, executed by the Company, made          (File No. 0-29032) 
              payable to Champion Communications Company.

24.1          Power of Attorney                                  N/A


27.1          Financial Data Schedule.
</TABLE>