CHOICETEL COMMUNICATIONS INC /MN/, SB-2/A, 1997-09-17

CHOICETEL COMMUNICATIONS INC /MN/
SB-2/A, 1997-09-17
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997

REGISTRATION NO. 333-29969
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 3
TO
FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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

CHOICETEL COMMUNICATIONS, INC.

(Name of small business issuer in its charter)

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<S> <C> <C>
MINNESOTA 4813 41-1649949
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

9724 10TH AVENUE NORTH
PLYMOUTH, MINNESOTA 55441
(612) 544-1260

(Address and telephone number of registrant's principal executive offices and
principal place of business)

JACK S. KOHLER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
9724 10TH AVENUE NORTH
PLYMOUTH, MINNESOTA 55441
PHONE: (612) 544-1260
FAX: (612) 544-1281

(Name, address and telephone number of agent for service)

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

COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS
SENT TO THE AGENT FOR SERVICE, SHOULD BE SENT TO:

ROBERT T. MONTAGUE MICHELE D. VAILLANCOURT
Robins, Kaplan, Miller & Ciresi L.L.P. Winthrop & Weinstine, P.A.
2800 LaSalle Plaza 3000 Dain Bosworth Plaza
800 LaSalle Avenue 60 South Sixth Street
Minneapolis, Minnesota 55402-2015 Minneapolis, Minnesota 55402-4430
Phone: (612) 349-8500 Phone: (612) 347-0700
Fax: (612) 339-4181 Fax: (612) 347-0600

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

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

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/

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

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.

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SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1997

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
CHOICETEL COMMUNICATIONS, INC.

800,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
---------------------

ChoiceTel Communications, Inc. (the "Company") is offering 800,000 units
(the "Units"), each Unit consisting of one share of the Company's Common Stock,
par value $0.01 per share (the "Common Stock"), and one redeemable Common Stock
Purchase Warrant ("Redeemable Warrant"). The Redeemable Warrants are immediately
exercisable and transferable separately from the Common Stock. Each Redeemable
Warrant entitles the holder to purchase, at any time until five years following
the date that the Registration Statement relating to this Prospectus (the
"Registration Statement") has been declared effective by the Securities and
Exchange Commission (the "Effective Date"), one share of Common Stock at an
exercise price of $9.50 per Redeemable Warrant, subject to adjustment. The
Redeemable Warrants are subject to redemption by the Company for $0.01 per
Redeemable Warrant at any time 120 or more days after the Effective Date, on 30
days' written notice, provided that the closing bid price of the Common Stock
exceeds $10.00 per share (subject to adjustment) for any 10 consecutive trading
days prior to such notice. See "Description of Securities."

In addition to the Units offered hereby, this Prospectus also relates to the
registration for issuance by the Company of an additional 800,000 shares of
Common Stock upon exercise of the Redeemable Warrants. See "Description of
Securities."

Prior to this offering, there has been no public market for any of the
Company's securities, and no assurance can be given that a market will develop
or will be maintained after the offering. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. The
Company has filed an application for quotation of its Common Stock and
Redeemable Warrants on The Nasdaq SmallCap Market under the symbols PHON and
PHONW, respectively.

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

THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE, INVOLVE A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION, AND SHOULD BE PURCHASED ONLY BY
PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING AT PAGE 6 FOR A DISCUSSION OF RISK FACTORS THAT SHOULD BE CONSIDERED
IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY AND "DILUTION"
ON PAGE 14.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit................................................. $7.50 $0.675 $6.825
Total (3)................................................ $6,000,000 $540,000 $5,460,000
</TABLE>

(1) The Company has agreed to (i) pay to the Underwriter a non-accountable
expense allowance equal to 2.0% of the gross proceeds of the offering; (ii)
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"); and
(iii) grant the Underwriter a five-year warrant, exercisable during the last
four years, to purchase up to 80,000 Units at an exercise price of $9.00 per
Unit (the "Underwriter's Warrant"). See "Underwriting."

(2) Before deducting offering expenses payable by the Company estimated at
$460,000, including the non-accountable expense allowance described in Note
1.

(3) Does not include 120,000 additional Units to cover over-allotments, if any,
which the Underwriter has an option to purchase from the Company for
forty-five (45) days from the date of this Prospectus. See "Underwriting."
If the option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $6,900,000, $621,000, and
$6,279,000, respectively.

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

The Units are offered by the Underwriter on a "firm commitment" basis when,
as and if delivered to and accepted by it, subject to the Underwriter's right to
reject orders in whole or in part. It is expected that delivery of certificates
representing the securities will be made on or about , 1997 in
Minneapolis, Minnesota.

EQUITY SECURITIES INVESTMENTS, INC.

THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
In the course of making forward-looking statements about the Company's
expectations for future performance, management makes assumptions which at the
time are based on information deemed to be accurate and relevant. The Company's
ability to achieve management's expectations is dependent upon numerous factors,
many of which are outside of the Company's control. Variations from the
assumptions used in making the forward-looking statements will cause the
Company's performance to differ from that expressed in such statements, and
those variations could be material.
------------------------

Prior to this offering, the Company has not been subject to the
informational requirements of the Securities Exchange Act of 1934, as amended.
After completion of this offering, the Company intends to furnish to its
shareholders annual reports containing audited financial statements and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENTS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
------------------------

INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
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<S> <C>
AT&T......................................... 6
Bank......................................... 11
CAT.......................................... 11
ChoiceTel.................................... 15
CI........................................... 15
Common Stock................................. 1
Company...................................... 1, 3
Dial-Around.................................. 6, 26
Effective Date............................... 1
FCC.......................................... 6
independent pay telephones................... 23
interLATA.................................... 23
intraLATA.................................... 8, 23
LATA......................................... 23
LEC.......................................... 6, 23
MBCA......................................... 33
MN Act....................................... 16, 28
MNPUC........................................ 16
OSP.......................................... 17

<CAPTION>
DEFINED TERM PAGE
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<S> <C>

PAL.......................................... 28
PSP.......................................... 6, 23
public pay telephones........................ 23
PUC.......................................... 7
RBOC......................................... 6, 23
Redeemable Warrant........................... 1
Registration Statement....................... 1
ROI.......................................... 19
SEC.......................................... 33
Securities Act............................... 1
Site Agreements.............................. 27
Site Providers............................... 6
smart phones................................. 24
Telco West................................... 11
Telecom Act.................................. 6
Underwriter.................................. 42
Underwriter's Warrant........................ 1
Units........................................ 1
U.S. West.................................... 16
</TABLE>

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMBINED FINANCIAL
STATEMENTS OF THE COMPANY, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
HAS BEEN ADJUSTED TO REFLECT THE CONSUMMATION OF THE ACQUISITIONS DESCRIBED
UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - RECENT ACQUISITIONS." IN ADDITION, AND UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A
TWO-FOR-ONE STOCK SPLIT WHICH OCCURRED IN APRIL 1997. AS USED IN THIS
PROSPECTUS, UNLESS THE CONTEXT REQUIRES OTHERWISE, THE "COMPANY" MEANS CHOICETEL
COMMUNICATIONS, INC., AND ITS WHOLLY-OWNED SUBSIDIARY, CHOICETEL, INC. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITER IS NOT EXERCISED. SEE
"UNDERWRITING."

THE COMPANY

The Company is the largest independent payphone service provider in
Minnesota. The Company installed its first payphones in 1990 and presently has
an installed base of approximately 3,000 payphones in 10 states. Management
believes that it has developed the skills and systems to operate the Company on
a larger scale and intends to grow through internal expansion and acquisitions.

The Company believes the outlook for the pay telephone industry is favorable
because of recent legislation that has led to deregulation of the rates for
local pay telephone calls and an increase in the amount of compensation for
certain types of calls which previously produced little revenue for payphone
service providers. The Company anticipates that the rates for local pay
telephone calls will increase as a result of the deregulation. The Company also
believes that the continued expansion in telecommunication services, including
the rise in call waiting, voice mail and pager usage, will result in increased
calling volume, thus increasing the revenue generated by payphones. Deregulation
is also expected to lead to increased competition among local telephone service
providers and management anticipates that the increased competition will reduce
telephone line charges, one of the Company's principal operating expenses.

The Company has expanded its business through the installation of pay
telephones at new sites and through strategic acquisitions of payphone routes
and related assets. Since 1993, the Company has completed the acquisition of
four payphone routes, adding over 2,000 telephones to the Company's operations,
of which approximately 1,600 were added in 1997. The Company seeks to acquire
payphone routes with modern equipment, long-term leases, potential for
additional installations, a favorable regulatory environment, and attractive
returns based upon current operating conditions. The Company believes that the
pay telephone industry will continue to grow and the Company will be well
positioned to capture a larger share of the market.

The Company has developed a computer processing network that automates many
of the operations necessary for the efficient management of payphone routes. The
payphones operated by the Company are computer-based, enabling the Company to
monitor payphones in the field from its central office. The network allows the
Company to monitor phone call volume, identify malfunctioning equipment,
dispatch repair service, schedule efficient coin collections, calculate
commissions, print checks for location owners, rate and process long-distance
calls, and generate reports that analyze and monitor the profitability of the
phones. Management believes that as the Company grows, the network can be
expanded easily with little additional investment in infrastructure.

The Company was incorporated in Minnesota in 1989 as Intelliphone, Inc., and
changed its name in April 1997 to ChoiceTel Communications, Inc. Its executive
offices are located at 9724 10th Avenue North, Plymouth, Minnesota 55441, and
its telephone number is (612) 544-1260.

3
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THE OFFERING

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<S> <C> <C> <C>
800,000 Units, each Unit consisting of one share
Securities Offered....................... of Common Stock and one Redeemable Warrant. Each
Redeemable Warrant entitles the holder to
purchase, at any time until five years after the
Effective Date, one share of Common Stock at an
exercise price of $9.50 per Redeemable Warrant,
subject to adjustment. The Redeemable Warrants
are subject to redemption by the Company for
$0.01 per Redeemable Warrant at any time 120 or
more days after the Effective Date, on 30 days'
written notice, provided that the closing bid
price of the Common Stock exceeds $10.00 per
share (subject to adjustment) for any 10
consecutive trading days prior to such notice.
See "Description of Securities."

Securities Outstanding:(1)
Before the Offering.................... 2,115,006 shares of Common Stock
After the Offering..................... 2,915,006 shares of Common Stock

Use of Proceeds.......................... To retire debt, to finance acquisitions and
expansion, and for working capital and general
corporate purposes. See "Use of Proceeds."

Proposed Nasdaq SmallCap Market Common Stock: PHON
Symbols................................ Redeemable Warrants: PHONW
</TABLE>

- --------------------------
(1) Does not include 222,500 shares of Common Stock reserved for issuance
pursuant to options, consisting of outstanding options covering 122,500
shares and options for up to 100,000 shares which may be granted pursuant to
the Company's 1997 Long-Term Incentive and Stock Option Plan, or 800,000
shares of Common Stock issuable upon exercise of the Redeemable Warrants
comprising part of the Units in the offering. Also does not include 80,000
shares of Common Stock comprising part of the Units issuable upon exercise
of the Underwriter's Warrant or 80,000 shares reserved for issuance upon
exercise of the Redeemable Warrants comprising part of the Units subject to
the Underwriter's Warrant and up to 55,880 shares issuable upon conversion
of a note issued in connection with a recent acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Recent Acquisitions," "Management," "Certain Transactions," "Description of
Securities" and "Underwriting."

RISK FACTORS

An investment in the securities offered hereby is highly speculative and
involves a high degree of risk and immediate substantial dilution. The Units
should be purchased only by persons who can afford to lose their entire
investment. See "Risk Factors" beginning at page 6 for a discussion of risk
factors that should be considered in connection with an investment in the Units
and "Dilution" at page 14.

4
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SUMMARY COMBINED FINANCIAL DATA

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<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------- -------------------------------------------
1996 1997
----------------------------- -----------------------------
1995 ACTUAL PRO FORMA(1) 1996 ACTUAL PRO FORMA(1)
---------- ------------- ------------- ----------- ----------- -------------
(DOLLARS IN 000S, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue....................... $2,817 $3,562 $7,705 $1,618 $3,768 $3,891
Cost of service....................... 1,785 1,987 4,298 1,031 1,719 1,792
Income (loss) before income taxes..... 122 (605)(2) (1,023)(2) (2) 363(2) 232(2)
Provision for income taxes
(unaudited)(3)...................... -- -- -- -- 127 81
Pro forma provision for income taxes
(credit) (unaudited)................ 43 0 125 1 -- --
Net income (unaudited)(3)............. -- -- -- -- 236(2) 151(2)
Pro forma net income (loss)
(unaudited)......................... 79 (605) (1,148) 1 -- --
Per share:
Net income (unaudited).............. -- -- -- -- $0.12(2) $0.07(2)
Pro forma net income (loss)
(unaudited)....................... $ 0.04 $(0.31)(2) $(0.54)(2) $(0.00) -- --
Shares outstanding-weighted average... 1,935,189 1,948,489 2,134,729 1,935,189 1,951,516 2,137,756
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
---------------------- -------------------------------------
PRO PRO PRO FORMA AS
ACTUAL FORMA(1) ACTUAL FORMA(1) ADJUSTED(1)(4)
--------- ----------- --------- ----------- -------------
(DOLLARS IN 000S)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.......................................... $ 1,210 $ 1,371 $ 1,311 $ 1,211 $ 3,246
Total assets............................................ 2,969 8,440 6,756 8,927 10,962
Current liabilities..................................... 1,736 4,404 5,161 5,736 2,771
Long-term debt.......................................... 570 2,673 631 1,528 1,528
Shareholders' equity.................................... 664 1,362 964 1,663 6,663
Working capital (deficit)............................... (526) (3,033) (3,850) (4,525) 475
</TABLE>

- --------------------------
(1) Gives effect to the acquisitions described under "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Recent
Acquisitions" as if they were completed acquisitions as of the beginning of
the statement of operations periods presented or the balance sheet dates, as
applicable. The pro forma financial information is presented for
illustration purposes only and is not indicative of what the Company's
actual results and financial condition would have been for the periods and
as of the dates presented.

(2) Reflects reserve for Minnesota sales tax contingency of $865,000
established December 31, 1996 for the years ended prior thereto and $110,140
for the six months ended June 30, 1997. See "Business - Legal Proceedings -
Minnesota Sales Tax" and the Combined Financial Statements of the Company
and notes thereto.

(3) Reflects the termination of the Company's status as an "S" corporation
effective January 1997.

(4) Adjusted to reflect the sale of the 800,000 Units offered hereby and the
application of the net proceeds thereof (after deducting the underwriting
discount and estimated offering expenses) as described in "Use of Proceeds."

5
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK. PRIOR TO MAKING AN INVESTMENT, A PROSPECTIVE
INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE COMBINED FINANCIAL
STATEMENTS OF THE COMPANY AND NOTES THERETO CONTAINED ELSEWHERE HEREIN.

RISKS ASSOCIATED WITH EXPANSION STRATEGY. The Company intends to expand its
business by contracting to install payphones or acquiring assets from payphone
service providers ("PSPs") in geographic areas where the Company is presently
operating as well as in new areas. There can be no assurance that the Company
will be able to identify and acquire businesses on a basis which permits it to
satisfy its minimum rates of return and other criteria for acquisitions.
Further, there can be no assurance that the Company will be able to locate
favorable new sites for internal growth, obtain the capital necessary to permit
it to pursue its business strategies, access developing technologies at
satisfactory costs to provide those service enhancements demanded by consumers
and location owners ("Site Providers") in its existing and future businesses, or
hire qualified new employees to meet the requirements of its expanding business.
The Company has been in business since 1989 and, therefore, has a limited
history of operations. Consequently, there can be no assurance that the
Company's business strategy will prove to be successful or that expansion of the
Company's business will not have a material adverse effect on the operations and
financial condition of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Acquisitions" and
"Business - Acquisition and Expansion Strategy."

COMPETITION. The pay telephone business is highly competitive. The Company
has no patents or exclusive rights to operate its business. The markets in which
the Company operates are fragmented, but include certain large, well-capitalized
providers of telecommunications services with substantially greater resources
than the Company. The Company's principal competition in the pay telephone
business comes from local exchange carriers ("LECs") operated by the regional
Bell operating companies (the companies that were formed as a result of the 1985
divestiture of American Telephone & Telegraph Company ("AT&T"), collectively
referred to herein as "RBOCs"), GTE Corporation, a number of independent
providers of pay telephone services, major operator service providers and
interexchange carriers. In addition to offering pay telephone service, LECs are
the exclusive line service providers in certain geographical regions. The
Company also competes with many other non-LEC telecommunication companies which
offer services similar to those of the Company. Increased competition from these
sources could cause the Company to offer higher commissions to new Site
Providers. Such higher commissions could have a material adverse effect on the
Company by impeding its ability to grow and by increasing its operating expenses
as a percentage of revenue. Wireless and cellular communications provide an
alternative to payphones and may, therefore, be a factor in slowing the rate of
growth of the payphone industry. See "Business - Competition."

PENDING DETERMINATION OF DIAL-AROUND COMPENSATION RATE. Pursuant to the
Telecommunications Act of 1996 (the "Telecom Act"), the Federal Communications
Commission (the "FCC"), which administers the interstate common carriage of
telecommunications, was authorized to evaluate and adjust the amount of
compensation paid by long-distance carriers to payphone companies when consumers
access a long-distance carrier directly by dialing an access or an 800 number or
by using a non-billable calling card and thereby "dial-around" the Company's
long-distance carrier in order to reach another long-distance carrier
("Dial-Around"). The FCC's payphone order, effective as of November 6, 1996,
increased the flat rate of Dial-Around compensation to approximately $45 per
payphone per month on an interim basis, based on $0.35 per call times the
national average of 131 monthly Dial-Around calls placed per payphone. Prior to
the increase in Dial-Around compensation, the Company was receiving
approximately $6 per payphone per month in Dial-Around compensation. The
increase mandated by the FCC resulted in a significant increase in the amount
and proportion of the Company's revenue from Dial-Around compensation, from
$50,201 (or 1.8% of revenue) in the year ended December 31, 1995 to $197,456 (or
7.0% of

6
<PAGE>
revenue) in the year ended December 31, 1996, and from $48,118 (or 3.0% of
revenue) in the six months ended June 30, 1996 to $700,695 (or 18.6% of revenue)
in the six months ended June 30, 1997. Pursuant to an appeal of the FCC's order,
the U.S. Court of Appeals for the D.C. Circuit ruled in July 1997 that the FCC's
use of $0.35 as a per call rate to determine an interim rate of monthly
Dial-Around compensation per payphone, which was based on the per call rate for
a local coin call in states where the local coin call rates have been
deregulated, was inappropriate and instructed the FCC to re-examine the $0.35
per call rate. In its Public Notice, DA 97-1673, dated August 5, 1997 (the
"Public Notice"), the FCC solicited comments on "whether the local coin rate,
subject to an offset for expenses unique to those calls, is an appropriate per
call compensation rate" for determining the rate of Dial-Around compensation.
The comment period was scheduled to expire on September 9, 1997, and there can
be no assurance when the FCC will issue another order regarding the rate of
Dial-Around compensation, what that order will determine, whether the order will
be appealed, and what the determination would be upon any appeal. While it is
not a forgone conclusion that the FCC's order on reconsideration will result in
a rate of Dial-Around compensation that is less than $45 per payphone per month,
that was the intent of the appeal of the FCC's 1996 order. Pursuant to the
Public Notice, the long-distance carriers are required to pay the payphone
service providers Dial-Around compensation at a rate based on the $0.35 per call
rate, or approximately $45 per payphone per month, during the pendency of the
rate determination. However, the FCC stated that retroactive adjustments to such
compensation may occur. In a letter to the FCC dated August 15, 1997, AT&T
challenged the FCC's authority to order the long-distance carriers to make any
payments during the pendency of the rate determination and stated its intention
to make Dial-Around payments voluntarily based on its imputed rate of $0.12 per
call, subject to retroactive adjustments, up or down, after the FCC's final
order on remand. Because the Company cannot be certain that the rate of
Dial-Around compensation will not be reduced retroactively or in the future, and
because the Company believes that the cost differential between coin calls and
Dial-Around calls is no more than $0.05 per call, it has established a reserve
in the amount of $109,000 at June 30, 1997 to cover a potential decrease from
$0.35 to $0.30 in the per call amount used to determine the Dial-Around
compensation rate, retroactive to November 1996, and it will continue to
accumulate this reserve until the Company believes there is a sufficient level
of certainty regarding the rate of Dial-Around compensation. However, there can
be no assurance that a reduction, if any, in the per call charge used to
determine the rate of Dial-Around compensation will not be greater than $0.05
per call. A reduction in the rate of Dial-Around compensation that is to be paid
to the Company that is greater than the Company's estimate of such reduction
could have an adverse effect on the results of operations and financial
condition of the Company, which could be material. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations" and "Business - Government Regulation - Dial-Around Compensation."

OTHER REGULATORY FACTORS. The Company's operations are significantly
influenced by the regulation of pay telephone services. Authority for regulating
these services is concurrently vested in the FCC, and the various state public
utilities commissions ("PUCs"). Regulatory jurisdiction is determined by the
interstate or intrastate character of the subject service, and the degree of
regulatory oversight exercised varies among jurisdictions. Regulatory actions by
these agencies have had, and are expected to continue to have, both positive and
negative effects upon the Company. While most matters affecting the Company's
operations fall within the administrative purview of these regulatory agencies,
state and federal legislatures and the federal district court administering the
AT&T divestiture are also involved in establishing certain rules and
requirements governing aspects of these services. Changes in existing laws and
regulations, as well as new laws and regulations, applicable to the activities
of the Company or other telecommunications businesses, may materially adversely
impact the operations and financial condition of the Company. See "Business -
Government Regulation."

The FCC has had under consideration for several years proposals that would
require most interstate long-distance calls initiated by dialing "0" from pay
telephones to be completed using one or more predetermined long-distance
carriers, such as AT&T, MCI and Sprint, rather than through the automated pay
telephone or operator service provider to whom the pay telephones are
pre-subscribed ("Billed Party

7
<PAGE>
Preference"). Some proposals would also extend Billed Party Preference to most
intrastate calls initiated by dialing 0. There is significant industry
opposition to all of the proposals. Although the Company believes it is unlikely
that such proposals will be implemented, if they were to be adopted and
implemented as currently proposed, they could have a material adverse impact on
the Company's business.

The FCC also has under consideration alternatives to Billed Party
Preference, including rate cap and rate disclosure proposals. Although Billed
Party Preference and its alternatives have been under consideration since 1987,
the Company cannot predict whether or when the FCC will adopt any such
proposals, or, if adopted, whether a rate cap or rate disclosure will have a
material adverse impact on the Company.

The FCC's 1996 payphone order will repeal all rules regulating the cost of a
local payphone call in October 1997, with the intention that the market will set
the rate for local payphone calls. See "Business - Government Regulation -
Deregulation of Local Pay Telephone Rates." The Company believes that
deregulation of rates for local pay telephone calls will result in increased
rates. However, there can be no assurance that there will be an increase in the
rates for local pay telephone calls, and the absence of such an increase could
have an adverse effect upon the Company's results of operations and financial
condition, which could be material.

State regulatory commissions are primarily responsible for regulating the
rates, terms and conditions for intrastate telephone services available from pay
telephones. There are several states in which it is illegal to provide certain
intrastate services using non-LEC pay telephones, and such prohibitions could
adversely affect the Company's ability to expand. In addition, several states
have not authorized competition among intraLATA operator services (services
related to calls originating and terminating in the same local access transport
area) because of the exclusive franchise granted to LECs in such states. All of
these barriers are expected to be eliminated as a result of the Telecom Act. See
"Business - Government Regulation."

TECHNOLOGICAL CHANGE AND NEW SERVICES. The telecommunications industry has
been characterized by rapid technological advancements, frequent new service
introductions and evolving industry standards. In the future, the Company's
business could be adversely affected by the introduction of new technology, such
as improved wireless communications, cellular telephone service and other
personal communications systems. The Company believes that its future success
will depend on its ability to anticipate and respond to changes and new
technology. There can be no assurance that the Company will have sufficient
resources to make the investments necessary to acquire new technology or to
introduce new services that would satisfy an expanded range of customer needs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

DEPENDENCE UPON THIRD-PARTY PROVIDERS. The Company's ability to complete
operator and direct dial long-distance calls is dependent upon contractual
arrangements with long-distance carriers. While the Company believes that it has
access to several providers of these services at competitive rates and expects
to continue to have such access in the foreseeable future, the continuing
availability of these resources cannot be assured.

SERVICE INTERRUPTIONS; EQUIPMENT FAILURES. The Company's long-distance
operations require that the equipment of its long-distance service providers be
operational 24 hours per day, 365 days per year. As is the case with other
telecommunications companies, the Company's long-distance operations may
experience temporary service interruptions or equipment failures, which may
result from causes beyond the Company's control. Any such event could have a
material adverse effect on the Company.

RELIANCE ON SINGLE BRAND OF PAYPHONES. To date, the Company has installed
only "INTELLICALL" brand payphones and has acquired companies using only
INTELLICALL payphones. If INTELLICALL payphones were to become unavailable for
some reason, or if the Company decided to acquire payphones that were not
INTELLICALL brand payphones, the Company would experience delay and additional
costs in adapting its proprietary software, stocking additional spare parts and
training personnel to service the

8
<PAGE>
new brand of payphones, which could have a material adverse effect on the
Company. See "Business - Acquisition and Expansion Strategy."

SEASONALITY. Similar to other pay telephone companies, the Company's
business is seasonal, with revenues and earnings being generally lower during
the winter months and greater during the summer months since weather conditions
affect outdoor pay telephone usage.

DIVIDEND POLICY. The Company does not intend to pay dividends following
completion of this offering. See "Dividend Policy."

RELIANCE ON KEY PERSONNEL. The Company is heavily dependent on the efforts
of Jeffrey R. Paletz, Melvin Graf, Jack S. Kohler and certain other management
personnel. Jeffrey R. Paletz, Melvin Graf and Jack S. Kohler have each entered
into an employment agreement with the Company having a term that expires in
April 1999. The loss of the services of one or more of these individuals could
have a material adverse effect on the Company. The Company is the beneficiary
under policies of life insurance in the aggregate amount of $1,800,000 covering
these three officers. In addition, the failure of the Company to attract and
retain additional management to support its business strategy could have a
material adverse effect on the Company. See "Management."

DILUTION. Purchasers of the Units will incur immediate and substantial
dilution in the tangible book value of $5.46 per share of Common Stock. In
addition, the Company may use shares of Common Stock to consummate acquisitions,
and any such issuance of Common Stock or the issuance of Common Stock upon the
exercise of options or warrants would cause further dilution to existing
shareholders. See "Dilution."

NO PRIOR PUBLIC MARKET; SECURITIES ELIGIBLE FOR FUTURE SALE. Prior to this
offering, there has been no public market for any securities of the Company, and
there can be no assurance that an active trading market for the Common Stock or
Redeemable Warrants will develop or continue after this offering. The Company
has filed an application for quotation of its Common Stock and Redeemable
Warrants on The Nasdaq SmallCap Market, and no assurance can be given that such
application will be accepted. The initial public offering price was determined
by negotiations between the Company and the Underwriter based upon several
factors and may not be indicative of the market prices for the Common Stock and
Redeemable Warrants after this offering. See "Underwriting." The market prices
of the Company's Common Stock and Redeemable Warrants could be significantly
affected by factors such as variations in the Company's operating results and
regulatory developments. Although as a condition of the underwriting, the
Company's existing shareholders must agree with the Underwriter not to sell
Common Stock for periods of six months to two years from the date of this
Prospectus, the market prices of the Common Stock and Redeemable Warrants after
this offering could thereafter be adversely affected by sales of Common Stock by
those shareholders. See "Securities Eligible for Future Sale."

POSSIBLE VOLATILITY OF PRICES FOR SECURITIES. The market prices for the
Common Stock and Redeemable Warrants may be highly volatile depending on various
factors including, among others, the Company's operating results, general
conditions in the pay telephone industry, announcements of business developments
by the Company or its competitors, and the market for similar securities, which
market is subject to various pressures. In addition, the securities market is
subject to price and volume fluctuations unrelated to the operating performance
of the Company.

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS;
POSSIBLE REDEMPTION OF WARRANTS. Purchasers of Units will be able to exercise
the Redeemable Warrants only if a current prospectus relating to the shares of
Common Stock underlying the Redeemable Warrants is then in effect and only if
such securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
Redeemable Warrants reside. Although the Company will use its best efforts to
maintain the effectiveness of a current prospectus covering the shares of Common
Stock underlying the Redeemable Warrants, there can be no assurance that the
Company will

9
<PAGE>
be able to do so, or that any required amendments will be declared effective by
federal or state authorities in a timely manner. The Company will be unable to
issue shares of Common Stock to those persons desiring to exercise their
Redeemable Warrants if a current prospectus covering the securities issuable
upon the exercise of the Redeemable Warrants is not kept effective or if such
securities are not qualified or exempt from qualification in the states in which
the holders of the Redeemable Warrants reside. The Redeemable Warrants are
subject to redemption by the Company at $0.01 per Redeemable Warrant at any time
120 or more days after the Effective Date, on 30 days' written notice, if the
closing bid price of the Common Stock exceeds $10.00 per share (subject to
adjustment) for 10 consecutive trading days prior to such notice. If the
Redeemable Warrants are redeemed, holders of Redeemable Warrants will lose their
right to exercise the Redeemable Warrants except during such 30-day redemption
period. Redemption of the Redeemable Warrants could force the holders to
exercise the Redeemable Warrants at a time when it may be disadvantageous for
the holders to do so or to sell the Redeemable Warrants at the then market price
or accept the redemption price, which is likely to be substantially less than
the market value of the Redeemable Warrants at the time of redemption. See
"Description of Securities - Redeemable Warrants."

CONTROL BY MANAGEMENT; ANTI-TAKEOVER PROVISIONS. Upon completion of this
offering, officers and directors of the Company will beneficially own
approximately 60% of the outstanding shares of Common Stock and, accordingly,
will be in a position to control the affairs of the Company, including the
election of the Board of Directors. If these shareholders vote together as a
group, they will be able to substantially influence the business and affairs of
the Company, including the election of individuals to the Company's Board of
Directors, and to otherwise affect the outcome of certain actions that require
shareholder approval, such as adopting amendments to the Company's articles of
incorporation and approving certain mergers, sales of assets and other business
acquisitions and dispositions. See "Principal Shareholders."

The Company is subject to the provisions of the Minnesota Business
Corporation Act which includes provisions relating to "control share
acquisitions" and restricting "business combinations" with "interested
shareholders." Such provisions could have the effect of deterring or delaying a
takeover or other change in control of the Company and could have a depressive
effect on the market prices of the Common Stock and Redeemable Warrants.
Accordingly, shareholders may be denied the opportunity to participate in a
transaction which offers a premium to the prevailing market prices of the Common
Stock or Redeemable Warrants. See "Description of Securities - Provisions of the
Company's Articles and Bylaws and the Minnesota Business Corporation Act."

DISCRETIONARY USE OF PROCEEDS. Approximately $2,035,000, or 40.7%, of the
net proceeds to be received by the Company in the offering have been designated
for acquisitions and expansion, and for working capital and general corporate
purposes which may be utilized for one or more alternative purposes in the
discretion of the Company. See "Use of Proceeds."

UNDESIGNATED PREFERRED STOCK. The Board of Directors is authorized, without
any action by the Company's shareholders, to issue up to 5,000,000 shares of
authorized but undesignated Preferred Stock and to fix the powers, preferences,
rights and limitations of any such Preferred Stock or any class or series
thereof. Persons acquiring Preferred Stock could have preferential rights with
respect to voting, liquidation, dissolution or dividends over existing
shareholders, including purchasers of Units in this offering. This ability of
the Board would permit the Company to adopt a shareholders' rights plan or to
take other action that could deter a hostile takeover of the Company, entrench
the Board of Directors or deter an unsolicited tender offer. See "Description of
Securities."

10
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Units are estimated to
be approximately $5,000,000 (or approximately $5,801,000 if the Underwriter's
over-allotment option is exercised in full) after deducting underwriting
discounts and estimated expenses of this offering. The Company intends to apply
the net proceeds approximately as follows:

<TABLE>
<CAPTION>
DOLLARS
------------
<S> <C>
Retirement of bank debt......................................................... $ 2,600,000
Retirement of acquisition debt.................................................. 365,000
Acquisitions and expansion...................................................... 2,000,000
Working capital and general corporate purposes.................................. 35,000
------------
Total....................................................................... $ 5,000,000
------------
------------
</TABLE>

RETIREMENT OF BANK DEBT. Approximately $2,600,000 of the proceeds from this
offering will be used to retire the balance of the Company's outstanding
obligation to National City Bank (the "Bank"), which obligation arose in January
1997 and matures in January 1998. The Company used $2,200,000 of the proceeds
from such loan to finance the acquisition of assets from Telco West, Inc.
("Telco West"). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Recent Acquisitions." The Company makes principal
payments to the Bank on a monthly basis, together with interest on the
outstanding loan balance accruing at the rate of two points over the "reference"
rate announced from time to time by the Bank.

RETIREMENT OF ACQUISITION DEBT. Approximately $365,000 of the proceeds from
this offering will be used to retire a portion of the Company's outstanding
obligation to Telco West, due in April 1998, which arose in connection with the
acquisition of site contracts and related assets in Colorado, Idaho, Oregon,
Washington and Wyoming. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Acquisitions."

ACQUISITIONS AND EXPANSION. The Company will reserve approximately
$2,000,000 of the proceeds from this offering for acquisitions and expansion.
The Company anticipates expanding its business through the acquisition of site
contracts and related assets from PSPs. The Company completed the Telco West
acquisition in January 1997 and the acquisition of assets of Computer Assisted
Technologies, Inc. ("CAT") in August 1997. Although the Company routinely
explores acquisition opportunities, no acquisitions are pending as of the date
hereof. The portion of the proceeds allocated for future acquisitions will only
be used for acquisitions of payphone routes and related businesses and assets.
If the Company does not use the full amount of proceeds allocated for
acquisitions and expansion, it may use such proceeds for further debt reduction
and general corporate purposes.

WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. The remainder of the
proceeds, estimated to be $35,000, will be retained as working capital and used
for general corporate purposes.

If the Underwriter exercises the over-allotment option in full, the Company
will realize additional net proceeds of approximately $801,000, which may be
used for further debt reduction, to finance acquisitions or for general
corporate purposes. In addition, the Company may derive up to $8,740,000 from
the exercise of the Redeemable Warrants included in the Units. Any amounts that
the Company derives from the exercise of the Redeemable Warrants are expected to
be used for further debt reduction, to finance acquisitions or for general
corporate purposes. The Company has the right, under certain circumstances, to
redeem the Redeemable Warrants for a total cost of up to $9,200. See "Risk
Factors - Current Prospectus and State Registration Required to Exercise
Warrants; Possible Redemption of Warrants."

The foregoing use of proceeds is based upon the Company's expectations with
respect to its projected business operations and anticipated revenue from such
operations. If such expectations are not met, the

11
<PAGE>
Company may have to reallocate the proceeds in such manner as it deems
appropriate under the circumstances.

Pending such uses, the net proceeds of this offering will be invested in
bank certificates of deposit, investment-grade securities and short-term,
income-producing investments, including government obligations and other money
market instruments. The Company believes that the net proceeds of this offering,
together with funds generated from operations, will be sufficient to conduct its
operations for two years.

DIVIDEND POLICY

The Company intends to retain future earnings to fund the development and
growth of its business and, therefore, does not anticipate paying cash dividends
on the Common Stock for the foreseeable future. The Company has paid a $0.01 per
quarter dividend on its outstanding shares of Common Stock since mid-1995. The
Company's credit arrangement with the Bank includes covenants which prohibit the
Company from paying dividends at a higher rate. Any future payment of dividends
will be determined by the Board of Directors of the Company and will depend on
its financial condition, results of operations, restrictions in financing
agreements and other factors the Board of Directors deems relevant.

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1997, and as adjusted to give effect to the sale of the Units offered hereby
and the application of the net proceeds from such sale as set forth under "Use
of Proceeds." This material should be read in conjunction with the Combined
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
------------ ------------ -------------
<S> <C> <C> <C>
Short-term debt....................................................... $ 3,686,178 $ 4,260,558 $ 1,295,558
Long-term debt, net of current maturities............................. 630,942 1,528,462 1,528,462
Shareholders' equity:(3)
Preferred Stock, par value $0.01 per share, 5,000,000 shares
authorized; none outstanding
Common Stock, par value $0.01 per share, 15,000,000 shares
authorized; 1,928,766 shares issued and outstanding; 2,115,006
shares pro forma; 2,915,006 shares as adjusted.................... 1,479,892 2,178,292 7,178,292
Paid-in capital..................................................... 0 (515,679) (515,679)
Accumulated deficit................................................. (515,679) 0 0
------------ ------------ -------------
Total shareholders' equity........................................ 964,213 1,662,613 6,662,613
------------ ------------ -------------
Total capitalization............................................ $ 5,281,333 $ 7,451,633 $ 9,486,633
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

- --------------------------
(1) Gives effect to the acquisition of assets from CAT as described under
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Recent Acquisitions" as if it had been completed as of June
30, 1997. The pro forma financial information is presented for illustration
purposes only and is not indicative of what the Company's actual financial
condition would have been as of such date.

(2) Adjusted to reflect the sale of the 800,000 Units offered hereby and the
application of the net proceeds thereof (after deducting the underwriting
discount and estimated offering expenses) as described in "Use of Proceeds."

(3) Does not include 186,240 shares of Common Stock issued in August 1997 in
connection with a recent acquisition and up to 55,880 shares of Common
Stock issuable upon conversion of a note issued in connection therewith,
222,500 shares of Common Stock reserved for issuance pursuant to options,
consisting of outstanding options covering 122,500 shares and options for up
to 100,000 shares which may be granted pursuant to the Company's 1997
Long-Term Incentive and Stock Option Plan, or 800,000 shares of Common Stock
issuable upon exercise of the Redeemable Warrants comprising part of the
Units in the offering. Also does not include 80,000 shares of Common Stock
comprising part of the Units issuable upon exercise of the Underwriter's
Warrant or 80,000 shares reserved for issuance upon the exercise of the
Redeemable Warrants comprising part of the Units subject to the
Underwriter's Warrant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Acquisitions,"
"Management," "Certain Transactions," "Description of Securities" and
"Underwriting."

13
<PAGE>
DILUTION

For purposes of the following discussion, it is assumed that the entire
amount of each Unit's offering price is allocable to the share of Common Stock
included therein and that no amount is allocable to the Redeemable Warrant
included therein. The Company's net tangible book value as of June 30, 1997 was
$575,020, or $0.30 per share of Common Stock. "Net tangible book value" per
share is determined by dividing the tangible net worth of the Company (tangible
assets minus total liabilities) by the number of outstanding shares of Common
Stock. Without giving effect to changes in net tangible book value after June
30, 1997, except for the sale by the Company of the Units offered hereby (after
deduction of the underwriting discount and estimated offering expenses), the
Company's net tangible book value at June 30, 1997 would have been $5,575,020,
or $2.04 per share. This represents an immediate increase in the net tangible
book value per share of Common Stock to the present shareholders of $1.74 and an
immediate dilution of $5.46 per share to investors purchasing Units in this
offering. The following table illustrates this dilution per share:

<TABLE>
<S> <C> <C>
Initial public offering price................................. $ 7.50

Net tangible book value at June 30, 1997.................... $ 0.30

Increase in net tangible book value attributable to new
investors................................................. 1.74
---------
Pro forma net tangible book value after the offering.......... 2.04
---------
Dilution to new investors..................................... $ 5.46
---------
---------
</TABLE>

The following table provides a comparison of the total number of shares of
Common Stock purchased from the Company, the total consideration paid, and the
average price per share paid by the current holders of Common Stock and by the
investors purchasing Units in this offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders................................ 1,928,766 70.7% $ 1,443,473 19.4% $ 0.75
New investors........................................ 800,000 29.3 6,000,000 80.6 $ 7.50
---------- --------- ------------ ---------
Total............................................ 2,728,766 100.00% $ 7,443,473 100.00% $ 2.73
---------- --------- ------------ ---------
---------- --------- ------------ ---------
</TABLE>

- --------------------------
(1) Does not reflect deduction of any underwriting discounts or other expenses
incurred in connection with the issuance of the Units.

The above tables assume no exercise of the Underwriter's over-allotment
option. If such option is exercised in full, the new investors will have paid
$6,900,000 for 920,000 shares of Common Stock, representing 82.7% of the total
consideration for 32.3% of the total number of shares outstanding.

The foregoing calculations do not include 186,240 shares of Common Stock
issued in August 1997 in connection with a recent acquisition or up to 55,880
shares issuable upon conversion of a note issued in connection therewith,
222,500 shares reserved for issuance pursuant to options, consisting of
outstanding options covering 122,500 shares and options for up to 100,000 shares
which may be granted pursuant to the Company's 1997 Long-Term Incentive and
Stock Option Plan, or 800,000 shares of Common Stock issuable upon exercise of
the Redeemable Warrants. The calculations also do not include 80,000 shares of
Common Stock comprising part of the Units issuable upon exercise of the
Underwriter's Warrant or 80,000 shares reserved for issuance upon exercise of
the Redeemable Warrants comprising part of the Units subject to the
Underwriter's Warrant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Acquisitions," "Management,"
"Certain Transactions," "Description of Securities" and "Underwriting."

14
<PAGE>
SELECTED COMBINED FINANCIAL DATA

The selected combined financial data presented below for, and as of the end
of, the years ended December 31, 1995 and 1996, have been derived from the
financial statements of ChoiceTel Communications, Inc. ("ChoiceTel"), and its
wholly-owned subsidiary, Choicetel, Inc. ("CI"), which financial statements have
been audited by Schechter Dokken Kanter Andrews & Selcer, Ltd., independent
certified public accountants. The selected combined financial data presented
below for, and as of the end of, the six month periods ended June 30, 1996 and
1997, have been derived from the unaudited financial statements of ChoiceTel and
CI which, in the opinion of the Company's management, include all adjustments
necessary for a fair presentation of financial position and the results of
operations. The operating results for the six months ended June 30, 1997, are
not necessarily indicative of the operating results to be expected for the full
year or for any other period. The selected combined financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined Financial Statements of
the Company and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- --------------------------------------
1996 1997
------------------------- -------------------------
1995 ACTUAL PRO FORMA(1) 1996 ACTUAL PRO FORMA(1)
--------- --------- ------------ --------- --------- ------------
(DOLLARS IN 000S, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue............... $2,817 $3,562 $7,705 $1,618 $3,768 $3,891
Cost of service............... 1,785 1,987 4,298 1,031 1,719 1,792
--------- --------- ------------ --------- --------- ------------
Gross margin.................. 1,032 1,575 3,407 587 2,049 2,099
--------- --------- ------------ --------- --------- ------------
Selling, general and
administrative expenses...... 573 830 1,710 358 814 823
--------- --------- ------------ --------- --------- ------------
Income (loss) before income
taxes........................ 122 (605)(2) (1,023)(2) 2 363(2) 232(2)
--------- --------- ------------ --------- --------- ------------
Provision for income taxes
(unaudited)(3)............... -- -- -- -- 127 81
--------- --------- ------------ --------- --------- ------------
Pro forma provision for income
taxes (credit) (unaudited)... 43 0 125 1 -- --
--------- --------- ------------ --------- --------- ------------
Net income (unaudited)(3)..... -- -- -- -- 236(2) 151(2)
Pro forma net income (loss)
(unaudited).................. $ 79 $ (605) $ (1,148) $ 1 -- --
Per share:
Net income (unaudited)...... -- -- -- -- $ 0.12(2) $ 0.07(2)
Pro forma net income (loss)
(unaudited)............... $ 0.04 $ (0.31)(2) $ (0.54)(2) $ 0.00 -- --
--------- --------- ------------ --------- --------- ------------
--------- --------- ------------ --------- --------- ------------
Shares outstanding-weighted
average...................... 1,935,189 1,948,489 2,134,729 1,935,189 1,951,516 2,137,756

OPERATING DATA (AT END OF
PERIOD):
Number of phones in service... 1,013 1,219 2,824 1,133 3,047 3,047
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
DECEMBER 31, 1996 PRO FORMA
------------------------ AS
ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) ADJUSTED(1)(4)
--------- ------------- --------- ------------- -------------
(DOLLARS IN 000S)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................... $ 1,210 $ 1,371 $ 1,311 $ 1,211 $ 3,246
Total assets..................................... 2,969 8,440 6,756 8,927 10,962
Current liabilities.............................. 1,736 4,404 5,161 5,736 2,771
Long-term debt................................... 570 2,673 631 1,528 1,528
Total liabilities................................ 2,305 7,077 5,792 7,264 4,299
Shareholders' equity............................. 664 1,362 964 1,663 6,663
Working capital (deficit)........................ (526) (3,033) (3,850) (4,525) 475
</TABLE>

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

(1) Gives effect to the acquisitions described under "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Recent
Acquisitions" as if they were completed acquisitions as of the beginning of
the statement of operations periods presented or the balance sheet dates, as
applicable. The pro forma financial information is presented for
illustration purposes only and is not indicative of what the Company's
actual results and financial condition would have been for the periods and
as of the dates presented.

(2) Reflects reserve for Minnesota sales tax contingency of $865,000
established December 31, 1996 for the years prior thereto and $110,140 for
the six months ended June 30, 1997. See "Business - Legal Proceedings -
Minnesota Sales Tax" and the Combined Financial Statements of the Company
and notes thereto.

(3) Reflects the termination of the Company's status as an "S" corporation
effective January 1997.

REORGANIZATION

In 1995, CI was incorporated to operate as a competitive LEC under the
Minnesota Telecommunications Act of 1995 (the "MN Act"), which allows companies,
upon approval of the Minnesota Public Utilities Commission ("MNPUC"), to buy and
competitively resell non-residential telephone service provided by U.S. West
Communications, Inc. ("U.S. West"). CI was formed separately from ChoiceTel in
order to more efficiently facilitate MNPUC approval, which approval was obtained
on April 19, 1996. The stock ownership of CI was substantially identical to the
ownership of ChoiceTel at the time of CI's formation. In addition to the
telephone lines CI sells to ChoiceTel, CI also sells pay telephone lines to
several other pay telephone companies in Minnesota. In March 1997, a corporate
reorganization was effected in which the shareholders of CI transferred their
common stock to ChoiceTel as an additional contribution to its capital and, as a
result, CI became a wholly-owned subsidiary of ChoiceTel.

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company derives revenue from three principal sources: coin calls,
non-coin calls and Dial-Around calls. Coin calls represent calls paid for with
coins deposited in the telephone. The Company recognizes coin revenue in the
amount deposited. Non-coin calls are calls charged to a customer credit card or
billed to the called party (collect calls). These calls are processed by the
payphone's computer using "store and forward" technology or, if a live operator
is requested, the call is processed by an operator service provider ("OSP") such
as, for example, AT&T, MCI or Sprint. Compensation for Dial-Around calls is paid
by long-distance carriers when consumers access a long-distance carrier directly
by dialing an access number or an 800 number or by using a non-billable calling
card. See "Business - Operations" and
"- Government Regulation."

The principal costs related to ongoing operation of the Company's payphones
include telephone line charges, consisting of payments made by the Company to
LECs and long-distance carriers for access charges and use of their networks;
commission payments to Site Providers; and collection, repair and maintenance
costs.

RESULTS OF OPERATIONS

The following table presents certain items in the combined statements of
operations as a percentage of revenue for the years ended December 31, 1994
through 1996, and the six month periods ended June 30, 1996 and 1997, as well as
the average number of phones in service during such periods:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>

REVENUE:
Coin revenue.............................................. 81.4% 83.3% 78.9% 83.0% 67.3%
Non-coin revenue.......................................... 17.2 14.9 14.1 14.0 13.0
Dial-Around compensation.................................. 1.4 1.8 7.0 3.0 18.6
Competitive LEC revenue................................... -- -- 1.6 -- 1.1
--------- --------- ----- --------- ---------
Total service revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- ----- --------- ---------
--------- --------- ----- --------- ---------
SERVICE COSTS AND EXPENSES:
Telephone line charges.................................... 43.0% 42.5% 36.2% 43.1% 26.3%
Commissions............................................... 18.3 18.0 16.3 17.6 15.5
Collection, repair and maintenance(1)..................... 7.1 7.5 8.5 10.6 10.0
--------- --------- ----- --------- ---------
Total cost of service................................. 68.4% 68.0% 61.0% 71.3% 51.8%
--------- --------- ----- --------- ---------
--------- --------- ----- --------- ---------

Gross margin.............................................. 31.6% 32.0% 39.0% 28.7% 48.2%
Selling, general and administrative expenses(1)........... 15.9 15.7 18.1 14.5 15.4
Interest.................................................. 3.7 3.2 3.4 4.5 8.6
Depreciation and amortization............................. 8.2 8.8 10.2 9.5 11.6
Sales tax contingency..................................... 0.0 0.0 24.3 0.0 2.9
--------- --------- ----- --------- ---------
Net income (loss) before pro forma
income tax provision..................................... 3.8% 4.3% (17.0)% 0.1% 9.6%
--------- --------- ----- --------- ---------
--------- --------- ----- --------- ---------

Average phones in service................................. 730 865 1,123 1,070 2,811
</TABLE>

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

(1) A portion of the expenses classified as "Collection, repair and
maintenance" are classified as "Selling, general and administrative
expenses" in the Combined Financial Statements of the Company and notes
thereto.

17
<PAGE>
The following table presents items in the combined statements of operations
on a per phone in service basis for the years ended December 31, 1994 through
1996, and the six month periods ended June 30, 1996 and 1997, based on the
average number of phones in service during such periods:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS PER PHONE)
<S> <C> <C> <C> <C> <C>
REVENUE PER PHONE:
Coin revenue..................................................... $ 2,744 $ 2,714 $ 2,504 $ 1,256 902
Non-coin revenue................................................. 577 485 447 211 174
Dial-Around compensation......................................... 48 58 176 45 249
Competitive LEC revenue.......................................... 0 0 45 0 15
--------- --------- --------- --------- ---------
Total service revenue.......................................... $ 3,369 $ 3,257 $ 3,172 $ 1,512 $ 1,340
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

SERVICE COSTS AND EXPENSES PER PHONE:
Telephone line charges........................................... $ 1,448 $ 1,384 $ 1,149 $ 652 $ 353
Commissions...................................................... 616 586 516 267 207
Collection, repair and maintenance(1)............................ 240 244 271 160 134
--------- --------- --------- --------- ---------
Total cost of service.......................................... 2,304 2,214 1,936 1,079 694
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

Gross margin..................................................... $ 1,065 $ 1,043 $ 1,236 $ 433 $ 646
Selling, general and administrative expenses(1).................. 535 512 573 219 207
Interest......................................................... 125 104 107 68 116
Depreciation and amortization.................................... 275 286 325 144 155
Sales tax contingency............................................ 0 0 770 0 39
--------- --------- --------- --------- ---------
Net income (loss) before pro forma income tax provision.......... $ 130 $ 141 $ (539) $ 2 $ 129
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

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

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30,
1996. Total revenue for the six months ended June 30, 1997, increased
approximately $2,150,082, or 132.9%, compared to the six months ended June 30,
1996. This growth was primarily attributable to the increase in the average
number of pay telephones in service from 1,070 during the 1996 period to 2,811
(including 586 phones in service pursuant to an agreement with CAT, which
effectively resulted in the Company realizing all of CAT's operating revenue and
expenses beginning February 1, 1997) during the 1997 period and the increased
Dial-Around compensation. Of the increase in revenue, $652,500, or 30.3%, is
attributable to an increase in the rate of Dial-Around compensation which
occurred on November 6, 1996. On that date, Dial-Around compensation increased
from approximately $6 per phone per month to approximately $45 per phone per
month. See "Business - Government Regulation - Dial-Around Compensation." Coin
revenue increased $1,193,000, but declined to $902 per phone for the period
compared to $1,256 in the previous year, as a result of the seasonal nature of
the phones acquired in Oregon, Idaho and Washington, which generate most of
their revenue from June through November.

Telephone and long-distance charges decreased to 26.3% of total revenue for
the 1997 period, as compared to 43.1% the previous year, due to the increase in
Dial-Around compensation and a reduction in line charges in Minnesota in June
1996 from approximately $90 per line to $52 per line. Site Provider commissions
and collection, service and repair costs decreased from 17.6% and 10.6% of
revenue,

18
<PAGE>
respectively, in 1996, to 15.5% and 10.0% of revenue, respectively, in 1997.
Selling, general and administrative ("SG&A") expenses increased by $347,555 but,
when expressed per phone in service, declined from $219 for the 1996 period to
$207 for the same period in 1997.

Interest expense for the first six months in 1997 increased to 8.6% of
revenue as compared to 4.5% of revenue in the prior year due to increased
borrowing to finance the acquisition of a route in the Pacific Northwest and new
installations. Depreciation and amortization for the 1997 period increased to
11.6% of revenue from 9.5% of revenue as a result of the depreciation and
amortization associated with the acquired routes.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995. For
the year ended December 31, 1996, total revenue increased approximately
$745,000, or 26.4%, compared to the year ended December 31, 1995. This growth
was primarily attributable to the increase in the average number of pay
telephones in service from 865 during 1995 to 1,123 during 1996, the increase in
Dial-Around compensation and the initiation of operations as a competitive LEC.
Of the increase in revenue, $147,000, or 19.7%, of the increase, was
attributable to the increase in the Dial-Around compensation rate on November 6,
1996, and $50,700, or 6.8%, of the increase in revenue was attributable to sales
of telephone service to non-affiliated companies.

Telephone and long-distance charges decreased in 1996 to 36.2% of total
revenue, compared to 42.5% of total revenue the prior year. The decrease was
primarily attributable to CI receiving authorization to act as a reseller of
telephone service in April 1996, which ultimately reduced the Company's line
charges in Minnesota to $52 per line.

Commissions paid to Site Providers decreased to 16.3% of total revenue in
1996, compared to 18.0% in the prior year. This was attributable to increased
Dial-Around compensation revenue (which is not included in commission
calculations for Site Providers) and to the phones added in 1996 which generated
less revenue and, therefore, lower Site Provider commissions than the phones
placed into service in prior years. As part of its growth strategy and in order
to take advantage of lower line rates, the Company was able to install pay
telephones that previously had insufficient revenue to meet the Company's return
on investment ("ROI") objectives.

Service, collection, repair and maintenance costs increased in 1996 over the
prior year by approximately $94,000, or 44.4%, due to the start-up costs
associated with adding phones in new geographic areas, as well as the increased
number of phones in service.

In 1996, SG&A expenses increased approximately $200,000, or 45.1%, from the
prior year. This was attributable, in part, to higher marketing costs associated
with the Company's growth strategy. Interest expense increased to 3.4% of
revenue compared to 3.2% of revenue in the prior year due to increased borrowing
to finance an acquisition of 85 phones in December 1995. Depreciation and
amortization increased in 1996 to 10.2% of revenue from 8.8% of revenue in the
prior year, attributable to amortization associated with the acquired contracts.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. For
the year ended December 31, 1995, total revenue increased approximately
$358,000, or 14.6%, compared to the prior year. This growth was primarily
attributable to an increase in the average number of pay telephones in service
from 730 in 1994 to 865 in 1995. Long-distance revenue decreased to 14.9% of
total revenue compared to 17.2% in the previous year due to Dial-Around calls
replacing revenue producing calls at the Company's payphones.

Telephone and long-distance charges remained relatively unchanged as a
percentage of revenue. Such charges represented 42.5% of total revenue in 1995
compared to 43.0% of revenue in the prior year. Commissions paid to Site
Providers and collection, repair and maintenance costs remained relatively
constant.

19
<PAGE>
SG&A expenses increased approximately $52,000 in 1995, or 13.3%, from the
prior year. As a percentage of revenues, SG&A expenses decreased to 15.7% of
total revenues, compared to 15.9% in the prior year. Interest expenses remained
stable. Depreciation and amortization increased approximately $46,000, or 23.1%,
from the prior year.

SALES TAX CONTINGENCY. The Company, based on its analysis of the published
regulations of the Minnesota Department of Revenue, has not remitted any sales
tax payments to the State of Minnesota. In 1996, the Company learned that the
opinion of the Department was that calls from payphones were subject to state
sales tax. Management is of the view that the payphone service it provides is
not subject to sales tax and the Company is challenging the imposition of the
tax. Nonetheless, on December 31, 1996, the Company established a reserve of
$865,000 for the years prior thereto and has reserved an additional $110,140 for
the six months ended June 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended June 30, 1997, the Company's operating activities
provided $131,600, net long- and short-term financing provided $3,123,000, and
the sale of shares of Common Stock and the collection of subscription
receivables provided $64,000. The Company invested $4,136,000 in acquisitions
and new installations, resulting in a $819,000 decrease in cash balances.

Operating activities in the year ended December 31, 1996 provided $600,400
and sales of shares of Common Stock during the year provided $920,000. During
the year, the Company invested $462,200 in new installations, reduced debt by
$68,500 and paid $143,700 in dividends. The overall impact was an $846,000
increase in cash balances.

For the year ended December 31, 1995, the Company's operating activities
provided $161,000 and long-term financing provided $778,000. During the year,
$623,000 was invested in acquisitions and new installations, $320,000 of
short-term debt was retired and $33,000 was paid as dividends, resulting in a
$37,000 decrease in cash balances for the year.

In January 1997, the Company entered into an Amended and Restated Loan
Agreement with the Bank pursuant to which the Company can borrow up to
$3,000,000. The Company has granted the Bank a first lien on all of its assets
to secure its obligations to the Bank. The agreement provides for the payment of
interest on the amount outstanding from time to time at an annual rate equal to
2.0% over the "reference" rate announced from time to time by the Bank and
expires in January 1998. The Company intends to repay all of its obligations to
the Bank with the proceeds from this offering. See "Use of Proceeds." The
Company has also borrowed $453,000 in the aggregate from certain individuals and
intends to repay the individual lenders out of cash generated from operations as
and when their promissory notes mature. Management believes that the proceeds
from the sale of the Units hereby, together with cash generated from operations,
will be adequate to fund the Company's operations for the foreseeable future.

RECENT ACQUISITIONS

In January 1997, the Company completed its acquisition from Telco West of
site contracts for 1,020 payphones located in Colorado, Idaho, Oregon,
Washington and Wyoming and all equipment located at the respective sites, as
well as the tradename "Telco Northwest." The purchase price for the acquired
assets was $3,374,745, with the Company paying $2,173,245 in cash (financed with
a short-term loan from the Bank) and the balance by delivery of a 10% secured
subordinated note in the principal amount of $365,000, with the principal due on
April 1, 1998, and a second 10% secured subordinated note in the principal
amount of $841,500, which amortizes over a 54-month period. The promissory notes
are collateralized by a security interest granted in substantially all of the
Company's pay telephone assets, which security interest is subordinate to the
senior secured position of the Bank as the Company's primary lender. In
connection with the acquisition, Telco West and its principal shareholder
entered into a five-year non-compete agreement covering the states of Colorado,
Idaho, Oregon, Washington and Wyoming. In

20
<PAGE>
1996, Telco West's payphone division earned $248,650 on revenues of $2,663,994.
The Company expects results to improve due to the increase in Dial-Around
compensation.

In January 1997, the Company entered into an agreement to acquire from CAT
586 pay telephone site contracts and related assets, as well as site contracts
only for the installation of an additional 98 pay telephones, all located in
Minnesota and Wisconsin. Pending approval of the acquisition by the MNPUC and
the satisfaction of other conditions of closing, the parties entered into a
Route Service Agreement effective as of February 1, 1997, pursuant to which the
Company managed and serviced the CAT payphones in Minnesota and Wisconsin for a
monthly fee equal to the operating revenue therefrom less equipment leasing
costs and certain other expenses payable by CAT to third parties. The MNPUC
entered an order on June 27, 1997, approving the Company's acquisition of CAT's
assets and the transaction was consummated as of August 14, 1997. The purchase
price for the assets was $2,270,300, consisting of $100,000 payable in cash at
closing, $350,000 pursuant to a convertible note payable to CAT as described
below, the Company's assumption of $1,121,900 of debt to two equipment leasing
companies, and the balance of $698,400 by delivery to CAT of 186,240 shares of
unregistered Common Stock. The convertible note bears interest at the rate of
8.5% per annum with interest only payable monthly and the entire principal
balance and any unpaid interest thereon is due on September 30, 1997. The note
is convertible at any time prior to payment into Common Stock on the basis of
one share of stock for each $6.33 of principal and accrued interest due. In
connection with the transaction, CAT and its principal shareholder entered into
a two-year non-compete agreement with the Company covering the states of
Minnesota and Wisconsin. The president of CAT, Dustin Elder, now a Vice
President of the Company, also entered into employment, non-compete and stock
option agreements with the Company. In 1996, CAT had a net loss of $246,266 on
revenues of $1,479,337. The Company expects results to improve due to lower line
rates in Minnesota and the increase in Dial-Around compensation.

The pro forma statements of operations and balance sheets below reflect the
acquisitions from Telco West and CAT as if they had been completed as of the
beginning of the statement of operations periods presented or the balance sheet
dates, as applicable. The pro forma financial information is presented for
illustration purposes only and is not indicative of what the Company's actual
results and financial condition would have been for the periods and as of the
dates presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
PRO FORMA
COMPANY TELCO WEST CAT ADJUSTMENTS(1) COMBINED
------- ---------- ------ -------------- --------
(DOLLARS IN 000S)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue......................... $3,562 $2,664 $1,479 $ 7,705
Cost of service......................... 1,987 1,486 825 4,298
------- ---------- ------ ----- --------
Gross margin............................ 1,575 1,178 654 $ 0 3,407
------- ---------- ------ ----- --------

Selling, general and administrative
expenses.............................. 830 393 487 1,710
Depreciation and amortization........... 365 307 158 290 1,120
Interest expense........................ 120 95 180 256 651
Sales tax contingency(3)................ 865 0 84 949
------- ---------- ------ ----- --------
Income (loss) before income taxes....... (605)(4) 383 (255) (546) (1,023)(4)
Provision for income taxes.............. -- -- -- --
Pro forma provision for income taxes
(credit)(5)........................... 0 134 (9) 0 125
------- ---------- ------ ----- --------
Pro forma net income (loss)(5).......... $ (605) $ 249 $ (246) $(546) $(1,148)
------- ---------- ------ ----- --------
------- ---------- ------ ----- --------

<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------
PRO FORMA
COMPANY CAT(2) ADJUSTMENTS(1) COMBINED
------- ------ -------------- --------

<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service revenue......................... $3,768 $ 123 $3,891
Cost of service......................... 1,719 73 1,792
------- ------ ----- --------
Gross margin............................ 2,049 50 $ 0 2,099
------- ------ ----- --------
Selling, general and administrative
expenses.............................. 814 9 823
Depreciation and amortization........... 437 13 133 583
Interest expense........................ 325 15 1 341
Sales tax contingency(3)................ 110 10 120
------- ------ ----- --------
Income (loss) before income taxes....... 363(4) (3) (134) 232(4)
Provision for income taxes.............. 127 1 (47) 81
Pro forma provision for income taxes
(credit)(5)........................... -- -- --
------- ------ ----- --------
Pro forma net income (loss)(5).......... $ 236(4) $ 2 $ (87) $ 151(4)
------- ------ ----- --------
------- ------ ----- --------
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------------
PRO FORMA
COMPANY CAT(6) ADJUSTMENTS(7) COMBINED
----------- --------- --------------- -----------
(DOLLARS IN 000S)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.......................................................... $ 1,310 $ (100) $ 1,211
Property................................................................ 4,936 1,725 6,661
Other assets............................................................ 510 545 1,055
----------- --------- --- -----------
Total assets.......................................................... $ 6,756 $ 2,170 $ 0 $ 8,927
----------- --------- --- -----------
----------- --------- --- -----------
Current liabilities..................................................... 5,161 574 5,736
Long-term debt net of current portion................................... 631 897 1,528
Shareholders' equity
Common stock.......................................................... 1,480 699 2,179
Paid-in capital....................................................... 0 (516) (516)
Accumulated deficit................................................... (516) (516) 0
----------- --------- --- -----------
Total shareholders' equity.......................................... 964 699 0 1,663
----------- --------- --- -----------
Total liabilities and shareholders' equity........................ $ 6,756 $ 2,170 $ 0 $ 8,927
----------- --------- --- -----------
----------- --------- --- -----------
</TABLE>

- --------------------------
(1) Phones are depreciated over seven years based on the Company's estimate
that, with proper service and maintenance, the acquired phones have
remaining useful lives of seven years. Rental agreements are amortized over
twelve years based on the Company's estimate that, with renewals, the
acquired rental agreements have remaining lives of twelve years. The
non-compete agreement is amortized over five years. The interest rate on
debt incurred in connection with the Telco West acquisition is 10.32% and
the interest rate on debt incurred in connection with the CAT acquisition is
12.69%.
(2) Does not include CAT's operating revenues or expenses for the period
February 1, 1997 to June 30, 1997, which are included in the Company's
operating revenues and expenses pursuant to the Route Service Agreement.
(3) Reflects the potential liability for Minnesota sales tax on coin revenues
collected by the Company from payphones located in Minnesota.
(4) Reflects reserve for Minnesota sales tax contingency of $865,000
established December 31, 1996 for the years prior thereto and $110,140 for
the six months ended June 30, 1997. See "Business - Legal Proceedings -
Minnesota Sales Tax" and the Combined Financial Statements of the Company
and notes thereto.
(5) Reflects the termination of the Company's status as an "S" corporation
effective January 1997.
(6) Reflects the Company's allocation of the purchase price for the CAT assets.
(7) Reflects the reclassification of accumulated deficit to paid-in capital.

The Company will amortize the Site Agreements acquired from Telco West and
CAT on a straight-line basis over a period of twelve years. The average
remaining term for these agreements, assuming the renewal provisions thereof are
not triggered, is approximately four years and three and one-half years for the
Telco West phones and the CAT phones, respectively. However, the Company has
found that the actual life of a Site Agreement is more closely related to how
long the Site Provider remains in business than the remaining term of the
contract. The Company's Site Agreements generally have automatic renewal
provisions. While the Company has no historical data on the renewal experience
of the companies from whom the phones were acquired, it estimates, based on its
own limited renewal experience, that the average life of the acquired Site
Agreements is 15 to 16 years. The Company's experience has been, and it
continues to believe, that Site Agreements generally renew automatically since
payphones do not appear to be strategic to the Site Provider's business. The
Company believes that Site Providers generally view payphones as a customer
service and not as a profit center. Further, the Company believes that the
potential increase in commission a Site Provider might get by switching to a
different payphone service provider is not meaningful and Site Providers are
reluctant to take the risk of switching to a new payphone service provider who
may not properly maintain the payphone.

RECENTLY ISSUED ACCOUNTING STANDARDS - NEW ACCOUNTING PRONOUNCEMENT

The Company will adopt in the fiscal year ending December 31, 1997,
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"), which was issued in February 1997. SFAS No. 128 requires disclosure
of basic earnings per share ("EPS") and diluted EPS, which replaces the existing
primary EPS and fully diluted EPS, as defined by APB No. 15. Basic EPS is
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the year. Dilutive EPS is computed similar to
EPS as previously reported provided that, when applying the treasury stock
method to common equivalent shares, the Company must use its average share price
for the period rather than the more dilutive greater of the average share price
or end-of-period share price required by APB No. 15.

22
<PAGE>
BUSINESS

GENERAL

The Company is the largest independent payphone service provider ("PSP") in
Minnesota. The Company installed its first payphones in early 1990 and presently
has an installed phone base of approximately 3,000 payphones in 10 states. The
Company has grown its business through the installation of pay telephones in new
areas and through strategic asset acquisitions of payphone routes and related
assets, including 270 payphones located in Minnesota acquired from American
Amusement Arcade in 1993; 85 payphones acquired in Nevada from Telco West in
1995; an additional 1,020 payphones acquired from Telco West in 1997 in Oregon,
Idaho, Colorado, Washington and Wyoming; and, also in 1997, 586 payphones
located in Minnesota and Wisconsin acquired from CAT, together with site
contracts only for the installation of an additional 98 payphones.

INDUSTRY OVERVIEW

In 1996, calls made from pay telephones were estimated at $7 billion in
annual revenues to the United States telecommunications industry. Pay telephones
may be "public," meaning they are owned by LECs, or "independent," meaning they
are owned and operated by companies independent of the LECs, such as the
Company. Of the approximately 2 million pay telephones operating in the United
States in 1996, it is estimated that approximately 350,000 were independent.

Today's telecommunications marketplace was principally shaped by the 1985
AT&T divestiture of the 22 regional Bell operating companies ("RBOCs"), which
provided local telephone services within their areas of operation. The AT&T
divestiture and the many regulatory changes adopted by the FCC and state
regulatory authorities in response to the AT&T divestiture have resulted in the
creation of new business segments in the telecommunications industry. As a
result of the AT&T divestiture, pay telephones may now be owned and operated
independently.

As part of the AT&T divestiture, the United States was divided into
geographic areas known as local access transport areas or "LATAs." Telephone
service that both originates and terminates within the same LATA ("intraLATA")
is priced based on tariffs filed with and approved by state regulatory
authorities. Local exchange carriers ("LECs") provide intraLATA telephone
service to, among others, independent pay telephone companies. LECs are
generally prohibited from offering or deriving revenues or income from services
between LATAs ("interLATA"). In addition, most state regulatory authorities
require LECs to provide local access line service to independent pay telephone
companies. See "Business - Government Regulation."

Long-distance carriers provide interLATA service and, in some circumstances,
may also provide long-distance service within LATAs. An interLATA long-distance
pay telephone call begins with an originating LEC transmitting the call from the
pay telephone that originates the call to a point of connection with a
long-distance carrier. The long-distance carrier, through its owned or leased
switching and transmission facilities, transmits the call across its
long-distance network to the LEC serving the local area in which the recipient
of the call is located. This terminating LEC then delivers the call to the
recipient. Independent PSPs contract with one or more long-distance carriers to
provide long-distance service to their pay telephones.

BUSINESS STRATEGY

The Company has focused on identifying payphone sites that had the potential
to achieve a high return on investment ("ROI") after depreciating the equipment
over the life of the phone lease. Although others in the industry have used
shorter leases, the Company's analysis indicated that a long-term lease was
necessary in order to achieve the Company's ROI objective and to offer a
competitive commission to Site

23
<PAGE>
Providers. Therefore, most of the Company's pay telephones are placed with Site
Providers under leases having terms of five years or more.

The Company's objective is to grow through additional acquisitions and
internally, thereby achieving economies of scale. There are approximately 1,500
independent PSPs nationally. The Company believes that there is a significant
opportunity to consolidate the highly fragmented independent segment of the
payphone industry. Further, independent PSPs, as compared to the RBOCs,
generally have a larger percentage of computer-based, or "smart," phones in
their inventory of pay telephones and their payphones are placed in locations
that generate higher revenue per phone. The Company intends to use the proceeds
from this offering to become a more active consolidator of the independent
payphone market. Management believes that the Company's experience in completing
acquisitions will be instrumental in identifying, negotiating and ultimately
integrating additional acquisitions.

The Company also intends to expand through internal growth. The Company
actively seeks to contract and install additional payphones to increase its
sales in existing markets. The installation of new payphone locations is
generally less expensive, though less predictable, than acquiring existing PSPs.

ACQUISITION AND EXPANSION STRATEGY

The Company believes that the existence of many small independent PSPs
presents acquisition opportunities for the Company. The Company further believes
that management's experience in identifying and negotiating potential
acquisitions and integrating acquired companies into the Company's ongoing
operations will enable it to grow and benefit from the associated economies of
scale.

In reviewing potential acquisition candidates, the Company considers various
factors, including:

1. HISTORICAL AND PRO FORMA FINANCIAL PERFORMANCE

The Company reviews the historical revenues, mix between coin and
non-coin revenue and cash flows of the telephones to be acquired
and analyzes their prospective profitability based upon pro forma
considerations such as lower service and collection expenses,
lower general and administrative expenses, and the more favorable
terms and conditions which the Company may be able to obtain from
long-distance service providers.

2. LOCATION AGREEMENTS

The Company seeks to acquire payphone contracts that are long-term
(five or more years) with automatic renewals at the end of the
term, that are assignable to another company, and which cannot be
canceled by the Site Provider but give the Company the right to
remove the phone if the revenues are insufficient.

3. EQUIPMENT IN SERVICE

There are three primary suppliers of smart phones to PSPs. To
date, the Company has installed only "INTELLICALL" brand payphones
and has acquired only companies using INTELLICALL payphones. This
has allowed the Company to quickly integrate acquired phones into
daily operations. The Company could acquire routes using another
brand's smart phones but it would have to factor in the additional
costs associated with adapting proprietary software, stocking
additional spare parts and training personnel for proficiency on
new equipment.

24
<PAGE>
4. LOCATION AND ECONOMIES OF SCALE

The Company considers the geographic proximity of the payphones to
be acquired to the Company's existing service areas, and the
extent to which the acquisition would provide the Company with
economies of scale through more efficient utilization of coin
collection and service personnel. The Company seeks to enter new
geographic areas that will result in similar economies of scale
through one or more acquisitions.

Installations at new locations are an important part of the Company's
expansion strategy in that pay telephones placed directly with Site Providers,
rather than through acquisition, have historically provided the Company with its
highest returns. The Company has generally been able to add pay telephones at
the rate of 100 phones per year in Minnesota, and anticipates that this rate of
expansion will increase as the Company enters additional markets. Because the
Company's Site Provider base is primarily businesses, the Company regularly
obtains additional pay telephone locations as the Site Providers' respective
businesses grow.

OPERATIONS

The Company operates, services and maintains a system of approximately 3,000
pay telephones in the midwestern and western United States, with approximately
60% of its payphones located in Minnesota. All of the Company's pay telephones
accept coins as payment for local or long-distance calls and can also be used to
place local or long-distance cashless calls.

COIN CALLS

The Company's pay telephones generate coin revenue primarily from local
calls. In all of the states in which the Company's pay telephones are located,
the Company charges the same rates for local coin calls as does the relevant
LEC; in most states that charge is $0.25. The maximum rate LECs and independent
pay telephone companies may charge for local calls is typically set by state
regulatory authorities.

Long-distance coin calls are carried by long-distance carriers that have
agreed to provide long-distance service to the Company's telephones. The
majority of the Company's phones sell coin long-distance for a rate of $0.25 per
minute, with a two minute minimum. This rate is well below U.S. West's rates for
coin long-distance and is significantly less expensive than credit card or
collect long-distance rates. For example, U.S. West charges approximately $3.10
for the first three minutes of a coin long-distance call made in Minnesota, and
AT&T charges $3.30 and $3.50 for the first three minutes of credit card and
collect long-distance calls, respectively, made from public payphones. The
Company offers lower rates to create a better value for price sensitive
consumers and to discourage Dial-Around calling from its phones (as the Company
receives no incremental revenue from users who place long-distance calls through
such services as "1-800-COLLECT" and the many other long-distance providers that
can be accessed through the Company's payphones). However, beginning in October
1997, the Company is scheduled to receive incremental revenue from Dial-Around
calling. See "Government Regulation - Dial-Around Compensation." Management
believes that its $0.25 per minute long-distance rate results in considerable
goodwill and is a point of differentiation between its phones and its LEC
competitors.

NON-COIN CALLS

The Company also receives revenue from non-coin, or cashless, calls made
from its pay telephones, including credit card calls, calling card calls,
collect calls and third-party billed calls. These calls are processed by the
payphone's computer using store and forward technology, or, if a live operator
is requested, then the call is transferred to the Company's designated OSP.

25
<PAGE>
DIAL-AROUND CALLS

A Dial-Around call originates from a payphone when the user dials a
non-billable access number such as, for example, 1-800-Collect, 1-800-CallATT or
10ATT, and thereby dials around the Company's long-distance carrier in order to
reach another long-distance carrier. The user deposits no money for the call
and, prior to 1992, the long-distance provider carrying the call paid no
commission to the payphone owner. Since 1992, payphone owners have been
compensated by long-distance carriers for Dial-Around calls.

COMPUTER NETWORK AND EQUIPMENT. The Company focused its early efforts on
building a computer processing network that automated many of the operations of
managing a pay telephone enterprise. Specialized software was designed and
written when it was not available from industry suppliers. The Company's smart
phones are part of a centralized network that links all of the Company's phones
in the field with central processors. The system allows the Company to monitor
phone call volume, identify malfunctioning equipment, dispatch repair service,
schedule efficient coin collections, calculate commissions, print checks to Site
Providers, rate and process long-distance calls using store and forward
technology, and generate necessary reports that analyze and monitor
profitability of the phones. Management believes that as the Company grows, this
network can be expanded easily with little additional investment in
infrastructure.

The Company installs pay telephones which it believes incorporate the latest
technology. The equipment makes use of microprocessors to provide voice
synthesized calling instructions, detect and count coins deposited during each
call, inform the caller at certain intervals of the time remaining on each call,
and identify the need for and the amount of an additional deposit. The pay
telephones can be programmed and reprogrammed from the Company's central
computer facilities to update rate information or to direct different kinds of
calls to particular carriers. The Company's pay telephones can distinguish coins
by size and weight, report to a remote location the total coinage in the coin
box, perform self-diagnosis and automatically report problems to a
pre-programmed service number, and immediately report attempts of vandalism or
theft. Some of the telephones also operate on power available from the telephone
lines, thereby avoiding the need for and reliance upon an additional power
source at the installation location. The telephones are designed to have a
user-friendly appearance and manner of operation similar to LEC-owned pay
telephones.

The Company's smart phones utilize store and forward technology which
enables the Company to sell credit card, calling card and collect calls through
its own OSP. The store and forward software program provides callers with
instructions communicated by a digitized human voice for entering billing
information, such as a calling card number or a terminating phone number for a
collect call, prior to connecting a call. For example, for a collect call, a
synthesized voice directs the caller to speak his name into the payphone
handset, the caller's response is digitally recorded and played back when the
call is answered at its destination, and the called party is instructed to press
"1" on his telephone to accept the call. The software program also minimizes
fraudulent charges for calling card or credit card calls by automatically
communicating with a credit bureau to verify that the card has not been
identified as a lost, stolen or delinquent card. For a collect call, the
software program can also verify that the number being called is not delinquent.
After verifying the call, the payphone will complete the connection using a
long-distance carrier. When the call is concluded, the software program directs
the billing information, including the date, time and length of the call, the
billed-to-number and the charges for the call, to the Company's computer. Later,
the billing records are sent to a processing agent that bills and collects the
charges. The processing agent keeps a percentage of the billed amount as its
processing fee and remits the balance to the Company. The Company books the net
amount received as non-coin revenue. The Company is billed by the long-distance
carrier for long-distance charges, which charges are only a small percentage of
the amount billed to the customer.

Some of the Company's payphones, primarily those placed in locations that
are not high generators of long-distance calls, do not have store and forward
capability. In addition, customers occasionally request a

26
<PAGE>
live operator even with phones that have the store and forward technology.
Examples of calls requiring live operator assistance include person-to-person
calls and calls billed to a third party. In these situations, the calls are
transferred to an OSP which completes and bills the calls and pays the Company a
commission based on the amount billed. The Company contracts with several OSPs
for this 24-hour a day service. The Company routes all of these calls to a
single OSP to maximize the commission revenue it receives. There are numerous
OSPs available to the Company and the terms offered by them are highly
competitive. In selecting an OSP, the Company considers numerous factors
including the commission offered, the quality of service and the pricing of
calls to customers.

PLACEMENT OF PAY TELEPHONES. As of May 31, 1997, the Company's pay
telephone system consisted of approximately 3,000 telephones located in 10
states. The following table sets forth certain information as of the dates
indicated concerning the number and location of pay telephones operated by the
Company:

NUMBER OF PAY TELEPHONES

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- MAY 31,
STATE 1994 1995 1996 1997(1)
- ------------------------------------------------------------------------ ----- --------- --------- -----------
<S> <C> <C> <C> <C>
Minnesota............................................................... 792 910 1,074 1,741
Oregon.................................................................. -- -- 10 596
Idaho................................................................... -- -- -- 316
Nevada.................................................................. -- 84 112 110
Washington.............................................................. -- -- -- 57
Wisconsin............................................................... 7 7 32 46
New York................................................................ -- -- 12 36
Wyoming................................................................. -- -- -- 33
Colorado................................................................ -- -- -- 23
North Dakota............................................................ -- -- 5 5
--- --------- --------- -----
Total............................................................... 799 1,013(2) 1,219 2,963
--- --------- --------- -----
--- --------- --------- -----
</TABLE>

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

(1) Includes 586 phones owned by CAT, from which the Company derived revenue
pursuant to a Route Service Agreement. The Company acquired such phones in
August 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Acquisitions."

(2) Does not include 12 phones located in Indiana and removed from service in
1996.

The Company's ROI focus has enabled it to profile locations based on the
likely profitability of a location. While this methodology is proprietary, as
are the specific locations under contract, the Company's locations include a
wide variety of establishments, such as restaurants, shopping malls, convenience
stores, grocery stores, gas stations and schools. The Company's pay telephone
lease mix includes indoor phones, walk-up outdoor phones and drive-up payphones.
While no single Site Provider accounted for more than 5% of the Company's pay
telephones or revenue in the six months ended June 30, 1997, the Company had a
single Site Provider that accounted for more than 5% of its pay telephones and
revenue in the years ended December 31, 1995 and 1996.

Agreements with Site Providers to install the Company's pay telephones (the
"Site Agreements") provide for revenue sharing with Site Providers, typically a
commission based on a negotiated percentage of revenue from the pay telephone.
The Site Agreements give the Company the exclusive right to install pay
telephones at that location and are generally of a five-year or greater term
with automatic renewal provisions. The Company's Site Agreements normally give
the Company the right to remove poor performing phones. Further, the Company can
typically terminate a Site Agreement on 30 days' notice to the Site Provider.
The Site Provider does not generally have the right to terminate a Site
Agreement.

27
<PAGE>
PHONE LINE RATES. The Company pays local line charges for each of its
installed payphones. These line charges cover basic service to the telephone as
well as the transport of local calls. The Company's business model has always
been based on ROI and thus is highly influenced by the line rate charged by
LECs, primarily U.S. West. Pay telephones are regulated by state PUCs and
generally can be connected only to a Public Access Line ("PAL"). When the
Company commenced operations, the PAL rate in effect resulted in an average
phone bill of about $130 per month per phone. In order to achieve its ROI
objective, the Company targeted high volume phones. In 1992, the MNPUC reduced
the tariff for PALs, which resulted in an average cost reduction of about $20
per phone per month, allowing the Company to include slightly lower volume
phones in its network and still achieve its ROI objective. In April 1996, CI was
approved to purchase telephone lines which U.S. West sells at a monthly rate of
$52 per phone including tax. CI resells those lines to ChoiceTel at this lower
rate which has allowed the Company to increase the profitability of its existing
phones and to reduce the minimum call volume it needs from new phones to achieve
its ROI objective. In May 1997, CI entered into an agreement with U.S. West that
provides CI with a 21.5% reseller discount on the pre-tax cost of telephone
lines in Minnesota, which results in a monthly rate for the Company of $42.50
per phone in such state.

MARKETING. Four of the Company's employees devote substantially all of
their time to locating and contracting with new Site Providers in Minnesota. In
addition, the Company has engaged two independent contractors in Oregon to
locate new sites for payphone installations. A successful contracting program
requires identifying good locations, selling Site Providers on the benefits of
the Company's payphones, and negotiating favorable Site Agreement terms.

Identifying good locations for payphones is the most important aspect of the
Company's marketing program, which includes an evaluation of population density,
calling patterns and neighborhood socio-economic factors. The Company
concentrates its efforts towards high traffic locations, lower income
neighborhoods, and venues where people expect to find payphones.

The Company promotes its payphone program to Site Providers by emphasizing
service and maintenance. Site Providers generally view the payphone as a
customer service rather than a profit center. Providing repair and collection
services during evenings and on weekends and providing 24-hour a day live call
placement assistance sometimes is more important in securing the Site Agreement
than the amount of commission paid to the Site Provider.

SERVICE AND MAINTENANCE. The Company believes it offers many of its Site
Providers a higher level of service than is provided by the LEC competitors, who
typically offer lower commissions and do not monitor payphone performance. The
Company monitors its payphones electronically and offers evening and weekend
repair service for its Minnesota payphones. The Company uses 29 full- and
part-time field service technicians, each of whom collects money, cleans phones
and responds to trouble calls made by either a consumer or by the telephone
itself as part of its internal diagnostic procedures. Many technicians are also
responsible for the installation of new telephones. Due to the ability of the
field service technicians to perform multiple service and maintenance functions,
the Company is able to limit the frequency of trips to each pay telephone as
well as the number of employees needed to service the pay telephones.

GOVERNMENT REGULATION

In 1995, the State of Minnesota passed comprehensive legislation for the
telecommunications industry (the "MN Act"). One provision of the legislation
created the ability for companies to compete with U.S. West in providing local
telephone service. The effect of the legislation for the Minnesota payphone
industry was to immediately decrease the cost of telephone lines. The Company
believes that the increased competition to provide local telephone service may
further reduce the cost of telephone lines.

In January 1996, Congress passed the Telecom Act, a comprehensive
telecommunications bill that, in part, dealt with several concerns of the
independent pay telephone industry. Congress stated that its intent was to
create a "pro-competitive, de-regulatory national policy framework designed to
accelerate rapidly

28
<PAGE>
private sector deployment of advanced telecommunications and information
technologies and services to all Americans by opening all telecommunications
markets to competition." The Telecom Act, among other things, requires local
telephone companies to eliminate subsidies of their pay telephone services and
to treat their own and independent payphones in a nondiscriminatory manner. Of
particular importance to the Company, the Telecom Act addressed the inherently
unfair disadvantage independent pay telephone companies have in competing with
regulated monopolies, the compensation of independent pay telephone companies
for calls made from their equipment that previously offered no compensation, and
the issue of price regulation of local calls by the various state PUCs.

COMPETITION WITH RBOCS. Under the Telecom Act, the RBOCs must operate their
payphone divisions with separate profit and loss statements. The Company
believes that this will likely result in the Company's RBOC competitors
(primarily, U.S. West) being less aggressive in bidding for locations. It also
may result in the RBOCs removing many low volume pay telephones that
collectively compete with the Company's pay telephones and, ultimately, may
result in the RBOCs raising prices for pay telephone calls when allowable under
price deregulation (see "- Deregulation of Local Pay Telephone Rates" below).

DIAL-AROUND COMPENSATION. Pay telephones are required by the FCC to provide
equal Dial-Around access to all long-distance carriers, either by access code
(such as "10ATT") or by 800 service. Prior to November 1996, the Company
received $6 per payphone per month from long-distance carriers for providing
this Dial-Around service. The Telecom Act recognized that it is a burden to
payphone companies to provide such access and that the compensation paid to
payphone companies for this access should be greater. Because the infrastructure
to track and compensate for these calls does not currently exist, the FCC's 1996
order raised the flat rate of compensation for the Dial-Around service to
approximately $45 per payphone per month, based on $0.35 per call (the per call
rate for a local coin call in deregulated states) times the national average of
131 monthly Dial-Around calls placed per payphone. In October 1997, the method
of compensating payphone companies is scheduled to switch to a per call charge
of $0.35 to be tracked and paid by the long-distance carriers and, in November
1998, the per call charge is scheduled to equal the cost of a local pay
telephone call. While the Company is unable to estimate the number of Dial-
Around calls made from its payphones, management believes that there will not be
a material change in the total amount of Dial-Around compensation it receives
when the basis for compensation is switched to a per call rate.

The FCC order implementing the increased Dial-Around compensation was
appealed, with the intent, in part, of decreasing the amount of Dial-Around
compensation mandated by the FCC's 1996 order. The appellate court remanded the
matter to the FCC for reconsideration of the rate of Dial-Around compensation.
The Court of Appeals for the D.C. Circuit found that the per call charge of
$0.35 (which was multiplied by 131 calls to determine the interim rate of
monthly Dial-Around compensation per payphone) was inappropriate because the FCC
did not consider evidence of the differences in the cost of coin calls and
Dial-Around calls. The FCC has solicited comments on the cost differences
between coin calls and Dial-Around calls, and whether the local coin rate,
subject to an offset for expenses unique to those calls, is an appropriate per
call compensation rate for determining the rate of Dial-Around compensation. The
comment period was scheduled to expire on September 9, 1997. In a letter to the
FCC dated August 15, 1997, AT&T challenged the FCC's authority to order the
long-distance carriers to make any payments during the pendency of the rate
determination and stated its intention to make Dial-Around payments voluntarily
based on its imputed rate of $0.12 per call, subject to retroactive adjustments,
up or down, after the FCC's final order on remand. Because the Company cannot be
certain that the rate of Dial-Around compensation will not be reduced
retroactively or in the future, and because the Company believes that the cost
differential between coin calls and Dial-Around calls is no more than $0.05 per
call, it has established a reserve of $109,000 as of June 30, 1997 to cover a
potential decrease in the per call charge from $0.35 to $0.30 retroactive to
November 1996; however, there can be no assurance that a reduction, if any, in
the per call charge used to determine the rate of Dial-Around compensation will
not be greater than $0.05 per call. See "Risk Factors - Pending Determination of
Dial-Around Compensation Rate."

29
<PAGE>
DEREGULATION OF LOCAL PAY TELEPHONE RATES. The FCC also adopted rules
pursuant to the Telecom Act which will repeal on October 7, 1997, all rules
regulating the cost of a local call placed at a payphone and allow the market to
set the rate for local coin calls, unless the state can demonstrate to the
satisfaction of the FCC that there are market failures within the state that
would not allow market-based rates. Management anticipates that when this
deregulation goes into effect, the per call price of pay telephone service will
rise to $0.35 or more. Management bases its belief on the experience in Iowa in
1989 when the price of pay telephone calls was deregulated and U.S. West raised
its price to $0.35. Given the prohibitions on the RBOCs subsidizing their pay
telephone business, and given the large number of low volume RBOC pay telephones
in the marketplace, management believes the RBOCs will have a strong desire to
raise pay telephone rates. However, there can be no assurance that the per call
price of pay telephone service will increase.

COMPETITION

The Company competes for pay telephone locations with LECs and other
independent pay telephone operators. The Company also competes indirectly with
long-distance carriers, which can offer Site Providers commissions on
long-distance calls made from LEC-owned payphones. Most LECs and long-distance
carriers against which the Company competes and some independent pay telephone
companies have substantially greater financial, marketing and other resources
than the Company. In addition, many LECs, faced with competition from the
Company and other independent pay telephone companies, have increased their
compensation arrangements with Site Providers to offer more favorable commission
schedules.

The Company believes the principal competitive factors in the pay telephone
business are (i) responsiveness to customer service needs, (ii) the amount of
commission payments to a Site Provider and the opportunity for a Site Provider
to obtain commissions on both local and long-distance calls from the same
company, (iii) the quality of service and the availability of specialized
services provided to a Site Provider and telephone users, and (iv) the ability
to serve accounts with locations in several LATAs or states. The Company
believes that independent pay telephone operators have an advantage over LECs in
that they can offer Site Providers commissions on coin and cashless local and
long-distance calls. Most LECs are prohibited from obtaining revenues or
commissions on interLATA long-distance telephone calls and, consequently,
generally only pay commissions to Site Providers for local and intraLATA calls.
Under the Telecom Act, this prohibition will be removed at such time as
sufficient competition for local telephone service has been established.

Opening the local telephone markets to competition will likely reduce
telephone line charges, the Company's largest operating expense. In most of the
areas where the Company operates, it must purchase local telephone service from
a single regulated monopoly (primarily, U.S. West). As AT&T, MCI, Sprint and
others compete to offer local telephone service, telephone line charges are
expected to decline. In addition, the Company expects that its high number of
telephone lines will give it the ability to negotiate additional volume
discounts.

Technological advances and cost efficiencies underlie a continuing increase
in the transmission of voice messages. More telephone calls are being made
because the manner, means and cost of completing a call have improved. With the
advent of call waiting and caller I.D., and as the number of answering machines,
voice mail systems, pagers and cellular phones increases, the likelihood of a
telephone call being made also increases due to the perceived certainty that a
message can be communicated even if the intended recipient may not be reached
directly. Accordingly, as the means and desire to communicate by telephone
increase, the Company anticipates that its payphones will experience increased
usage.

30
<PAGE>
EMPLOYEES

As of May 31, 1997, the Company had 31 employees, 26 of whom were full-time.
No employees are covered by a collective bargaining agreement. The Company
believes that its relationships with employees are good.

PROPERTIES

The Company's corporate offices are located in approximately 5,000 square
feet of leased space in Plymouth, Minnesota. The lease for this property expires
in May 2000 and the Company has two successive options to extend the lease for
additional one-year periods. The Company also leases approximately 2,250 square
feet of warehouse and office space in Lake Oswego, Oregon, pursuant to a lease
which expires in July 1998, subject to the exercise by the Company of two
successive options to extend the lease for additional one-year periods. The
Company believes that its current facilities are sufficient for its needs for
the foreseeable future.

LEGAL PROCEEDINGS

MINNESOTA SALES TAX. The Company, based on an analysis of the published
regulations of the Minnesota Department of Revenue, has not remitted any sales
tax payments to the State of Minnesota. In 1996, the Company learned that the
opinion of the Department was that coin-operated payphone receipts were subject
to state sales tax. Despite the Department's position, management is still of
the view that the Company is not subject to sales tax, and the Company is
challenging the imposition of the tax. The Company retained special tax counsel
to contest the Department's position that coin-operated payphone receipts are
subject to sales tax. Nonetheless, the Company has established a reserve of
$975,140 as of June 30, 1997, to provide for the potential sales tax liability.
See the Combined Financial Statements of the Company and notes thereto set forth
elsewhere in this Prospectus.

CLAIM FOR REFUND OF OVERPAYMENT. Prior to enactment of the MN Act which
facilitated increased competition in the telecommunications industry, U.S. West
had required, with MNPUC approval, that PSPs purchase PALs at approximately
twice the cost of business lines even though business lines and PALs were
essentially the same. Beginning in August 1995, LECs could no longer restrict
the resale of its products, and the Company, along with other Minnesota
independent PSPs, requested to purchase for resale from U.S. West regular
business lines for its payphones. U.S. West refused the request on the grounds
that its requirement that PSPs use PALs had, prior to the enactment of the law,
been approved by the MNPUC. In November 1996, the MNPUC concluded that the law
did entitle PSPs to use business lines in place of PALs and ordered U.S. West to
convert the lines to business lines within 60 days. The MNPUC, however, did not
require U.S. West to refund the difference in costs collected during the period
from August 1995 until October 1996. Even though the Company was able to
purchase business lines through CI starting in the summer of 1996, it estimates
that it has overpaid U.S. West approximately $450,000. In April 1997, the
Company, together with other Minnesota independent PSPs, initiated an action in
the Minnesota Court of Appeals requesting the Court to order the MNPUC to order
U.S. West to refund the overpayment. Oral arguments have been scheduled for
October 8, 1997.

31
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the Company's
executive officers and directors as of August 15, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ------------------------------------------------------
<S> <C> <C>
Gary S. Kohler 40 Chairman of the Board of Directors
Jeffrey R. Paletz 41 President and Director
Melvin Graf 42 Executive Vice President, Secretary and Director
Jack S. Kohler 42 Vice President and Chief Financial Officer
Dustin Elder 28 Vice President
Robert A. Hegstrom 55 Director
</TABLE>

GARY S. KOHLER is a founder and has served as Chairman of the Board of
Directors of the Company since its inception in 1989. Mr. Kohler joined
Tarmachan Capital Management, an investment management firm, in July 1997. Prior
to that and since 1984, he was employed as Vice President of Okabena Company, a
private holding company. Mr. Kohler serves on the board of Northwest Mortgage
Services, Inc. Mr. Kohler has an M.B.A. from Cornell University and a B.A. from
the University of Minnesota. Mr. Kohler is the brother of Jack S. Kohler.
JEFFREY R. PALETZ is a founder of the Company, has been a director since its
inception and has been President since 1993, overseeing all operations of the
Company. Prior to founding the Company in 1989, Mr. Paletz was employed for 13
years at Sportsman's Guide, a mail order retailer, where he oversaw the computer
data operations. Mr. Paletz has a B.S. degree in Business from the University of
Minnesota.
MELVIN GRAF is a founder of the Company, has been a director since its
inception and has been Executive Vice President and Secretary since 1993,
overseeing all marketing and leasing activities. Mr. Graf served as President of
the Company until 1993. Prior to founding the Company in 1989, Mr. Graf was
President of Network Travel, a Minneapolis travel agency, for five years. Mr.
Graf has a B.S. degree in Business from the University of Minnesota.

JACK S. KOHLER has been Vice President and Chief Financial Officer of the
Company since 1993. Prior to joining the Company, Mr. Kohler was employed for 13
years in various management and accounting positions at Cargill, Inc., where he
most recently served in the internal audit division. Mr. Kohler has a B.S.
degree in Accounting from the University of Minnesota. Mr. Kohler is the brother
of Gary S. Kohler.
DUSTIN ELDER became a Vice President of the Company in August 1997. Mr.
Elder had been President of CAT for three years prior to joining the Company.
Prior to that, he was a student at the University of Iowa.

ROBERT A. HEGSTROM became a director of the Company in June 1997. In January
1997, Mr. Hegstrom joined Northwest Mortgage Services, Inc. as Chairman,
President and Chief Executive Officer. Prior to that, he was a private investor
for two years and, from December 1991 to January 1995, he was Executive Vice
President of Green Tree Financial Corporation.

DIRECTORS' COMPENSATION. No cash compensation is paid to the Company's
directors. Upon the completion of this offering, each independent, non-employee
director (currently, only Robert A. Hegstrom) will receive an option to purchase
$75,000 of Common Stock, valued as of the date of grant, at the first meeting
thereafter of the Company's Board of Directors and upon each subsequent annual
re-election. The dollar value of the options was determined by the Company to be
the amount necessary to attract and retain qualified independent directors. The
options will be issued pursuant to the Company's 1997 Long-Term Incentive and
Stock Option Plan, will be exercisable upon grant and will have five-year terms
and exercise prices equal to the fair market value of the Common Stock as of the
date of grant. No options will be issued to employee directors for their service
as directors.

32
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION. The Company's Articles of
Incorporation limit the liability of its directors to the fullest extent
permitted by the Minnesota Business Corporation Act ("MBCA"). Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of fiduciary duty as directors, except for (i) any breach of the duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith or that involved intentional misconduct or a knowing violation of law,
(iii) dividends or other distributions of corporate assets that are in
contravention of certain statutory or contractual restrictions, (iv) violations
of certain Minnesota securities laws, or (v) any transaction from which the
director derives an improper personal benefit. Liability under federal
securities law is not limited by the Articles of Incorporation.

The MBCA requires that the Company indemnify any director, officer or
employee made or threatened to be made a party to a proceeding, by reason of the
former or present official capacity of the person, against judgments, penalties,
fines, settlements and reasonable expenses incurred in connection with the
proceeding if certain statutory standards are met. "Proceeding" means a
threatened, pending or completed civil, criminal, administrative, arbitration or
investigative proceeding, including a derivative action in the name of the
Company. Reference is made to the detailed terms of the Minnesota
indemnification statute (Section 302A.521 of the MBCA) for a complete statement
of such indemnification right. The Company's Bylaws also require the Company to
provide indemnification to the fullest extent of the Minnesota indemnification
statute.

Indemnification under the foregoing arrangements may be available for
liabilities arising in connection with this offering. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted for directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company is aware that in the opinion of the Securities and
Exchange Commission (the "SEC") such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

OFFICERS' COMPENSATION. The following table summarizes the compensation for
services rendered by the Company's President paid or accrued by the Company
during 1996. No executive officer of the Company earned or was paid salary and
bonus exceeding $100,000 in any fiscal year. The Company did not grant any
restricted stock awards or stock appreciation rights or make any long-term
incentive plan payouts to the named officer during 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
NAME AND POSITION FISCAL YEAR SALARY BONUS
- ---------------------------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
Jeffrey R. Paletz, President.................................... 1996 $ 70,000 $ 10,000
</TABLE>

BONUS PROGRAM. The Company has implemented the 1997 Incentive Compensation
Plan to provide an opportunity for executive officers and other Company
employees to receive a bonus based on individual and Company performance. The
maximum bonus for any executive officer will be 40% of annual salary. The bonus
opportunity for Jeffrey R. Paletz, the Company's President, depends on the
completion of this offering and achieving the Company's target earnings per
share. The bonus opportunities for other executive officers also depend on the
completion of this offering, as well as the success rate for new installations
of payphones and the number of completed acquisitions. The bonus opportunity for
other Company employees is discretionary and not subject to specific criteria.

STOCK OPTION PLAN. Under the terms of the Company's 1997 Long-Term
Incentive and Stock Option Plan (the "Stock Option Plan"), all of the directors,
officers, other employees and consultants of the Company are eligible to receive
options to purchase shares of the Company's Common Stock as part of their
compensation package. No such options had been granted as of July 31, 1997.

The Board of Directors adopted the Stock Option Plan on April 17, 1997, and
the shareholders approved it on April 18, 1997. The Stock Option Plan provides
for the grant both of incentive stock options

33
<PAGE>
intended to qualify for preferential tax treatment under Section 422 of the
Internal Revenue Code of 1986, as amended, and nonqualified stock options that
do not qualify for such treatment. The exercise price of incentive stock options
must equal or exceed the fair market value of the Common Stock at the time of
grant. The exercise price of non-qualified stock options must equal or exceed
85% of the fair market value of the Common Stock at the time of grant. The Stock
Option Plan also provides for grants of stock appreciation rights, restricted
stock awards and performance awards and allows for the grant of restoration
options.

The Compensation Committee of the Board of Directors will administer the
Stock Option Plan, subject to approval of the Board. A total of 100,000 shares
of Common Stock are reserved for issuance under the Stock Option Plan. Incentive
stock options may be granted under the Stock Option Plan only to any full or
part-time employee of the Company (including officers and directors who are also
employees). Full or part-time employees, directors who are not employees, and
consultants and independent contractors to the Company are eligible to receive
options which do not qualify as incentive stock options, as well as other
awards. In determining the persons to whom options and awards shall be granted
and the number of shares subject to each, the Board of Directors may take into
account the nature of services rendered by the respective employees or
consultants, their present and potential contributions to the success of the
Company, and such other factors as the Board of Directors in its discretion
shall deem relevant.

The Board of Directors may amend or discontinue the Stock Option Plan at any
time but may not, without shareholder approval, make any revisions or amendments
to the Stock Option Plan that increase the number of shares subject to the Stock
Option Plan, decrease the minimum exercise price, extend the maximum exercise
term, or modify the eligibility requirements. The Board of Directors may not
alter or impair any award granted under the Stock Option Plan without the
consent of the holder of the award. The Stock Option Plan will expire April 15,
2007.

Pursuant to the terms of the Stock Option Plan, appropriate adjustments to
the Stock Option Plan and outstanding options will be made in the event of
changes in the Common Stock through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, or other change in corporate
structure.

EMPLOYMENT AGREEMENTS. The Company has entered into employment agreements
with Jeffrey R. Paletz, Melvin Graf and Jack S. Kohler effective April 15, 1997,
and an employment agreement with Dustin Elder effective August 14, 1997, all of
which provide for an initial term expiring in April 1999, with automatic
one-year renewals. The agreements provide a base salary (including a base salary
of $6,449 per month for Mr. Paletz) and the right to receive additional
compensation in the form of salary, bonus and other benefits as the Board of
Directors shall determine in its sole discretion. The agreements prohibit each
officer from competing against the Company for a period of one year after
employment ceases and from communicating with a Site Provider until six months
following expiration of the Site Agreement. In the event of termination of the
officer's employment, except a termination for cause, the terminated officer is
entitled to receive full compensation and benefits for a six-month period.

34
<PAGE>
CERTAIN TRANSACTIONS
The Company has an arrangement with Gary S. Kohler, the Company's Chairman
of the Board, pursuant to which Mr. Kohler advises the Company's management on
an as-needed basis. The consulting fees paid to Mr. Kohler for rendering this
service for the year ended December 31, 1996, totaled $16,000. Currently, the
monthly fee paid for Mr. Kohler's consulting services is $2,000.

The Company has borrowed money from members of the Topp family (or a trust
for the benefit thereof), who are in-laws of Gary S. Kohler. The two outstanding
loans are evidenced by promissory notes dated July 7 and 27, 1996, respectively,
copies of which are filed as exhibits to the Registration Statement. The notes,
in the aggregate principal amount of $114,669.45, bear interest at the rate of
12% per annum and mature on February 7, 1998, and September 27, 1997,
respectively.

At June 30, 1997, the Company had subscription receivables from officers in
the aggregate amount of $18,581. Of such amount, $8,581 is due from Jeffrey R.
Paletz in connection with the purchase of 171,428 shares of Common Stock in 1989
and $10,000 is due from Melvin Graf in connection with the purchase of 200,000
shares in 1989. Messrs. Paletz and Graf have agreed to pay the subscription
receivables, plus 6% simple interest accruing from 1989, within one year of the
date of this Prospectus.

It is the Company's policy that it not engage in any future material
transactions with officers, directors or beneficial holders of 5% or more of the
Company's Common Stock, or affiliates of such persons, unless the terms of any
such transaction are no less favorable to the Company than those that could be
obtained from unaffiliated third parties and are approved by a majority of the
Company's independent directors who do not have an interest in the transaction
and who have had access, at the Company's expense, to the Company's or
independent legal counsel. Further, the Company will not make loans to officers
and directors, or their affiliates, for the purpose of purchasing securities
from the Company.

35
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth certain information as of July 31, 1997 with
respect to the beneficial ownership of the Company's Common Stock by (i) each
director of the Company, (ii) all directors and executive officers of the
Company as a group, and (iii) each shareholder who owns more than 5% of the
outstanding shares of the Company's Common Stock. Except as otherwise indicated,
the Company believes each of the persons listed below possesses sole voting and
investment power with respect to the shares indicated. Beneficial ownership
means the shareholder has voting or investment power with respect to the shares.
Shares of the Company's Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days are deemed outstanding for computing
the percentage of the person holding such options or warrants, but are not
deemed outstanding for computing the percentage of any other person.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENTAGE OF SHARES BENEFICIALLY
OWNED OWNED(1)
--------------- ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(2)(3) BEFORE OFFERING AFTER OFFERING
- ------------------------------------------------ ----------------- ---------------
<S> <C> <C> <C>
Gary S. Kohler(4)(5)............................ 1,032,784 53.5% 37.8%
Jeffrey R. Paletz............................... 347,398 18.0% 12.7%
Melvin Graf(6).................................. 213,334 11.1% 7.8%
Jack S. Kohler(5)(7)............................ 327,500 17.0% 12.0%
Robert A. Hegstrom.............................. 0 -- --
All directors and executive officers
as a group (5 persons)(4)(5)(6)(7)............. 1,721,016 87.0% 61.9%
</TABLE>

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

(1) Based on 1,928,766 shares of Common Stock outstanding prior to the offering
and 2,728,766 shares outstanding after the offering. Does not include
186,240 shares issued in August 1997 in connection with the CAT acquisition
or up to 55,880 shares issuable upon converision of a note issued in
connection with such acquisition, or the 800,000 additional shares of Common
Stock issuable upon exercise of the Redeemable Warrants.

(2) The address of each shareholder listed is c/o ChoiceTel Communications,
Inc., 9724 10th Avenue North, Plymouth, Minnesota 55441.

(3) Does not include Dustin Elder, who became an executive officer of the
Company after the date as of which information is presented. In August 1997,
in connection with the CAT acquisition, Mr. Elder acquired 39,240 shares of
the Company's Common Stock and options to purchase 50,000 shares, 20,000 of
which are exercisable within 60 days.

(4) The figure includes 40,000 shares held by Gary S. Kohler as custodian for
the benefit of his children.

(5) The figure includes 200,000 shares currently owned by Gary S. Kohler, who
has granted an option to Jack S. Kohler, available for exercise within 60
days, to purchase such shares.

(6) The figure includes 13,334 shares of Common Stock held in the name of the
wife of Melvin Graf.

(7) The figure includes options granted to Jack S. Kohler by the Company,
available for exercise within 60 days, to purchase 50,000 shares.

36
<PAGE>
SECURITIES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 2,915,006 shares of
Common Stock outstanding not including the additional 800,000 shares of Common
Stock issuable upon exercise of the Redeemable Warrants or up to 55,880 shares
issuable upon conversion of a note issued in connection with the CAT acquisition
in August 1997. In addition, the Company has reserved 222,500 shares of Common
Stock for issuance pursuant to options (consisting of outstanding options
covering 122,500 shares and options for up to 100,000 shares which may be
granted pursuant to the Stock Option Plan), 80,000 shares of Common Stock
comprising part of the Units issuable upon exercise of the Underwriter's Warrant
and 80,000 shares issuable upon exercise of the Redeemable Warrants comprising
part of the Units subject to the Underwriter's Warrant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Recent Acquisitions," "Management - Stock Option Plan" and "Underwriting." Of
the outstanding shares of Common Stock after this offering, the 800,000 shares
of Common Stock included in the Units offered hereby may be resold without
restriction under the Securities Act, except that any of such shares purchased
in the offering by "affiliates" of the Company, as the term is defined in Rule
144 adopted under the Securities Act ("Affiliates"), may generally be resold
only in compliance with applicable provisions of Rule 144. The remaining
2,115,006 shares of Common Stock held by the existing shareholders are
"restricted" securities within the meaning of Rule 144. Restricted securities
and securities held by Affiliates of the Company may not be sold unless the sale
is registered under the Securities Act or is made pursuant to an applicable
exemption from registration, including an exemption pursuant to Rule 144.

In general, under Rule 144, beginning 90 days after the date of this
Prospectus, a shareholder, including an Affiliate, who has beneficially owned
his or her restricted securities for at least one year from the later of the
date such securities were acquired from the Company, or (if applicable) the date
they were acquired from an Affiliate, is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock (approximately 29,150
shares immediately after this offering) or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the date on
which notice of such sale is filed under Rule 144. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. In addition, under
Rule 144(k), if a period of at least two years has elapsed between the later of
the date restricted securities were acquired from the Company or the date they
were acquired from an Affiliate, a shareholder who is not an Affiliate of the
Company at the time of sale and has not been an Affiliate of the Company for at
least three months prior to the sale would be entitled to sell the shares
immediately without compliance with the volume limitations, manner of sale
provisions, notice or public information requirements.

Beginning 90 days after the date of this Prospectus, 1,693,016 shares of
Common Stock will be eligible for sale in the public market under Rule 144, of
which 1,676,016 are subject to the volume limitations and other requirements
described above. Notwithstanding the above, Gary S. Kohler, Jeffrey R. Paletz,
Melvin Graf, Jack S. Kohler and Dustin Elder, who in the aggregate beneficially
own 1,710,256 outstanding shares of Common Stock and options to acquire an
additional 300,000 shares (which includes 200,000 shares that are currently
outstanding), have agreed that, without the Underwriter's prior written consent,
they will not sell or transfer any shares of Common Stock during the period
ending one year after the date of this Prospectus nor sell or transfer more than
10% of the shares of Common Stock which they own during the period beginning one
year and ending two years after the date of this Prospectus. As a condition of
the underwriting, the Company's other shareholders, who own 404,750 shares of
Common Stock, must agree that they will not, without the Underwriter's prior
written consent, sell or transfer any shares of Common Stock during the period
ending six months after the date of this Prospectus. Additional shares of Common
Stock may also become available for sale in the public market from time to time
in the future, including the shares of Common Stock issuable upon exercise of
the Redeemable Warrants.

Prior to this offering, there has been no public market for the Common
Stock, and no predictions can be made of the effect, if any, that sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market or the perception that such sales could occur
may adversely affect prevailing market prices and may impair the Company's
future ability to raise capital through the public sale of its Common Stock.

37
<PAGE>
DESCRIPTION OF SECURITIES

GENERAL

The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, par value $0.01 per share, and 5,000,000 shares of undesignated
Preferred Stock, par value $0.01 per share (the "Preferred Stock"). As of July
31, 1997, there were issued and outstanding 1,928,766 shares of Common Stock
which were held by 16 shareholders of record, and 72,500 shares of Common Stock
reserved for issuance upon exercise of outstanding options (not including an
option to purchase 50,000 shares issued in August 1997 in connection with the
CAT acquisition). In addition, 100,000 shares were reserved for issuance under
the Stock Option Plan, 186,240 shares were reserved for issuance in connection
with the CAT acquisition which was completed in August 1997 and up to 55,880
shares were reserved for issuance upon conversion of a note issued in connection
therewith, 80,000 shares of Common Stock comprising part of the Units issuable
upon exercise of the Underwriter's Warrant were reserved for issuance in
connection therewith and 80,000 shares were reserved for issuance upon exercise
of the Redeemable Warrants comprising part of the Units subject to the
Underwriter's Warrant. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Acquisitions," "Management - Stock
Option Plan" and "Underwriting." No shares of Preferred Stock were outstanding
as of July 31, 1997. There will be 2,728,766 shares of Common Stock issued and
outstanding upon completion of this offering (not including 186,240 shares
issued in August 1997 in connection with the CAT acquisition) and an additional
800,000 shares will be issuable upon exercise of the Redeemable Warrants
(assuming the over-allotment option is not exercised). The exercise prices for
the Company's outstanding options range from $1.50 to $4.00 per share (not
including the exercise price of $6.75 per share for vested options issued in
August 1997 in connection with the CAT acquisition or the exercise prices of
non-vested options issued in connection therewith which will be determined as of
the vesting dates).

COMMON STOCK

There are no preemptive, subscription, conversion or redemption rights
pertaining to the shares of Common Stock and no sinking fund provisions
applicable thereto. The absence of preemptive rights could result in the
dilution of the interests of existing shareholders should additional shares of
Common Stock be issued. Subject to preferences that may be applicable to any
outstanding Preferred Stock, holders of shares of Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
assets legally available therefor, and to share ratably, in proportion to the
number of shares held, in the assets of the Company available upon liquidation,
dissolution or winding up of the affairs of the Company after payment of all
prior claims.

Each share of Common Stock is entitled to one vote for all purposes, and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than fifty percent of all of the outstanding shares of
Common Stock can elect all of the directors. Significant corporate transactions
such as amendments to the articles of incorporation, mergers, sales of assets
and dissolution or liquidation require approval by the affirmative vote of the
majority of the outstanding shares of Common Stock. Other matters to be voted
upon by the holders of Common Stock normally require the affirmative vote of a
majority of the shares present at the particular shareholders meeting. Officers
and directors will own approximately 60% of the outstanding Common Stock upon
completion of this offering and, therefore, will continue to be able to elect
all of the directors of the Company and to control the Company's affairs,
including, without limitation, the sale of equity or debt securities of the
Company and the appointment of officers. The outstanding shares of Common Stock
are, and the shares of Common Stock included in the Units offered hereby and the
shares of Common Stock issuable upon exercise of the Redeemable Warrants
included in the Units offered hereby will be, fully paid and non-assessable.

38
<PAGE>
PREFERRED STOCK

The Articles of Incorporation authorize the Company's Board of Directors,
without further shareholder action, to issue up to 5,000,000 shares of Preferred
Stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, repurchase rights, conversion rights, redemption
rights and terms, including sinking fund provisions, and certain other rights
and preferences, of the Preferred Stock. Although there is currently no
intention to do so, the Board of Directors of the Company may, without prior
shareholder approval, issue shares of a class or series of Preferred Stock with
voting and conversion rights which could adversely affect the voting power or
dividend rights of the holders of Common Stock and may have the effect of
delaying, deferring or preventing a change in control of the Company.

REDEEMABLE WARRANTS

WARRANT AGREEMENT. The Redeemable Warrants included as part of the Units
offered hereby will be issued under and governed by the provisions of the
Warrant Agreement between the Company and Norwest Bank Minnesota, National
Association, as Warrant Agent. A copy of the Warrant Agreement has been filed as
an exhibit to the Registration Statement. The following statements are summaries
of certain provisions contained therein, are not complete, and are qualified in
their entirety by reference to the Warrant Agreement.

The shares of Common Stock and the Redeemable Warrants offered as part of
the Units are detachable and are separately transferable following their
issuance. One Redeemable Warrant entitles the holder ("Warrantholder") thereof
to purchase one share of Common Stock during the five years following the
Effective Date of this Prospectus. Each Redeemable Warrant will be exercisable
at a price equal to $9.50 per share, subject to adjustment as a result of
certain events. Any time 120 or more days after the Effective Date of this
Prospectus, the Redeemable Warrants are redeemable, in whole but not in part, by
the Company at a redemption price of $0.01 per Redeemable Warrant on not less
than 30 days' written notice, provided that the closing bid price of the Common
Stock exceeds $10.00 per share (subject to adjustment) for any 10 consecutive
trading days prior to such notice. Holders of Redeemable Warrants may exercise
their rights until the close of business on the date fixed for redemption,
unless extended by the Company.

Warrantholders as such are not entitled to vote, receive dividends or
exercise any of the rights of holders of shares of Common Stock for any purpose
until such Redeemable Warrants have been duly exercised and payment of the
purchase price has been made. The Redeemable Warrants are in registered form and
may be presented for transfer, exchange or exercise at the corporate office of
the Warrant Agent. Although the Company has applied for listing of the
Redeemable Warrants on The Nasdaq SmallCap Market, there is currently no
established market for the Redeemable Warrants, and there is no assurance that
any such market will develop.

The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Redeemable
Warrants to protect Warrantholders against dilution in certain events, including
stock dividends, stock splits and any combination of Common Stock. In the event
of the merger, consolidation, reclassification or disposition of substantially
all the assets of the Company, the holders of the Redeemable Warrants are
entitled to receive, upon payment of the exercise price therefor, the securities
or property of the Company or the successor corporation resulting from such
transaction that such holders would have received had they exercised such
Redeemable Warrants immediately prior to such transaction.

REGISTRATION. The Company has sufficient shares of Common Stock authorized
and reserved for issuance upon exercise of the Redeemable Warrants, and such
shares when issued will be fully paid and nonassessable. The Company must have a
current registration statement on file with the SEC and, unless exempt
therefrom, with the securities authority of the state in which the Warrantholder
resides, in order for the Warrantholder to exercise his or her Redeemable
Warrants and obtain shares of Common Stock

39
<PAGE>
free of any transfer restrictions. The shares so reserved for issuance upon
exercise of the Redeemable Warrants are registered pursuant to the Registration
Statement. Furthermore, the Company has agreed to use its best efforts to
maintain the effectiveness of the Registration Statement (by filing any
necessary post-effective amendments or supplements thereto) throughout the term
of the Redeemable Warrants with respect to the shares of Common Stock issuable
upon exercise thereof. The Company will incur significant legal and other
related expenses in order to keep the Registration Statement current. However,
there can be no assurance that the Company will be able to keep the Registration
Statement current or that the Registration Statement will be effective at the
time a Warrantholder desires to exercise his or her Redeemable Warrants.
Additionally, the Company has agreed to use it best efforts to maintain
qualifications in those states where the Units were originally qualified for
sale to permit exercise of the Redeemable Warrants and issuance of shares of
Common Stock upon such exercise in such states. However, there can be no
assurance that any such qualification will be effective at the time a
Warrantholder desires to exercise his or her Redeemable Warrants. If for any
reason the Registration Statement is not kept current, or if the Company is
unable to maintain the qualification of the Common Stock underlying the
Redeemable Warrants for sale in particular states, Warrantholders in those
states, absent an applicable exemption, must either sell such Redeemable
Warrants or let them expire.

EXERCISE. The Redeemable Warrants may be exercised upon surrender of the
certificate therefor on or prior to the expiration date (or earlier redemption
date) at the corporate office of the Warrant Agent, with the form of "Election
to Purchase" on the reverse side of the certificate filled out and executed as
indicated, accompanied by payment of the full exercise price (by certified or
cashier's check payable to the order of the Company) for the number of
Redeemable Warrants being exercised.

For the term of the Redeemable Warrants, the Warrantholders are given the
opportunity to profit from a rise in the market price of the Company's Common
Stock with a resulting dilution in the interest of the Company's shareholders.
During such term, the Company may be deprived of opportunities to sell
additional equity securities at a favorable price. The Warrantholders may be
expected to exercise their Redeemable Warrants at a time when the Company would,
in all likelihood, be able to obtain equity capital by a sale or a new offering
on terms more favorable to the Company than the terms of the Redeemable
Warrants.

TAX CONSIDERATIONS. The following summary is based on present federal
income tax law and interpretations thereof, all of which are subject to change
or modification. The discussion is limited to the federal income tax matters
discussed below and does not include all of the federal income tax
considerations relevant to each investor's personal tax situation. Investors
should consult their own tax advisers with respect to the matters discussed
below and with respect to other federal and state tax considerations that may be
applicable to their own personal tax situation.

The cost basis of the Units will be the purchase price paid by each
investor. Purchasers of Units will be required to allocate the price paid for
such Units between the shares of Common Stock and the Redeemable Warrants based
on their relative fair market values on the date of purchase. Upon exercise of
the Redeemable Warrants, the Warrantholder's cost basis in the shares of Common
Stock thus acquired will be the original purchase price allocable to the
Redeemable Warrants plus any additional amount paid upon the exercise. No gain
or loss will be recognized by such holder upon exercise of the Redeemable
Warrants. However, gain or loss will be recognized upon the subsequent sale or
exchange of the shares of Common Stock acquired upon exercise of the Redeemable
Warrants. Gain or loss also will be recognized upon the sale or exchange of the
Redeemable Warrants. Generally, gain or loss will be long- or short-term capital
gain or loss, depending on how long the shares of Common Stock or the Redeemable
Warrants are held. If the Redeemable Warrants are exercised, the holding period
of the Common Stock will not include the period during which the Redeemable
Warrants were held.

40
<PAGE>
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Under the Company's Articles of Incorporation, upon completion of this
offering and assuming no exercise of the Redeemable Warrants, there will be
12,084,994 shares of Common Stock available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital or to facilitate corporate acquisitions. Except for the up to 55,880
shares of Common Stock issuable upon conversion of a note issued in connection
with a recent acquisition, the Company does not currently have any plans to
issue additional shares of Common Stock (other than shares that may be issued
upon exercise of the Redeemable Warrants, the Underwriter's Warrant, outstanding
options and options which may be granted to the Company's officers, directors
and employees pursuant to the Stock Option Plan). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Recent
Acquisitions," "Management - Stock Option Plan" and "Underwriting."

One of the effects of the existence of unissued and unreserved Common Stock
is that the Board of Directors could issue shares to persons likely to support
current management and thereby protect the continuity of the Company's
management. Such additional shares could also be used to dilute the stock
ownership of persons seeking to obtain control of the Company.

PROVISIONS OF THE COMPANY'S ARTICLES AND BYLAWS AND THE MINNESOTA BUSINESS
CORPORATION ACT

The existence of authorized but unissued stock, as described above, and
certain provisions of the Company's Articles of Incorporation and Bylaws and of
Minnesota law, as described below, could have anti-takeover effects. These
provisions are intended to provide management flexibility, to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and to
discourage an unsolicited takeover of the Company if the Board of Directors
determines that such a takeover is not in the best interests of the Company and
its shareholders. However, these provisions could have the effect of
discouraging certain attempts to acquire the Company, which could deprive the
Company's shareholders of opportunities to sell their shares of Common Stock at
prices higher than prevailing market prices. Such provisions may also have the
effect of preventing changes in the management of the Company.

Section 302A.671 of the MBCA applies, with certain exceptions, to any
acquisition of voting stock of the Company (from a person other than the
Company, and other than in connection with certain mergers and exchanges to
which the Company is a party) resulting in the beneficial ownership of 20% or
more of the voting stock then outstanding. Section 302A.671 requires approval of
any such acquisitions by a majority vote of the shareholders of the Company
prior to its consummation. In general, shares acquired in the absence of such
approval are denied voting rights and are redeemable at their then fair market
value by the Company within 30 days after the acquiring person has failed to
give a timely information statement to the Company or the date the shareholders
voted not to grant voting rights to the acquiring person's shares.

Section 302A.673 of the MBCA generally prohibits any business combination by
the Company, or any subsidiary of the Company, with any shareholder which
purchases 10% or more of the Company's voting shares (an "interested
shareholder") within four years following such interested shareholder's share
acquisition date, unless the business combination or the acquisition of shares
is approved by the affirmative vote of a majority of a committee of all the
disinterested members of the Board of Directors, before the interested
shareholder's share acquisition date.

The Bylaws permit the Board to create new directorships and to elect new
directors to serve for the full term of the directorship created. The Board (or
its remaining members, even though less than a quorum) is also empowered to fill
vacancies on the Board occurring for any reason for the remainder of the term of
the directorship in which the vacancy occurred.

TRANSFER AGENT

The Company currently serves as its own transfer agent and registrar with
respect to its Common Stock and does not utilize the services of an independent
transfer agent such as a bank or trust company. The Company has appointed
Norwest Bank Minnesota, National Association, to act upon completion of this
offering as its transfer agent and registrar for the Common Stock and its
warrant agent for the Redeemable Warrants.

41
<PAGE>
UNDERWRITING

Subject to the terms and conditions to be set forth in an underwriting
agreement (the "Underwriting Agreement"), the Company has agreed to sell to
Equity Securities Investments, Inc. (the "Underwriter"), and the Underwriter has
agreed to purchase from the Company, the 800,000 Units offered hereby at the
Price to Public set forth on the cover page of this Prospectus, less the
Underwriting Discount of $0.675 per Unit.

The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent. The nature of the Underwriter's
obligation is that it is committed to purchase all Units offered hereby if any
of the Units are purchased.

The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Units directly to the public at the Price to Public set
forth on the cover page of this Prospectus and to certain selected securities
dealers who are members of the National Association of Securities Dealers, Inc.
at such price less usual and customary commissions. The Company has granted to
the Underwriter an option, exercisable not later than 45 days after the date of
this Prospectus, and subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase up to 120,000 additional Units at the Price
to Public, less the underwriting discount of $0.675 per Unit. The Underwriter
may exercise such option only to cover over-allotments made in connection with
the sale of the 800,000 Units offered hereby. To the extent the Underwriter
exercises the over-allotment option, it will have a firm commitment to purchase
the number of Units to be purchased by it, and the Company will be obligated
pursuant to the option to sell such Units to the Underwriter.

The Company has agreed to pay the Underwriter a non-accountable expense
allowance equal to 2.0% of the aggregate public offering price of the Units, or
$120,000 ($138,000 if the over-allotment option is exercised in full). Such
allowance is included in the expenses of the offering set forth on the cover
page of this Prospectus. The Underwriter has informed the Company that the
Underwriter does not intend to confirm sales of Units to any accounts over which
it exercises discretionary authority.

The Company has agreed to sell to the Underwriter upon the closing of this
offering, for $100.00, the Underwriter's Warrant to purchase up to 80,000 Units.
The Underwriter's Warrant is not exercisable during the first year after the
date of this Prospectus and, thereafter, is exercisable at a price per Unit of
$9.00 (or 120% of the per Unit Price to Public) for a period of four years. The
Underwriter's Warrant contains customary antidilution provisions and obligates
the Company to register the shares of Common Stock and the Redeemable Warrants
comprising the Units issuable upon exercise of the Underwriter's Warrant under
the Securities Act once at the election of the holders and at any other time the
Company has a registration statement pending under the Securities Act. The
Underwriter's Warrant also includes "cashless" exercise provisions entitling the
holder to apply the difference between the exercise price of the Underwriter's
Warrant and the higher fair market value of the Units underlying the
Underwriter's Warrant to the payment of the exercise price without paying cash
to exercise the Underwriter's Warrant. The Underwriter's Warrant may not be
sold, assigned, pledged, hypothecated or transferred except to a person who is
both an officer and a shareholder of the Underwriter (such person will also be
subject to the restrictions on sale, assignment, pledge, hypothecation and
transfer described herein). Any profits realized upon the sale of the
Underwriter's Warrant, the Units issuable upon exercise of the Underwriter's
Warrant, or the shares of Common Stock or Redeemable Warrants comprising such
Units may be deemed to constitute additional underwriting compensation.

The Underwriter will not receive any commissions, expense reimbursement or
other compensation as a result of the exercise of the Redeemable Warrants
included in the Units offered hereby.

The Company and the Underwriter have agreed in the Underwriting Agreement to
indemnify each other or provide contribution with respect to certain
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting

42
<PAGE>
Agreement. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions or otherwise, the Company
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.

Gary S. Kohler, Jeffrey R. Paletz, Melvin Graf, Jack S. Kohler and Dustin
Elder, who in the aggregate beneficially own 1,710,016 outstanding shares of
Common Stock and options to acquire an additional 300,000 shares (which includes
200,000 outstanding shares that are currently owned by Gary S. Kohler), have
agreed that they will not, without the Underwriter's prior written consent,
offer, sell or contract to sell or otherwise dispose of any shares of Common
Stock during the period ending one year after the date of this Prospectus; and
that they will not offer, sell or contract to sell or otherwise dispose of more
than 10% of the shares of Common Stock which they own during the period
beginning one year and ending two years after the date of this Prospectus. As a
condition of the underwriting, the Company's other shareholders, who in the
aggregate own 404,750 shares of Common Stock, must agree that they will not,
without the Underwriter's prior written consent, offer, sell or contract to sell
or otherwise dispose of any shares of Common Stock during the period ending six
months after the date of this Prospectus. In addition, unless waived by the
Underwriter, the Company's shareholders must agree that any sale of shares of
the Company's Common Stock which is made by such shareholders during the period
ending two years after the date of this Prospectus will be made through the
Underwriter. The Company has agreed in the Underwriting Agreement that it will
not, without the prior written consent of the Underwriter, file a registration
statement relating to any shares of the Company's capital stock (other than a
registration statement on Form S-8 relating to shares issuable under a stock
option plan), whether such shares are to be sold by the Company or by
shareholders of the Company, until at least six months after the date of this
Prospectus.

The Underwriting Agreement provides that, for a period of three years from
the date of this Prospectus, the Underwriter will have the right to nominate one
person to serve on the Company's Board of Directors, and the Company has agreed
to use its best efforts to secure the election of such nominee to the Board of
Directors upon request of the Underwriter. The Underwriter intends to exercise
its right to nominate a person to sit on the Company's Board of Directors by
approving a nominee to be identified by the Company. It is expected that such
right will be exercised prior to the end of 1997.

Prior to this offering, there has been no public market for any of the
Company's securities. The Price to Public has been determined by negotiation
between the Company and the Underwriter. The factors considered in determining
the Price to Public include prevailing market and economic conditions, estimates
of the business potential and prospects for the Company, the state of the
Company's business operations, an assessment of the Company's management, and
the consideration of the above factors in relation to market valuations of
companies in related businesses. There can be no assurance that the per Unit
Price to Public is indicative of the prices at which the Common Stock and
Redeemable Warrants will sell in the public market after this offering.

The foregoing is a summary of the provisions of the Underwriting Agreement,
the Underwriter's Warrant and related documents and does not purport to be a
complete statement of their terms and conditions. A copy of the Underwriting
Agreement, including the Underwriter's Warrant, has been filed as an exhibit to
the Registration Statement.

43
<PAGE>
LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for the
Company by Robins, Kaplan, Miller & Ciresi L.L.P., Minneapolis, Minnesota.
Winthrop & Weinstine, P.A., Minneapolis, Minnesota, has acted as counsel to the
Underwriter in connection with certain legal matters relating to the securities
offered hereby.

EXPERTS

The Combined Financial Statements of the Company as of and for the years
ended December 31, 1995 and 1996, and the Financial Statements for the pay
telephone division of TelcoWest and the Financial Statements for CAT for the
periods ended December 31, 1995 and 1996, included herein and in the
Registration Statement, have been included in reliance upon the reports of
Schechter Dokken Kanter Andrews & Selcer, Ltd., Minneapolis, Minnesota,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the securities offered hereby. This Prospectus,
filed as a part of the Registration Statement, does not contain certain
information set forth in or annexed as exhibits to the Registration Statement.
For further information regarding the Company and the securities offered hereby,
reference is made to the Registration Statement and to the exhibits filed as a
part thereof. Statements contained in this Prospectus and the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such a contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement may be
inspected without charge and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices at Northwestern Atrium Center, 500 West Madison,
Suite 1400, Chicago, Illinois 60661 and 75 Park Place, 14th Floor, New York, New
York 10048. Copies of such materials may be obtained from the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the prescribed fee. In
addition, the SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the SEC. The Web site's address is
http://www.sec.gov.

44
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COMBINED FINANCIAL STATEMENTS FOR INTELLIPHONE, INC. AND CHOICETEL, INC.

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

Combined Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited)................... F-3

Combined Statements of Operations for the Years Ended December 31, 1995 and 1996 and for the Six Month
Periods Ended June 30, 1996 and 1997 (unaudited)....................................................... F-4

Combined Statements of Shareholders' Equity for the Years Ended December 31, 1995 and 1996 and the Six
Month Period Ended June 30, 1997 (unaudited)........................................................... F-5

Combined Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 and the Six Month
Periods Ended June 30, 1996 and 1997 (unaudited)....................................................... F-6

Notes to Combined Financial Statements for the Years Ended December 31, 1995 and 1996 and the Six Month
Period Ended June 30, 1997 (unaudited)................................................................. F-7

FINANCIAL STATEMENTS FOR TELCO WEST, INC. - PAY TELEPHONE DIVISION

Independent Auditors' Report............................................................................. F-13

Statements of Revenue and Direct Expenses for the Years Ended December 31, 1995 and 1996................. F-14
Statement of Assets Acquired by Intelliphone, Inc. on January 2, 1997.................................... F-15

Notes to Financial Statements for the Years Ended December 31, 1995 and 1996............................. F-16

FINANCIAL STATEMENTS FOR COMPUTER ASSISTED TECHNOLOGIES, INC.

Independent Auditors' Report............................................................................. F-18

Statements of Operations for the Years Ended December 31, 1995 and 1996.................................. F-19

Statement of Assets Acquired and Liabilities Assumed by ChoiceTel Communications, Inc.
on August 14, 1997..................................................................................... F-20

Notes to Financial Statements for the Years Ended December 31, 1995 and 1996............................. F-21
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
Intelliphone, Inc. and Choicetel, Inc.
Minneapolis, Minnesota

We have audited the accompanying combined balance sheets of Intelliphone,
Inc. and Choicetel, Inc. ("S" Corporations) as of December 31, 1995 and 1996,
and the related combined statements of operations, shareholders' 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Intelliphone, Inc.
and Choicetel, Inc. as of December 31, 1995 and 1996, and the combined results
of their operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.

/s/ SCHECHTER DOKKEN KANTER ANDREWS & SELCER,
LTD.
----------------------------------------------
SCHECHTER DOKKEN KANTER
ANDREWS & SELCER, LTD.

Minneapolis, Minnesota
March 20, 1997,
except for Note 7
for which the date
is August 14, 1997

F-2
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................................. $ 29,146 $ 875,150 $ 55,923
Accounts receivable, net of an allowance for revenue adjustments of
$109,000 at June 30, 1997.......................................... 35,289 172,934 828,269
Prepaid:
Rent............................................................... 90,285 78,732 105,027
Other.............................................................. 62,851 82,874 321,352
------------ ------------ -------------
Total current assets............................................. 217,571 1,209,690 1,310,571
------------ ------------ -------------
Property and equipment:
Phones and related equipment......................................... 1,964,289 2,373,199 6,135,888
Accumulated depreciation............................................. (594,959) (845,176) (1,244,576)
------------ ------------ -------------
1,369,330 1,528,023 4,891,312
------------ ------------ -------------
Office equipment and improvements.................................... 60,174 66,548 79,265
Accumulated depreciation............................................. (23,739) (36,239) (34,484)
------------ ------------ -------------
36,435 30,309 44,781
------------ ------------ -------------
1,405,765 1,558,332 4,936,093
------------ ------------ -------------
Other assets:
Prepaid rents........................................................ 197,232 134,443 120,566
Rental agreements, net of accumulated amortization of $75,719 in
1995, $111,073 in 1996 and $139,970 at June 30, 1997............... 91,914 65,632 389,193
Deferred financing, net of accumulated amortization of $4,975 in
1995, $33,870 in 1996 and $35,252 at June 30, 1997................. 30,277 1,382 0
------------ ------------ -------------
319,423 201,457 509,759
------------ ------------ -------------
$ 1,942,759 $ 2,969,479 $ 6,756,423
------------ ------------ -------------
------------ ------------ -------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable........................................................ $ 335,000 $ 360,000 $ 3,475,864
Current portion of long-term debt.................................... 100,572 265,931 210,314
Accounts payable..................................................... 183,800 136,298 431,513
Accrued expenses..................................................... 2,127 957,242 1,039,997
Unearned line charge received........................................ 0 16,218 3,580
------------ ------------ -------------
Total current liabilities........................................ 621,499 1,735,689 5,161,268
Long-term debt, net of current portion................................. 828,530 569,702 630,942
Shareholders' equity................................................... 492,730 664,088 964,213
------------ ------------ -------------
$ 1,942,759 $ 2,969,479 $ 6,756,423
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

See notes to combined financial statements.

F-3
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service revenue.......................................... $ 2,817,446 $ 3,561,902 $ 1,617,720 $ 3,767,801
Cost of service.......................................... 1,785,062 1,986,985 1,030,640 1,719,284
------------ ------------ ------------ ------------
Gross margin............................................. 1,032,384 1,574,917 587,080 2,048,517
------------ ------------ ------------ ------------
Selling, general and administrative expenses:
Salary and benefits.................................... 402,268 559,494 263,716 586,585
Travel and related..................................... 38,895 58,351 28,991 61,992
Office and overhead.................................... 132,331 212,506 65,123 165,205
------------ ------------ ------------ ------------
573,494 830,351 357,830 813,782
Depreciation and amortization............................ 247,039 364,849 154,370 436,390
Interest................................................. 90,276 119,649 72,918 324,920
Sales tax contingency.................................... 0 865,000 0 110,140
------------ ------------ ------------ ------------
337,315 1,349,498 585,118 1,684,232
------------ ------------ ------------ ------------
Income (loss) before income taxes........................ 121,575 (604,932) 1,962 363,285
Provision for income taxes (unaudited)................... -- -- -- 127,150
Pro forma provision for income taxes (unaudited)......... 42,550 0 687 --
------------ ------------ ------------ ------------
Net income (unaudited)................................... -- -- -- $ 236,135
Pro forma net income (loss) (unaudited).................. $ 79,055 $ (604,932) $ 1,275 --
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Per share:
Net income (unaudited)................................. -- -- -- $ .12
Pro forma net income (loss) (unaudited)................ $ .04 $ (.31) $ .00 --
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares outstanding-weighted average...................... 1,935,189 1,948,489 1,935,189 1,951,516
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>

See notes to combined financial statements.

F-4
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------
CHOICETEL, INC.
--------------- INTELLIPHONE, INC.
---------------------
10,000,000
SHARES 2,000,000
AUTHORIZED SHARES AUTHORIZED
--------------- --------------------- ACCUMULATED SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT DEFICIT RECEIVABLE TOTAL
------- ------ --------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995................ 1,622,016 $ 474,473 $ (91,627) $ (28,571) $ 354,275
Stock issued in exchange for retirement
of debt at $2.00 a share, February
1995.................................. 25,000 25,000 25,000
Stock issued in exchange for retirement
of debt at $5.00 a share, December
1995.................................. 10,000 25,000 25,000
Dividends............................... (33,120) (33,120)
Net income.............................. 121,575 121,575
------- ------ --------- ---------- ----------- ------------- ----------
Balance, December 31, 1995.............. 1,657,016 524,473 (3,172) (28,571) 492,730
Collection of subscription receivable... 10,000 10,000
Issuance of stock for:
Cash.................................. 256,000 910,000 910,000
Subscriptions receivable.............. 846,508 $1,000 6,250 25,000 (26,000)
Dividends............................... (143,710) (143,710)
Net loss................................ (604,932) (604,932)
------- ------ --------- ---------- ----------- ------------- ----------
Balance, December 31, 1996.............. 846,508 1,000 1,919,266 1,459,473 (751,814) (44,571) 664,088
Collection of subscription receivable... 25,990 25,990
Issuance of stock....................... 9,500 38,000 38,000
Dividends...............................
Net income.............................. 236,135 236,135
------- ------ --------- ---------- ----------- ------------- ----------
Balance, June 30, 1997.................. 846,508 $1,000 1,928,766 $1,497,473 $ (515,679) $ (18,581) $ 964,213
------- ------ --------- ---------- ----------- ------------- ----------
------- ------ --------- ---------- ----------- ------------- ----------
</TABLE>

See notes to combined financial statements.

F-5
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income...................................... $ 121,575 $ (604,932) $ (1,962) $ 236,135
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization........................ 247,039 364,849 154,370 436,390
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable.............................. (1,257) (137,645) 20,020 (655,335)
Prepaid rent and other........................... (184,901) 54,319 39,594 (250,896)
Increase (decrease) in:
Accounts payable................................. (13,594) (47,502) 36,505 295,215
Accrued expenses................................. (8,258) 955,115 0 82,755
Unearned line charge received.................... 0 16,218 0 (12,638)
------------ ------------ ------------ ------------
Net cash provided by operating activities................ 160,604 600,422 252,451 131,626
------------ ------------ ------------ ------------
Cash flows used in investing activities, purchase of
equipment and rental contracts......................... (623,008) (462,239) (230,402) (4,136,331)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from
Issuance of:
Long-term debt..................................... 813,102 7,103 0 630,942
Common stock....................................... 0 910,000 20,000 38,000
Payments of subscription receivable.................. 0 10,000 0 25,990
Principal payments on long-term debt................. (324,026) (100,572) (50,281) (625,319)
Dividends paid....................................... (33,120) (143,710) (16,690) 0
Net change in notes payable.......................... 5,000 25,000 61,152 3,115,864
Deferred financing costs............................. (35,252) 0 0 0
------------ ------------ ------------ ------------
Net cash provided by financing activities............ 425,704 707,821 14,181 3,185,477
------------ ------------ ------------ ------------
Net increase (decrease) in cash.......................... (36,700) 846,004 (36,230) (819,228)
Cash, beginning balance.................................. 65,846 29,146 29,146 875,150
------------ ------------ ------------ ------------
Cash, ending balance..................................... $ 29,146 $ 875,150 $ 65,376 $ 55,923
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest................................. $ 96,486 $ 121,530 $ 60,391 $ 310,642
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Supplemental schedule of noncash investing and financing
activities:
Refinanced debt from notes payable to long-term debt... $ 15,000
------------
------------
Retirement of debt through issuance of stock........... $ 50,000
------------
------------
Issuance of stock in exchange for subscription
receivable........................................... $ 26,000
------------
------------
</TABLE>

See notes to combined financial statements.

F-6
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1995 AND 1996 AND

SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF COMBINATION:

The combined financial statements for 1995 and 1996 include the accounts of
Intelliphone, Inc. combined with Choicetel, Inc., after elimination of all
material intercompany transactions. The combined companies are commonly owned.

NATURE OF BUSINESS:

Intelliphone was incorporated in October 1989 to provide coin operated
telephone service throughout Minnesota. Since inception, Intelliphone has
expanded to other states; however, revenue is generated predominantly in the
Minneapolis/St. Paul area.

Choicetel, Inc. was incorporated in 1995 and was dormant until June 1996
when operations began. Choicetel is a reseller of telephone local line service
to pay telephone owners in Minnesota.

PROPERTY AND EQUIPMENT AND DEPRECIATION METHODS:

Property and equipment, consisting principally of coin operated telephones,
are stated at cost. Depreciation is being provided by the straight-line method
over the estimated useful lives, principally seven years, of the related assets.
Phone locations are evaluated by management to determine if their carrying
amounts had been impaired. No reductions for impaired assets have occurred.

PREPAID RENTS:

Prepaid rents represent incentives paid to phone location merchants and
property owners to secure long term contracts at such sites and are being
amortized as consumed per the rental agreement.

RENTAL AGREEMENTS:

Rental agreements consist of the purchase price paid for phone location
agreements in excess of the purchase price of the related equipment on site and
are amortized on a straight line basis over the estimated remaining life of the
rental agreements, currently ranging from five to twelve years.

DEFERRED FINANCING:

Deferred financing costs are being amortized over the life of the related
note on a straight-line basis.

UNEARNED LINE CHARGE RECEIVED:

Collections of the line charge revenue in advance of providing service are
deferred until the month the service is provided.

INCOME TAXES:

Intelliphone, Inc. and Choicetel, Inc., with the consent of their
shareholders, have elected to be "S" corporations under the Internal Revenue
Code. Instead of paying corporate income taxes, the

F-7
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995 AND 1996 AND

SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
shareholders of an "S" corporation are taxed individually on their proportionate
share of the Company's taxable income or loss.

Effective January 1997, Intelliphone's "S" corporation status terminated and
it became subject to federal and state income taxes.

The accompanying statements of operations include an unaudited pro forma
provision for income taxes, using a rate of 35 percent, to reflect estimated
income tax expense of the Companies as if they had been subject to corporate
income taxes in 1995. No pro forma tax credits are provided for in 1996 due to
management's belief that such credits would not be realized.

PRO FORMA EARNING PER SHARE (UNAUDITED):

Pro forma earnings per share for the years ended December 31, 1995 and 1996
and the six months ended June 30, 1997 are computed on the basis of the number
of shares of common stock outstanding during 1995 and 1996 and the six months
ended June 30, 1997.

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, stock issued by the Company at prices less than the initial offering price
during the twelve months immediately preceding the initial public offering, plus
common stock equivalents granted at exercise prices less than the initial public
offering price during the same period, have been included in the determination
of shares used in the calculation of historical earnings (loss) per share as if
they were outstanding for all periods.

USE OF ESTIMATES:

The timely preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual results
could differ from those estimates.

F-8
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995 AND 1996 AND

SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)

2. NOTES PAYABLE:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Line of credit, bank, $300,000, interest at 1.0% above
the bank's prime rate (9.25% at December 31, 1996)
guaranteed by shareholders and secured by equipment.
The line was paid off in January 1997................ $ 300,000 $ 275,000 $ 0
Term note, bank, $3,000,000, interest at 2.0% above the
bank's prime rate (10.5% at June 30, 1997) guaranteed
by shareholders and secured by equipment. Due January
1998................................................. 0 0 2,700,000
Note payable, interest only payable monthly at 8.75%.
Due on demand........................................ 0 50,000 100,000
Note payable, interest only payable monthly at 12%. Due
on demand............................................ 35,000 35,000 35,000
Note payable, Telco West, interest only payable monthly
at 10% through March 1998. Principal due April
1998(A).............................................. 0 0 364,896
Note payable, interest on payable monthly at 12%
through April 1997. Thereafter due in monthly
installments of $2,354 including interest to April
1999................................................. 0 0 46,293
Notes payable, interest only payable monthly at 12%
with various maturing dates from March 1997 through
December 1997........................................ 0 0 158,849
Note payable, interest at 12% compounded quarterly.
Interest due on demand, principal due February
1998................................................. 0 0 70,826
---------- ---------- ------------
$ 335,000 $ 360,000 $ 3,475,864
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

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

(A) Notes are secured by certain assets of Intelliphone and guaranteed by
certain of its shareholders.

F-9
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995 AND 1996 AND

SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)

3. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ----------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Note payable, interest only payable monthly at 12% through April 1997.
Thereafter due in monthly installments of $2,354 including interest to
April 1999................................................................ 50,000 50,000 0
Notes payable, interest only payable monthly at 12% with various maturing
dates from March 1997 through December 1997.............................. 150,000 150,000 0
Note payable, interest at 12% compounded quarterly. Interest due on demand,
principal due February 1998.............................................. 60,823 67,926 0
Note payable, bank, due in monthly installments of $6,000 plus interest at
1.25% above bank's prime rate (9.5% at December 31, 1996) to August 2000
at which time remaining principal is due(A).............................. 468,279 396,279 0
Note payable, bank, due in monthly installments of $2,381 plus interest at
1.25% above prime rate (9.5% at December 31, 1996) to December 2000 at
which time remaining principal is due(A)................................. 200,000 171,428 0
Note payable, Telco West, interest only payable monthly at 10% through June
1997. Thereafter due in monthly installments of $21,343 including
interest to June 2001(B)................................................. 0 0 841,256
---------- ---------- ----------
929,102 835,633 841,256
Less current portion....................................................... 100,572 265,931 210,314
---------- ---------- ----------
$ 828,530 $ 569,702 $ 630,942
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

(A) Notes are secured by all assets of Intelliphone and guaranteed by certain of
its shareholders. The loan agreement requires the Company to maintain
certain financial ratios and limits compensation and dividends.

(B) Notes are secured by certain assets of Intelliphone and guaranteed by
certain of its shareholders.

At December 31, 1995 and 1996, and June 30, 1997, notes with shareholders
and shareholder family members included in long-term debt and notes payable
amounted to $135,000 at an interest rate of 12%.

Future maturities of long-term debt as of December 31, 1996, and June 30,
1997, are as follows:

<TABLE>
<CAPTION>
AMOUNT AT
YEAR ENDING DECEMBER 31, DECEMBER 31, 1996
- --------------------------------------------------------------------------- -----------------
<S> <C>
1997....................................................................... $ 265,931
1998....................................................................... 193,955
1999....................................................................... 109,756
2000....................................................................... 265,991
--------
$ 835,633
</TABLE>

F-10
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995 AND 1996 AND

SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)

3. LONG-TERM DEBT: (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT AT
TWELVE MONTHS ENDING JUNE 30, JUNE 30, 1997
- --------------------------------------------------------------------------- -----------------
1998....................................................................... $ 210,314
<S> <C>
1999....................................................................... 210,314
2000....................................................................... 210,314
2001....................................................................... 210,314
--------
$ 841,256
</TABLE>

4. COMMITMENTS AND CONTINGENCY:

PHONE LOCATIONS:

Intelliphone, Inc. rents phone locations from merchants and property owners
under varying lease terms, usually five or more years, generally cancelable by
the Company upon 15 days notice.

SALES TAX CONTINGENCY:

After an original contact by Intelliphone, Inc., the Minnesota Department of
Revenue conducted an audit of the Company's revenues for calculation of sales
taxes the department asserts are due on telephone receipts. While the Company
does not believe its coin receipts are subject to sales tax and has notified the
Minnesota Department of Revenue of its position, it may have to assert its
position in the Minnesota courts in order to prevail. The financial statements
include an accrual management believes is sufficient to cover this contingency.

5. CONCENTRATION OF CREDIT RISK:

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash in excess of FDIC insurance limits. At
December 31, 1996, Intelliphone, Inc. had cash of approximately $765,000 in
excess of FDIC insurance limits in one financial institution. No losses have
been experienced from such deposits.

6. STOCK AND STOCK OPTIONS:

Intelliphone intends to make a public offering of its securities. The
proceeds of the offering will be used to retire debt, to finance acquisitions
and expansion and for working capital.

Intelliphone has issued stock options to a member of management providing
for the issuance of up to 50,000 shares of common stock at a price of $1.50 per
share expiring October 31, 1998.

Subsequent to December 31, 1996, Intelliphone declared a 2 for 1 stock
split. This stock split has been reflected in all share and per share amounts as
if the split had occurred on January 1, 1995.

F-11
<PAGE>
INTELLIPHONE, INC. AND CHOICETEL, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995 AND 1996 AND

SIX MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)

7. SUBSEQUENT EVENTS:

In January 1997, Intelliphone purchased a route of pay telephones in the
Northwestern United States. The route consists of approximately 1,020 pay
phones. The purchase price was approximately $3,300,000 and was accounted for
under the purchase method and financed primarily with bank and seller financing.

In August 1997, Intelliphone purchased another provider of pay telephones in
Minnesota and Wisconsin. The purchase added approximately 685 additional pay
telephones and was financed through the issuance of stock and assumption of
debt.

A condensed pro forma balance sheet as if these transactions had closed on
December 31, 1996 is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
1996 PURCHASE DECEMBER 31,
ACTUAL ADJUSTMENTS 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets......................................................... $1,209,690 $ (160,000) $1,049,690
Property and equipment, net............................................ 1,558,332 4,691,956 6,250,288
Other assets........................................................... 201,457 878,344 1,079,801
------------ ------------ ------------
$2,969,479 $ 5,410,300 $8,379,779
------------ ------------ ------------
------------ ------------ ------------
Liabilities............................................................ $2,305,391 $ 4,711,900 $7,017,291
Shareholders' equity................................................... 664,088 698,400 1,362,488
------------ ------------ ------------
$2,969,479 $ 5,410,300 $8,379,779
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The Company will amortize the rental agreements acquired in these
acquisitions on a straight-line basis over a period of 12 years. The average
remaining term for these agreements, assuming the renewal provisions thereof are
not triggered, is approximately 4 years and 3.5 years for the phones acquired in
January and August, respectively. However, the Company has found that the actual
life of a rental agreement is more closely related to how long the location
owner remains in business than the remaining term of the contract. The Company's
rental agreements generally have automatic renewal provisions. While the Company
has no historical data on the renewal experience of the companies from whom the
phones were acquired, it estimates, based on its own limited renewal experience,
that the average life of the acquired rental agreements is 15 to 16 years. The
Company's experience has been, and it continues to believe, that rental
agreements generally renew automatically.

In March 1997, Choicetel, Inc. became a wholly owned subsidiary of
Intelliphone, Inc.

In April 1997, Intelliphone, Inc. changed its name to ChoiceTel
Communications, Inc.

Also, in April 1997, the Company adopted the 1997 Long-Term Incentive and
Stock Option Plan (the "Plan") which allows for the granting of options to
purchase up to 100,000 shares of common stock to directors, officers, other
employees and consultants. Options under the Plan may be either incentive stock
options (intended to qualify for preferential tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended) or non-qualified stock options.
As of July 31, 1997, no options had been granted under the Plan.

F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
ChoiceTel Communications, Inc.
Minneapolis, Minnesota

We have audited the accompanying statements of revenue and direct expenses
of the pay telephone division of Telco West, Inc. for the years ended December
31, 1995 and 1996 and the statement of assets acquired by Intelliphone, Inc. on
January 2, 1997. These financial statements are the responsibility of the Telco
West management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of the pay telephone
division of Telco West, Inc. for the years ended December 31, 1996 and 1995, and
the assets acquired by Intelliphone, Inc. on January 2, 1997, in conformity with
generally accepted accounting principles.

The statements of revenue and direct expenses are intended to be part of a
filing for ChoiceTel Communications, Inc. for sale of its securities under
Regulation S-B and are presented on a basis that is required for the filing with
the Securities and Exchange Commission as more fully described in Note 1.

/s/ SCHECHTER DOKKEN KANTER ANDREWS & SELCER,
LTD.
----------------------------------------------
SCHECHTER DOKKEN KANTER
ANDREWS & SELCER, LTD.

Minneapolis, Minnesota
April 30, 1997

F-13
<PAGE>
TELCO WEST, INC. PAY TELEPHONE DIVISION

STATEMENTS OF REVENUE AND DIRECT EXPENSES

YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Revenues:
Coin collection..................................................................... $ 1,624,187 $ 1,308,067
Intellicall......................................................................... 1,268,073 807,793
Long distance....................................................................... 250,182 224,888
Other phone......................................................................... 93,342 174,630
Gain on sale of equipment........................................................... 184,090 146,730
Other operating income.............................................................. 6,299 1,886
------------ ------------
3,426,173 2,663,994
------------ ------------
Direct expenses:
Depreciation........................................................................ 414,924 307,331
Interest............................................................................ 133,273 95,323
Other direct expenses............................................................... 2,314,103 1,878,802
------------ ------------
2,862,300 2,281,456
------------ ------------
Income from pay telephone operations before pro forma income tax provision............ 563,873 382,538
Pro forma provision for income taxes (unaudited)...................................... 197,355 133,888
------------ ------------
Pro forma net income from pay telephone operations (unaudited)........................ $ 366,538 $ 248,650
------------ ------------
------------ ------------
</TABLE>

See notes to financial statements.

F-14
<PAGE>
TELCO WEST, INC. PAY TELEPHONE DIVISION

STATEMENT OF ASSETS ACQUIRED BY INTELLIPHONE, INC.

JANUARY 2, 1997

<TABLE>
<CAPTION>
<S> <C>
Assets acquired (at historical cost):
Phones and equipment.............................................................................. $ 1,645,574
Less: Accumulated depreciation.................................................................... 1,055,930
------------
Total assets acquired............................................................................... $ 589,644
------------
------------
</TABLE>

See notes to financial statements.

F-15
<PAGE>
TELCO WEST, INC. PAY TELEPHONE DIVISION

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1995 AND 1996

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS AND BASIS OF PRESENTATION:

The Company provides telecommunications services to the hospitality and
direct consumer markets in the Pacific Northwest. In January of 1997,
Intelliphone, Inc. purchased the pay telephone division of Telco West, Inc. The
financial statements include the results of operations of the pay telephone
division only and include any direct revenues and expenses of the division. The
revenues and expenses of Telco Hospitality division and Central Office expenses
of Telco West, principally personnel expenses relating to employees not retained
in the acquisition, are not included in the financial statements.

DEPRECIATION EXPENSE:

Pay telephones and other assets are depreciated using an accelerated method
over their estimated useful lives of seven years.

USE OF ESTIMATES:

INCOME TAXES:

The Company's shareholders have elected to have the corporation taxed under
Subchapter "S" of the Internal Revenue Code. Therefore, no provision for income
taxes has been made on its earnings. The taxes, if any, are the liability of the
Company's shareholders.

2. LEASES:

The Company leases certain pay phones under two capital leases which expire
in 1997. Amortization expense for this equipment is included with depreciation
expense.

Future minimum lease payments under the capital leases and the net present
value of future minimum lease payments are as follows:

<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Year ending December 31, 1997..................................................... $ 331,380
Less amounts representing interest................................................ 13,637
----------
Net present value of future minimum lease payments................................ $ 317,743
----------
----------
</TABLE>

3. COMMITMENTS:

PHONE LOCATIONS:

The Company has entered into various contracts with merchants and property
owners of the pay phone locations with terms ranging from one to ten years,
cancelable upon 30 days notice by the Company.

F-16
<PAGE>
TELCO WEST, INC. PAY TELEPHONE DIVISION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995 AND 1996

4. ALLOCATION OF PURCHASE PRICE:

Intelliphone, Inc. allocated the purchase price for the Company's pay
telephone division, acquired January 2, 1997, as follows:

<TABLE>
<S> <C>
Phones.......................................................... $3,038,001
Rental and non-compete agreements............................... 336,744
---------
$3,374,745
---------
---------
</TABLE>

F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
ChoiceTel Communications, Inc.
Minneapolis, Minnesota

We have audited the accompanying statements of operations of Computer Assisted
Technologies, Inc. for the years ended December 31, 1995 and 1996 and the
statement of assets acquired and liabilities assumed by ChoiceTel
Communications, Inc. on August 14, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Computer Assisted
Technologies, Inc. for the years ended December 31, 1996 and 1995, and the
assets acquired and liabilities assumed by ChoiceTel Communications, Inc. on
August 14, 1997 in conformity with generally accepted accounting principles.

/s/ SCHECHTER DOKKEN KANTER ANDREWS & SELCER,
LTD.
----------------------------------------------
SCHECHTER DOKKEN KANTER
ANDREWS & SELCER, LTD.

Minneapolis, Minnesota
August 14, 1997

F-18
<PAGE>
COMPUTER ASSISTED TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
---------- ------------
<S> <C> <C>
Revenues:
Coin collection....................................................................... $ 866,425 $ 1,374,286
Long distance......................................................................... 89,005 48,010
Other operating income................................................................ 3,292 57,041
---------- ------------
958,722 1,479,337
---------- ------------
---------- ------------
Expenses:
Depreciation and amortization......................................................... 59,000 158,044
Interest.............................................................................. 95,577 180,000
Other operating expenses.............................................................. 779,045 1,396,344
---------- ------------
933,622 1,734,388
---------- ------------
Income (loss) before pro forma income tax provision..................................... 25,100 (255,051)
Pro forma provision for income tax (credit) (unaudited)................................. 8,785 (8,785)
---------- ------------
Pro forma net income (loss) (unaudited)................................................. $ 16,315 $ (246,266)
---------- ------------
---------- ------------
</TABLE>

See notes to financial statements.

F-19
<PAGE>
COMPUTER ASSISTED TECHNOLOGIES, INC.

STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
BY CHOICETEL COMMUNICATIONS, INC.
AUGUST 14, 1997

<TABLE>
<S> <C>
Assets acquired (at historical cost):
Phones........................................................................ $1,443,989
Less: Accumulated depreciation................................................ 213,910
---------
Total assets acquired........................................................... $1,230,079
---------
---------
Liabilities assumed:
Note payable at 8.5%.......................................................... $ 350,000
Lease payable................................................................. 920,346
Loan - TeleCapital Leasing.................................................... 201,554
---------
Total liabilities assumed....................................................... $1,471,900
---------
---------
</TABLE>

See notes to financial statements.

F-20
<PAGE>
COMPUTER ASSISTED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1995 AND 1996

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS AND BASIS OF PRESENTATION:

The Company provides pay phone services to direct consumer markets mainly in
Minnesota. In January of 1997, the Company reached an agreement to sell its pay
telephone operations to ChoiceTel Communications, Inc.

The statement of operations includes all revenues and expenses of the
Company. The statement of assets to be acquired and liabilities to be assumed by
ChoiceTel Communications, Inc. is based upon the terms of the agreement for sale
and purchase of assets dated March 14, 1997.

DEPRECIATION EXPENSE:

Pay telephones and other assets are depreciated using a straight-line method
over their estimated useful lives of seven years.

USE OF ESTIMATES:

INCOME TAXES:

The Company's shareholders have elected to have the corporation taxed under
Subchapter "S" of the Internal Revenue Code. Therefore, no provision for income
taxes has been made on the earnings of the Company. The taxes, if any, are the
liability of the Company's shareholders.

2. LEASES:

The Company leases certain pay phones under three capital leases which
expire in 1999, 2000, and 2001. Amortization expense for this equipment is
included with depreciation expenses.

Net present value of future minimum lease payments under the capital leases
are as follows:

<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
1997............................................................................ $ 345,396
1998............................................................................ 345,396
1999............................................................................ 341,011
2000............................................................................ 85,221
2001............................................................................ 80,301
------------
1,197,325
Less amounts representing interest.............................................. (276,979)
------------
Net present value of future minimum lease payments.............................. $ 920,346
------------
------------
</TABLE>

The leases are to be assumed by ChoiceTel Communications, Inc. upon the
completion of the acquisition.

F-21
<PAGE>
COMPUTER ASSISTED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1995 AND 1996

3. ALLOCATION OF PURCHASE PRICE:

ChoiceTel Communications, Inc. allocated the purchase price for certain of
the Company's assets, acquired August 14, 1997, as follows:

<TABLE>
<S> <C>
Phones.......................................................... $1,725,165
Rental agreements............................................... 545,135
---------
$2,270,300
---------
---------
</TABLE>

F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO PURCHASE BY ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index of Certain Defined Terms............................................ 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Combined Financial Data.......................................... 15
Reorganization............................................................ 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 17
Business.................................................................. 23
Management................................................................ 32
Certain Transactions...................................................... 35
Principal Shareholders.................................................... 36
Securities Eligible for Future Sale....................................... 37
Description of Securities................................................. 38
Underwriting.............................................................. 42
Legal Matters............................................................. 44
Experts................................................................... 44
Additional Information.................................................... 44
Index to Financial Statements............................................. F-1
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS AND SALESPERSONS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

800,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE
COMMON STOCK PURCHASE WARRANT

CHOICETEL
COMMUNICATIONS,
INC.

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

PROSPECTUS

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

EQUITY SECURITIES
INVESTMENTS, INC.

, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

Since June 1, 1994, the Registrant has issued or sold the securities
described below without registration under the Act. The transactions described
below are claimed to be exempt from registration pursuant to Section 4(2) of the
Securities Act as they were isolated transactions and did not involve any public
offering, and, in the case of the private placement described in Paragraph 8
below, under Rule 506 under Regulation D under the Act.

1. FEBRUARY 21, 1995 CONVERSION OF DEBT TO EQUITY: On February 21, 1995,
Jeffrey R. Paletz, an officer and director of the Registrant, converted $25,000
of the principal balance of the Registrant's Promissory Note, issued to him in
connection with a loan made to the Registrant, into 25,000 shares of Common
Stock.

2. FEBRUARY 21, 1995 ISSUANCE OF COMMON STOCK: On February 21, 1995, the
Registrant issued 6,000 shares of Common Stock valued at $6,000 to Jack S.
Kohler, an officer of the Registrant, as compensation, in part, for services
rendered.

3. OCTOBER 19, 1995 ISSUANCE OF COMMON STOCK: On October 15, 1995, the
Registrant issued 6,000 shares of Common Stock valued at $6,000 to Jack S.
Kohler, an officer of the Registrant, as compensation, in part, for services
rendered.

4. DECEMBER 27, 1995 CONVERSION OF DEBT TO EQUITY: On December 27, 1995,
Ronald Gross, a shareholder of the Registrant, converted $25,000 of the
principal balance of the Registrant's Promissory Note, issued to him in
connection with a loan made to the Registrant, into 10,000 shares of Common
Stock.

5. MARCH 1, 1996 ISOLATED SALE OF COMMON STOCK: On March 1, 1996, the
Registrant sold 8,000 shares of Common Stock to Gary S. Kohler, an officer and
director of the Registrant, for $20,000.

6. OCTOBER 15, 1996 ISSUANCE OF COMMON STOCK: On October 15, 1996, the
Registrant issued 6,000 shares of Common Stock valued at $15,000 to Jack S.
Kohler, an officer of the Registrant, as compensation, in part, for services
rendered.

7. DECEMBER 16, 1996 ISSUANCE OF STOCK OPTION: On December 16, 1996, the
Registrant granted to Jill Noreen, an employee, an option to purchase 10,000
shares of Common Stock with an exercise price of $4.00 per share.

8. JANUARY 15, 1997 PRIVATE PLACEMENT OF COMMON STOCK: On January 15, 1997,
the Registrant sold 223,750 shares of Common Stock to five accredited investors,
namely Glenn E. Diamond, Efraim Gildor, Irvin Kessler, Gary S. Kohler and Circle
F Ventures, LLC, for aggregate consideration of $895,000.

9. MARCH 1,1997 ISSUANCE OF STOCK OPTION: On March 1, 1996, the Registrant
granted to Robert T. Montague, a consultant, an option to purchase 12,500 shares
of Common Stock with an exercise price of $4.00 per share.

10. MAY 29, 1997 ISSUANCE OF COMMON STOCK: On May 29, 1997, the Registrant
issued 12,000 shares of Common Stock valued at $48,000 to Jack S. Kohler, an
officer of the Registrant, as compensation, in part, for services rendered.

11. AUGUST 14, 1997 ISSUANCE OF COMMON STOCK: On August 14, 1997, in
connection with an acquisition of assets, the Registrant issued 186,240 shares
of Common Stock in the aggregate to Ruth Elder, Jack Elder and Dustin Elder,
representing $698,400 of the purchase price for the assets, and an option to
Dustin Elder to purchase 50,000 shares of Common Stock, with the options for
20,000 shares

II-1
<PAGE>
having an exercise price of $6.75 per share and the exercise prices of the
remaining options to be determined as of the date the options vest.

The purchasers of the securities described above represented that they
acquired them for their own account and not with a view to any distribution
thereof to the public. The Registrant made inquiries of purchasers of securities
in these transactions and obtained representations from such purchasers to
establish that such issuances qualified for an exemption from the registration
requirements of the Securities Act. The certificates representing the securities
bear legends stating that the shares are not to be offered, sold or transferred
other than pursuant to an effective registration statement under the Securities
Act or an exemption from such registration requirements.

ITEM 27. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION MANNER OF FILING
- ------------- ----------------------------------------------------------------------------------- ----------------
<S> <C> <C>
1.1 Form of Underwriting Agreement, including Underwriter's Warrant 1
1.2 Form of Selected Dealer Agreement 2
3.1 Amended and Restated Articles of Incorporation 2
3.2 By-laws 2
4.1 Specimen Certificate representing the Common Stock 2
4.2 Form of Redeemable Warrant Agreement with Norwest Bank Minnesota, National
Association, including certificate representing the Redeemable Warrants 2
5 Opinion of Robins, Kaplan, Miller & Ciresi L.L.P. 1
10.1 1997 Long-Term Incentive and Stock Option Plan 2
10.2 Lease Agreement 2
10.3 Bonus Program 2
10.4 Amended and Restated Loan Agreement with National City Bank, dated as of January 2,
1997 2
10.5 Promissory Note payable to Serene Paletz, dated April 10, 1995 2
10.6 Promissory Note payable to William Opsahl, dated, April 18, 1995 2
10.7 Promissory Note payable to Miriam Graf, dated November 3, 1995 2
10.8 Promissory Note payable to William Opsahl, dated December 2, 1995 2
10.9 Promissory Note payable to Ronald M. Gross and Elaine Weitzman, dated December 7,
1995 2
10.10 Promissory Note payable to William B. Topp and Norma Topp, dated July 7, 1996 2
10.11 Promissory Note payable to The Topp Family Trust, dated July 27, 1996 2
10.12 Agreement for Sale and Purchase of Business Assets with Telco West, Inc. ("Telco"),
dated January 2, 1997 2
10.13 Installment Collateral Note payable to Telco, dated January 2, 1997 2
10.14 Installment Collateral Note payable to Telco, dated January 2, 1997 2
10.15 Agreement for Sale and Purchase of Assets with Computer Assisted Technologies, Inc.
("CAT"), dated as of March 14, 1997 2
10.16 Route Service Agreement with CAT, dated as of February 1, 1997 2
10.17 Employment Agreement with Jeffrey R. Paletz, dated as of April 15, 1997 2
10.18 Employment Agreement with Melvin Graf, dated as of April 15, 1997 2
10.19 Employment Agreement with Jack S. Kohler, dated as of April 15, 1997 2
10.20 Agreement for Service Resale with U.S. West Communications, Inc., undated 2
10.21 Employment and Non-Competition Agreement with Dustin Elder, dated August 14, 1997 1
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION MANNER OF FILING
- ------------- ----------------------------------------------------------------------------------- ----------------
<S> <C> <C>
10.22 Lease 1
21 Subsidiaries of the Registrant 2
23.1 Consent of Robins, Kaplan, Miller & Ciresi L.L.P. (included in Exhibit 5) 1
23.2 Consent of Schechter Dokken Kanter Andrews & Selcer, Ltd. Filed herewith
</TABLE>

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

(1) Exhibit so marked was filed with the Securities and Exchange Commission on
August 22, 1997, as an exhibit to the Registrant's Amendment No. 1 to
Registration Statement on Form SB-2 (Reg. No. 333-29969).

(2) Exhibit so marked was filed with the Securities and Exchange Commission on
June 25, 1997, as an exhibit to the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-29969).

II-3
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and authorized this
Amendment No. 3 to Registration Statement to be signed on its behalf by the
undersigned, in the City of Minneapolis, State of Minnesota, on September 16,
1997.

CHOICETEL COMMUNICATIONS, INC.

By: /s/ JACK S. KOHLER
-----------------------------------------
Jack S. Kohler
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities indicated on September 16, 1997.

SIGNATURE TITLE
- ------------------------------ --------------------------

* President and Director
- ------------------------------ (principal executive
Jeffrey R. Paletz officer)

Vice President and Chief
/s/ JACK S. KOHLER Financial Officer
- ------------------------------ (principal financial and
Jack S. Kohler accounting officer)

*
- ------------------------------ Director
Gary S. Kohler

*
- ------------------------------ Director
Melvin Graf

- ------------------------------ Director
Robert A. Hegstrom

*By: /s/ JACK S. KOHLER
-------------------------
Jack S. Kohler
Attorney-in-Fact

II-4
<PAGE>
EXHIBIT INDEX
DOCUMENT DESCRIPTION

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

(2) Exhibit so marked was filed with the Securities and Exchange Commission on
June 25, 1997, as an exhibit to the Registrant's Registration Statement on
Form SB-2 (Reg. No. 333-29969).

<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

We hereby consent to the use in this Amendment No. 2 to Registration Statement
on Form SB-2, Reg. No. 333-29969, of (i) our report dated March 20, 1997 except
for Note 7 for which the date is August 14, 1997 relating to the combined
financial statements of Intelliphone, Inc. and Choicetel, Inc., (ii) our report
dated April 30, 1997 relating to the statements of revenue and direct expenses
for the Telco West, Inc. pay telephone division and the statement of assets
acquired by Intelliphone, Inc. on January 2, 1997, (iii) our report dated August
14, 1997 relating to the statements of operations for Computer Assisted
Technologies, Inc. and the statement of assets acquired and liabilities assumed
by ChoiceTel Communications, Inc. on August 14, 1997, (iv) the reference to our
Firm under the caption "Selected Combined Financial Data" in the Prospectus
included therein and (v) the reference to our Firm under the caption "Experts"
in such Prospectus.

/s/ SCHECHTER DOKKEN KANTER ANDREWS & SELCER,
LTD.
----------------------------------------------
SCHECHTER DOKKEN KANTER
ANDREWS & SELCER, LTD.

Minneapolis, Minnesota
September 16, 1997