<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, 1997.
0r
{ } 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.  $10,521,740

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, 1998, there were 6,103,412 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, 1998
was $2,642,362.84 based upon the average bid and ask price of the common stock
on such date of U.S. $1.16 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>                                                                                 <C>
GLOSSARY OF TERMS ..............................................................................i

                                                      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 OF OPERATION................................................14

ITEM 7.    FINANCIAL STATEMENTS................................................................16

ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE..........................................................16

                                                     PART III

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

ITEM 10.   EXECUTIVE  COMPENSATION.............................................................18

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................22

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................23

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K....................................................24

SIGNATURES.....................................................................................28
</TABLE>


<PAGE>   3
                                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.

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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)

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<PAGE>   5

                  American Samoa is licensed as a single MTA-like area. These
                  modifications by the FCC resulted in a total of 51 MTAs.

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
                  radiocommunications 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


                                       iii
<PAGE>   6
                  dispatch technology. However, SMR may be interconnected with
                  the PSN to provide telephone interconnect services.

Spectrum          A term generally applied to radio frequencies.

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.


                                       iv
<PAGE>   7
                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

           This Memorandum 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
Memorandum 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 become profitable, compete effectively, 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 herein. 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 6,000 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). A repeater is
operated either without an FCC license because the customer is individually
licensed to operate a conventional channel or it is operated with a license held
by the operator for either trunked or conventional operations. 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 a limited amount of 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. 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 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

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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 during 1996 and 1997 in securing exclusive licenses, the Company was
able to obtain FCC consent and sell a number of the licenses for in excess of
$3,500,000. Based on this experience, management recognizes the value of
spectrum and will be expanding the Company's role as a primary spectrum merchant
both for its own benefit to construct and load users, and for sales to third
parties.

           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, 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 has evaluated its
total mix of dispatch services; sold, acquired or consolidated various dispatch
operations (after obtaining any necessary FCC consent); and established required
support systems, such as providing equipment rental and maintenance, licensing
and related services for customers. In particular, in an effort to increase its
subscriber capacity, overall network control and revenue potential, 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, has been converting many of the individual licenses held
by its subscribers to licenses in its own name. As of March 1, 1998, the Company
operated 1,130 repeaters and owned 225 exclusive licenses, of which 38 licenses,
or 17% were in the 800 MHz band, 164 licenses, or 73% were in the 470-512 MHz
band and 23 licenses, or 10% were in the 450-470 MHz band. In addition, the
Company had 650 co-channeled licenses, of which 19 licenses were in the 800 MHz
band; 202 licenses were in the 470-512 MHz band and 429 licenses were 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.
Richmond and Terman in exchange for the November 15, 1995 cancellation of
$540,000 of the $3,177,505


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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
Toronto CDN Stock Exchange. 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; however, the expiration date has been extended by the Company to June 30,
1998. The exercise price of the Public Warrants is CDN $3.70.

           Since establishing its business in 1994, the Company experienced
operating losses for the years ended 1994, 1995 and 1996, and in 1997 reported
net income of over $2,000,000. The Company currently has a negative working
capital position. In addition, on August 19, 1996, the Company sold the portion
of its business that serviced customer units for $33,000. The Company recognized
a loss of approximately $86,000 on this transaction.

                              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 bi-directional
communication between two 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 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. Dispatch services provide for the transmission of information, whether
voice messages or data, to groups of mobile or portable radio users for the
purpose of 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 wireless communications
services, such as 800 MHz and 900 MHz SMR, cellular and PCS.

           New applications in the wireless communications industry are also
emerging. These new technologies include broadband PCS and narrowband PCS
(advanced paging). Both broadband PCS and narrowband PCS are subject to
comprehensive FCC regulation and are available in the United States. The FCC

                                        3

<PAGE>   10




has also sanctioned trunking at the 450 - 512 MHz bandwidth, thus facilitating
the introduction of UHF Trunking.

           Each segment of the wireless communications industry relies on a
different technology and serves distinct customer needs. The Company believes
that these segments address separate 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. A decrease in the growth rate of the industry would have a material
adverse effect on the Company's ability to expand.


HISTORY OF DISPATCH NETWORKS

           The dispatch industry is comprised of operator-licensed systems and
user-licensed systems served by unlicensed CR operators. 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. 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 and for establishing
rules governing the licensing of, and operations on, such frequencies. It
receives formal applications from prospective users or operators and grants
licenses to provide the proposed services. The dispatch industry is allowed to
operate in the 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. 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 placed upon it, and
users are often unable to find a clear channel. To remedy this situation, the
FCC recently

                                        4

<PAGE>   11




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 it gains exclusive control over channels.


           900 MHZ. The 900 MHz band (SMR) analog operating format is almost
identical to the 800 MHz band format. Initially, the FCC issued 900 MHz band SMR
licenses in the top 50 markets in the United States. 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 was not successful in its
participation in these auctions.

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. 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 6,000 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 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.

                                        5

<PAGE>   12




           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. The antenna is affixed to the
tower structure 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 of the wireless communications industry. The Company also has
limited operations in the 800 MHz (SMR) 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. If the service is interconnected to the PSN, it is
comparable to cellular telephone technology.

           To exploit the benefits of trunking, the Company has been converting
its 450-512 MHz band repeaters to either the LTR or SmartTrunk II trunking
format. Over the next eighteen months the Company's objective is to convert or
construct substantially all UHF licenses in its targeted markets to one of these
formats. 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 565 repeaters and those sold 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. There can be no assurance, however, 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 as the T-Band. Operation on
the T-Band is particularly advantageous as this 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, 1998, the Company had filed
applications with the FCC for approximately 876 T-Bands in the Houston,
Dallas/Ft. Worth, San Francisco Bay, Washington/Baltimore and Chicago areas and
approximately 312 of those licenses have been granted and are in good standing.
Through these actions, 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 and Chicago. Thus far,
the Company holds 110 exclusive licenses and has an interest in an additional
202 licenses. The Company's Spectrum Division has dedicated


                                        6

<PAGE>   13


considerable effort to removing co-channel users on licenses, generally through
purchases or trades (with FCC consent). However, 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. 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 33 repeaters in the San Joaquin Valley of which 26 have been
converted to SMR's and 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, however,
that the Company will be able to obtain exclusive licenses, will obtain FCC
approval for sales, will be successful in concluding additional sales or close
sales at a profit. 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 904 licenses have been acquired and 29 have been sold for an average
of $148,000 each.

           Today the Company has 225 exclusive and 650 co-channeled licenses.
Existing loading capacity is deemed to be 24,000 units and when fully loaded
will yield revenues of $5,350,000 per year and gross operating margin of
$4,290,000 per year. The Company has retained an investment banker to raise an
additional $10,000,000 of capital expenditure funds on a best efforts basis to
acquire and construct spectrum in which the Company currently owns an interest.
While there is no assurance these funds will be raised, if the full amount were
raised, upon completion of the proposed acquisition and construction process,
the maximum potential loading capacity is expected to rise to 47,000 units
which, at current pricing, would yield $10,400,000 in annual revenues and
$8,380,000 gross operating margin.

           The assets which give rise to this existing revenue potential are
currently valued on the balance sheet at $5,830,000. 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. It is estimated that
the existing infrastructure of 24,000 available units could be loaded in
approximately 12 months. Once constructed, the expanded 23,000 units could be
loaded in an additional 22 months. Management anticipates, although there can be
no assurance, that the expanded infrastructure might be fully loaded by the year
2001.

           Under the Motorola Agreements, the Company also purchased 92
unlicensed 800 MHz band CRs. Of these, 26 exclusive licenses were obtained and
converted to 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
sell the trunked 800 MHz band


                                        7

<PAGE>   14




systems at a much greater price than their original purchase price. The Company
entered into contracts for approximately $4.7 million of such sales, of which
sales of approximately $3.9 million have closed and sales of approximately $1.3
million are expected to close before the end of 1998.

           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 obtain assignments of
FCC licenses to provide dispatch services. The Company is receiving assignments
of 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
additional licenses. The Company anticipates that these efforts will be ongoing.
However, 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 15, 1998, the Company has been granted 54 offset
channels.

           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."

           At its regular board meeting held on March 4, 1998, the Board of
Directors engaged in an in-depth discussion of the role spectrum has played in
the Company and its success. It was concluded that although the purchased assets
have performed well and those sold have been sold at a profit , the real worth
of the Company lies in the value of the spectrum that has been obtained since
the founding of the Company, as pointed out in previous paragraphs.

           It was also noted that the demand for spectrum has continued to
increase even with the advent and implementation of more spectrum efficient
equipment (i.e., digital versus analog). It was concluded that the Company
establish an additional core business dedicated to the acquiring, selling,
trading or utilizing spectrum, consistent with applicable FCC requirements, for
its own account. Additionally, consistent with applicable FCC requirements, the
Company will perform such services on behalf of others, generally in the role of
principal as the Company does not anticipate operating as a broker. In general,
it is the intention of the Company to become a very active merchant in the
business of acquiring, selling, and utilizing spectrum and related
infrastructure.

           EQUIPMENT RENTAL. To augment its sales activities, the Company has
established a Rental Division. This division currently rents approximately 700
units. The Company provides equipment rental directly to customers, as well as
through approved dealers.

COMPETITION

           The Company has 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


                                        8

<PAGE>   15

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 air time. Additionally,
cellular service providers typically charge for a call whether the user placed
or received the call. Because many dispatch 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.

           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


                                        9

<PAGE>   16

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. PCS is the newest technology to enter the wireless
communications industry. Broadband PCS systems will operate at 1.8 to 2.2 GHz
and will provide PSN interconnection, paging, voice mail and data transfer
capabilities. While conventional paging services historically have been provided
in the 900 MHz band, recently, narrowband PCS licensees, which are expected to
provide paging and other data transmission services, also have begun operating
in different segments of the 900 MHz band. PCS services are now available on a
limited scope and the Company expects to face competition from these operators.

           The first broadband PCS auction, in which the FCC awarded two 30 MHz
licenses in each MTA, began in December 1994 and ended in March 1995. A
substantial number of the companies awarded 30 MHz PCS licenses in this auction
were current cellular communications providers and joint ventures of current and
potential wireless communications service providers. The FCC completed PCS
auctions in early 1997. In addition, the FCC has auctioned national and regional
narrowband PCS licenses, but it is uncertain at this time when the remaining
narrowband licenses will be auctioned.

           At this time, the impact of PCS on the Company's business is
uncertain for several reasons. First, PCS is a relatively new service and
little, if any, meaningful empirical or other market data are available for
either broadband or narrowband operations. Second, given the high entry costs
for PCS licensees, it is difficult to forecast how soon systems will be
operational, what prices will be charged and how successful the systems will be
in providing viable competitive services. Third, it is unknown to what extent
PCS operators will provide dispatch service in markets where the Company is
operating. Although the Company believes that the PCS operators are going to be
susceptible to the same higher pricing as cellular operators, as compared to the
pricing of the Company's services, there can be no assurance that this will be
the case.

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


                                       10
<PAGE>   17

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 CR 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.

           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 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.

           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,


                                       11
<PAGE>   18

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. 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.

           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


                                       12
<PAGE>   19

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 six business regions as
follows: Houston, Dallas/Ft. Worth, Northern California, Phoenix/Tucson,
Chicago, and Washington D.C./Baltimore. A manager will oversee each region 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, as well as work with local independent dealers who are loading
the systems.

EMPLOYEES

           As of March 1, 1998, the Company employed 29 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, Arizona, Chicago, Dallas, and Maryland. As
previously discussed, these regional offices will be expanded to accommodate the
sales and service of equipment.

           The Company owns one tower and leases antenna and repeater space on
approximately 750 tower sites. Other than its lease on the Sears Tower in
Chicago, Illinois, 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,
although the lease on the Sears Tower is for a three-year term.

ITEM 3.  LEGAL PROCEEDINGS

           From time to time, the Company is involved in various legal
proceedings arising in the ordinary course of business. To its knowledge, the
Company is not currently involved in any material legal proceedings and is not
aware of any legal proceeding threatened against it.

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

           Not Applicable.



                                       13
<PAGE>   20

                                     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 the U.S. Bulletin Board. During the fourth quarter ended
December 31, 1996, and the year ended December 31, 1997, the high and low sales
prices were as follows:

<TABLE>
<CAPTION>
Date                              High                             Low
----                              ----                             ---
<S>                               <C>                              <C>
December 31, 1996                 CDN $4.20                        CDN $3.25

March 31, 1997                    CDN $3.50                        CDN $2.25

June 30, 1997                     CDN $2.50                        CDN $2.00

September 30, 1997                $1.72                            $1.125

December 31, 1997                 $1.375                           $1.125
</TABLE>

As of March 1, 1998, the Company's Common Stock was held by 142 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 1997
options therein described were granted by the Company during the past fiscal
year to 23 of its officers and employees. 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 Shares         Exercise
Date of Grant                      Granted             Price
-------------                   -------------         --------
<S>                             <C>                   <C>
January 1, 1997                   7,000               $2.75

February 6, 1997                155,000               $2.22

December 31, 1997                 3,000               $1.25
</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.



                                       14
<PAGE>   21

RESULTS OF OPERATIONS

           Total revenues for 1997 increased $3,385,000, or 47%, from 1996.
There was a significant increase in gross spectrum system sales from $100,000 in
1996 to $3,887,000 in 1997. This increase was primarily due to the closing of a
contract for the sale of 20 systems to Nextel. Spectrum system sales are
sporadic in nature as they rely upon the FCC approval for the transfer of
licenses. Dispatch revenue in 1997 decreased $271,000 or 5% from 1996, due in
large part to the sale of repeaters in the non-metropolitan areas. There was a
decrease in equipment sales of $32,000 which reflects that 1997 equipment sales
are singularly through independent dealers and the area business managers. Radio
rental revenues decreased from $300,000 to $292,000, a 3% variance. Service
revenues were $52,000 for the year ended December 31, 1997, a decrease of
$191,000 or 79% from the year ended 1996. This decrease is attributable to the
discontinuance of the service division in 1996.

           Costs and expenses decreased to $4,848,000 from $5,227,000 in 1996, a
decrease of 7%. The costs of spectrum systems sales increased 100% from 1996
to $484,000 for the year ended December 31, 1997. This cost was due to the
significant increase in spectrum system sales the Company successfully closed
during 1997. Dispatch costs and expenses were $3,574,000 for 1997 as compared
with $3,803,000 for 1996, a decrease of 7% or $229,000 primarily due to the sale
of non-metropolitan sites. The costs of equipment sales was down to $903,000 in
1997 from $956,000 in 1996 for a decrease of 6%. This decrease is reflected in
an improved gross margin for equipment sales from 1996 to 1997, even though the
Company had discontinued direct sales. Radio rental costs were $40,000 for 1997,
a decrease from $51,000 for 1996. The gross operating margin for radio rental
also reflects an increase over 1996 in spite of the reduced gross revenues.
There was a significant savings of $450,000 in 1997 resulting from the
elimination of the service division costs for the year ended December 31, 1996
compared with no such costs for 1997.

           Depreciation and amortization increased to $899,000 in 1997 from
$800,000 in 1996. This increase is attributable to the continuing acquisition of
spectrum from licenses granted to the Company and the related capital
improvements to construct the metropolitan systems.

           General and administrative expenses decreased $292,000 to $1,979,000
for 1997 from $2,271,000 for 1996. The decrease in expenses was due to the
discontinuance of direct sales and service and related personnel adjustments.

           The Company incurred a net loss in 1997 of $334,000 on the sale and
removal of repeaters as compared with a net gain of $10,000 for 1996. This net
loss is a result of the retirement of non-productive assets in the
non-metropolitan areas which is a phase of the Company's overall business plan
to migrate from the rural community repeater areas to the metropolitan trunked
repeaters. The Company also reported a 1996 loss on the sale of its
service-related division in the amount of $86,000. Interest revenue for 1997 was
$24,000 as compared with $19,000 for 1996. Interest expense for the year ended
December 31, 1997 was $84,000, a decrease of $198,000 from interest expense of
$282,000 for 1996. This reduction in interest expense reflects the savings from
the retirement of the note payable to Champion Communications Company in March
1997.

           The Company reported a net income for 1997 of $2,281,000 as compared
with a net loss of $1,619,000 for 1996, reflecting a 240% increase in net income
from 1996 to 1997 or a net income per common share for 1997 of $0.37 compared
with a net loss per common share of $0.32 for 1996.

LIQUIDITY AND CAPITAL RESOURCES

           As of December 31, 1997, the Company had cash and cash equivalents of
approximately $618,000.

           The working capital of the Company was a negative $319,000 at
December 31, 1997 as compared with a negative $1,573,000 at December 31, 1996.
The increase in working capital is a result of the retirement of the note
payable to Champion Communications Company in March 1997.



                                       15
<PAGE>   22

           Cash flows from operating activities were a negative $469,000 and
a negative $85,000 for the years 1997 and 1996, respectively.

           The Company's negative working capital and negative cash flows from
operations reflect the start-up of various divisions in connection with the
Company's acquisition of assets from Motorola in 1994 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 1997 including a major sale which closed in March 1997
generating $3,540,000 in proceeds. 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 1997 the Company acquired $797,000 of communications and
related equipment. These capital expenditures were financed in part by
borrowings from commercial financing institutions and the remaining proceeds of
the initial public offering in Canada. As of December 31, 1997, the Company's
current liabilities included $272,000 owed to three commercial lenders with
varying repayment terms.

YEAR 2000

           Many computer software systems, as well as certain hardware and
equipment containing date sensitive data, were structured to utilize a
two-digit date field meaning that they may not be able to properly recognize
dates in the Year 2000. This could result in significant system and equipment
failures. While the Year 2000 considerations are not expected to materially
impact the Company's internal operations, they may have an effect on some of
our customers and suppliers, and thus indirectly affect the Company. It is not
possible to quantify the aggregate cost to the Company with respect to customers
and suppliers with Year 2000 problems, although the company does not anticipate
it will have a material adverse impact on its business. The Company believes
that its management, operational and financial systems are free of any Year
2000 limitations.

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.

ITEM 7.  FINANCIAL STATEMENTS

           (See Item 13).

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

          None

                                    PART III

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

           The directors and executive officers of the Company and their
respective ages and positions are as follows:



                                       16
<PAGE>   23

      Name                       Age                  Position
     ------                      ---                  --------
Albert F. Richmond                56         Chairman of the Board and
Spring, Texas                                Chief Executive Officer
David A. Terman                   54         President
The Woodlands, Texas                         Director
Mary F. Garner                    44         Secretary
The Woodlands, Texas
Pamela R. Cooper                  45         Chief Financial Officer,
Spring, Texas                                Treasurer and Controller
Peter F. Dicks (1)(2)             55         Director
London, England
Randel R. Young (1)(2)            41         Director
Houston, Texas

----------------------------
(1)  Member of Audit Committee
(2)  Member of Compensation Committee


           ALBERT F. RICHMOND has served as Chairman of the Board, Chief
Executive Officer and a director of the Company since September 29, 1994. From
May 1986 to February 1996, he was Chairman of the Board of Olympic Natural Gas
Company, and from 1981 to 1986, he served as Chief Financial Officer and a
director of American Oil and Gas Corporation. Mr. Richmond is also a director of
Standco Industries, Inc., a privately held manufacturer of oil field equipment
based in Houston, Texas. Mr. Richmond received a Bachelor of Business
Administration degree from Texas Christian University in 1965.

           DAVID A. TERMAN has been President of the Company since November 1,
1994 and a director since September 29, 1994. Mr. Terman was employed by
Motorola from 1970 to 1994 where he held several management positions, including
positions in direct sales, indirect distribution and network services
operations, all of which are directly related to the wireless radio
communications industry. Mr. Terman received his Bachelor of Science degree in
Aviation Management from Auburn University in 1968.

           MARY F. GARNER has served as Corporate Secretary of the Company since
September 29, 1994, and has been human resources manager of the Company since
August 1995. From January 1990 to February 1996, she was Corporate Secretary of
Olympic Natural Gas Company, and also served as Office Manager of Olympic
Natural Gas Company from June 1986 to July 1995.

           PAMELA R. COOPER has been Treasurer and Controller of the Company
since April 1, 1995, and Chief Financial Officer since March 1996. From 1988 to
1995, she was the owner of PRC Consulting, an accounting firm in Dallas, Texas.
Ms. Cooper graduated from Southern Methodist University in 1974 with a Bachelor
of Business Administration degree.

           PETER F. DICKS has been a director of the Company since October 24,
1994. He has also served as a director of Standard Microsystems Corporation, a
publicly-traded company, since June 1992. Mr. Dicks serves as director for
several companies in the United Kingdom, including Second Consolidated Trust,
The East German Investment Trust PLC, The Hoare Govett Smaller Companies
Investment Trust PLC, Action



                                       17
<PAGE>   24

Computer Supplies Holdings PLC, The Hoare Govett 1000 Index Investment Trust
PLC, Save & Prosper Linked Investment Trust PLC, The Personal Number Company PLC
and Second London American Growth Trust PLC, all of which are publicly traded
companies. From 1973 to 1991, he was a founder and director of Abingworth
Management Holdings, Ltd., a company that provided venture capital investment
management services.

           RANDEL R. YOUNG has been a director since May 7, 1996. Mr. Young
currently serves as vice president and assistant general counsel for an NYSE
energy company, based in Houston, Texas. From April 1991 to October 1993, Mr.
Young was an attorney in his own Houston law firm. From October 1993 to December
1995, he was a partner with the New York-based law firm of Haight Gardner Poor &
Havens, resident in its Houston office. From December 1995 to April 1996, he was
a partner with the law firm of Gardere & Wynne, L.L.P., resident in its Houston
office. Mr. Young received his Bachelor of Arts degree, with highest honors,
from the University of Houston in 1977. Mr. Young received his law degree, with
honors, from the University of Houston Law Center in 1980.

COMMITTEES OF THE BOARD OF DIRECTORS

           The Board of Directors has established standing Audit and
Compensation Committees. The Audit Committee will annually recommend to the
Board the appointment of independent certified accountants as auditors for the
Company, discuss and review the scope of and fees for the prospective annual
audit and review the results with the auditors, review the Company's compliance
with its existing accounting and financial policies, review the adequacy of the
financial organization of the Company and consider comments by the auditors
regarding internal controls and accounting procedures and management's response
to those comments. The Audit Committee currently is comprised of Messrs. Dicks
and Young.

           The Compensation Committee reviews and makes recommendations to the
Board regarding salaries, compensation and benefits of executive officers and
employees of the Company and administers the Company's 1996 Incentive Plan. The
Compensation Committee currently is comprised of Messrs. Dicks and Young.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

           Based on a review of Forms 3, 4, and 5 furnished to the Company, all
of the Company's officers and directors and beneficial owners of ten percent of
the Company's common stock were in compliance with the reporting requirements of
Section 16(a) during the fiscal year ended December 31, 1997.


ITEM 10.  EXECUTIVE  COMPENSATION

           The following tables sets forth certain information with respect to
the compensation paid to the Company's Chief Executive Officer and each other
executive officer who received compensation in excess of $100,000 for the year
ended December 31, 1997 (collectively, the "Named Executive Officers").



                                       18
<PAGE>   25

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                  Annual                  Long Term
                                               Compensation     Bonus    Compensation
                                               ------------     -----    ------------
                                                                          Securities
                                   Fiscal Year                            Underlying
  Name and Principal                  Ended       Salary                   Options/
       Position                      Dec. 31        ($)                     SARs(#)
  ------------------               -----------   --------       -------   ----------
<S>                                <C>           <C>            <C>       <C>
Albert F. Richmond,                   1997       $125,000            --          --
Chairman of the Board and Chief       1996       $125,000            --          --
Executive Officer                     1995       $ 52,083            --          --
David A. Terman,                      1997       $125,000       $20,000          --
President and Director                1996       $125,000            --          --
                                      1995       $125,000            --          --
</TABLE>


           A total of 500,000 shares of the Company's Common Stock have been
reserved for issuance under the Company's 1996 Incentive Plan (the "1996 Plan")
which was adopted in February 1996. At March 1, 1998, options to acquire 262,000
shares of Common Stock had been granted under the 1996 Plan, of which 99,000
have expired because of employee termination, and all remaining options issuable
thereunder were available for future grant. The 1996 Plan provides for the grant
to employees, including officers of the Company, of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonstatutory stock options, stock appreciation rights and
restricted shares of Common Stock (collectively, "Awards"). In addition,
non-employee directors ("Outside Directors") and consultants are eligible to
receive nonstatutory stock options.

           The 1996 Plan is currently administered by the Compensation Committee
of the Board of Directors. Subject to special provisions relating to Outside
Directors, the Compensation Committee selects the employees to which Awards may
be granted and the type of Award to be granted and determines, as applicable,
the number of shares to be subject to each Award, the exercise price and the
vesting. In making such determination, the Compensation Committee takes into
account the employees' present and potential contributions to the success of the
Company and other relevant factors.

           The exercise price of all incentive stock options granted under the
1996 Plan must be at least equal to the fair market value of the shares of
Common Stock on the date of grant. With respect to any participant who owns
stock representing more than 10% of the voting rights of the Company's
outstanding capital stock, the exercise price of any incentive stock option
granted under the 1996 Plan must equal at least 110% of the fair market value of
the shares of Common Stock subject to such option on the date of grant, and the
term of the option must not exceed five years. To the extent that the aggregate
fair market value of the shares with respect to which options designated as
"incentive stock options" are exercisable for the first time by any optionee
during any calendar year exceeds $100,000, such options will be reclassified in
accordance with the Code. The 1996 Plan is not a qualified deferred compensation
plan under Section 401(a) of the Code and is not subject to the provisions of
the Employee Retirement Income Security Act of 1974, as amended. Options granted
under the 1996 Plan vest pursuant to terms determined by the Board of Directors
or its designated committee. The terms of all incentive stock options and
nonstatutory stock options granted under the 1996 Plan may not exceed ten years.
However, the terms of all incentive stock options granted to an optionee who, at
the time of grant, owns stock representing more than 10% of the voting rights of
the Company's outstanding capital stock may not exceed five years.



                                       19
<PAGE>   26

           Under the 1996 Plan, options are automatically granted to current and
future Outside Directors of the Company. Each person who was an Outside Director
of the Company on February 1, 1996, the effective date of the 1996 Plan
("Current Directors"), received an option to purchase 10,000 shares of Common
Stock of the Company at a purchase price of $2.00 per share, the fair market
value of the Common Stock on that date. Such options vested immediately on the
date of their grant, are exercisable for 10 years and may be exercised at any
time during the option term.

           Under the 1996 Plan, individuals who are not directors, but
subsequently become Outside Directors of the Company after the adoption of the
1996 Plan (a "Future Director"), will automatically receive an option to
purchase 10,000 shares of Common Stock of the Company at a purchase price equal
to the fair market value of the stock at the date of grant. Such shares vest
immediately and are exercisable for a period of ten years. Once the Company
becomes a reporting company under the Securities Exchange Act of 1934, each
Outside Director will automatically receive an annual grant of options to
acquire 1,500 shares of Common Stock at the fair market value of the Common
Stock on the date of the grant, vested immediately upon grant, and exercisable
at any time during the 10-year term of the option.

           Under the 1996 Plan, restricted shares of Common Stock ("Restricted
Stock") may be granted to employees pursuant to terms determined by the Board of
Directors or its designated committee. Restricted Stock may not be transferred
until the restrictions are removed or have expired. Conditions to the removal of
restrictions may include, but are not required to be limited to, continuing
employment or service to the Company or the achievement of certain performance
objectives.

           Stock appreciation rights ("SARs") may be granted to employees,
either independent of, or in connection with, options. SARs granted in
connection with an option are subject to the terms of the Award agreement
granting the option. Upon exercise of SARs granted in connection with an option,
the holder shall receive payment (in cash, Common Stock or a combination of both
at the discretion of the Board of Directors or its designated committee) in an
amount equal to the product of (i) the fair market value of a share of Common
Stock on the date of exercise minus the exercise price per share of the option,
multiplied by (ii) the number of shares of Common Stock as to which the SAR is
being exercised. SARs granted independent of an option are exercisable in the
manner, and pursuant to the terms, determined by the Board of Directors or its
designated committee. Terms to be determined by the Board of Directors or its
designated committee include the number of shares to which the SAR applies, the
vesting schedule for the exercise of such right and the expiration date of the
right. Upon exercise of an SAR, the holder shall receive payment (in cash,
Common Stock or a combination of both at the discretion of the Board of
Directors or its designated committee) in an amount equal to the product of (i)
the fair market value of a share of Common Stock as of the date of exercise,
minus the fair market value of a share of Common Stock as of the date the SAR
was granted, multiplied by (ii) the number of shares as to which the SAR is
being exercised. The exercise of SARs granted in connection with options
requires the holder to surrender the related option (or any portion thereof, to
the extent unexercised). No SAR granted under the 1996 Plan is transferable by
the employee other than by will or by the laws of descent and distribution, and
each SAR is exercisable during the lifetime of the employee only by such
employee.

           Under the 1996 Plan, if any change is made in the Company's
capitalization, such as a stock split or stock dividend, which results in a
greater or lesser number of shares of outstanding Common Stock, appropriate
adjustment shall be made in the exercise price and the number of shares subject
to options, Restricted Stock Awards and SARs.

         Award agreements under the 1996 Plan may, as determined by the Board of
Directors or its designated committee, provide that, in the event of a "change
in control" of the Company, (i) the holder of a stock option will be granted a
corresponding SAR, (ii) all outstanding SARs and stock options will become



                                       20
<PAGE>   27
immediately and fully vested and exercisable in full and (iii) the restriction
period on any Restricted Stock will be accelerated and the restrictions will
expire. In general, a "change in control" of the Company occurs in any of five
situations: (i) a person other than (a) the Company, (b) certain affiliated
companies or benefit plans, or (c) a company a majority of which is owned
directly or indirectly by the stockholders of the Company, becomes the
beneficial owner of 50% or more of the voting power of the Company's outstanding
voting securities; (ii) a majority of the Board of Directors is not comprised of
the members of the Board of Directors at the effective date of the 1996 Plan and
persons whose elections as directors were approved by those original directors
or their approved successors; (iii) a person described in clause (i) announces a
tender offer for 50% or more of the Company's outstanding voting securities and
the Board of Directors approves or does not oppose the tender offer; (iv) the
Company merges or consolidates, other than mergers or consolidations in which
the Company's voting securities are converted into securities having the
majority of voting power in the surviving company; or (v) the Company liquidates
or sells all or substantially all of its assets, or the Company's stockholders
approve such a liquidation or sale, except sales to corporations having
substantially the same ownership as the Company.

           If a "restructuring" of the Company occurs that does not constitute a
change in control of the Company, the Board of Directors or the committee
administering the 1996 Plan may (but need not) cause the Company to take any one
or more of the following actions: (i) accelerate in whole or in part the time of
vesting and exercisability of any outstanding stock options and SARs to permit
those stock options and SARs to be exercisable before, upon or after the
completion of the restructure; (ii) grant each option holder corresponding SARs;
(iii) accelerate in whole or in part the expiration of some or all of the
restrictions on any Restricted Stock; (iv) if the restructuring involves a
transaction in which the Company is not the surviving entity, cause the
surviving entity to assume in whole or in part any one or more of the
outstanding Awards upon such terms and provisions as the Board of Directors or
its designated committee deems desirable; or (v) redeem in whole or in part any
one or more of the outstanding Awards (whether or not then exercisable) in
consideration of a cash payment, adjusted for withholding obligations. A
restructuring generally is a merger of the Company or the direct or indirect
transfer of all or substantially all of the Company's assets (whether by sale,
merger, consolidation, liquidation or otherwise) in one transaction or a series
of transactions.

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 made a decision not to match contributions for the fiscal
year ending December 31, 1997. The Company's matching contributions vest over a
four-year period beginning when an employee has completed two years of service.

OUTSTANDING OPTIONS

           As of March 1, 1998, the Company had granted options to its employees
and directors to purchase 262,000 shares of its Common Stock under its 1996
Plan. Of these, options to purchase 99,000 shares expired when employees'
employment with the Company terminated. As of March 1, 1998, options are held by
19 of its employees and directors.

           Incentive stock options granted to officers and employee directors
are exercisable at $1.25 to $3.00 per share and vest over a five-year period
beginning February 1, 1998. These options expire 10 years after the date they
are granted or 90 days following termination of the optionee's employment with
the Company.



                                       21
<PAGE>   28

           The Company has issued 26,000 non-qualified options each to Messrs.
Dicks and Young, its Outside Directors. The options vest immediately, 20,000 are
exercisable at $2.00 per share, 3,000 are exercisable at $2.75 per share and
3,000 are exercisable at $1.25 per share, and expire 10 years after the date of
grant.


COMPENSATION OF DIRECTORS

           Outside Directors receive $1,000 per meeting. The Company also pays
directors $500 for each committee meeting that they attend.

           Under the 1996 Plan, Peter F. Dicks, on February 1, 1996 and December
31, 1996 and 1997 and Randel R. Young, on May 7, 1996 and December 31, 1996 and
1997, as outside directors, each received options to purchase 13,000 shares of
the Company's Common Stock for $1.25 to $2.75 per share, the fair market value
of the Common Stock on the dates the Company issued these options.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 1, 1998, by (i) each
director of the Company; (ii) each Named Executive Officer (as hereinafter
defined); (iii) each person known to be a beneficial owner of 5% or more of the
Common Stock, and (iv) all directors and executive officers as a group. Unless
otherwise indicated, each person has sole voting and dispositive power with
respect to the shares.

<TABLE>
<CAPTION>
                                                                               Percent
  Name of Beneficial Owner                         Number of Shares       Beneficially Owned
  ------------------------                         ----------------       ------------------
<S>                                                <C>                    <C>
Albert F. Richmond                                    1,720,000(1)              28.18%
1610 Woodstead Ct., Suite 330
The Woodlands, Texas 77380
David A. Terman                                       1,892,000(2)              31.00%
1610 Woodstead Ct., Suite 330
The Woodlands, Texas 77380
Mary F. Garner                                           31,000(3)                *
Pamela R. Cooper                                         21,700(4)                *
Peter F. Dicks                                          163,000(5)               2.66%
Randel R. Young                                          25,813(6)                *
All executive officers and directors as a group       3,853,513                 62.85%
</TABLE>

----------------------
*Less than 1%


(1)     Shares held by Albert F. Richmond and his wife, Linda L. Richmond, as
        joint tenants with right of survivorship.

(2)     Includes 1,272,000 shares held by a Marital Trust of which David A.
        Terman is trustee and his wife, Maura B. Terman, is beneficiary, and
        620,000 shares held by a Marital Trust of which Maura B. Terman is
        trustee and David A Terman is beneficiary. Mr. and Mrs. Terman each
        disclaim beneficial ownership of shares held by them as trustee.



                                       22
<PAGE>   29

(3)     Shares held by Mary F. Garner and her husband, James M. Dobson, III, as
        joint tenants with the right of survivorship. Includes options granted
        on February 1, 1996 to acquire 1,000 shares which are immediately
        exercisable. Does not include options to acquire 9,000 shares granted on
        February 1, 1996 and options to acquire 12,000 shares granted on
        February 6, 1997, as such options are not exercisable until February 1,
        1999 and February 6, 1999, respectively.

(4)     Includes 4,700 shares held by Charles Schwab, as Custodian of IRA.
        Includes options granted on February 1, 1996 to acquire 1,000 shares
        which are immediately exercisable. Does not include options to acquire
        9,000 shares granted on February 1, 1996 and options to acquire 12,000
        shares granted on February 6, 1997, as such options are not exercisable
        until February 1, 1999 and February 6, 1999, respectively.

(5)     Includes options to acquire 13,000 shares of Common Stock exercisable
        immediately.

(6)     Includes 5,491 shares held by Randel R. Young, Trustee for Brian C.
        Young Trust; 7,322 shares held by Randel R. Young, Trustee for Shannon
        E. Young Trust; and options to acquire 13,000 shares of Common Stock
        exercisable immediately. Mr. Young disclaims beneficial ownership of the
        shares held in trust.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           At the Company's inception, the Company issued 1,800,000 shares of
Common Stock to each of Albert F. Richmond and David A. Terman for $.50 per
share. This amount was paid through reduction of indebtedness on loans from
Champion Communications Company, a company wholly owned by Mr. Richmond, to the
Company. Mr. Richmond is the Company's Chairman of the Board and Chief Executive
Officer and Mr. Terman is the Company's President. Mr. Richmond acquired an
additional 200,000 shares of Common Stock for $1.35 per share in December 1995.
Also, in December 1995, David A. Terman, as trustee of a marital trust, his
wife, Maura B. Terman, as trustee of a marital trust, and Elisa and Eileen
Terman, the daughters of David Terman, acquired 72,000, 100,000, 14,000 and
14,000 shares of Common Stock, respectively, all at $1.35 per share, as more
fully discussed below.

           In October 1994, the Company issued 150,000 shares of Common Stock to
Peter Dicks, one of the directors of the Company, for $.50 per share.

           On January 2, 1995, the Company documented past advances from
Champion Communications Company made to the Company in 1994 for the acquisition
of base stations and related customers by executing and delivering a note in the
amount of $3,177,505 at the prime interest rate as published in the Wall Street
Journal, and granting a security interest in 1,499 community repeaters secured
by a security agreement. On November 15, 1995, $377,925 of the amount payable
and $162,075 of accrued interest payable was converted into 400,000 shares of
Common Stock at $1.35 per share, which shares were issued on December 15, 1995
to Mr. Richmond and his wife, Linda L. Richmond, David A. Terman and his wife,
Maura B. Terman, as trustees of marital trusts, and Elisa and Eileen Terman, the
daughters of David Terman. On November 15, 1995, the Company executed a
promissory note to Champion Communications Company for the remaining balance of
$2,799,581.26. An endorsement to the promissory note signed on August 15, 1996
extends the maturity date to September 30, 2001 and specifies 20 quarterly
installments commencing March 31, 1997. The Company also executed a security
agreement on November 15, 1995, granting Champion Communications Company a first
lien security interest in the Company's equipment, including its CRs, its
insurance and rights thereunder and any proceeds from the sale, lease or
assignment of CR spectrum or spectrum licenses. On March 17, 1997,



                                       23
<PAGE>   30

the principal of $2,799,581.26 and $78,883.70 of accrued interest were paid in
full by the Company. Pamela R. Cooper, Chief Financial Officer, Controller and
Treasurer of the Company, also serves as an officer of Champion Communications
Company.

           In September and October 1997, Albert F. Richmond and David A. Terman
each made advances to the Company in the amount of $130,000. The Company
executed a promissory note in the amount of $130,000 bearing interest at 10% per
annum to each Messrs. Richmond and Terman, payable in full on December 1, 1997.
The debt, including accrued interest of $4,495.59 was repaid in full on December
1, 1997.

           Under a management agreement dated July 20, 1995 between the Company
and Champion Communications Company, the Company operated a five-channel 800 MHz
trunking system licensed to Champion Communications Company. The management
agreement expired December 31, 1996 and continued by verbal agreement of the
parties on a month-to-month basis. The Company exercised its option and
purchased the system for $112,812 on April 1, 1997 after receipt of FCC consent.

           On July 29, 1996, in connection with the Company's initial public
offering in Canada, Messrs. Richmond and Terman, the Company and Equity Transfer
Services, Inc. entered into an Escrow Agreement pursuant to which Messrs.
Richmond and Terman each placed 1,555,200 shares of Common Stock held by them in
escrow with Equity Transfer Services, Inc. Thirty percent were released during
1997 and the remaining securities are to be released from escrow as follows: 20%
on each of July 31, 1998 and July 31, 1999; and 30% on July 31, 2000. These
escrowed shares are included in the Company's earnings per share calculation and
are not considered "contingent shares issuable" for accounting purposes.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)        Documents filed as part of this report.

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

                  Independent Auditors' Report .................................................................F-2

                  Balance Sheets, December 31, 1997 and 1996 ...................................................F-3

                  Statement of Operations, Years Ended December 31, 1997 and 1996 ..............................F-4

                  Statement of Changes in Stockholders' Equity, Years Ended
                           December 31, 1997 and 1996...........................................................F-5

                  Statement of Cash Flows, Years Ended December 31, 1997 and 1996...............................F-6

                  Notes to Financial Statements.................................................................F-7




2.         Exhibits:
</TABLE>



                                       24
<PAGE>   31

<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
              29, 1994.                                          on 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
              Incorporation filed January 26, 1996.              on 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
              Incorporation filed April 23, 1996.                on 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
              By-laws defining rights of stockholders -          on Form 10-SB effective February 13,
              included in Exhibits 3.1, 3.2, 3.3 and 3.4.        1997
                                                                  (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,                 Exhibit 10.9 to the Registration Statement
              1994, between The Woodlands                        on Form 10-SB effective February 13,
              Corporation and the Company.                       1997
                                                                  (File No. 0-29032)

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

10.11         Modification and Modification of Lease             Exhibit 10.11 to the Registration
              dated July 24, 1995, between The                   Statement on Form 10-SB effective
              Woodlands Corporation and the Company.             February 13, 1997
                                                                  (File No. 0-29032)
</TABLE>



                                       25
<PAGE>   32

<TABLE>
<CAPTION>
                                                                             INCORPORATED BY
NUMBER                     DESCRIPTION                                        REFERENCE TO
------                     -----------                                       ---------------
<S>           <C>                                                <C>
10.12         Modification and Modification of Lease             Exhibit 10.12 to the Registration
              dated May 1, 1996, between The                     Statement on Form 10-SB effective
              Woodlands Corporation and the Company.             February 13, 1997
                                                                  (File No. 0-29032)

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

10.14         Motorola Authorized Two-Way Radio                  Exhibit 10.14 to the Registration
              Dealer Agreement dated September 22,               Statement on Form 10-SB effective
              1994, between Motorola, Inc. and the               February 13, 1997
              Company; Paging Product Sales to the                (File No. 0-29032)
              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
              License Agreement dated November 8,                Statement on Form 10-SB effective
              1994, between Motorola, Inc. and the               February 13, 1997
              Company.                                            (File No. 0-29032)

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

10.17         Systems Management Agreement dated                 Exhibit 10.17 to the Registration
              July 20, 1995, between Champion                    Statement on Form 10-SB effective
              Communications Company and the                     February 13, 1997
              Company; and Purchase Option dated July             (File No. 0-29032)
              20, 1995, from Champion
              Communications Company to the
              Company.

10.18         [omitted]                                          [omitted]

10.19         [omitted]                                          [omitted]

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



                                       26
<PAGE>   33

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

10.22         Antenna Site License commencing                    Exhibit 10.22 to the Registration
              November 1, 1995, for a term of 36                 Statement on Form 10-SB effective
              months, between Motorola, Inc. and the             February 13, 1997
              Company.  (CONFIDENTIAL)                            (File No. 0-29032)

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

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

10.25         Services Agreement dated May 3, 1996,              Exhibit 10.25 to the Registration
              between K N Energy Services, Inc. d/b/a            Statement on Form 10-SB effective
              K N Services, and the Company.                     February 13, 1997
              (CONFIDENTIAL)                                      (File No. 0-29032)

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

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

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

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

11.1          Statement regarding computation of per share earnings.

24.1          Power of Attorney                                  N/A

27.1          Financial Data Schedule.
</TABLE>



                                       27
<PAGE>   34

(b)        Reports on Form 8-K.

           None filed during the last quarter of the period.

                                   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, 1997, 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, 1998.

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, 1997,
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 Chief                 March 31, 1998
--------------------------------------------         Executive Officer
Albert F. Richmond

     /s/ David A. Terman                             President and Director                          March 31, 1998
--------------------------------------------
David A. Terman

     /s/ Pamela R. Cooper                            Chief Financial Officer, Treasurer,             March 31, 1998
--------------------------------------------         and Controller
Pamela R. Cooper

---------------------------------------------        Director                                        March 31, 1998
Peter F. Dicks

     /s/ Randel R. Young                             Director                                        March 31, 1998
---------------------------------------------
Randel R. Young
</TABLE>


                                       28
<PAGE>   35

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

         Independent Auditors' Report...........................................................................F-2

         Balance Sheets, December 31, 1997 and 1996.............................................................F-3

         Statements of Operations, Years Ended December 31, 1997 and 1996 ......................................F-4

         Statements of Changes in Stockholders' Equity, Years Ended
              December 31, 1997 and 1996........................................................................F-5

         Statements of Cash Flows, Years Ended December 31, 1997 and 1996.......................................F-6

         Notes to Financial Statements..........................................................................F-7
</TABLE>



                                       F-1
<PAGE>   36
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Champion Communication Services, Inc.:

We have audited the accompanying balance sheets of Champion Communication
Services, Inc. (the Company) as of December 31, 1997 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the years 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 audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Champion Communication
Services, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.


                              KPMG Peat Marwick LLP


Houston, Texas
February 20, 1998


                                      F-2
<PAGE>   37




                      CHAMPION COMMUNICATION SERVICES, INC.
                                 BALANCE SHEETS
                           December 31, 1997 and 1996


<TABLE>
<CAPTION>
                               ASSETS                                                  1997               1996
                                                                                   -----------        -----------
<S>                                                                                <C>                <C>
Current Assets
     Cash and cash equivalents                                                     $   618,335        $ 1,087,440
     Accounts and notes receivable, net of allowance of $42,712 and $51,606,         1,016,612            900,061
             respectively
     Inventory                                                                         604,522            457,409
     Prepaid expenses and other                                                        180,744             70,315
                                                                                   -----------        -----------
         Total Current Assets                                                        2,420,213          2,515,225
                                                                                   -----------        -----------
Communications equipment and related assets, net                                     4,313,910          5,475,081
Notes receivable                                                                        54,340                 --
Other assets, net of amortization                                                    1,039,402            607,999
                                                                                   -----------        -----------
                                                                                   $ 7,827,865        $ 8,598,305
                                                                                   ===========        ===========

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
     Accounts payable                                                              $   547,995        $   446,525
     Accrued expenses                                                                  774,055            690,718
     Deferred revenue                                                                1,213,701          1,586,625
     Current maturities of notes payable                                               203,599            185,785
     Current maturities of notes payable to stockholders                                    --          1,179,046
                                                                                   -----------        -----------
         Total Current Liabilities                                                   2,739,350          4,088,699
                                                                                   -----------        -----------
Long Term Liabilities
     Notes payable                                                                      69,942            151,166
     Note payable to stockholder                                                            --          1,620,535
                                                                                   -----------        -----------
         Total Long Term Liabilities                                                    69,942          1,771,701
                                                                                   -----------        -----------
Stockholders' Equity
     Common stock, $0.01 par value, 20,000,000 shares authorized,
            6,103,412 shares issued and outstanding                                     61,034             61,034
     Additional paid-in capital                                                      5,166,184          5,166,184
     Accumulated deficit                                                              (208,645)        (2,489,313)
                                                                                   -----------        -----------
Total Stockholders' Equity                                                           5,018,573          2,737,905
                                                                                   -----------        -----------
                                                                                   $ 7,827,865        $ 8,598,305
                                                                                   ===========        ===========
</TABLE>

See accompanying notes to financial statements


                                      F-3
<PAGE>   38

                      CHAMPION COMMUNICATION SERVICES, INC.
                            STATEMENTS OF OPERATIONS
                 For the years ended December 31, 1997 and 1996


<TABLE>
<CAPTION>
                                                                                   1997               1996
                                                                              ------------        -----------
<S>                                                                           <C>                <C>
Revenues                                                                      $ 10,521,740        $ 7,136,582
                                                                              ------------        -----------
Operating Expenses:

     Cost of Sales                                                               4,848,029          5,226,733

     Provision for doubtful accounts                                               116,500            117,000

     Depreciation and amortization                                                 898,570            799,870

     General and administrative expenses                                         1,979,255          2,270,984
                                                                              ------------        -----------
         Total Operating Expenses                                                7,842,354          8,414,587
                                                                              ------------        -----------
         Operating Income (Loss)                                                 2,679,386         (1,278,005)
                                                                              ------------        -----------
Other income (expenses):
     Net loss on disposal of fixed assets                                         (334,181)           (78,230)
     Interest income                                                                23,515             18,774
     Interest expense                                                              (84,152)          (281,503)
                                                                              ------------        -----------
Income (Loss) before income taxes                                                2,284,568         (1,618,964)

Income taxes                                                                         3,900                 --
                                                                              ------------        -----------
Net income (loss)                                                             $  2,280,668        ($1,618,964)
                                                                              ============        ===========
Weighted average common shares outstanding                                       6,103,412          5,084,146
                                                                              ============        ===========
Net income (loss) per common share                                            $       0.37        ($     0.32)
                                                                              ============        ===========
</TABLE>


See accompanying notes to financial statements.


                                      F-4
<PAGE>   39

                      CHAMPION COMMUNICATION SERVICES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                 For the years ended December 31, 1997 and 1996



<TABLE>
<CAPTION>
                                     COMMON                                                                        TOTAL
                                     STOCK         COMMON   COMMON STOCK     ADDITIONAL       ACCUMULATED      STOCKHOLDERS'
                                     SHARES        STOCK     SUBSCRIBED   PAID-IN CAPITAL       DEFICIT           EQUITY
                                   ---------      -------   ------------  ---------------     -----------      -------------
<S>                                <C>            <C>          <C>         <C>               <C>               <C>
Balance at December 31, 1995       4,695,085      $46,951      $  385      $ 3,436,692       $  (870,349)      $ 2,613,679
                                   =========      =======      ======      ===========       ===========       ===========
Conversion of Common stock
subscribed to Common stock            38,477          385        (385)              --                --                --
Issuance of Common stock             769,850        7,698          --        1,735,492                --         1,743,190
Conversion of Common stock
warrants to Common Stock             600,000        6,000          --           (6,000)               --                --
Net loss for 1996                         --           --          --               --        (1,618,964)       (1,618,964)
                                   ---------      -------      ------      -----------       -----------       -----------
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
                                   =========      =======      ======      ===========       ===========       ===========
</TABLE>

See accompanying notes to financial statements.


                                      F-5
<PAGE>   40




                      CHAMPION COMMUNICATION SERVICES, INC.
                            STATEMENTS OF CASH FLOWS
                 For the years ended December 31, 1997 and 1996



<TABLE>
<CAPTION>
                                                                                1997             1996
                                                                            -----------      -----------
Cash flows from operating activities:
<S>                                                                        <C>              <C>
     Net income (loss)                                                     $ 2,280,668      ($1,618,964)
     Adjustments to reconcile net income (loss) to net cash provided by
     (used in) operating activities:
         Depreciation and amortization                                          898,570          799,870
         Bad debt expense                                                       116,500          117,000
         Loss on disposal/sale of fixed assets                                  334,181           78,230
         Changes in assets and liabilities:
              Accounts receivable                                              (233,051)         (27,441)
              Inventory                                                        (147,113)        (215,336)
              Prepaid expenses                                                 (110,429)          84,876
              Notes receivable                                                   30,660               --
              Other assets,  net of accumulated amortization                   (504,868)        (374,345)
              Accounts payable                                                  101,469         (226,870)
              Accrued expenses                                                   83,337          265,321
              Deferred revenue                                                 (372,924)        (122,544)
                                                                            -----------      -----------
                  Net cash provided by (used in) operating activities         2,477,000       (1,240,203)
                                                                            -----------      -----------
Cash flows from investing activities:
     Additions to property and equipment                                       (480,209)        (375,497)
     Proceeds from sale of fixed assets                                         461,168          132,473
                                                                            -----------      -----------
                  Net cash used in investing activities                         (19,041)         (243,024)
                                                                            -----------      -----------
Cash flows from financing activities:
     Proceeds from sale of stock                                                     --        1,743,190
     Proceeds from issuance of subscribed stock                                      --           51,944
     Proceeds from issuance of notes payable                                    590,399               --
     Repayment of notes payable                                              (3,517,463)        (396,921)
                                                                            -----------      -----------
                  Net cash provided by (used in) financing  activities       (2,927,064)       1,398,213
                                                                            -----------      -----------
Net decrease in cash and cash equivalents                                      (469,105)         (85,014)
Cash and cash equivalents at beginning of year                                1,087,440        1,172,454
                                                                            -----------      -----------
Cash and cash equivalents at end of year                                    $   618,335      $ 1,087,440
                                                                            ===========      ===========
Supplemental disclosure of cash flow information:
     Cash paid during the year for:
              Interest                                                      $    87,997      $   186,709
                                                                            ===========      ===========
</TABLE>



See accompanying notes to financial statements.


                                      F-6
<PAGE>   41

                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1997 and 1996


(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, 1997 and
         1996 is the lower of average cost or market. The Company has also
         included $302,272 of costs for spectrum expected to be sold in 1998 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

              The Company adopted the provisions of SFAS No. 121, Accounting
         for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
         Disposed Of, on January 1, 1996. This Statement requires that
         long-lived assets and certain identifiable intangibles be reviewed 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. Adoption of this Statement did not
         have a material impact on the Company's financial position, results of
         operations, or liquidity.

     (h) Accrued Expenses

              Accrued expenses consist primarily of accrued tower rents of
         $401,000 and $343,000 at December 31, 1997 and 1996, respectively, and
         accrued sales and state income taxes. Such costs are expensed in the
         period during which the related services are rendered.

     (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.


                                      F-7
<PAGE>   42



                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS



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

     (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.


     (m) Earnings (Loss) Per Common Share

              The Company adopted the provisions of SFAS No. 128, "Earnings Per
         Share," which simplifies the standards for computing earnings per share
         (EPS) previously found in APB Opinion No. 15, "Earnings Per Share," and
         makes them comparable to international earnings per share standards.
         SFAS No. 128 replaces the presentation of primary EPS with a
         presentation of basic EPS. Diluted EPS accounts for exercisable stock
         options and warrants utilizing the treasury stock method. SFAS No. 128
         was applied to December 31, 1996 calculations but resulted in no change
         to previously reported EPS.

              For the years ended December 31, 1997 and 1996, the weighted
         average number of common shares outstanding was 6,103,412 and
         5,084,146, respectively. In calculating EPS for 1997, options to
         purchase 373,000 shares of common stock at exercise prices ranging from
         $1.25 to $3.00 and warrants to purchase 769,850 shares of common stock
         at CDN $5.00 per share were outstanding during 1997 but were not
         included in the computation of diluted EPS because the options' and
         warrants' exercise price was greater than the average market price of
         the common shares. In calculating EPS for 1996, potential dilutive
         securities were excluded due to their antidilutive effect, as the
         Company incurred a loss for the year.

     (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.


                                      F-8
<PAGE>   43



                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS



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

     (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 in the United States. The
         following summarizes significant differences between United States and
         Canadian generally accepted accounting principles:

         (i) Income Taxes: Generally accepted accounting principles in Canada
         require the deferred method of accounting for income taxes with the
         calculation of deferred tax assets and liabilities through the
         application of historical tax rates. Benefits attributable to net
         operating loss carryforwards cannot be recorded unless there is virtual
         certainty that such net operating loss carryforwards will be utilized.


(2)  Communication Equipment and Related Assets

              Communication equipment and related assets at December 31, 1997
     and 1996 are composed of the following:

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

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


<TABLE>
<CAPTION>
                                                       December 31, 1996
                                                       -----------------
                                                           Accumulated           Net
                                              Cost         depreciation        Balance
                                           ----------      ------------      ----------
<S>                                        <C>              <C>              <C>
Base station and related equipment         $6,114,049       $1,193,280       $4,920,769
Rental radio equipment                        439,534          158,187          281,347
Other furniture, data processing and
  communication equipment                     402,044          129,079          272,965
                                           ----------       ----------       ----------

                                           $6,955,627       $1,480,546       $5,475,081
                                           ----------       ----------       ----------
</TABLE>

(3)  Notes Payable

              During the years ended December 31, 1997 and 1996, the Company
     incurred installment notes payable of $64,073 and $256,982, respectively,
     to finance certain communication equipment purchases. At December 31, 1997
     and 1996, the total balance outstanding related to the installment notes
     payable was $138,920 and $322,161, respectively. The notes are payable in
     monthly installments and mature from 1997 to 2000. The notes bear interest
     at rates ranging from 10-1/2% to 12.75% per year and are secured by
     communications equipment.

              During 1995, the Company entered into a revolving note payable
     with a maximum credit line of $100,000, which was increased to $200,000
     during 1997, bearing interest at 17.9% after 90 days. At December 31, 1997
     and 1996, the outstanding balances on the credit line were $67,134 and
     $14,790, respectively. The credit line is being used to finance the
     acquisition of inventory and is repaid when inventory is sold or at the
     agreed upon date. Each advance is due 360 days from the date of funding.


                                      F-9
<PAGE>   44

                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


(3)  Notes Payable, (continued)

              In 1994, Champion Communications Company (CCC) advanced the
     Company $3,177,506 for the acquisition of base stations and the related
     customers. On November 15, 1995, $377,925 of the note and $162,075 of
     accrued interest payable was converted to 400,000 shares of common stock at
     $1.35 per share. The remaining balance of $2,799,581 was paid on March 17,
     1997. The note bore interest at a prime rate, (8.25% at December 31, 1997),
     and was secured by the Company's communications equipment and spectrum. CCC
     is a Subchapter S corporation, wholly owned by Albert F. Richmond, Chief
     Executive Officer and a founding stockholder of the Company.

              The combined aggregate maturities of the installment notes payable
     for each of the five years following December 31, 1997 are as follows:


<TABLE>
                <S>                           <C>
                1998                          203,599
                1999                           62,074
                2000                            6,279
                2001                               --
                                             --------

                                             $271,952
                                             ========
</TABLE>

(4)  Income Taxes

              During 1997, the Company recorded state income taxes of $3,900.
     For the years ended December 31, 1997 and 1996, the Company's effective
     income tax rate differed from the statutory tax rate as follows:

<TABLE>
<CAPTION>
                                              1997                1996
                                              ----                ----
<S>                                           <C>                 <C>
Statutory tax rate                              34%                (34)%
Non-deductible expenses                          2                  --
Change in valuation allowance                  (36)                 34
                                            ------              ------

Effective tax rate                              --%                 --%
                                            ------              ------
</TABLE>

              As of December 31, 1997 and 1996, deferred tax assets and
     liabilities were as follows:

<TABLE>
<CAPTION>
                                                  1997                     1996
                                                  ----                     ----
<S>                                             <C>                    <C>
Communications equipment                        $865,468               $  590,781
                                                --------               ----------
   Total deferred tax liabilities                865,468                  590,781
                                                --------               ----------

Net operating loss carryforward                  878,295                1,423,573
Allowance for doubtful accounts                   14,522                   17,546
                                                --------               ----------
   Total deferred tax assets                     892,817                1,441,119
                                                --------               ----------

Valuation allowance                             ( 27,349)                (850,338)
                                                --------               ----------

Net deferred tax assets                         $     --               $       --
                                                ========               ==========
</TABLE>



                                      F-10
<PAGE>   45

(4)  Income Taxes, (continued)

              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 $822,989 and increased $558,191
     during the years ended December 31, 1997 and 1996, respectively.

              The December 31, 1997 net operating loss carryforward of
     approximately $2,583,000 will be available to offset future taxable income
     and expires in 2009 through 2011.


(5)  Related Party Transactions

              During 1997 the Company exercised its option to purchase an 800
     MHz trunking license belonging to CCC for approximately $113,000. The
     Company also retired its note payable to CCC in March 1997 (see note 3).


(6)  Stockholders' Equity

              On September 25, 1996, the Company sold 619,350 shares of common
     stock in a Canadian initial public offering at $2.73 (CDN $3.70) per share.
     In connection with the initial public offering, an additional 150,500
     shares of common stock were sold at $2.73 per share to 41 investors by the
     Company.

              In conjunction with the 769,850 common shares issued on
     September 25, 1996, each unit sold included one common share purchase
     warrant. The warrants were exercisable at CDN $5.00 per share any time
     before March 25, 1998; however, the expiration date has been extended by
     the Company to June 30, 1998. The Company has the right to accelerate
     conversion of the warrants if the average price for the common stock is at
     least CDN $5.50 for ten consecutive days.

              The Company granted options to the underwriting agent of the
     Canadian initial public offering to purchase 50,000 common shares for a
     period of eighteen months from the completion of the public offering at CDN
     $3.70 per share.

              Upon the completion of the initial public offering, a third party
     was granted options, in conjunction with the 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.

              Of the 6,103,412 issued and outstanding shares of common stock at
     December 31, 1997, 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. Thirty
     percent of the securities were released from escrow in 1997, and the
     remaining are to be released as follows: 20% on each of July 31, 1998, and
     July 31, 1999; and 30% on July 31, 2000.

              During 1996, 38,477 shares of common stock at $1.35 per share,
     which were subscribed as of December 31, 1995, were issued.

              During November 1995, 600,000 special warrants were issued to
     third parties for $1.35 per share, totaling $729,000, net of offering
     expenses. The primary terms of the special warrants include the exchange of
     one special warrant for one common share in the capital of Champion for no
     additional consideration. On October 2, 1996, these warrants were converted
     to 600,000 shares of common stock.


                                      F-11
<PAGE>   46



                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS


(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, 1997 and 1996, there were 237,000 and 379,000
     additional shares, respectively, available for grant under the Plan.

              During 1997 and 1996, the Company granted options to purchase
     165,000 and 197,000 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 1997 and 1996 was $1.91 and $0.55,
     respectively, on the date of grant, using the Black Scholes model with the
     following assumptions: weighted-average risk-free interest rate of 6.7% and
     5.6%, respectively, weighted-average expected life of nine and seven years,
     respectively, weighted-average expected volatility of 51.96% and 7.82%,
     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:

<TABLE>
<CAPTION>
                                         1997                        1996
                                    -------------               -------------
<S>                                 <C>                         <C>
Net income (loss)
     As reported                    $   2,280,668               $  (1,618,964)
     Pro forma                      $   2,222,952               $  (1,677,830)

Income (Loss) per share
     As reported                    $         .37               $        (.32)
     Pro forma                      $         .36               $        (.33)
</TABLE>


              At December 31, 1997 the range of exercise prices and weighted-
     average remaining contractual life of outstanding options was $1.25 - $3.00
     and 6.5 years, respectively. Stock option activity during the periods
     indicated was as follows:


<TABLE>
<CAPTION>
                                           Number of         Weighted-average
                                            Shares            exercise price
                                           ---------         ----------------
<S>                                        <C>                 <C>
Balance at December 31, 1995                    -0-                  -0-
     Granted                                197,000                $2.28
     Forfeited                              (76,000)               $2.00
                                           --------                -----
Balance at December 31, 1996                121,000                $2.37
     Granted                                165,000                $2.22
     Forfeited                              (23,000)               $2.16
                                           --------                -----

Balance at December 1997                    263,000                $2.32
                                           ========                =====
</TABLE>


              At December 31, 1997 and 1996, the number of options exercisable
      was 26,000 and 23,000 respectively and the weighted-average exercise
      price of these options was $2.59 and $2.62 respectively per share.


                                      F-12
<PAGE>   47



                      CHAMPION COMMUNICATION SERVICES, INC.
                          NOTES TO FINANCIAL STATEMENTS



(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. No such matching
     contributions were made in 1997 or 1996.


(9)  Statement of Cash Flows

              During 1997 and 1996, the Company acquired communications
     equipment in exchange for the incurrence of $64,073 and $256,982 of debt,
     respectively (see note 3). In addition, the Company acquired resale
     communications equipment in exchange for the incurrence of $286,990 and
     $213,120 of debt in 1997 and 1996, respectively (see note 3). During 1997,
     the Company received an $85,000 note receivable for the sale of certain
     communications equipment.


(10) Commitments and Contingencies

              At December 31, 1997 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>
                 1998                    106,119
                 1999                     66,382
                                        --------

                                        $172,501
                                        ========
</TABLE>

              During the year ended December 31, 1997 and 1996, the Company
     incurred $99,153 and $103,995 in rental expense, respectively.


(11) Major Suppliers

              The Company has entered into dealer agreements with two 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-13
<PAGE>   48
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
<S>       <C>
11.1      Statement regarding computation of per share earnings.

27.1      Financial Data Schedule.
</TABLE>