EAST WEST COMMUNICATIONS INC
424B3, 1997-12-10
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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                                                                December 4, 1997


To Lynch Stockholders:


I am  writing  to  advise  you  about  a  spin  off of the  stock  of  East/West
Communications,  Inc. (the "Company"),  which you will receive shortly through a
dividend on your Lynch common stock.

The  Company is the  successor  to a  partnership  which was formed in 1996 by a
subsidiary of Lynch and an FCC- qualified  small business to acquire F-Block PCS
licenses in the FCC auction. The partnership acquired five such licenses in 1997
covering a population of approximately  21 million,  including the cities of Los
Angeles and  Washington,  D.C. The net cost of the licenses was $19 million,  of
which $15.2 million is being  financed by the U.S.  government.  A subsidiary of
Lynch provided $3.6 million of the balance of the debt financing;  originally as
debt which, together with accrued interest (including commitment fees), is to be
converted into preferred stock at the time of the spin off.

For each share of Lynch common stock owned by you on December 4, 1997,  you will
receive one share of Class A Common Stock of the Company.  The  distribution  is
expected to be made on or about  December 4, 1997.  Lynch  shareholders,  in the
aggregate,  will receive 39.9% of the  outstanding  Common Stock of the Company.
Due to FCC regulations,  Lynch  shareholders  will receive Class A Common Stock,
which will have lesser voting rights and minority representation on the Board of
Directors.  However,  from an economic  standpoint the two different  classes of
common stock will be treated equally.

For further  information  about the  Company  and the spin off,  please read the
enclosed Prospectus.  As described more fully in the Prospectus,  while the spin
off will be taxable to shareholders, the amount will probably be fairly small.

I believe that while there are substantial  risks attendant to this  investment,
the Company represents a significant opportunity for Lynch stockholders.

Mario J. Gabelli
Chairman of the Board and
  Chief Executive Officer

<PAGE>
                                1,772,198 SHARES
                              CLASS A COMMON STOCK


                         EAST WEST/COMMUNICATIONS, INC.

         This Prospectus  relates to (i) the distribution by means of a spin-off
(the  "Spin  Off") of  1,417,048  shares  of Class A Common  Stock of  East/West
Communications,  Inc. (the "Company") owned by Lynch  Corporation  ("Lynch") and
(ii) the transfer of 355,150  shares of Class A Common Stock by Lynch to Gabelli
Funds,  Inc.  ("GFI")  immediately  prior to the Spin Off in satisfaction of the
interest which GFI has in the partnership  interest of Lynch's subsidiary in the
Company's predecessor.

         Lynch has declared a dividend on its Common Stock of one share of Class
A Common  Stock for each share of Lynch  Common  Stock,  payable on  December 4,
1997, to shareholders of record on December 4, 1997.

         Following the Spin Off, Lynch will not own any shares of Class A Common
Stock of the Company, although it will continue to retain its ownership interest
in $7.7 million of preferred stock of the Company

         The Class A Common  Stock is not  listed for  trading  on any  national
securities  exchange or quotation  system.  Due to FCC  regulations  the Class A
Common Stock has lesser voting rights than the Class B Common Stock and minority
representation  on the Board of Directors.  See  "Description of Capital Stock",
beginning on page 40.

          THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
                 SEE "RISK FACTORS" ON PAGES 5 THROUGH 16 BELOW.
                                 ---------------

    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.
                                 ---------------

         This distribution is  self-underwritten;  neither the Company nor Lynch
has employed an underwriter for the distribution of the Shares. The Company will
bear all expenses of this distribution.

         No  person  is  authorized  to give  any  information  or to  make  any
representation  other than those contained in this  Prospectus,  and if given or
made,  such  information or  representation  should not be relied upon as having
been  authorized.  This  Prospectus  does not  constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Prospectus,
or the  solicitation  of a proxy,  in any  jurisdiction  in which  such offer or
solicitation  may not lawfully be made.  Neither the delivery of this Prospectus
nor any distribution of securities  pursuant to this Prospectus shall, under any
circumstances,  create  an  implication  that  there  has been no  change in the
information set forth herein since the date of this Prospectus.

                 The date of this Prospectus is December 4, 1997

<PAGE>
                              AVAILABLE INFORMATION

         The  Company  is  subject to the  Securities  Act of 1933,  and will be
subject to the  informational  requirements  of the  Securities  Exchange Act of
1934, as amended (the  "Exchange  Act"),  and in accordance  therewith will file
reports and other  information with the Securities and Exchange  Commission (the
"SEC"). Reports, proxy and information statements and other information filed by
the Company can be inspected  and copied at the public  reference  facilities at
the SEC's office at 450 Fifth Street, N.W., Washington, D.C. 20549, at the SEC's
Regional Office at Seven World Trade Center, New York, New York 10048 and at the
SEC's  Regional  Office at Citicorp  Center,  500 W.  Madison  Street,  Chicago,
Illinois  60621.  Copies  of such  material  can be  obtained  from  the  Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington,  D.C. 20549,
at prescribed rates. Such material may also be accessed  electronically by means
of the SEC's home page on the Internet at http://www.sec.gov.


                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

THE COMPANY..................................................................1
CAPITALIZATION...............................................................4
RISK FACTORS.................................................................5
SELECTED FINANCIAL DATA.....................................................17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................18
THE WIRELESS COMMUNICATIONS INDUSTRY........................................19
LIMITATIONS OF CELLULAR TELEPHONE INDUSTRY..................................20
LEGISLATION AND GOVERNMENT REGULATION.......................................24
MANAGEMENT..................................................................34
CERTAIN TRANSACTIONS........................................................35
PRINCIPAL STOCKHOLDERS......................................................36
DESCRIPTION OF CAPITAL STOCK................................................36
DESCRIPTION OF CERTAIN INDEBTEDNESS.........................................39
FEDERAL INCOME TAX CONSEQUENCES.............................................39
PLAN OF DISTRIBUTION........................................................40
EXPERTS.....................................................................40
ADDITIONAL INFORMATION......................................................40
GLOSSARY....................................................................41
INDEX TO FINANCIAL STATEMENTS..............................................F-1


<PAGE>
                                   THE COMPANY

         As used in this  Prospectus  with  respect  to a given  area,  the term
"POPs" refers to the aggregate  number of persons located in such area, based on
the 1996  estimated  U.S.  population  data in the 1996 PCS  Atlas and Data Book
published by Paul Kagan Associates,  Inc. ("Kagan Associates") and the 1990 U.S.
Census and the Population Estimate Program,  U.S. Bureau of the Census,  release
date March 20, 1997.  Unless the context otherwise  requires,  references to the
"Company"  herein refers to East/West  Communications,  Inc. See the  "Glossary"
beginning on page 46 for a definition of certain  terms used herein.  Certain of
the information contained in this Prospectus,  including information with regard
to the Company's  prospective business and its financial situation,  are forward
looking statements.  This Prospectus contains certain forward-looking statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These sections do not apply to companies
which are not subject to the reporting  requirements  of the securities  laws at
the time those statements are made.  Actual results could differ materially from
those projected in the forward-looking  statements as a result of certain of the
risk factors set forth below and elsewhere in this Prospectus.  For a discussion
of important  risk factors that could affect such  matters,  see "Risk  Factors"
beginning on page 5.

         The Company was  incorporated  in August,  1997,  as a successor to Aer
Force  Communications  B, L.P.  The  Company  holds five 10  megahertz  personal
communications  services ("PCS") licenses to serve a population of approximately
21 million,  including  two of the top ten markets,  Los Angeles and  Washington
D.C., plus Sarasota,  Florida, Reno, Nevada and Santa Barbara,  California.  The
total cost of these licenses was approximately $19 million,  after a 25% bidding
credit provided by the Federal  Communications  Commission  ("FCC").  80% of the
cost of the licenses (or $15.2  million) was financed over ten years by the U.S.
government (the "Government  Financing"),  with only payments of interest during
the first two years.

         The Company believes that its PCS licenses have substantial  potential.
However,  the Company has not yet adopted a business plan or  determined  how to
finance its  operations  because of  uncertainties  relating to PCS, which makes
evaluation   difficult,   including  without  limitation  the  newness  of  PCS,
financing,  affiliation  and  technology  issues and the  financial  problems of
certain C-Block licensees.  Therefore, Company has not yet determined whether to
develop its PCS licenses on its own,  joint  venture its licenses with other PCS
or wireless  telephone  licenses holders or operators or others, or sell some or
all of its licenses.  The Company expects to continually  evaluate these factors
and to adopt a plan or plans once the  financing,  regulatory and market aspects
of PCS are less uncertain. See "Risk Factors".

         The demand for wireless  communications  services in the United  States
has grown  dramatically  during  the last five  years.  The  number of  cellular
subscribers  has grown from 5.3 million at December  31, 1990 to 44.0 million at
December 31, 1996,  representing a compound  annual growth rate of 42%. Over the
same time  period,  the  wireless  telephony  penetration  rate has  grown  from
approximately 3% to approximately  17%, and is forecasted by Kagan Associates to
reach approximately 47% by 2006.

         The Company's  address is 350 Stuyvesant  Avenue,  Rye, New York 10580.
Its telephone number is (914) 921-6300.

LICENSES

         The Company has five 10 megahertz F-Block PCS licenses as follows:
<TABLE>
<CAPTION>

                                                                                        Population          Cost (after 25%
     BTA No.         BTA Name                                    1996 POPS           Growth Rates (1)       Bidding Credit)
- ---------------      ---------------------------------      ------------------     ------------------     ------------------

<S>                                                                <C>                    <C>                    <C>       
       262           Los Angeles, CA                               15,513,588             1.07%                  $4,473,750

       461           Washington, D.C.                               4,476,304             1.48%                   8,835,000
</TABLE>


                                       -1-

<PAGE>
<TABLE>
<CAPTION>

                                                                                        Population          Cost (after 25%
     BTA No.         BTA Name                                    1996 POPS           Growth Rates (1)       Bidding Credit)
- ---------------      ---------------------------------      ------------------     ------------------     ------------------

<S>                                                                <C>                    <C>                    <C>
       408           Sarasota-Bradenton, FL                           554,056             1.28%                   1,653,000

       372           Reno, NV                                         465,782             3.10%                   1,787,250

       406           Santa Barbara-Santa Maria, CA                    385,573             0.71%                   2,208,721
</TABLE>

(1)      Average  compounded  annual  growth rates in  populations  between 1990
         through  1996,  based  upon the 1990  U.S.  Census  and the  Population
         Estimate  Program,  U.S.  Bureau of the Census,  Release date March 20,
         1997.

SPIN OFF

         Lynch  Corporation  ("Lynch)  currently  owns  all  of the  issued  and
outstanding  shares of Class A Common Stock and Preferred  Stock of the Company.
The  1,417,048  shares  of Class A Common  Stock  owned by Lynch  which  will be
distributed in the Spin Off represent 39.9% of the  outstanding  Common Stock of
the  Company.  Lynch has declared a dividend on its Common Stock of one share of
Class A Common Stock for each share of Lynch Common  Stock,  payable on December
4, 1997,  to  shareholders  of record on December 4, 1997 (the "Spin Off").  The
remaining 355,150 shares of Class A Common Stock will be transferred by Lynch to
Gabelli Funds, Inc. ("GFI") in satisfaction of the interest which GFI has in the
partnership interest of Lynch's subsidiary in the Company's  predecessor.  Lynch
currently  intends to retain  ownership of the Preferred  Stock but reserves the
right to  dispose  of that  investment  as it deems  appropriate.  See  "--Stock
Ownership  After  the  Spin  Off"  for a chart  which  details  those  ownership
interests.

         The Company has no current  plan to list or register the Class A Common
Stock on any national securities exchange or on the NASDAQ market.  Accordingly,
there can be no  assurance  that a trading  market will  develop for the Class A
Common Stock,  and the ability to buy or sell shares of Class A Common Stock may
be limited.

         The value of the stock  distributed  as a dividend in the Spin Off will
be taxable to the  recipient,  although  the Company  believes  that the taxable
amount will be fairly small. See "Federal Income Tax Consequences."

POTENTIAL FUTURE ARRANGEMENTS WITH RIVGAM

         Rivgam Communicators,  LLC ("Rivgam"), is an entity indirectly owned by
GFI, of which Mario J. Gabelli is the Chairman and Chief  Executive  Officer and
the  principal  shareholder.  Rivgam  holds 10 MHz D - and E-Block PCS  Licenses
covering  approximately  33 million POPs in 11 BTAs,  including the Los Angeles,
Washington, DC and Reno, Nevada markets where the Company also holds F-Block PCS
licenses.  The cost of the  licenses  to  Rivgam  were as  follows:  BTA 262 Los
Angeles - $31.9 million,  BTA 461 Washington,  D.C. - $4.1 million,  and BTA 372
Reno,  Nevada - $1.7  million.  Rivgam did not  qualify  for or receive  bidding
credits or U.S.  government  financing.  Rivgam also holds 10 MHz D - or E-Block
licenses  in  Baltimore,  Maryland,   Philadelphia,   Pennsylvania,  San  Diego,
California,  Buffalo,  New York,  Las Vegas,  Nevada,  Bakersfield,  California,
Atlantic City, New Jersey and Las Cruces, New Mexico.

         After  the  Spin  Off,  Rivgam's  controlling  shareholder  GFI and Mr.
Gabelli will be substantial  holders of the Company's  Class A Common Stock.  In
addition,  Mr.  Gabelli and his son will be directors of the Company.  See "Risk
Factors -- Other PCS and Wireless Telephone Interests," "Principal Stockholders"
and "Management." For various reasons,  including  possibly more favorable terms
or requirements  for raising  capital,  it may be necessary or advisable for the
Company  to enter  into  joint  venture  and/or  working  or other  arrangements
(collectively "Arrangements") with holders of additional 10 MHz licenses. Rivgam
would be a logical party with which to enter into such  arrangements,  which may
cover BTAs other than where  there is an  overlap.  See "Risk  Factors -- 10 MHz
Licenses"  and "-- Limited  Territory  Coverage."  The ability of the Company to
enter into any arrangements with

                                       -2-

<PAGE>

Rivgam may be limited by law or FCC  regulations,  and there can be no assurance
that the Company will be able to enter into such arrangements on terms which are
favorable to it or at all. See "Risk Factors -- Government Regulation."

STOCK OWNERSHIP AFTER THE SPIN OFF

         Immediately after the Spin Off, the Company will be owned as follows:

<TABLE>
<CAPTION>

                             CLASS A COMMON STOCK         CLASS B COMMON STOCK                  TOTAL COMMON STOCK
                         -------------------------    -------------------------     --------------------------------------

                                                                                                    BENEFICIAL
                                                                                                     OWNERSHIP       VOTING
SHAREHOLDERS                SHARES        PERCENT        SHARES         PERCENT        SHARES       PERCENTAGE       PERCENT
- ------------             ------------  ------------   ------------   ------------   ------------   ------------   ------------

<S>                         <C>                          <C>               <C>         <C>                <C>            <C>  
Aer Force
Communications, Inc.               --           --       1,779,301         100%        1,779,301          50.1%          83.4%
Gabelli Funds, Inc.*          355,150          20.0%            --           --          355,150          10.0%           3.3%
Lynch Shareholders+         1,417,048          80.0%            --           --        1,417,048          39.9%          13.3%
</TABLE>


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

*   Due to his 23.1% ownership of Lynch common stock, Mr. Gabelli,  the Chairman
    and Chief Executive Officer of GFI and Lynch Corporation,  will also receive
    327,087  shares of Class A Common Stock (18.5% of the Class A Common  Stock,
    9.2% of the total common stock and 3.1% of the voting rights) as a result of
    the Spin Off. See footnote 3 to the table under "Principal Shareholders."
+   Lynch   Corporation   (or  a   subsidiary)   will  own  7,800  shares  of  a
    non-convertible redeemable preferred stock.


PROCEEDS OF THE SPIN OFF AND FUTURE FUNDING REQUIREMENTS

    The Spin Off will not result in any net  proceeds  to the  Company or Lynch.
The Company will need to obtain  capital in the near future in order to fund its
interest payment obligations on the Government Financing and for working capital
and general corporate  purposes.  There can be no assurance that the Company can
raise sufficient capital to fund its obligations and finance the construction of
its networks.  Because the Company has incurred  losses since  inception and has
not yet adopted a business plan or determined  how to finance its operations and
will need to obtain  capital  in the near  future to fund its  interest  payment
obligations and for working capital and general corporate  purposes,  the report
of Ernst & Young LLP as to its 1997 and 1996  financial  statements  contains  a
going concern emphasis paragraph.

    In  April,  1997,  the  FCC  suspended  F-Block  interest  payments  on  the
Government  Financing  until further  notice.  The FCC has recently  stated that
F-Block interest  payments will resume beginning March 31, 1998. If they had not
been suspended,  the Company's first three  quarterly  interest  payments of (i)
approximately  $126,534  (on $8.1  million  of  F-Block  debt at  6.25%  for all
licenses  except  Washington,  DC) would have been due on each of July 28, 1997,
October 28, 1997, and January 28, 1998  (approximately  $380,000 total) and (ii)
approximately  $110,438 on the  Washington DC license (based upon a $7.1 million
principal  amount at an interest  rate of 6.25%)  would have been due on each of
September 27, 1997, December 27, 1997 and March 27, 1998 (approximately $331,000
total). One-eighth (1/8) of the suspended interest will be due on March 31, 1998
(approximately  $89,000)  and one  eighth  of the  suspended  interest  would be
payable on each of the next seven installment payment dates succeeding March 31,
1998, of each license.

    Beginning in the third license year, quarterly payments under the Government
Financing  will  increase  substantially  as  the  Company  begins  to  amortize
principal  as well as pay  interest.  See  "Risk  Factors  --  Substantial  Debt
Obligations to the U.S. Government."


                                       -3-

<PAGE>
DIVIDEND POLICY

    The Company  has never  declared  or paid any cash  dividends  on its Common
Stock,  and does not expect to pay cash  dividends on either class of its Common
Stock in the foreseeable  future. To the extent the Company obtains financing in
the future,  such funding  sources may prohibit  the payment of  dividends.  The
Company  currently  intends  to  retain  its  earnings,  if any,  for use in its
business.  See "Risk  Factors--Absence of Dividends" and "Description of Certain
Indebtedness."

                                 CAPITALIZATION

         The  following  table  sets forth the pro forma  capitalization  of the
Company  effective  immediately  prior  to the Spin  Off.  The Spin Off will not
affect  the  capitalization  of the  Company.  This  table  should  be  read  in
conjunction  with  the  Consolidated  Financial  Statements  and  Notes  thereto
appearing elsewhere in this Prospectus.



Government Financing(1)                             $15,166,177

Redeemable Preferred Stock(2)                         7,800,000


Class A Common Stock(3)                                     177

Class B Common Stock(3)                                     178

Additional Paid - in Capital(4)                         449,645

Shareholders Deficit Cumulative Losses(5)           (3,298,576)
                                                   ------------
Total Shareholders Deficit                         $(2,848,576)



(1)      See "Description of Certain Transactions"

(2)      See "Description of Capital Stock - Preferred Stock"

(3)      See "Description of Capital Stock - Common Stock"

(4)      Assumes an additional capital contribution of $250,000

(5)      Does not include losses after September 30, 1997


         1,417,048   of  the   outstanding   shares  of  Class  A  Common  Stock
(approximately 80%) and all of the shares of the outstanding Preferred Stock are
owned by Lynch or a  subsidiary.  355,150 of the  outstanding  shares of Class A
Common Stock (approximately 20%) are owned by GFI. All of the outstanding shares
of Class B Common Stock (1,779,301) are owned by Aer Force  Communications  Inc.
("AFC"), all of whose capital stock is owned by Victoria G. Kane. See "Principal
Stockholders."  All the  long-term  debt is  installment  debt  owed to the U.S.
Government for the PCS licenses  acquired by the Company.  See  "Description  of
Certain Indebtedness -- Government Financing."

                                       -4-

<PAGE>
                                  RISK FACTORS

DEVELOPMENT STAGE COMPANY; HISTORICAL AND EXPECTED FUTURE OPERATING LOSSES

         The  Company  was  incorporated  in  August  1997 as a  successor  to a
partnership  organized  in July  1996.  The  Company  is at an  early  stage  of
development  and has no operating  history.  Consequently,  the Company does not
have any meaningful  historical  financial  information upon which a prospective
investor could evaluate an investment in the Class A Common Stock of the Company
to be  distributed  to Lynch  stockholders  in the Spin  Off.  The  Company  has
incurred  cumulative  net losses  through  June 30, 1997 of  approximately  $2.9
million.  These  losses  arose  primarily  from  interest  expense  on loans for
organizational  and start-up  activities  and the Company's  acquisition  of PCS
licenses  in the  F-Block  Auction.  The  Company is subject to all of the risks
typically associated with a start-up entity.

         The  Company has not yet  determined  whether it intends to develop its
PCS licenses on its own,  joint  venture its licenses with other PCS or wireless
telephone  license  holders or operators  or others,  or sell some or all of its
licenses.  There are various FCC restrictions applicable to any joint venture or
sale or other  transfer  of its  licenses.  If a license  is sold for cash,  the
Company will need to redeem a corresponding  proportion of the Preferred  Stock.
See "-- F-Block License  Requirements,"  "Foreign  Ownership  Limitations,"  and
"Description of Capital Stock -- Preferred Stock."

         If the Company determines to sell some or all of the licenses, not only
will it have to comply with certain FCC transfer  restrictions,  but there is no
assurance  that any such sale could be effected on a profitable or timely basis.
In addition,  some or all of the  consideration  to be received in any such sale
may not be cash and may be dependent,  directly or indirectly, on the successful
development  by the purchaser of the licenses or other licenses or activities of
the acquiror.

         Accordingly, many of the risks listed below relating to the development
of PCS  licenses  may apply if the  Company  decides  to joint  venture  its PCS
licenses or even to sell its  licenses.  However,  certain  joint  venturers  or
purchasers may already operate  wireless  telephone or other  telecommunications
operations or have greater  background  and  experience  in developing  wireless
telephony  and  possess  greater  organizational,  management  and/or  financial
resources.  If the Company decides to joint venture its PCS licenses or sell its
licenses  other than for cash,  the Company  may be at risk with  respect to the
other operations of the joint venture or purchaser.

         If the Company  decides to develop its PCS licenses  (either on its own
or as part of a joint venture),  it (or the joint venture) would have to develop
and  implement a business  plan,  which may  require  attracting  and  retaining
qualified  individuals  as managers  and  employees  and  developing  a business
infrastructure.  As such,  no assurance can be given as to the timing and extent
of revenues and expenses,  or the Company's (or the joint venture's)  ability to
successfully  manage all the tasks  associated with developing and maintaining a
successful  enterprise.  Any failure by management  to guide and control  growth
effectively,  which  includes  implementing  adequate  systems,  procedures  and
controls  in a timely  manner,  could  have a  material  adverse  effect  on the
Company's business, financial condition and results of operations.

         If the Company (or a joint venture) develops the PCS licenses,  it will
incur  significant  operating  losses  and  generate  negative  cash  flow  from
operating activities during the next several years while it seeks to develop and
construct its PCS networks and build a customer base.  These losses and negative
cash flow could be  substantial  and  increase  during the initial  years of the
build-out and operation of its PCS networks.  There can be no assurance that the
Company (or a joint venture) can  successfully  launch its services,  or that it
will  achieve or sustain  profitability  or  positive  cash flow from  operating
activities in the future.  If the Company (or a joint  venture)  cannot  achieve
operating profitability or positive cash flow from operating activities,  it may
not be able to meet  its debt  service  or  working  capital  requirements  and,
consequently,  the  Class A  Common  Stock  may have  little  or no  value.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

                                       -5-

<PAGE>
SUBSTANTIAL DEBT OBLIGATIONS TO THE U.S. GOVERNMENT

         The  Company  has  or  must  execute  notes  to  the  U.S.   Government
documenting  the  Company's  installment  payment  obligations  and  a  security
agreement creating a first priority security interest in favor of the FCC in the
PCS licenses  (and the proceeds of any sale  thereof) in the event of a default.
The aggregate debt obligation of the Company to the U.S.  Government pursuant to
the Government  Financing will be approximately $15.2 million.  The Company will
be required  to make  interest  expense  payments  based on an interest  rate of
6.25%. The Company will be required to make quarterly  payments of interest only
for the first two years of the license and  payments of interest  and  principal
over the  remaining  eight  years of the  license  term.  In the event  that the
Company is unable to meet its obligations under the Government Financing,  or it
(or any of its  affiliates)  is involved  in certain  insolvency  or  bankruptcy
proceedings,  or otherwise  violates  regulations  applicable  to holders of FCC
licenses, the FCC could take a variety of actions, including requiring immediate
repayment of amounts due under the  Government  Financing,  repayment of certain
bidding  credits,  revoking the Company's PCS licenses and fining the Company an
amount equal to the difference  between the price at which the Company  acquired
the  licenses  and the amount of the winning  bids at their  reauction,  plus an
additional  penalty of three percent of the lesser of the subsequent winning bid
and the  Company's  bid  amount.  In April,  1997,  the FCC  suspended  interest
payments on installment  payment obligations with respect to C-Block and F-Block
PCS licenses while it determines  whether to give any relief to license  holders
with respect to the installment  payment terms.  The FCC's principal  concern is
the reported financial  problems  encountered by numerous C-Block PCS licensees.
The FCC recently stated that F-Block  interest  payments would resume  beginning
March 31, 1998,when one-eighth (1/8) of suspended payments will be due, with the
remaining  seven-eighths  being payable over the next seven installment  payment
dates  succeeding  March 31, 1998,  for each license.  There can be no assurance
that the  Company  will be able to meet its  obligations  under  the  Government
Financing or, in the event of a failure to meet such obligations,  first the FCC
will not  require  immediate  repayment  of  amounts  due under  the  Government
Financing or revoke the Company's PCS licenses. In either such event the Company
may be unable to meet its obligations to other creditors.

ABILITY TO SERVICE DEBT; SUBSTANTIAL LEVERAGE; SIGNIFICANT CAPITAL REQUIREMENTS;
RESTRICTIVE COVENANTS

         The Company's leverage is substantial in relation to its equity. At the
time of the Spin Off, the Company's total indebtedness will be $15.2 million; it
will have $7.3 million of Preferred Stock subject to mandatory  redemption under
certain   circumstances;   and  its  initial   stockholders'   deficit  will  be
approximately $2.4 million.

         Based upon the interest  rate of 6.25%,  the Company will need $948,000
per year to pay interest on the Government  Financing in years one and two (plus
approximately $356,000 per year of suspended interest payable in 1998 and 1999),
and  $2,424,000  per  year  to pay  interest  and  principal  on the  Government
Financing  in years three  through  ten. The Company does not expect to have any
revenue from operations in years one and two and does not know when, if ever, it
may  have  positive  cash  flow  from  operations.  Unless  the  Company  raises
additional  funds,  it cannot meet its interest  obligations  on the  Government
Financing when payments, which are currently suspended, are resumed. The Company
will have to raise funds in the near future in order to make  interest  payments
on the  Government  Financing  and for working  capital  and  general  corporate
purposes. There is no assurance that the Company can raise sufficient funds. The
report of the  Company's  independent  auditors  with  respect to the  financial
statements  of the  Company for the period  from July 26,  1996  (inception)  to
December 31,  1996,  the six months ended June 30, 1997 and the period from July
26, 1996  (inception)  to June 30, 1997 contains a paragraph as to the Company's
ability to continue as a going concern.  Among the factors cited by the auditors
as raising  substantial doubt as to the Company's ability to continue as a going
concern is that, with respect to the periods  covered,  the Company has incurred
losses since inception and has not yet adopted a business plan or determined how
to finance its  operations and will need to obtain capital in the near future in
order to fund its interest payment  obligations on the Government  Financing and
for working capital and general corporate purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Financial
Statements  of the Company and the notes  thereto and the Report of  Independent
Auditors included therein.


                                       -6-

<PAGE>
         In addition,  if the Company (or a joint venture) determines to develop
and build out the licenses,  substantial  additional funds will be required. The
Company has not  estimated how much  construction  of a PCS system would cost or
determined how it would obtain the necessary  funds.  Any borrowings  from third
parties are likely to contain various restrictions,  including restrictions that
significantly limit or prohibit,  among other things, the ability of the Company
to incur indebtedness,  make prepayments of certain indebtedness, pay dividends,
make  investments,  engage in  transactions  with  stockholders  and affiliates,
create  liens,  sell  assets and engage in mergers  and  consolidations.  If the
Company  fails to comply with the  restrictive  covenants  with  respect to such
borrowings,   the  Company's   obligation  to  repay  such  obligations  may  be
accelerated.  In addition  to the  restrictive  covenants  such  borrowings  may
require the Company to maintain  certain  financial  ratios.  The failure of the
Company  to  maintain   such  ratios   would   constitute   events  of  default,
notwithstanding the ability of the Company to meet its debt service obligations.
An event of default  would allow the lender to  accelerate  the maturity of such
indebtedness.

         In  addition,  the Company has an  obligation  to redeem its  Preferred
Stock on the earlier of (i)  December 1, 2009,  (ii) upon a change of control of
the  Class A or Class B Common  Stock or (iii)  upon the sale of one or more PCS
licenses  directly  or  indirectly  for cash in an amount  proportional  to that
number of persons  covered by the sale of such  licenses  compared  to the total
persons  covered by the Company's five initial PCS licenses,  in each case based
on the 1996 or most recent  subsequent  estimate by the United  States Bureau of
Census.  See "Description of Capital Stock -- Transfer  Restriction -- Preferred
Stock."

         The successful  implementation of a Company strategy (which may include
the sale of some or all of its PCS licenses),  among other things,  is necessary
for the  Company to be able to meet its debt  service  and  significant  capital
requirements.  In addition,  if the Company (or a joint  venture)  determines to
develop  the  licenses,  the  Company's  ability  to  satisfy  its debt  service
obligations  once its PCS networks are  operational  will be dependent  upon the
Company's future  performance,  which is subject to a number of factors that are
beyond the Company's  control.  There can be no assurance that the Company's PCS
networks can be completed or that,  once  completed,  the Company will  generate
sufficient  cash flow from  operating  activities  to meet its debt  service and
working capital requirements. Any failure or delay in meeting these debt service
requirements,  and in particular,  the requirements of the Government Financing,
could have a material  adverse  effect upon the Company's  business,  results of
operations and financial  condition.  See "--Substantial Debt Obligations to the
U.S. Government."

         The Company's ability to obtain any additional  necessary  financing or
refinancing  will depend on, among other things,  its financial  condition,  any
restrictions  governing its  indebtedness  and other factors,  including  market
conditions,  that are beyond the control of the Company.  Further,  in the event
the  implementation  of its PCS  networks  is  delayed or the  Company  does not
generate sufficient cash flow to meet its debt service or capital  requirements,
the Company may need to seek  additional  financing.  There can be no  assurance
that any such  financing  or  refinancing  could be  obtained  on terms that are
favorable  to the  Company,  or at all.  In the  absence  of such  financing  or
refinancing,  the Company  could be forced to dispose of assets in order to make
up for any shortfall in the payments due on its indebtedness under circumstances
that might not be favorable to realizing  the highest  price for such assets.  A
substantial  portion  of the  Company's  assets  consist of  intangible  assets,
principally PCS licenses granted by the FCC, the value of which will depend upon
a variety of factors.  Such licenses may only be  transferred  to other entities
that meet the FCC requirements for F-Block license holders during the first five
years of the initial license term, which may significantly impact the ability of
the  Company  to  realize  the value of such  licenses.  Further,  transfers  to
entities not meeting such  requirements  in years six through ten of the initial
license  term  will  subject  the  Company  to  substantial   unjust  enrichment
penalties. There can be no assurance that the Company's assets could be sold, or
sold quickly enough,  or for a sufficient  amount, to enable the Company to meet
its obligations.  "-- F-Block License  Requirements"  and "-- Foreign  Ownership
Limitations."


                                       -7-

<PAGE>
MANAGEMENT OF GROWTH; NEED TO ESTABLISH INFRASTRUCTURE

         Implementation of the Company's plans will place substantial demands on
the Company's  executive  resources.  As of the date hereof,  the Company has no
employees,  and the  Company's  directors  and  officers  only provide a limited
amount  of  time to the  affairs  of the  Company.  If the  Company  (or a joint
venture) is to develop the licenses,  it will need to hire a significant  number
of employees, including a Chief Operating Officer and possibly a Chief Executive
Officer  and/or Chief  Financial  Officer.  There can be no  assurance  that the
Company (or a joint venture) will be able to manage  effectively the development
of its operations and facilities,  to attract and retain qualified personnel, or
to achieve the rapid execution necessary to exploit fully the market opportunity
for the  Company's  wireless  communications  services.  Any inability to manage
growth  effectively  could  have a  material  adverse  effect  on the  Company's
business,  results of operation and financial  condition.  See "-- Dependence on
Key Personnel," and "Management."

PCS NETWORK CONSTRUCTION AND IMPLEMENTATION RISKS

         If the Company (or a joint venture) is to develop the PCS licenses, the
proposed  construction  and  implementation  of its PCS networks would involve a
high  degree  of risk  including,  but not  limited  to,  network  design,  site
selection and acquisition,  equipment availability and microwave relocation. See
"--Relocation  of Incumbent Fixed  Microwave  Licenses." The Company (or a joint
venture) would intend to rely on third parties to undertake substantially all of
the  construction  and  implementation  of its  PCS  networks.  There  can be no
assurance  that the Company (or a joint  venture) can  successfully  develop and
implement the Company's PCS networks. Any failure to do so would have a material
adverse  effect upon the  Company.  If the  Company's  construction  plan is not
properly  implemented on a timely basis,  the Company may not be able to provide
services competitive with those provided by the cellular and other PCS operators
in its markets.  In such event,  the  Company's PCS  subscriber  growth would be
limited  and  the  Company's  business,  results  of  operations  and  financial
condition would be materially  adversely affected.  Successful  development of a
PCS operation  would be dependent,  among other  things,  (i) on proper  network
design,  including the appropriate choice of technology to be utilized, (ii) the
ability to lease or acquire  numerous  sites for the  location  of base  station
transmitter  equipment and (iii) the availability for purchase of infrastructure
equipment which may be in short supply.

         In addition,  each of the  Company's  PCS licenses is subject to an FCC
requirement  that the Company  construct  PCS  networks  that  provide  adequate
service to at least one-quarter of the population in each such PCS market within
five years of the date which the license was granted (the "License  Grant Date")
of the  applicable  license  or make a showing  of  substantial  service  in its
licensed  area  within five years of the  license  grant  date.  There can be no
assurance  that this  required  coverage  will be  achieved  by the  Company  in
accordance with FCC requirements,  and failure to comply with these requirements
in any market  could  cause  revocation  of the  Company's  PCS  licenses or the
imposition  of  fines  or  other  sanctions  by  the  FCC.  See  "--  Government
Regulation" and "Legislation and Government Regulation." In addition, winners of
A-Block and B-Block PCS licenses,  which were granted in June 1995,  and certain
C-Block licenses which were granted between September 1996 and January 1997 have
a significant head-start in constructing their networks. Likewise, the incumbent
cellular  licensees  in each  market  have been  operating  their  networks  for
five-to-10  years,  and are upgrading their networks to use digital  technology.
Thus, the construction and  implementation of the Company's PCS networks must be
completed on a timely basis, and any delays could have a material adverse effect
on the Company.

DEPENDENCE ON OTHER THIRD PARTIES

         If the  Company  (or a joint  venture)  determines  to develop  the PCS
licenses,  the  Company  will likely rely  significantly  upon third  parties to
provide  equipment  and  services,  to  distribute  the  Company's  products and
services and to provide certain functions such as customer billing. There can be
no  assurance  that such third  parties will provide  acceptable  equipment  and
services on a timely basis and any failure to do so will have a material adverse
effect  upon  the  Company's  business,  results  of  operations  and  financial
condition. See "-- PCS Network Construction and Implementation Risks."

                                       -8-

<PAGE>
RISKS RELATING TO SELECTION OF DIGITAL TECHNOLOGY

         If the Company (or a joint  venture)  were to develop the PCS licenses,
it will be required  to choose  from among  several  competing  and  potentially
incompatible  digital  technologies  in order to build and operate a PCS system.
Certain  of the  newer  technologies,  such as  Code  Division  Multiple  Access
("CDMA"),  offer potential benefits, but have been implemented only on a limited
basis in the  United  States  and abroad  and are  unproven,  particularly  with
respect to PCS. To some extent,  the choice of technology  may be  substantially
influenced by what other PCS licensees choose and what financing may be provided
by the supplier of the  equipment.  There can be no  assurance  that the Company
will choose the  appropriate  technology or that the  technology  chosen will be
successful.  The selection of a particular  protocol  technology could adversely
affect  the  ability of the  Company  to  successfully  offer PCS  service.  See
"Wireless Communications Industry."

RELOCATION OF INCUMBENT FIXED MICROWAVE LICENSEES

         For a period of up to five years after the grant of a PCS license,  PCS
licensees  may be required  to share  spectrum  with  existing  fixed  microwave
licensees  operating on the F-Block  spectrum.  To secure a sufficient amount of
unencumbered spectrum to operate its PCS networks  efficiently,  the Company may
need to pay to relocate existing microwave paths to alternate spectrum locations
or transmission  technologies.  In an effort to balance  competing  interests of
existing microwave users and newly authorized PCS licensees, the FCC has adopted
(i) a transition  plan to relocate  such  microwave  incumbents  and (ii) a cost
sharing plan so that if the  relocation  of an incumbent  benefits more than one
PCS license,  the  benefitting  PCS licensees are required to share the costs of
the  relocation.  The transition and cost sharing plans expire on April 4, 2005,
at  which  time  remaining  microwave  incumbents  in the PCS  spectrum  will be
responsible for their costs to relocate to alternate spectrum  locations.  There
can be no assurance that the Company will be able to reach timely  agreements to
relocate these incumbents on terms  acceptable to the Company.  Any delay in the
relocation  of such  licensees may  adversely  affect the  Company's  ability to
commence timely commercial operation of its PCS networks. Furthermore, depending
on the terms of such  agreements,  if any, the Company's  ability to operate its
PCS networks profitably may be adversely affected.
See "Legislation and Government Regulation."

LIMITED TERRITORY COVERAGE

         If the Company (or a joint  venture)  were to develop the PCS licenses,
its areas of services would be relatively limited,  and it would be necessary to
enter into joint ventures or other  affiliation  arrangements with other service
providers  to give its  customers  a broader  area of  services  and those other
providers would have to have compatible technology.

COMPETITION

         PCS is a new  technology  and service  and, as a result,  the level and
timing of  development  of a customer  base for PCS  applications,  on which the
Company's future revenues depend significantly, is uncertain. In the development
of the PCS market,  the Company and other PCS licensees  will be competing  with
the more established cellular industry, as well as other wireless communications
technologies,  existing and future, with similar service offerings.  Many of the
Company's  PCS and cellular  telephone  competitors,  including  joint  ventures
involving the nation's  largest local and long distance  telephone  carriers and
cable television  companies,  have substantially  greater access to capital than
the Company,  substantially greater financial,  technical,  marketing, sales and
distribution  resources  than  those  of the  Company,  and  significantly  more
experience  than the  Company in  providing  wireless  services.  Several of the
Company's  competitors  are  expected to market  other  services,  such as cable
television  service,  landline  telephone service and internet access with their
wireless communications service offerings. In addition,  several competitors are
operating,  or planning to  operate,  through  joint  ventures  and  affiliation
arrangements,  wireless  communications  networks  that cover most of the United
States.


                                       -9-

<PAGE>
         Assuming  that the Company (or a joint  venture)  determines to develop
its PCS  licenses,  the Company will compete  directly with up to five other PCS
providers in each of its markets.  Providers holding the A- and B-Block licenses
auctioned by the FCC will have an advantage over the F-Block  licensees  because
the A- and  B-Block  licenses  were  granted  on June  23,  1995,  giving  these
companies a  significant  head start in  building  out and  operating  their PCS
networks.  C-Block  licenses were awarded in September 1996 and January 1997 and
will have a lesser time advantage over D, E and F-Block licenses.  In September,
1997, the FCC gave C-Block licensees the right to turn back to the FCC 15 MHz of
their 30 MHz of spectrum for a reduction  of debt.  Any such  spectrum  returned
would be reauctioned. Other PCS licensees in the Company's license areas include
Cox Enterprises,  American Personal Communications,  Pacific Telesis,  Nextwave,
AT&T, Inc., Rivgam Communicators  L.L.C., OPCSE- Galloway  Consolidated,  Aerial
Communications,  PCS Prime Co.,  Sprint COM,  Inc.,  BellSouth  Wireless,  Inc.,
Sprint Spectrum,  PCS 2000, L.P., Alpine PCS, Inc. and Entertainment  Unlimited.
The  FCC   recently   modified  its  rules  to  permit  the   partitioning   and
disaggregation  of broadband PCS licenses into licenses to serve smaller service
areas,  which could allow other new entrants to enter wireless markets served by
the Company.  Additionally,  the Company will  compete  with  existing  cellular
providers in its markets,  most of which have  infrastructure  in place, have an
established  brand  identity,  have  generated  positive cash flow and have been
operational  for as many as ten years or more.  The  Company  expects  that many
cellular  operators  will upgrade their networks to provide  comparable  digital
services in competition  with the Company.  Cellular  operators in the Company's
license areas include BellSouth,  Bell Atlantic NYNEX Mobile, GTE Mobilenet, Air
Touch and GTE Mobilenet.

         The success of the Company's PCS service  business will depend upon its
ability to compete, especially with respect to pricing, service, reliability and
availability  of features,  such as data and voice  transmission,  call waiting,
call forwarding and short messaging capability.  In addition to PCS and cellular
operators,   the  Company  may  also  face   competition   from  other  existing
communications  technologies,  such as conventional  mobile telephone  services,
specialized mobile radio ("SMR") service,  enhanced SMR ("ESMR") service, paging
services  (including  two-way  digital  paging),  and domestic and global mobile
satellite   service   ("MSS").   Nextel  is   providing   competitive   wireless
communications  pursuant  to an ESMR  system.  In the future,  cellular  and PCS
service will also compete more  directly  with  traditional  landline  telephone
service  operators,  energy  utilities,  local multipoint  distribution  service
("LMDS")  providers,  and cable and wireless  cable  operators  seeking to offer
communications services by leveraging their existing infrastructure.  The FCC in
the spring of 1997 also  auctioned  30 MHZ of  spectrum  in the 2.3 GHz band for
wireless  communications  services  ("WCS").  The  FCC  has  proposed  that  WCS
providers be permitted  to offer a broad range of fixed,  mobile radio  location
and satellite broadcast services, some of which could be in competition with the
Company's service offerings. The FCC has also announced rules for the auction of
1300  megahertz  ("MHz") of  spectrum in the 27.5 - 29.5 Ghz and 31.0 - 31.3 Ghz
bands for LMDS commencing in December 1997. The FCC  contemplates  that the LMDS
spectrum  would  provide  very  high  subscriber   capacity  for  two-way  video
telecommunications. The Company may also face competition from new technologies.

OTHER PCS AND WIRELESS TELEPHONE INTERESTS

         Victoria G. Kane, a director of the Company and the sole shareholder of
AFC, the holder of all of the Class B Common Stock (which  constitutes  50.1% of
the common stock of the Company),  is also the majority  stockholder of Fortunet
Wireless  Communications  Corporation,  which is the  General  Partner and 50.1%
equity owner of Fortunet  Communications,  L.P. Fortunet owns 30 MHz C-Block PCS
licenses for 31 BTAs but currently has no interest in PCS licenses in any of the
BTAs where the  Company  has  licenses.  Ms.  Kane,  AFC,  and/or  Fortunet  may
participate,  directly or  indirectly,  in other  spectrum  auctions or in other
telecommunications investments.

         Mario J.  Gabelli is a director  of the Company  and the  Chairman  and
Chief  Executive  Officer and the largest  shareholder of Lynch.  Mr. Gabelli is
also the Chairman and Chief Executive Officer of GFI which, immediately prior to
the Spin Off, will own 10% of the Common Stock of the Company. Lynch owns all of
the Preferred Stock of the Company.  GFI is also the owner of Rivgam, which owns
10MHz D and E Block PCS licenses in 11 BTAs, including Los Angeles,  Washington,
D.C.  and Reno,  Nevada  where the  Company has  licenses.  GFI also has a 49.9%
interest in Bal/Rivgam  L.L.C.,  which won licenses in the 2.3 GHz band for WCS.
One of

                                      -10-

<PAGE>
the 2.3 GHz  licenses  includes Los Angeles  where the Company has a license.  A
Lynch  subsidiary  has  a  49.9%  limited   partnership   interest  in  Fortunet
Communications,  L.P. Each of Lynch,  GFI and Mr.  Gabelli may also  participate
directly or  indirectly,  in the other  spectrum  auctions,  including  the LMDS
auction  scheduled  to commence  later this year or in other  telecommunications
investments. See "--Competition."

10MHZ LICENSES

         Cellular telephone licenses are for 25 MHz of spectrum each and the PCS
licenses in the A, B and C- Blocks are for 30 MHz of spectrum each. The D, E and
F-Block  licenses,  which  have  only  10MHz of  spectrum,  therefore  have less
capacity with which to provide wireless telephone  service.  This may eventually
limit  growth  opportunities  as demand  increases  in the future for mobile PCS
services.  In addition,  the cost to build out a digital mobile PCS system to an
equivalent  standard  may be greater with a 10 MHz license than with either a 25
MHz cellular or 30 MHz PCS license.  Potential  lenders may also require that 10
MHz licensees  have  arrangements  for  additional  spectrum.  As a result,  the
Company may either initially,  or at a later time, have to joint venture or make
other  arrangements with holders of additional  spectrum in order to provide the
amount or breath of service to be or remain  competitive,  or may  consider  the
provision of  telephone  services  other than mobile PCS such as fixed  wireless
local loop,  data or internet  access.  The ability of the Company to enter into
certain  arrangements  is  limited  by  FCC  regulations,  and  there  can be no
assurance that the Company will be able to enter into such arrangements on terms
favorable to it or at all.

LIMITED OPERATING HISTORY FOR PCS NETWORKS

         PCS networks have an extremely  limited operating history in the United
States and there can be no  assurance  that  operation  of these  networks  will
become  profitable.  In addition,  the extent of potential demand for PCS in the
Company's markets cannot be estimated with any degree of certainty. The wireless
communications  industry is experiencing  significant  technological changes, as
evidenced by the increasing pace of digital upgrades in existing analog wireless
systems,  evolving industry standards,  ongoing improvements in the capacity and
quality of digital  technology,  shorter development cycles for new products and
enhancements,  and changes in end-user  requirements and  preferences.  There is
also  uncertainty as to the extent of customer demand.  As a result,  the future
prospects  of the  industry  and the  Company  and the  success of PCS and other
competitive services remain uncertain.

GOVERNMENT REGULATION

         The   spectrum   licensing,    construction,    operation,   sale   and
interconnection  arrangements of wireless  communications networks are regulated
to varying degrees by state regulatory agencies,  the FCC, Congress,  the courts
and  other  governmental  bodies.  There can be no  assurance  that any of these
governmental  bodies  having  jurisdiction  over the  Company  will not adopt or
change  regulations  or take  other  actions  that  would  adversely  affect the
Company's business,  financial condition or results of operations.  Although the
FCC has issued rules  regarding the F-Block  Auction and numerous other matters,
not  all  of  them  have  been  subject  to  FCC  or  judicial   interpretation.
Accordingly,  for  certain  matters  (such  as the  structure  of its  Board  of
Directors and management), the Company is relying on public and private informal
interpretation  of the rules from the staff of the FCC.  The FCC is not bound by
such informal interpretation of FCC staff and there can be no assurance that the
FCC or the  courts  will agree with the  staff's  interpretation.  Many of these
rules  also  require  ongoing  compliance  that the  Company  may not be able to
satisfy  despite  diligent  efforts.  A failure to comply  with FCC rules  could
subject the Company to serious penalties and have a material adverse effect upon
the Company's  business,  results of  operations  and  financial  condition.  In
addition, although the Company's PCS licenses are renewable after the expiration
of their 10-year terms,  there can be no assurance  that the Company's  licenses
will be renewed.

         The FCC has  consented  to the  transfer of the PCS  licenses  from Aer
Force  Communications  B, L.P. to the Company.  The 30-day period to appeal that
consent has not  expired;  however,  the Company  believes  that if an appeal is
brought, it would not be successful.

                                      -11-

<PAGE>
         The   Telecommunications   Act  of  1996  (the  "1996  Act")   mandates
significant  changes in existing regulation of the  telecommunications  industry
that are intended by Congress to promote competitive  development of new service
offerings,  to expand public availability of telecommunications  services and to
streamline   regulation  of  the  industry.   Included  in  these  mandates  are
requirements  that local  exchange  carriers  ("LECs")  must:  (i) permit  other
competitive carriers,  which may include PCS licensees, to interconnect to their
networks;  (ii) establish  reciprocal  compensation  agreements with competitive
carriers to terminate traffic on each other's networks and (iii) offer resale of
their telecommunications  services. In addition,  incumbent LECs are required to
offer  interconnection  and access to unbundled  network  elements at cost-based
rates (plus a reasonable profit),  as well as significant resale discounts.  The
implementation  of these mandates by the FCC and state  authorities  potentially
involves numerous changes in established rules and policies that could adversely
affect the Company's business, financial condition and results of operations.

         In March 1997, CAI Wireless  Systems,  Inc. (and certain  subsidiaries)
("CAI") filed petitions to deny various D, E and F-Block PCS licenses, including
the  Company's  license  for  Washington,  D.C.,  because  it  feared  that  PCS
operations might cause  interference with petitioners'  wireless cable services.
In June 1997 the FCC  dismissed  all of those  petitions on the grounds that CAI
failed  to  establish  standing  because  it failed  to  allege  specific  facts
supported  by  affidavit   demonstrating   that   applicants   would  cause  CAI
interference  if their  applications  were granted.  It is possible that CAI, or
others similarly situated, might attempt to raise this issue at a later date.

         The FCC has  proceedings in process that could open up other  frequency
bands for wireless  telecommunications  and PCS-like  services.  There can be no
assurance that these  proceedings  will not adversely affect the Company and the
Company's  ability to offer a full range of PCS  services.  See "Risk Factors --
Substantial  Debt  Obligations  to the  U.S.  Government"  "--  F-Block  License
Requirements,"  "--  Foreign  Ownership  Limitations,  "--  Effect of Control by
Certain Stockholders" and "Legislation and Government Regulation."

F-BLOCK LICENSE REQUIREMENTS

         When  the  FCC  allocated  spectrum  to  public  auction  for  PCS,  it
designated the F-Block as an  "Entrepreneurs'  Block." FCC rules require F-Block
applicants  and  licensees  (collectively,   "Entrepreneurs")  to  meet  various
qualifications.

         The FCC has determined that  Entrepreneurs that qualify as a Very Small
Business  and win PCS  licenses  are  eligible  to  receive a loan from the U.S.
Government  for 80% of the dollar  amount of their  winning  bids in the F-Block
Auction (a "F-Block Loan"). The Government  Financing provided to the Company is
F-Block Loans.  See  "Description of Certain  Indebtedness."  In order to ensure
continued  compliance with the FCC rules, the FCC has announced its intention to
conduct random audits during the initial 10-year PCS license terms. There can be
no  assurance  that the  Company  will  continue  to satisfy  any of the F-Block
license  requirements,  and the  failure to do so would have a material  adverse
effect on the Company.

         Entrepreneurs  Requirements.  In order to hold a  F-Block  license,  an
entity  must  have:   (i)  less  than  $125  million  in  gross   revenues  (the
"Entrepreneurs Revenues Limit") for the two years preceding the auction and (ii)
less than $500 million in total assets (excluding the value of C-Block licenses)
(the "Entrepreneurs  Asset Limit" and, together with the Entrepreneurs  Revenues
Limit, the "Entrepreneurs Requirements"). To qualify for the F-Block Auction, an
entity  had to have met the  Entrepreneurs  Revenues  Limit  for each of the two
years  prior to the  auction  and the  Entrepreneurs  Asset Limit at the time it
filed its  application  to qualify for the F-Block  Auction on FCC Form 175 (the
"Short Form").  For at least five years after  obtaining an F-Block  license,  a
licensee  must  continue  to meet  the  Entrepreneurs  Requirements,  which  are
modified for such five-year  period to exclude  certain assets and revenues from
being  counted  toward  the  Entrepreneurs  Asset  Limit  and the  Entrepreneurs
Revenues Limit,  respectively.  Additional  amounts are excluded if the licensee
maintains  an   organizational   structure  that  satisfies  the  Control  Group
Requirements  described  below.  In calculating a licensee's  gross revenues for
purposes of the

                                      -12-

<PAGE>
Entrepreneurs  Requirements,   the  FCC  includes  the  gross  revenues  of  the
licensee's  affiliates,  those  persons or entities  that hold  interests in the
licensee, and the affiliates of such persons or entities.

         By claiming status as an  Entrepreneur,  the Company  qualified for the
F-Block  Auction.  If the FCC were to determine that the Company did not satisfy
the  Entrepreneurs  Requirements  at the  time it  participated  in the F- Block
Auction  or  that  the  Company   fails  to  meet  the   ongoing   Entrepreneurs
Requirements,  the FCC could revoke the Company's PCS licenses, fine the Company
or take other  enforcement  actions,  including  imposing the Unjust  Enrichment
Penalties described below. See "Legislation and Government  Regulation - F-Block
License Requirements  Transfer  Restrictions - Unjust Enrichment."  Although the
Company  believes  it has met the  Entrepreneurs  Requirements,  there can be no
assurance that it will continue to meet such  requirements  or that, if it fails
to continue to meet such requirements,  the FCC will not take action against the
Company, which could include revocation of its PCS licenses.

         Very   Small   Business   Requirements.   An  entity   that  meets  the
Entrepreneurs  Requirements  may also  apply  to  receive  certain  preferential
financing terms if it meets certain  requirements to qualify as a Small Business
or a Very Small  Business  (the  "Small  Business  Requirements"  or "Very Small
Business  Requirements").  The  preferential  financing  terms  for  Very  Small
Businesses,  include a 25% bidding credit (the "Bidding Credit") and the ability
to make quarterly  interest-only  payments on its F-Block Loan for the first two
years of the  license  term.  To meet the Very Small  Business  Requirements,  a
licensee  must  have had  annual  average  gross  revenues  of not more than $15
million for the three calendar years preceding the date it filed its Short Form.
In  calculating  a  licensee's  gross  revenues  for  purposes of the Very Small
Business  Requirements,  the FCC includes the gross  revenues of the  licensee's
affiliates,  those persons or entities that hold interests in the licensee,  and
the affiliates of such persons or entities.

         By claiming status as a Very Small Business,  the Company qualified for
the 25% Bidding Credit and the most favorable  installment payment terms. If the
FCC  were to  determine  that  the  Company  does not  qualify  as a Very  Small
Business, the Company could, at a minimum, be forced to give up any benefits for
which it was not  eligible.  Further,  the FCC could  revoke the  Company's  PCS
licenses, fine the Company or take other enforcement actions, including imposing
the Unjust Enrichment  Penalties.  Although the Company has structured itself to
meet the Very Small  Business  Requirements,  there can be no assurance  that it
will  remain in  compliance  with  these  requirements  or that,  if it fails to
continue to meet such  requirements,  the FCC will not take  action  against the
Company, which could include revocation of its PCS licenses.

         Control  Group  Requirements.  If  an  F-Block  licensee  maintains  an
organizational  structure  in which at least 25% of its total  equity on a fully
diluted  basis is held by a control  group  (the  "Control  Group")  that  meets
certain  requirements  (the  "Control  Group  Requirements"),  the FCC  excludes
certain  assets and revenues  from such  licensee's  total  revenues and assets,
thereby making it easier for the licensee to meet the Entrepreneurs Requirements
and the Very Small Business Requirements. The Control Group Requirements mandate
that the Control Group,  among other things,  have both actual and legal control
of the licensee. Further, the FCC permits licensees to qualify under the Control
Group Requirements pursuant to an alternative structural option (the "Qualifying
Investor  Option"),  in which:  (i) an  established  group of investors  meeting
certain financial  qualifications (the "Qualifying Investors") that own at least
15% of the  equity  interest  on a fully  diluted  basis and 50.1% of the voting
power in the F-Block licensee and (ii) additional members  ("Additional  Control
Group  Members") that hold at least 10%, on a fully diluted basis, of the equity
interest in the F-Block  licensee.  Additional  Control  Group  Members  must be
either:  (a) the same Qualifying  Investors of the Control Group, (b) members of
the  licensee's  management  or  (c)  non-controlling  institutional  investors,
including  venture  capital  firms.  To take  advantage of the FCC's  Qualifying
Investor Option, a F-Block licensee must have met the Qualifying Investor Option
requirements  at the time it filed its Short Form and must  continue to meet the
Qualifying  Investor Option  requirements  for three years following the License
Grant Date.  Commencing  the fourth year of the license term,  the FCC rules (i)
eliminate the requirement that the Additional Control Group Members meet certain
qualifications and (ii) allow the

                                      -13-

<PAGE>
licensee  to reduce the minimum  required  equity  interest  held by the Control
Group's Qualifying Investors from 15% to 10%.

         In  order  to  meet  the  Control  Group  Requirements,  the  Company's
Certificate of  Incorporation  provides that the Company's Class B Common Stock,
as a class, must constitute 50.1% of the voting power of the Company.  There can
be no  assurance  that the Company  will remain in  compliance  with the Control
Group Requirements or, if it fails to continue to meet such  requirements,  that
the FCC will not take action against the Company, which could include revocation
of its PCS  licenses.  Although  the  Company has taken these and other steps to
meet the Control Group Requirements,  there can be no assurance that the Company
has or will continue to meet the Control Group Requirements,  and the failure to
meet such requirements would have a material adverse effect on the Company.

         Asset  and  Revenue  Calculation.  In  determining  whether  an  entity
qualifies as an Entrepreneur and/or as a Very Small Business, the FCC counts the
gross  revenues and assets of the  entity's  "financial  affiliates"  toward the
entity's total gross revenues and total assets.  Financial affiliation can arise
from  common  investments,   familial  or  spousal  relationships,   contractual
relationships,  voting trusts, joint venture agreements,  stock ownership, stock
options,   convertible  debentures  and  agreements  to  merge.   Affiliates  of
noncontrolling  investors  with  ownership  interests  that  do not  exceed  the
applicable FCC nonattributable  investor ownership thresholds are not attributed
to  F-Block  licensees  for  purposes  of  determining  whether  such  licensees
financially  qualify  for  the  applicable  F-Block  Auction  preferences.   The
Entrepreneurs  Requirements  and the Very Small  Business  Requirements  provide
that, to qualify as a nonattributable  investor, an entity may not own more than
25% of the  Company's  total equity on a fully  diluted  basis.  There can be no
assurance  that the Company will not exceed  these  passive  investor  limits or
otherwise violate the Entrepreneur  Requirements  and/or the Very Small Business
Requirements.

         In addition,  if an entity makes bona fide loans to a F-Block licensee,
the assets and revenues of the creditor  would not be attributed to the licensee
unless the creditor is otherwise  deemed an  affiliate of the  licensee,  or the
loan is  treated by the FCC as an equity  investment  and such  treatment  would
cause  the   creditor/investor  to  exceed  the  applicable  ownership  interest
thresholds (for purposes of both the financial affiliation and foreign ownership
rules).  Although the FCC permits a  creditor/investor  to use standard terms to
protect its investment in F-Block licensees, such as covenants,  rights of first
refusal and super-majority voting rights on specified  extraordinary issues, the
FCC has stated that it will be guided,  but not bound,  by criteria  used by the
Internal  Revenue  Service to determine  whether a debt  investment is bona fide
debt.  The FCC's  application  of its  financial  affiliation  rules is  largely
untested and there can be no assurance that the FCC or the courts will not treat
certain of the  company's  lenders or investors as financial  affiliates  of the
Company.

         Transfer Restrictions. In addition, the FCC prohibits F-Block licensees
from assigning or  transferring  control of any of their F-Block  licenses for a
period of at least  five years from the  License  Grant Date to any entity  that
fails to satisfy the Entrepreneurs  Requirements  during such period.  After the
fifth  year,  all  transfers  and  assignments  remain  subject  to  the  Unjust
Enrichment Penalties.  The effect of this prohibition will likely deter or delay
unsolicited  changes in control of the Company.  See "Legislation and Government
Regulation -- F-Block License  Requirements -- License Transfer  Restrictions --
Unjust  Enrichment" and  "Description of Capital Stock  Antitakeover  Effects of
Provisions of the Certificate of Incorporation, Bylaws, Delaware Law and Control
Group Requirements."

         The Company (i) believes that it has  structured  itself to satisfy the
Entrepreneurs  Requirements,  (ii) intends to diligently pursue and maintain its
qualification  as a Very Small Business and (iii) has structured the Class A and
Class B  Common  Stock  in a  manner  intended  to  ensure  compliance  with the
applicable FCC Rules, The Company has relied on representations of its investors
to  determine  its  compliance  with  the  FCC's  rules  applicable  to  F-Block
licensees.  There can be no assurance,  however, that the Company's investors or
the Company itself will continue to satisfy these  requirements  during the term
of any PCS license  granted to the  Company or that the Company  will be able to
successfully implement divestiture or other mechanisms included in the Company's
Certificate of  Incorporation  which are designed to ensure  compliance with FCC
rules. Any non-compliance with FCC rules could

                                      -14-

<PAGE>

subject  the  Company  to serious  penalties,  including  revocation  of its PCS
licenses.  See "--  Substantial  Debt  Obligations to the U.S.  Government;  "--
Effect of Control by Certain  Stockholders," "-- Foreign Ownership  Limitations"
and "Legislation and Government Regulation."

FOREIGN OWNERSHIP LIMITATIONS

         The FCC must determine that it is in the public  interest for more than
25% of the  capital  contribution  of the parent of a PCS  licensee to be owned,
directly or indirectly,  or voted by non-U.S. citizens or their representatives,
by a foreign government or its  representatives or by a foreign corporation (and
such licenses are so held).  The  restrictions  on foreign  ownership could also
adversely  affect the  ability  of the  Company  to  attract  additional  equity
financing from entities that are, or are owned by,  non-U.S.  entities.  The FCC
Form  600 (the  "Long  Form")  filed  by the  Company  with  the FCC  after  the
completion of the F-Block Auction indicates that the Company's foreign ownership
does not exceed 25%.  However,  if the foreign  ownership of the Company were to
exceed 25% in the  future,  the FCC could  revoke the  Company's  PCS  licenses.
Further,  the  Company's  Certificate  of  Incorporation  enables the Company to
redeem  shares  from  holders of the Common  Stock whose  acquisition  of shares
results in a violation of such limitation. The restrictions on foreign ownership
could  adversely  affect the  Company's  ability to  attract  additional  equity
financing  from  entities  that are,  or are owned by,  non-U.S.  entities.  See
"Description  of Capital Stock -- Common Stock -- Redemption by the Company" and
"Legislation and Government Regulation."

         The  recent  World  Trade  Organization   ("WTO")  agreement  on  basic
telecommunications   services  could  eliminate  or  loosen  foreign   ownership
limitations  but could  also  increase  the  Company's  competition.  Under this
agreement,  the United States and other members of the WTO committed  themselves
to opening their telecommunications markets to competition and foreign ownership
and  to   adopting   regulatory   measures   to  protect   competitors   against
anticompetitive behavior by dominant telephone companies,  effective as early as
January 1, 1998. Under the WTO agreement,  the United States agreed to eliminate
the foreign ownership limits if the alien investment is domiciled in another WTO
country;  however there can be no assurance as to when or if the FCC will change
its policy.

EFFECT OF CONTROL BY AFC

         As the  Control  Group of the  Company,  AFC has at least  50.1% of the
voting  power of the  outstanding  equity of the Company and will be entitled to
elect up to three  members (the "Class B Directors")  to the Company's  Board of
Directors,  who will have votes  comprising a total of three full votes. It also
has to have actual control of the Company. The remaining members of the Board of
Directors,  as elected by the holders of Class A Common  Stock,  will have votes
comprising a total of two full votes. There can be no assurance that the Company
has met or will be able to continue to meet the Control Group Requirements.  See
"--F-Block License Requirements."

         Control of the Company by AFC will likely  deter and delay  unsolicited
changes  in  control  of the  Company.  In  addition,  other  provisions  of the
Company's  Certificate of  Incorporation  and Bylaws as well as provisions under
Delaware Law may discourage potential acquisition proposals. See "Description of
Capital  Stock --  Antitakeover  Effects of  Provisions  of the  Certificate  of
Incorporation, Bylaws, Delaware Law and Control Group Requirements."

DEPENDENCE ON KEY DIRECTORS AND OFFICERS

         The  Company  has  no  employees.  Accordingly,  the  Company's  future
performance depends in substantial part upon the continued  contributions of its
key directors and officers.  The loss of the services of these directors  and/or
officers,  who have no  obligation  to continue  as such,  could have a material
adverse effect upon the Company's business,  results of operations and financial
condition.  The  Company  believes  there is and  will  continue  to be  intense
competition  for  personnel  with  experience  in the  wireless  industry as the
emerging PCS market  develops.  There can be no  assurance  that the Company can
attract, assimilate or retain other highly qualified

                                      -15-

<PAGE>

personnel  in  the  future.  See  "Management  of  Growth;   Need  to  Establish
Infrastructure and "Effect of Control by Certain Stockholders."

HEALTH RISKS

         Allegations  have been  raised that the use of  hand-held  cellular/PCS
phones may pose health  risks to humans due to RF emissions  from the  handsets.
Studies performed by wireless telephone  equipment  manufacturers  dispute these
allegations,  and a major industry trade  association  and certain  governmental
agencies have stated  publicly that the use of such phones poses no undue health
risk.  Regardless of the truth of these allegations,  they could have an adverse
effect on the Company. In addition,  digital wireless telephones have been shown
to cause  interference  to some  electronic  devices,  such as hearing  aids and
pacemakers.

         Concerns over RF emissions also may have the effect of discouraging the
use of wireless  communication  devices,  such as the PCS phones to be used with
the Company's  networks.  The FCC recently  added new guidelines and methods for
evaluating  the  environmental   effects  of  RF  emissions  from  FCC-regulated
transmitters,  including wireless antennas and handsets.  The revised guidelines
and methods  generally are more stringent than those  previously in effect.  The
FCC also  incorporated into its rules provisions of the  Telecommunications  Act
that  preempted  state or  local  government  regulation  of  personal  wireless
services  facilities  based on RF  environmental  effects,  to the  extent  such
facilities  comply  with the FCC's views  concerning  such RF  emissions.  These
concerns could have an adverse effect on the Company's  financial  condition and
the results of its operations.

ANTITRUST INVESTIGATION

         The United States  Department of Justice has initiated an investigation
to  determine  whether  there has been bid  rigging  and market  allocation  for
licenses  auctions by the FCC for PCS. The Company,  together with various other
bidders in the PCS auctions,  has received a civil investigative  demand ("CID")
requesting  documents and information relating to bidding, and in June 1997, the
Company complied with the CID. The Company does not know what further action, if
any, the Justice Department or the FCC may take.

ABSENCE OF DIVIDENDS

         The Company has never paid any cash dividends and currently intends not
to pay any  dividends  for the  foreseeable  future.  To the extent the  Company
requires  additional  funding  currently not provided for in its financing plan,
such  funding  sources  may  likely  prohibit  the  payment  of  dividends.  See
"--Significant Capital Requirements; Financing risks."

POTENTIAL SALES LIMITATIONS;  SHARES ELIGIBLE FOR FUTURE SALE;  POSSIBLE ADVERSE
EFFECT ON FUTURE MARKET PRICES

         It is not  currently  intended  that the Class A Common  Stock  will be
listed or  registered  on any  national  securities  exchange  or on the  NASDAQ
market.  Accordingly,  there is no assurance  that a trading market will develop
for the Class A Common  Stock,  and the ability to buy or sell shares of Class A
Common Stock may be limited.

         Sales of  substantial  amounts of Class A Common  Stock in the  trading
market which develops could materially  adversely affect the market price of the
stock.  Such sales also might  make it more  difficult  for the  Company to sell
equity  or  equity-related  securities  in the  future  at a time and  price the
Company deems appropriate.

                                      -16-

<PAGE>
                             SELECTED FINANCIAL DATA

         The  following  selected  financial  data are  derived  from  financial
statements  of the Company  certain of which have been  audited by Ernst & Young
LLP,  independent  auditors.  Ernst  &  Young  LLP's  report  on  the  financial
statements  for the period from July 26, 1996  (inception) to December 31, 1996,
the six months ended June 30, 1997 and the period from July 26, 1996 (inception)
to June 30,  1997,  which  appears  elsewhere  herein,  includes an  explanatory
paragraph which describes an uncertainty about the Company's ability to continue
as a going concern. The data should be read in conjunction with the consolidated
financial  statements,  related notes, and other financial  information included
herein.
<TABLE>
<CAPTION>

                                     PERIOD FROM
                                       JULY 26                                                              NINE MONTHS ENDED
                                   (INCEPTION) TO                  SIX MONTHS ENDED
                                    DECEMBER 31,                                                   SEPT 30, 1997 SEPT 30, 1997
                                                                                                   ------------- -------------
                                        1996                 JUNE 30, 1997 JUNE 30, 1997               (ACTUAL) (PRO FORMA)
                                       ------                ------------- -------------                                   
                                      (ACTUAL)                   (ACTUAL) (PRO FORMA)

<S>                                  <C>                    <C>              <C>                  <C>                 <C>
STATEMENTS OF OPERATIONS DATA
Revenue........................          $--                    $--              $--                 $--                  $--
Interest Expense (including
commitment fees)...............       1,579,000              1,312,000           --(1)           (1,720,076)              --(1)
Partners' Loss.................      (1,579,000)            (1,312,000)          --(1)            1,720,076               --(1)
Number of Common Shares                 N.A.                    N.A.         3,552,000(2)            N.A.            3,552,000(2)
Outstanding....................
</TABLE>
<TABLE>
<CAPTION>

                                  DECEMBER 31, 1996   JUNE 30, 1997        JUNE 30, 1997      SEPT 30, 1997       SEPT 30, 1997
                                  -----------------   -------------        -------------      -------------       -------------
                                       (ACTUAL)         (ACTUAL)            (PRO FORMA)         (ACTUAL)           (PRO FORMA)
BALANCE SHEET DATA
<S>                                     <C>               <C>              <C>                   <C>              <C>
Cash and cash equivalents.....          $        --       $       --         $250,000(3)         $       --         $250,000(3)
Deposits with FCC.............           12,000,000               --                  --                 --                  --
PCS licenses..................                   --       18,958,000          18,958,000         18,958,000          18,958,000
Total assets..................           12,000,000       19,184,000       19,434,000(3)(4)      19,743,000       19,993,000(3)(4)
Loan from FCC ................                   --       15,166,000          15,166,000         15,166,000          15,166,000
Loan from Limited Partner ....           11,800,000        2,708,000               --(4)          3,634,000               --(4)
Redeemable Preferred Stock....                   --               --        5,686,000(4)                           7,337,000(4)

EQUITY DATA
Partners' contributions.......              200,000          200,000                  --            200,000                  --
Common stock..................                   --               --                 355                 --                 355
Additional paid-in-capital....                   --               --             449,645                 --             449,645
Accumulated losses............          (1,578,500)      (2,890,658)         (2,890,658)        (3,298,576)         (3,298,576)
                               ----------------------------------------------------------------------------------------------------
Total (deficit)...............          (1,378,500)      (2,690,658)         (2,440,658)        (3,098,576)         (2,848,576)
</TABLE>

- ------------------------------
(1)   Assumes that the debt obligation of the Company to Lynch PCS Corporation F
      (the "Limited  Partner"),  was converted to Preferred  Stock at January 1,
      1997.
(2)   Assumes  that limited  partnership  has been  converted  to a  corporation
      effective June 30, 1997, and September 30, 1997, respectively.
(3)   Assumes that the General and Limited Partners had made additional  capital
      contributions  to the  Company in the  aggregate  amount of $250,000 as of
      either June 30, 1997 or September 30, 1997.
(4)   Assumes  that the debt  obligation  of the Company to the Limited  Partner
      (including   accrued  interest  and  commitment  fees  of  $2,978,000  and
      $3,702,716)  was  converted  to  Preferred  Stock  at June  30,  1997  and
      September 30, 1997, respectively.

                                      -17-

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

         This Prospectus,  including the following discussion,  contains certain
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933 and  Section  21E of the  Securities  Exchange  Act of  1934.  These
sections  do not apply to  companies  which  are not  subject  to the  reporting
requirements of the securities law at the time those statements are made. Actual
results  could differ  materially  from those  projected in the  forward-looking
statements  as a result of certain of the risk factors  commencing  on page 6 as
well as other factors described below and elsewhere in this Prospectus.

         The Company is a development stage company with no significant  results
of operations to date. The Company's principal expense to date has been interest
(including commitment fees) plus minor administrative  expenses.  The ability of
the Company (or a joint venture) to develop a profitable PCS business is subject
to  substantial  risks  enumerated  under "Risk  Factors" and  elsewhere in this
Prospectus.

         Unless the Company  sells its PCS  business or joint  ventures  its PCS
licenses with an entity that has the capacity to provide  substantial funds, the
Company will need to raise substantial capital to fund its installment  payments
to the  U.S.  Government  and the  build  out of its  PCS  licenses.  Under  the
Government Financing, the Company has to make payments of approximately $948,000
in each of the first two years,  and  $2,424,000  in each of years three through
ten. The interest payments have been suspended,  however, until the FCC resolves
issues surrounding  restructuring C-Block licenses.  The Company does not have a
reliable  estimate of the cost to build out its PCS licenses but it is likely to
be substantial.

         The Company will have to raise funds  shortly in order to make interest
payments  on the  Government  Financing  and for  working  capital  and  general
corporate  purposes.  There  can be no  assurance  that the  Company  can  raise
sufficient funds. The report of the Company's  independent auditors with respect
to the  financial  statements  of the  Company for the period from July 26, 1996
(inception)  to December  31,  1996,  the six months ended June 30, 1997 and the
period from July 26, 1996  (inception)  to June 30, 1997 contains a paragraph as
to the Company's ability to continue as a going concern. Among the factors cited
by the  auditors as raising  substantial  doubt as to the  Company's  ability to
continue as a going concern is that,  with respect to the periods  covered,  the
Company has incurred  losses since  inception and has not yet adopted a business
plan or determined how to finance its operations and will need to obtain capital
in the near future in order to fund its  interest  payment  obligations  and for
working capital and general corporate  purposes.  See "The Company - Proceeds of
the Spin Off and Future Funding  Requirements," "Risk Factors" and the Financial
Statements  of the Company and the notes  thereto and the Report of  Independent
Auditors included herein.

RESULTS OF OPERATIONS

Interest Expense

         For the period from July 26  (inception) - December 31, 1996,  the nine
month period ended  September 30, 1997 and 1996,  and the six month period ended
June 30, 1997, interest expense consisted of amounts (including commitment fees)
accrued on the  indebtedness  of the Company to the Limited Partner prior to the
grant of PCS licenses (on April 28, 1997 with respect to four  licenses and June
27, 1997 with respect to the fifth  license).  Subsequent to the dates of grant,
interest  expense  (including  commitment  fees  on  outstanding  balances)  was
capitalized.

Partners' Loss

         Partners' loss for both the periods ended  December 31, 1996,  June 30,
1997, and September 30, 1997 resulted primarily from interest charges (including
commitment fees).

                                      -18-

<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

         The principal  amount of  indebtedness  at December 31, 1996,  June 30,
1997  and  September  30,  1997  consisted  of   $11,800,000,   $17,874,000  and
$18,800,000,  not including  accrued interest and commitment  fees,  compared to
accumulated   deficits   of   ($1,379,000),   ($2,691,000)   and   ($3,099,000),
respectively.  During such  periods  the  Company  had no revenues or  operating
profit and cannot  predict when it may have any  revenues or operating  profits.
The indebtedness (including accrued interest and commitment fees) of the Company
to the Limited  Partner  ($7,337,000  at  September  30, 1997) is expected to be
converted into a like principal  amount of redeemable  Preferred  Stock,  with a
dividend payable in additional Preferred Stock. The Company will, however,  have
to pay interest on the Government  Financing of approximately  $948,000 per year
in each of the first two years of the licenses (plus approximately  $355,000 per
year of previously  suspended  interest  payments) as well as administrative and
other expenses. The Company will have to raise funds in order to meet those cash
commitments,  and there can be no  assurance  that it will be able to do so. See
"Risk Factors."


                      THE WIRELESS COMMUNICATIONS INDUSTRY

GROWING DEMAND FOR WIRELESS SERVICES

         Demand for  wireless  communications  has grown  rapidly  over the past
decade  and  has  been  driven  by  technological   advancements  and  increased
competition.  Wireless  communication  products and  services  have evolved from
basic tone-only paging services to mass-market  cellular technology services and
are now  entering  the next  generation  of  development  with the  evolution of
wireless communication technology. Each new generation of wireless communication
products and services  has  generally  been  characterized  by improved  product
quality, broader service offerings and enhanced features.

         The Company believes that the demand for wireless  communications  will
continue to grow  dramatically and that PCS will capture a significant  share of
the wireless market.  Currently,  wireless  telephony  penetration in the United
States is estimated  to be 17% as of December  31, 1996 and,  according to Kagan
Associates,  is  expected to grow to 47% by 2006.  As  reported by the  Cellular
Telecommunications  Industry  Association  ("CTIA"),  the compound annual growth
rate of cellular  subscribers  exceeded 42% from 1990 through 1996. Despite this
rapid growth in the number of cellular subscribers, wireless minutes of use only
represent approximately one percent of total telecommunications switched minutes
of  traffic,  due in part to  capacity  constraints  which  discourage  cellular
operators from aggressively pricing their services.

INDUSTRY OVERVIEW

         General.  Wireless  communications  networks  use a  variety  of  radio
frequencies  to  transmit  voice  and  data  signals.   Wireless  communications
technologies  include  one-way  radio  applications,  such as  paging  or beeper
services,  and  two-way  radio  applications,  such as cellular  telephone,  SMR
networks and  emerging PCS  services.  Each  application  operates on a distinct
portion of radio  frequency  spectrum.  Although the  principal  wireless  voice
application  to date has been  cellular  telephony,  PCS is  expected to develop
rapidly.

         Cellular.  The cellular  telephone  industry commenced in 1983 when the
FCC began granting two 20 MHz licenses per market  throughout the United States.
In 1986, the FCC granted an additional 5 MHz of spectrum per cellular license to
provide  a total of 25 MHz for each  cellular  operator.  Today,  there  are two
cellular operators in each market.

         PCS.  In order to  increase  competition  in  wireless  communications,
promote  improved  quality and service,  and make available the widest  possible
range of wireless services to U.S. consumers, Federal legislation was enacted

                                      -19-

<PAGE>

in 1993  directing  the FCC to  allocate  radio  frequency  spectrum  for PCS by
competitive  bidding. The FCC established PCS service areas in the United States
based upon Rand  McNally & Co.'s market  definition  of 51 major  trading  areas
("MTAs")  and 493  basic  trading  areas  ("BTAs"),  which  are  the  geographic
territories for which PCS licenses have been or will be auctioned.

         PCS  licenses  differ from  existing  cellular  licenses in three basic
ways:  location of the licensed  frequencies  on the radio  spectrum,  amount of
spectrum  allocated per license and geographic area licensed.  PCS networks will
operate at higher  frequencies  (120 MHz in the 1850-1990  MHz  frequency  band)
compared to cellular  frequencies  (50 MHz in the 800-900 MHz  frequency  band).
Also,  PCS licenses  will permit the use of spectrum  blocks of 30 MHz or 10 MHz
(like those held by the Company)  versus  spectrum blocks of 25 MHz for cellular
licenses. Finally, the geographic areas for PCS licenses are divided differently
than for cellular  licenses.  PCS is segmented  among 51 MTAs for A- and B-Block
licenses and 493 BTAs for other PCS licenses,  including  F-Block  licenses,  as
opposed to cellular's 306 metropolitan  statistical  areas and 428 rural service
areas.

         In March 1995,  the FCC awarded two 30 MHz licenses (the A- and B-Block
PCS  licenses) in each of the MTAs.  In May 1996,  the FCC completed the C-Block
auction, resulting in the award of one license for 30 MHz of spectrum in each of
the BTAs. In July 1996,  the FCC  reauctioned 18 C- Block licenses for which the
high bidders failed to make initial  post-auction  down payments.  In September,
1997, the FCC gave C-Block licensees the right to turn back to the FCC 15 MHz of
their 30 MHz of spectrum for a reduction  of debt.  Any such  spectrum  returned
would be  reauctioned.  In January 1997, the FCC completed the auction of D-, E-
and F- Block licenses, which are for licenses of only 10 MHz of spectrum in each
of the BTAs. Although the F-Block licenses were reserved for Entrepreneurs,  the
D- and E-Block licenses are not reserved for any specific class of applicants.


                   LIMITATIONS OF CELLULAR TELEPHONE INDUSTRY

         Despite its widespread availability and growth to date, analog cellular
services have several limitations,  including inconsistent service quality, lack
of privacy,  limited  capacity  and,  currently,  the inability to transfer data
without a modem.  Most current cellular services transmit voice and data signals
over  analog-based  systems,  which use one  continuous  electronic  signal that
varies in amplitude or frequency over a single radio channel  accommodating  one
conversation.  In contrast,  digital networks,  including PCS networks,  convert
voice  or  data  signals  into a  stream  of  digits  and  typically  use  voice
compression  techniques  to  allow a single  radio  channel  to  carry  multiple
simultaneous   signal   transmissions.   This  enhanced  capacity,   along  with
improvements  in  digital  protocols,  allows  PCS and  other  digital  wireless
technologies to offer greater call privacy and single number  service,  and more
robust data transmission features.

         The Company  believes  that due to relatively  high per minute  airtime
charges  and  unpredictable  monthly  bills,  there  is a  price-sensitive  mass
consumer market that refrains from subscribing to or extensively  using cellular
services.  The Company  believes that if the mass  consumer  market were offered
significantly  lower  per  minute  airtime  charges  and  more  predictable  and
affordable  pricing plans,  mass consumers  would increase their use of wireless
communications services,  contributing to a new phase of growth in the industry.
The Company also believes that business  customers who are high- volume users of
wireless  communications  will be attracted to lower priced airtime service,  as
they would realize substantial  aggregate savings. The Company believes that PCS
operators  have the  opportunity  to capture a  substantial  market share due to
technical  and  other  advantages  that they will  have  relative  to  incumbent
cellular  operators,  including  (i)  greater  flexibility  to reduce per minute
airtime usage charges,  (ii) increased  network  capacity,  (iii) enhanced voice
quality and (iv) the ability to include enhanced  capabilities  such as advanced
calling features,  data transmissions to and from portable computers,  and short
messaging and facsimile services without need of a modem.


                                      -20-

<PAGE>
THE PCS SOLUTION

         PCS operators plan to construct all-digital wireless telephony networks
and will compete  primarily  with existing  cellular  telephone  operators.  PCS
operators  using  digital  technology  will have several  technical and capacity
related advantages relative to analog cellular  providers.  The Company believes
that the  enhanced  capacity of PCS networks  will allow PCS  operators to offer
wireless  communications  services at per minute  airtime  prices  significantly
below  the per  minute  airtime  prices  currently  being  charged  by  cellular
operators.  As a result PCS subscribers are expected to use more airtime minutes
per month than cellular  subscribers due to both lower effective airtime pricing
and enhanced  features.  The Company  believes that PCS  operators  will realize
substantial revenue growth from broad penetration and greater levels of usage.

         PCS was introduced in the United States in the Washington,  D.C. MTA in
late 1995.  Despite the PCS network  having a much smaller  geographic  coverage
area than  existing  cellular  competitors  and no current  roaming  capability,
approximately  90,000  customers  subscribed for PCS services in the first seven
months of commercial  availability.  The Company believes that the experience in
international  markets where PCS has already been introduced provides additional
support for the potential  growth of PCS in the United States.  For example,  in
approximately  three years,  the two PCS  operators  in the United  Kingdom have
gained over 1.1 million  subscribers.  In Japan,  approximately  600,000 new PCS
subscriptions were activated during the first year of operations.

INDUSTRY OUTLOOK

         Industry  sources  expect  the  wireless  telecommunications  market in
general and the PCS market in  particular  to grow at a rapid rate in the United
States.   Kagan  Associates   forecasts   wireless   telephony   penetration  at
approximately 47% by 2006. Wireless  communication  technology  developments are
expected to evolve and  continue to drive mass  consumer  growth as users demand
more  sophisticated  services and products.  The Company  believes that wireless
communications  penetration  rates  will  increase  as prices  fall and  greater
emphasis  is  placed  on the  development  and use of mass  retail  distribution
channels.

DIGITAL TECHNOLOGY SELECTION

         There are three  prominent  network  technologies  that provide digital
service in the 1850-1990 MHz frequency band: CDMA, TDMA and GSM.

         PCS service areas are divided into  multiple  regions  called  "cells,"
each of which  contains a base station  consisting of low-power  transmitter,  a
receiver and signaling  equipment.  The cells are typically configured on a grid
in a honeycomb-like  pattern,  although terrain factors  (including  natural and
man-made  obstructions)  and signal coverage  patterns may result in irregularly
shaped cells and overlaps or gaps in coverage.  The base station in each cell is
connected  to a base station  controller  and each base  station  controller  is
connected to a switching office by microwave, fiber optic cable, telephone wires
or a hard-wired  interface.  The switching  office controls the operation of the
wireless telephone networks for its entire service area,  performing  inter-base
station  hand-offs,  managing call delivery to handsets,  allocating calls among
the  cells  within  the  networks  and  connecting  calls to and from the  local
landline  telephone  system or to a long distance  telephone  carrier.  Wireless
service  providers have  interconnection  agreements  with various LECs and long
distance carriers, thereby integrating wireless telephone networks with landline
telecommunications   systems.   Because  two-way  wireless  networks  are  fully
interconnected  with landline  telephone  networks and long  distance  networks,
subscribers  can  receive and  originate  both local  distance  calls from their
wireless telephones.

         The signal  strength  of a  transmission  between a handset  and a base
station  declines  as the  handset  moves  away  from the base  station,  so the
switching  office and the base stations  monitor the signal strength of calls in
progress.  In an analog system, when the signal strength of a call declines to a
predetermined  level,  the  switching  office may "hand off" the call to another
base station that can establish a stronger signal within the handset. It a

                                      -21-

<PAGE>
handset leaves the service area of the wireless  service  provider,  the call is
disconnected unless an appropriate  technical interface is available to hand off
the call to an adjacent system.

         There are different radio  air-interface  standards  established in the
United  States for the  provisions  of PCS to multiple  users over the allocated
spectrum. The primary methods of digital wireless communications widely accepted
by the  wireless  industry  are based on TDMA and CDMA.  These  multiple  access
techniques provide for communications  over the radio channel either by dividing
it into distinct  time slots and  transmitting  user-specific  data in each time
slot (a method known as TDMA) or by assigning  specific  codes to each packet of
user data that in  conjunction  with many other users' data comprise a signal (a
method  known as  CDMA).  While  the FCC has  mandated  that  licensed  cellular
networks in the U.S. must utilize compatible analog signaling protocols, the FCC
has intentionally  avoided mandating a universal digital signaling  protocol for
PCS. Three principal  competing,  incompatible  digital wireless  standards have
been proposed by various vendors for use in PCS networks; CDMA, GSM and TDMA. An
older version of TDMA developed in Europe,  GSM  constitutes the oldest and most
extensive PCS technology in international  markets.  TDMA, while currently being
offered by cellular  providers in certain  U.S.  cities,  has, in the  Company's
opinion,  often been  associated  with poor sound  quality and numerous  dropped
calls.  CDMA is  currently  being  deployed  by a  number  of  cellular  and PCS
providers in the U.S., and also has been  implemented  on a commercial  basis in
Hong Kong and South  Korea.  CDMA  networks  are in  operation in over 40 cities
worldwide and at least 100 additional networks are currently under construction.
Although  CDMA has only  recently  been widely  deployed in the U.S.,  it is the
mostly widely  subscribed by PCS service providers and the Company believes that
CDMA  technology  will be less costly to deploy and will provide better quality,
greater capacity and more flexibility than either GSM or TDMA.

         Because  these  protocols are  incompatible  with each other as well as
with analog cellular, a subscriber utilizing a GSM handset, for example, will be
unable to use his handset  when  traveling  in an area covered only by a CDMA or
TDMA based network unless he carries a dual-mode/dual-band  handset that permits
the  subscriber  to use the analog  cellular  networks  in that  area.  For this
reason,  the success of each  protocol  will depend both on its ability to offer
quality  wireless  service  and on the extent to which its users will be able to
use their  handsets  when  roaming  outside  their  service  area.  PCS  service
providers holding licenses covering 99% of the U.S. population have announced an
intent to use CDMA technology, including all of the top 100 markets in the U.S.

COMPETITION

         The wireless  communications market in the United States is expected to
become increasingly competitive.  Cellular operators and other wireless services
providers  are  already  exploiting   existing  wireless   technology  and  have
established and continue to augment  wireless  telecommunications  networks that
will  directly  compete  with many of the services to be offered by the Company.
Additionally,  other PCS  operators  are expected to compete with the Company in
each market.  The success of the Company will depend largely upon its ability to
satisfy the mass consumer and business markets,  which the Company believes have
not been adequately served by existing cellular service  operators.  The Company
plans  to  compete  with  cellular  and  other  PCS  operators  on the  basis of
affordable pricing, predictable monthly bills and voice transmission quality.

         Cellular Operators.  The Company will compete with established cellular
telephone  service  operators  in the  markets it  intends  to enter.  Principal
cellular  providers in the Company's markets are AT&T Wireless  Services,  Inc.,
BellSouth   Mobility,   Inc.,   GTE   Mobile   Communications   Inc.,   AirTouch
Communications,   Inc.,   Centennial   Cellular  Corp.,   U.S.  Cellular  Corp.,
Independent  Cellular  Network Inc. and Palmer  Wireless,  Inc. Under FCC rules,
cellular telephone service licensees have enjoyed a duopoly because the FCC only
permits two  licensees  in each  market.  Cellular  licensees to date have faced
limited  competition from businesses that "resell" cellular telephone service to
customers,  but the Company could face additional  competition from resellers of
cellular and PCS networks.


                                      -22-

<PAGE>
         The  introduction  of digital  transmission  technologies  to  supplant
traditional  analog  cellular  systems will increase the capacity and quality of
existing cellular telephone systems once deployed. However, the Company believes
that  upgrading  from analog to digital is expensive  and that it will likely be
several  years  before   cellular   networks  are  fully  converted  to  digital
technology. The Company expects the analog infrastructure to continue to be used
for  the  foreseeable  future  due in  part  to a  lack  of a  national  digital
technology  standard.  The Company further expects that many cellular  licensees
will also attempt to acquire an  additional  10 MHz PCS license in the D- and E-
Block  auctions  in areas in which they  currently  provide  cellular  telephone
services,  as permitted  by the FCC under its PCS  licensing  rules.  This would
provide the cellular  operators with greater capacity and potentially allow them
to add additional customers and offer more advanced services in their markets in
the near term. The Company  believes that by providing  low-priced  services and
new wireless  features on its digital PCS networks,  it will be competitive with
cellular services.

         Other PCS  Operators.  The  Company  will  compete  with A- and B-Block
licensees, many of whom are cellular-affiliated  companies that will utilize PCS
spectrum in new markets to expand their national or regional coverage as well as
C-Block licenses.  In September,  1997, the FCC gave C-Block licensees the right
to turn back to the FCC 15 MHz of their 30 MHz of spectrum  for a  reduction  of
debt.  Any such spectrum  returned  would be  reauctioned.  Principal A-, B- and
C-Block  licensees in the Company's  markets are PCS PrimeCo,  Cox  Enterprises,
American  Personal  Communications,  Nextwave,  PCS 2000 L.P., Alpine PCS, Inc.,
Pacific  Telesis,  Sprint  Spectrum,  Aerial  Comm.  and AT&T PCS,  whose A- and
B-Block  licenses  were granted in June 1995,  and whose  C-Block  licenses were
granted in September  1996 have all had  substantial  lead-time to develop their
networks and some of these  parties,  particularly  the A- and B-Block  licenses
have significantly greater financial,  technical,  marketing and other resources
than the Company.

         In addition,  the Company will compete with the D- and E-Block  license
winners  (principally,  ATT Wireless PCS, Inc.,  Rivgam  Communicators,  L.L.C.,
Sprint  Comm.,   OPSCE-Galloway   Consol.,   Bell  South   Wireless,   Inc.  and
Entertainment  Unlimited)  to the extent that such  licenses are not acquired by
existing cellular or A-, B- or C- Block PCS licenses. Although the D- and E- and
F-Block licenses are for only 10 MHz (as is the Company's) entities can, subject
to FCC's rules  limiting  entities to 45 MHz of cellular,  broadband PCS and SMR
spectrum in a given market,  can acquire 10 MHz licenses and consolidate them so
as to design a 20 MHz or 30 MHz PCS system which could have more  capacity  than
the Company's.

         SMR and  "Enhanced"  SMR  Services.  As a result of advances in digital
technology,  some  service  providers  have begun to design  and deploy  digital
mobile  networks,  which are  referred  to as  "Enhanced  SMR" or  "ESMR."  ESMR
networks increase the capacity of SMR system  frequencies to a level that may be
competitive with that of analog cellular  networks.  SMR service providers offer
or plan to offer fleet dispatch  services,  short  messaging,  data services and
interconnected  voice  telephony  services over wide  geographic  service areas.
Given  similar  developments  in the  deployment  of digital  technology  in the
cellular operators' networks, it is unclear at this time whether the quality and
capacity  of  SMR-based   digital  mobile  networks  will  be  able  to  compete
effectively with analog and digital cellular and PCS networks.  However,  Nextel
has begun offering,  apparently  successfully,  a competitive  wireless  service
based on ESMR.

         Other  Competition.  The FCC has adopted rules to authorize  additional
wireless mobile services. First, the FCC has authorized the use of the 37 and 39
GHz bands for the provision of fixed and mobile communications services. The FCC
auctioned 30 MHz of spectrum in the 2.3 GHz band for WCS which  auction ended in
May 1997.  FCC  rules  permit  WCS  providers  to offer a broad  range of fixed,
mobile, radio location and satellite broadcast services,  some of which could be
in competition with the Company's service offerings. Second, in May 1996 the FCC
adopted  final  rules to  permit  Interactive  Video and Data  Service  ("IVDS")
licensees to provide mobile two-way data services. Because of the limited amount
of spectrum  allocated  for IVDS,  however,  it is  expected  to be  technically
infeasible  to provide  voice  services to IVDS  customers  for the  foreseeable
future.  Third,  the FCC authorized the use of LMDS licenses to provide  certain
fixed and mobile  services.  Fourth,  the FCC has proposed to reallocate  former
federal government spectrum located at 4 GHz for a broad range of wireless fixed
and mobile

                                      -23-

<PAGE>
services,  and is expected to reallocate  additional  former federal  government
spectrum for wireless mobile  services in the future.  The Company may also face
competition from MSS. Finally, the FCC recently modified its rules to permit the
partitioning and disaggregation of broadband PCS licenses into licenses to serve
smaller service areas,  and/or use smaller spectrum  blocks.  The purpose of the
FCC's rule change was to permit  existing PCS  licensees and new PCS entrants to
have greater flexibility to determine how much spectrum and geographic area they
need or desire in order to provide  PCS  service.  The FCC's  action  could also
result in A-, B-, C-, D-,  and/or E- Block PCS  licensees in the  Company's  PCS
markets  partitioning or disaggregating their licenses in a manner that provides
increased   competition  to  the  Company.   See   "Legislation  and  Government
Regulation."

         In addition,  as a result of the  enactment  of the 1996 Act,  regional
energy  utility  companies  are  expected  to enter the  wireless  and  wireline
telecommunications  markets by  leveraging  their  significant  capital  assets,
brand-name value, existing customer base and infrastructure  advantages in their
geographical  areas of  operation.  Similarly,  the  1996  Act  also  eliminates
barriers for cable  television  system  operators to provide wireline local loop
services  over  their  existing  wireline  infrastructure.  See "Risk  Factors--
Competition."


                      LEGISLATION AND GOVERNMENT REGULATION

         As a recipient of licenses  acquired through the F-Block  Auction,  the
Company's  ownership  structure  and  operations  are  and  will be  subject  to
substantial FCC regulation.


OVERVIEW

         FCC  Authority.  The  Communications  Act  of  1934,  as  amended  (the
"Communications  Act"),  grants the FCC the  authority to regulate the licensing
and operation of all non-federal  government  radio-based services in the United
States.  The  scope  of  the  FCC's  authority  includes  (i)  allocating  radio
frequencies,   or   spectrum,   for   specific   services,   (ii)   establishing
qualifications  for  applicants  seeking  authority  to operate  such  services,
including  PCS  applicants,  (iii)  approving  initial  licenses,  modifications
thereto, license renewals, and the transfer or assignment of such licenses, (iv)
promulgating  and  enforcing  rules and  policies  that govern the  operation of
spectrum   licensees,   (v)  the  technical   operation  of  wireless  services,
interconnection  responsibilities between and among PCS, other wireless services
such as  cellular,  and  landline  carriers,  and (vi)  imposition  of fines and
forfeitures for any violations of those rules and  regulations.  Under its broad
oversight  authority  with  respect  to  market  entry  and the  promotion  of a
competitive  marketplace  for wireless  providers,  the FCC  regularly  conducts
rulemaking  and  adjudicatory  of proceedings to determine and enforce rules and
policies potentially affecting broadband PCS operations.

         Regulatory  Parity.  The FCC  has  adopted  rules  designed  to  create
symmetry  in the manner in which it and the  states  regulate  similar  types of
mobile service providers. According to these rules, all "commercial mobile radio
service" ("CMRS") providers that provide  substantially similar services will be
subject to similar  regulation.  A CMRS service is one in which the mobile radio
service  is  provided  for a  profit,  interconnected  to  the  public  switched
telephone  networks,  and made  available  to the  public.  Under  these  rules,
providers of PCS, SMR, and ESMR services are subject to  regulations  similar to
those governing  cellular  carriers if they offer an  interconnected  commercial
mobile  service.  The FCC announced that it would forbear from applying  several
regulations  to these  services,  including its rules  concerning  the filing of
tariffs  for  the  provision  of  interstate  services.   Congress  specifically
authorized  the FCC to forbear  from  applying  such  regulation  in the Omnibus
Budget  Reconciliation  Act of 1993. With respect to PCS, the FCC has stated its
intent to continue monitoring  competition in the PCS service  marketplace.  The
FCC also  concluded  that Congress  intended to preempt state and local rate and
entry  regulation  of  all  CMRS  providers,   including  PCS,  but  established
procedures for state and local  governments to petition the FCC for authority to
continue or initiate such regulation.


                                      -24-

<PAGE>
         Commercial  Mobile Radio Service Spectrum  Ownership Limit. The FCC has
limited the amount of broadband CMRS spectrum (including cellular, broadband PCS
and  SMR) in which  an  entity  may  hold an  attributable  interest  in a given
geographic  area to 45 MHz. For these  purposes only PCS and other CMRS licenses
are attributed to an entity where its investments  exceed certain  thresholds or
the  entity is an  officer or  director  of a  broadband  PCS,  cellular  or SMR
licensee. Thus, entities with attributable interests in cellular licenses (which
are for 25 MHz) in certain  markets cannot hold more than 20 MHz of PCS spectrum
in the same markets.  The Company's  ability to raise capital from entities with
attributable  broadband CMRS interests in certain  geographic areas is likely to
be limited by this restriction.

         Other FCC  Requirements.  The FCC had been  conducting  rulemakings  to
address  interconnection  issues among CMRS  carriers and between CMRS and LECs.
These  proceedings  were  significantly   affected  by  the  1996  Act  and  FCC
rulemakings  conducted  pursuant to the 1996 Act.  See  "--1996  Act" and "--FCC
Interconnection Proceedings."

         The FCC has adopted rules that  prohibit  broadband  PCS,  cellular and
certain  SMR  licensees  from  unreasonably  restricting  the  resale  of  their
services.  The FCC has determined that the  availability of resale will increase
competition  at a faster pace by allowing new  entrants to the  wireless  market
quickly  through  the  resale  of their  competitors'  services  while  they are
building out their own facilities. This prohibition will expire five years after
the FCC  concludes  its initial  licensing  of  broadband  PCS  spectrum,  which
concluded  in 1997.  Additionally,  the FCC  requires  such  carriers to provide
manual roaming  service to  subscribers  of other such  carriers,  through which
traveling  subscribers  of other  carriers may make calls after  establishing  a
method of payment with a host carrier.

         The FCC has revised its rules to permit CMRS  operators,  including PCS
licensees,  to use their assigned spectrum to provide fixed local loop and other
services on a co-primary basis with mobile  services.  The FCC is continuing its
rulemaking  proceeding to determine the extent to which such fixed services fall
within the scope of CMRS regulation.

         The FCC has imposed number  portability  requirements on broadband PCS,
cellular,  and certain SMR providers.  By December 31, 1998, such licensees,  as
well as LECs,  must provide their  customers with the ability to change carriers
while retaining phone numbers.  CMRS providers subject to the number portability
requirements must have the capability of delivering calls from their networks to
ported numbers  anywhere in the United States.  By June 30, 1999, such providers
must be  able  to  offer  number  portability  without  impairment  of  quality,
reliability,  or convenience  when switching  service  providers,  including the
ability to support  roaming  throughout  their  networks.  The FCC has solicited
further comment on the appropriate  cost-recovery  methods  regarding  long-term
number portability.

         FCC rules that will take effect in October 1997 require cellular,  PCS,
and certain SMR  carriers to transmit 911  emergency  calls from  handsets  that
transmit  mobile  identification  numbers  to  Public  Safety  Answering  Points
("PSAPs") without any credit checks or validation and require that such carriers
must be  capable  of  transmitting  911 calls from  individuals  with  speech or
hearing disabilities through means such as text telephone devices. By April 1998
such carriers must relay the mobile  telephone number of the originator of a 911
call as well as the location of the cell that is handling  the call.  By October
2001,  such  carriers  must be able to provide the PSAP with the location of the
mobile caller  within a radius of 125 meters.  Several  parties filed  petitions
currently  pending  at the FCC  requesting,  among  other  things,  that the FCC
reconsider the  requirement  that wireless  carriers  transmit calls that do not
have a code identification of PSAPs. The FCC has issued a Further Notice seeking
additional  comment on the future of mobile  emergency  calling  technology  and
capabilities.

         In  August  1996  the  FCC  adopted  new  guidelines  and  methods  for
evaluating the effects of radiofrequency  emissions from transmitters  including
PCS mobile telephones and base stations. The new guidelines, which are

                                      -25-

<PAGE>
generally more stringent than previous requirements,  were effective immediately
for hand-held devices and otherwise became effective January 1, 1997.

         Other  Federal  Regulations.  Wireless  networks are subject to certain
Federal  Aviation  Administration  and FCC  guidelines  regarding  the location,
lighting and construction of transmitter towers and antennas.  In addition,  the
FCC has authority to enforce  certain  provisions of the National  Environmental
Policy Act as they would apply to the Company's facilities.  The Company intends
to  use  common  carrier  point-to-point   microwave  and  traditional  landline
facilities  to connect base station  sites and to link them to their  respective
main switching  offices.  These  microwave  facilities  have  historically  been
separately licensed by the FCC on a first-come, first-served basis (although the
FCC has proposed to auction  certain such  licenses) and are subject to specific
service rules.

         Wireless  providers  also must  satisfy a variety  of FCC  requirements
relating  to  technical  and  reporting  matters.  One such  requirement  is the
coordination  of  proposed   frequency  usage  with  adjacent   wireless  users,
permittees  and  licensees  in order to avoid  electrical  interference  between
adjacent  networks.   In  addition,   the  height  and  power  of  base  station
transmitting  facilities  and the type of  signals  they emit  must fall  within
specified parameters.

         State and Local  Regulation.  The scope of state  regulatory  authority
covers such matters as the terms and conditions of interconnection  between LECs
and wireless  carriers under FCC oversight,  customer  billing  information  and
practices,   billing  disputes,   other  consumer  protection  matters,  certain
facilities  construction issues,  transfers of control, the bundling of services
and equipment and  requirements  relating to making capacity  available to third
party carriers on a wholesale basis. In these areas,  particularly the terms and
conditions of interconnection  between LECs and wireless providers,  the FCC and
state regulatory  authorities share regulatory  responsibilities with respect to
interstate and intrastate issues, respectively.

         The FCC and a number of state  regulatory  authorities  have  initiated
proceedings or indicated their  intention to examine access charge  obligations,
mutual compensation  arrangements for interconnections between LECs and wireless
providers, the pricing of transport and switching facilities provided by LECs to
wireless providers,  the implementation of "number  portability" rules to permit
telephone customers to retain their telephone numbers when they change telephone
service  providers,  and  alterations  in the  structure  of  universal  service
funding, among other matters.

         Proceedings  with respect to the foregoing policy issues before the FCC
and  state  regulatory  authorities  could  have  a  significant  impact  on the
competitive  market  structure  among wireless  providers and the  relationships
between wireless providers and other carriers.

GENERAL PCS REGULATIONS

         In June 1994 the FCC  allocated  spectrum  for  broadband  PCS services
between the 1850 to 1990 MHz bands.  Of the 140 MHz  available for PCS services,
the FCC created six separate  blocks of spectrum  identified  as the A-, B-, C-,
D-,  E- and  F-Blocks.  The A-, B- and  C-Blocks  are each  allocated  30 MHz of
spectrum, the D-, E- and F-Blocks are allocated 10 MHz each. For each block, the
FCC adopted a 10-year PCS license term with an opportunity  to renew.  20 MHz of
spectrum within the PCS band is reserved for unlicensed use.

         The FCC adopted a "rebuttable  presumption"  that all PCS licensees are
common carriers,  subject to Title II of the  Communications  Act.  Accordingly,
each PCS  licensee  deemed to be a common  carrier must  provide  services  upon
reasonable  request and the rates,  terms and  conditions of service must not be
unjustly or unreasonably discriminatory.

         Structure  of PCS Block  Allocations.  The FCC defines  the  geographic
contours  of the  licenses  within  each  PCS  block  based on the MTAs and BTAs
developed by Rand McNally & Co. The FCC awarded A- and B-Block

                                      -26-

<PAGE>
licenses in 51 MTAs.  The C-, D-, E- and F-Block  spectrum were allocated on the
basis of 493 smaller BTAs. In addition,  there are spectrum  aggregation caps on
PCS licensees  limiting them to 45 MHz of broadband CMRS spectrum (e.g., no more
than one 30 MHz PCS license and one 10 MHz license) in any given market.

         All but  three  of the  102  total  A-Block  licenses  and all  B-Block
licenses  were  auctioned  in 1995.  The three  A-Block  licenses  were  awarded
separately pursuant to the FCC's "pioneer's  preference"  program. The auctioned
A- and B- Block licenses were awarded in June 1995. The C- and F-Block spectrums
are reserved for Entrepreneurs.  See "--F-Block  License  Requirements." The FCC
completed  its auction for C-Block  licensees in May,  1996 and  reallocated  18
C-Block licenses on which initial auction winners  defaulted in a reauction that
ended in July 1996.  The FCC  completed  its auction for the D-, E-, and F-Block
licenses in January 1997.

         In  December  1996  the FCC  adopted  rules  permitting  broadband  PCS
carriers to  partition  any service  areas  within  their  license  areas and/or
disaggregate  any amount of spectrum  within their  spectrum  blocks to entities
that meet the eligibility  requirements for the spectrum blocks.  The purpose of
the FCC's rule change was to permit  existing PCS licensees and new PCS entrants
to have greater  flexibility to determine how much spectrum and geographic  area
they need or desire in order to  provide  PCS  service.  Thus,  A-,  B-, D-, and
E-Block  licensees may sell or lease  partitioned or  disaggregated  portions of
their  licenses  at any  time to  entities  that  meet the  minimum  eligibility
requirements  of  the  Communications  Act.   Entrepreneur  (C-  and  F-)  Block
licensees,  such  as  the  Company,  may  only  sell  or  lease  partitioned  or
disaggregated portions of their licenses to other qualified entrepreneurs during
the first five years of their license terms.  Thereafter,  if Entrepreneur Block
licensees  partition or  disaggregate  to  non-entrepreneurs,  they must repay a
proportional share of the outstanding balance on their installment  payments and
a share of any bidding credits that they received.

1996 ACT

         On February 8, 1996, the President  signed the 1996 Act, which effected
a sweeping  overhaul  of the  Communications  Act. In  particular,  the 1996 Act
substantially  amended  Title  II  of  the  Communications  Act,  which  governs
telecommunications  common  carriers.  The policy  underlying  this  legislative
reform  was the  opening  of the  telephone  exchange  service  markets  to full
competition.  The 1996 Act makes all state  and local  barriers  to  competition
unlawful,  whether they are direct or  indirect.  It directs the FCC to initiate
rulemaking   proceedings  on  local  competition  matters  and  to  preempt  all
inconsistent  state  and  local  laws and  regulations.  The  1996 Act  requires
incumbent   wireline  LECs  to  open  their  networks  to  competition   through
interconnection and access to unbundled network elements and prohibits state and
local barriers to the provision of interstate and intrastate  telecommunications
services.

         The 1996 Act prohibits state and local  governments  from enforcing any
law, rule or legal  requirement  that prohibits or has the effect of prohibiting
any person from providing interstate or intrastate  telecommunications services.
States  retain  jurisdiction  under  the  1996 Act to adopt  laws  necessary  to
preserve  universal  service,  protect  public  safety and  welfare,  ensure the
continued  quality of  telecommunications  services and  safeguard the rights of
consumers.

         Implementation  of the  provisions  of the 1996 Act will be the task of
the FCC, the state public utility commissions and a joint  federal-state  board.
Much of the  implementation  of the  1996  Act is being  completed  in  numerous
rulemaking proceedings with short statutory deadlines. These proceedings address
issues and  proposals  that were  already  before the FCC in pending  rulemaking
proceedings  affecting  the  wireless  industry as well as  additional  areas of
telecommunications  regulation  not  previously  addressed  by the  FCC  and the
states.

         Some  specific  provisions of the 1996 Act which are expected to affect
wireless providers are summarized below:


                                      -27-

<PAGE>
         Expanded  Interconnection  Obligations:  The  1996  Act  establishes  a
general  duty  of  all  telecommunications   carriers,   including  F-Block  PCS
licensees, to interconnect with other carriers, directly or indirectly. The 1996
Act  also  contains  a  detailed  list  of  requirements  with  respect  to  the
interconnection  obligations of LECs. These  "interconnect"  obligations include
resale,  number  portability,   dialing  parity,  access  to  rights-of-way  and
reciprocal compensation.

         LECs designated as "incumbents"  (i.e.,  those providing landline local
exchange telephone service at the time the 1996 Act was adopted) have additional
obligations including: to negotiate in good faith; to interconnect on terms that
are  reasonable  and  non-discriminatory  at any  technically  feasible point at
cost-based  rates (plus a reasonable  profit);  to provide  non-  discriminatory
access to facilities and network  elements on an unbundled  basis;  to offer for
resale at wholesale  rates any service that LECs provide on a retail basis;  and
to provide actual  co-location  of equipment  necessary for  interconnection  or
access.

         The 1996 Act  establishes a framework for state  commissions to mediate
and  arbitrate  negotiations  between  incumbent  LECs and  carriers  requesting
interconnection,   services  or  network  elements.  The  1996  Act  establishes
deadlines,  policy  guidelines for state commission  decision making and federal
preemption in the event a state commission fails to act.

         Review of Universal  Service  Requirements.  The 1996 Act  contemplates
that interstate  telecommunications  providers,  including CMRS providers,  will
"make an equitable and  non-discriminatory  contribution" to support the cost of
providing universal service. The FCC recently determined that telecommunications
providers would base their  contributions  on end user interstate and intrastate
revenues.

         Prohibition  Against Subsidized  Telemessaging  Services.  The 1996 Act
prohibits  incumbent LECs from subsidizing  telemessaging  services (i.e., voice
mail,  voice  storage/retrieval,  live operator  services and related  ancillary
services)  from their  telephone  exchange  service or exchange  access and from
discriminating in favor of its own telemessaging operations.

         Conditions on RBOC Provision of In-Region InterLATA Services.  The 1996
Act generally  requires that before engaging in landline long distance  services
in the states in which they provide  landline local exchange service referred to
as in-region interLATA services, the Regional Bell Operating Companies ("RBOCs")
must  (1)  provide  access  and  interconnection  to  one or  more  unaffiliated
competing  facilities-based providers of telephone exchange service, or after 10
months after  enactment of the 1996 Act, no such provider  requested such access
and  interconnection  more than three  months  before the RBOCs has  applied for
authority  and (2)  demonstrate  to the FCC its  satisfaction  of the 1996 Act's
"competitive checklist."

         The specific interconnection  requirements contained in the competitive
checklist,  which the RBOCs must offer on a  non-discriminatory  basis,  include
interconnection  and  unbundled  access;  access to poles,  ducts,  conduits and
rights-of-way owned or controlled by the RBOCs; unbundled local loops, unbundled
transport  and  unbundled   switching;   access  to  emergency  911,   directory
assistance,  operator  call  completion  and white  pages;  access to  telephone
numbers,  databases  and  signaling  for call  routing  and  completion;  number
portability; local dialing parity; reciprocal compensation; and resale.

         The 1996 Act eliminates  the previous  prohibition on RBOC provision of
out- of-region,  interLATA services and all interLATA  services  associated with
the provision of CMRS service, including in-region CMRS service.

         RBOC  Commercial  Mobile Joint  Marketing.  The RBOCs are  permitted to
market jointly and sell wireless services in conjunction with telephone exchange
service,  exchange  access,  intraLATA  and  interLATA   telecommunications  and
information services.


                                      -28-

<PAGE>
         CMRS  Facilities  Siting.  The 1996 Act limits the rights of states and
localities  to regulate  placement of CMRS  facilities  so as to  "prohibit"  or
prohibit  effectively  the provision of wireless  services or to  "discriminate"
among providers of such services. It also eliminates  environmental effects from
RF emissions  (provided the wireless  system complies with FCC rules) as a basis
for states and localities to regulate the placement,  construction  or operation
of wireless  facilities.  The FCC's  implementation  of these provisions and the
scope  thereof  have  neither  been  adopted by the agency nor  reviewed  by the
courts.

         Equal Access.  The 1996 Act provides  that  wireless  providers are not
required to provide equal access to common  carriers for toll services.  The FCC
is authorized to require unblocked access subject to certain conditions.

         Deregulation.  The  FCC is  required  to  forebear  from  applying  any
statutory   or   regulatory   provision   that   is  not   necessary   to   keep
telecommunications  rates and terms reasonable or to protect consumers.  A state
may not apply a  statutory  or  regulatory  provision  that the FCC  decides  to
forebear from applying. In addition,  the FCC must review its telecommunications
regulations every two years and change any that are no longer necessary.

FCC INTERCONNECTION PROCEEDINGS

         In August 1996 the FCC adopted rules to implement  the  interconnection
provisions of the 1996 Act. In its  interconnection  order,  the FCC  determined
that CMRS-to-CMRS  interconnection  may be accomplished  indirectly  through the
interconnection  of each CMRS provider to an incumbent  LEC's  network.  The FCC
determined  that  LECs  are  required  to  enter  into  reciprocal  compensation
arrangements  with all CMRS providers for the transport and  termination of LEC-
originated traffic.  Additionally, the FCC established default "proxy" rates for
reciprocal  compensation,  interconnection  and unbundled network elements to be
used unless or until a state  develops  rates for these items based on the Total
Element Long Run Incremental Cost  ("TELRIC").  The proxy rates for CMRS- to-LEC
interconnection  would result in  significant  savings when  compared with rates
that CMRS providers, principally cellular carriers, have been paying to LECs.

         In July 1997 the U.S. Court of Appeals for the Eighth  Circuit,  acting
on consolidated petitions for review of the FCC's interconnection order, vacated
the rate-related  portions of the order. The court found that the FCC is without
jurisdiction to establish pricing  regulations  regarding  intrastate  telephone
service. The FCC is entitled to appeal the decision.

         The portions of the FCC's interconnection order that are not related to
pricing issues have gone into effect.  In addition to the federal circuit court,
several parties have petitioned the FCC for reconsideration of its decision.  It
is not possible to determine the final outcome of the court  proceedings  or the
petitions  for  reconsideration  or the effect  such  outcome  will have on CMRS
carriers, including the Company.

RELOCATION OF INCUMBENT FIXED MICROWAVE LICENSEES

         In an effort to balance the competing  interests of existing  microwave
users and newly authorized PCS licensees in the spectrum  allocated for PCS use,
the FCC has adopted (i) a transition plan to relocate fixed microwave  operators
that  currently are operating in the PCS spectrum,  and (ii) a cost sharing plan
so that if the  relocation of an incumbent  benefits more than one PCS licensee,
the benefiting PCS licensees will help defray the costs of the  relocation.  PCS
licensees will only be required to relocate fixed  microwave  incumbents if they
cannot share the same spectrum.  The transition and cost sharing plans expire on
April 4, 2005,  at which time  remaining  incumbents in the PCS spectrum will be
responsible for their costs to relocate to alternate spectrum locations.

         Relocation generally involves a PCS operator  compensating an incumbent
for costs  associated with system  modifications  and new equipment  required to
move to alternate,  readily available spectrum. This transition plan allows most
microwave  users  to  operate  in the  PCS  spectrum  for a  two-year  voluntary
negotiation period and an additional one-year mandatory  negotiation period. For
public safety entities dedicating a majority of their system

                                      -29-

<PAGE>
communications for police,  fire, or emergency medical service  operations,  the
voluntary  negotiation  period is three years.  The FCC currently is considering
whether to shorten the voluntary  negotiation period by one year. Parties unable
to reach agreement within these time periods may refer the matter to the FCC for
resolution,  but the  existing  microwave  user is  permitted  to  continue  its
operations until final FCC resolution of the matter.

         The FCC's  cost-sharing  plan allows PCS licensees  that relocate fixed
microwave  links outside of their license areas to receive  reimbursements  from
later-entrant PCS licensees that benefit from the clearing of their spectrum.  A
non-profit  clearinghouse  will be  established  to  administer  the FCC's cost-
sharing plan.

F-BLOCK LICENSE REQUIREMENTS

         When the FCC allocated spectrum to PCS, it designated the F-Block as an
"Entrepreneurs'  Block." FCC rules require F-Block Entrepreneurs to meet various
qualifications  to  hold  F-Block  licenses  or  to  receive  certain  financing
preferences.  Among these are: (i) the various structural requirements governing
equity  investments,  including the Entrepreneurs  Requirements,  Small Business
Requirements and Control Group Requirements,  all of which apply specifically to
Entrepreneurs,  and  the  Foreign  Ownership  Limitations,  which  apply  to all
communications   entities  governed  by  the  FCC;  (ii)  transfer  restrictions
limiting,  among other  things,  the sale of F-Block  licenses;  and (iii) other
ongoing   requirements  that  mandate  network  build-out  schedules  and  limit
cross-ownership of cellular and other wireless investments.  The Company was the
winning bidder for 5 licenses in the F-Block  Auction.  The FCC also  determined
that  Entrepreneurs  that qualify as a Very Small  Business would be eligible to
receive a 25% bidding credit and a F-Block Loan from the federal  government for
80% of the dollar  amount of their  winning  bids in the  F-Block  Auction.  The
Government Financing provided to the Company is F- Block Loans. See "Description
of Certain  Indebtedness." In order to ensure continued  compliance with the FCC
rules,  the FCC has announced its intention to conduct  random audits during the
initial  10-year PCS license  terms.  There can be no assurance that the Company
will continue to satisfy any of the FCC's  qualifications  or requirements,  and
the failure to do so would have a material  adverse  effect on the Company.  See
"Risk   Factors--F-Block   License   Requirements"   and  "--Foreign   Ownership
Limitations."

Structural Requirements

         Entrepreneurs  Requirements.  In order to hold a  F-Block  license,  an
entity must: (i) meet the Entrepreneurs  Revenues Limit by having less than $125
million in gross revenues and (ii) meet the Entrepreneurs  Asset Limit by having
less  than  $500  million  in total  assets  (excluding  the  value  of  C-Block
licenses).  To qualify  for the F-Block  Auction,  an entity had to have met the
Entrepreneurs  Revenues Limit for each of the two years prior to the auction and
the Entrepreneurs  Asset Limit at the time it filed its Short Form. For at least
five years after winning a F-Block license, a licensee must continue to meet the
Entrepreneurs  Requirements,  which are  modified for such  five-year  period to
exclude certain assets and revenues from being counted toward the  Entrepreneurs
Asset  Limit and the  Entrepreneurs  Revenues  Limit,  respectively.  Additional
amounts are excluded if the licensee maintains an organizational  structure that
satisfies the Control  Group  Requirements  described  below.  In  calculating a
licensee's gross revenues for purposes of the  Entrepreneurs  Requirements,  the
FCC includes the gross revenues of the licensee's  affiliates,  those persons or
entities that hold  interests in the licensee and the affiliates of such persons
or entities.

         By claiming status as an Entrepreneur,  the Company  qualified to enter
the  F-Block  Auction.  If the FCC were to  determine  that the  Company did not
satisfy the Entrepreneur Requirements at the time it participated in the F-Block
Auction  or  that  the  Company   fails  to  meet  the   ongoing   Entrepreneurs
Requirements,  the FCC could revoke the Company's PCS licenses, fine the Company
or take other  enforcement  actions,  including  imposing the Unjust  Enrichment
Penalties.   Although  the  Company  believes  it  has  met  the   Entrepreneurs
Requirements,  there  can be no  assurance  that it will  continue  to meet such
requirements or that, if it fails to continue to meet such requirements, the FCC
will not take action against the Company,  which could include revocation of its
PCS licenses.  See "Risk  Factors--F-Block  License  Requirements--Entrepreneurs
Requirements."

                                      -30-

<PAGE>
         Small  Business  Requirements.  An entity that meets the  Entrepreneurs
Requirements may also receive certain  preferential  financing terms if it meets
the Small Business  Requirements.  These preferential  financing terms include a
15% bidding credit for Small  Businesses and a 25% Bidding Credit for Very Small
Businesses (such as the Company) and the ability to make quarterly interest-only
payments  on its F-Block  Loan for the first two years of the license  term (for
Very  Small  Businesses).  To meet the Small  Business  or Very  Small  Business
Requirements, a licensee must have had annual average gross revenues of not more
than $40 million or $15  million,  respectively,  for the three  calendar  years
preceding  the date it filed its Short Form. In  calculating a licensee's  gross
revenues for purposes of the Small and Very Small Business Requirements, the FCC
includes  the gross  revenues of the  licensee's  affiliates,  those  persons or
entities that hold interests in the licensee, and the affiliates of such persons
or entities.

         By claiming status as a Very Small Business,  the Company qualified for
the Bidding  Credit.  If the FCC were to  determine  that the  Company  does not
qualify as a Very Small Business,  the Company would, at a minimum, be forced to
repay the portion of the Bidding  Credit to which it was not entitled.  Further,
the FCC could revoke the Company's PCS licenses,  fine the Company or take other
enforcement  actions,   including  imposing  the  Unjust  Enrichment  Penalties.
Although  the  Company  has  structured  itself to meet the Very Small  Business
Requirements,  there can be no assurance that it will remain in compliance  with
these  requirements or that, if it fails to continue to meet such  requirements,
the FCC will not take action against the Company, which could include revocation
of its PCS  licenses.  See  "Risk  Factors--F-Block  Requirements--  Very  Small
Business Requirements."

         Control Group  Requirements.  If a F-Block  licensee  meets the Control
Group  Requirements,  the FCC excludes  certain  assets and  revenues  from such
licensee's total revenues and assets,  making it easier for the licensee to meet
the Entrepreneurs Requirements and the Small Business Requirements.  The Control
Group Requirements mandate that the Control Group, among other things, have both
actual and legal control of the licensee.  Further, the FCC permits licensees to
qualify under the Control Group Requirements pursuant to the Qualifying Investor
Option if its  Control  Group is  comprised  of the  following:  (i)  Qualifying
Investors that own at least 15% of the equity  interest on a fully diluted basis
and  50.1% of the  voting  power in the  F-Block  licensee  and (ii)  Additional
Control  Group  Members  that hold at least 10% of the  equity  interest  in the
F-Block licensee.  Additional Control Group Members must be either: (a) the same
Qualifying  Investors  in the  Control  Group,  (b)  members  of the  licensee's
management or (c)  non-controlling  institutional  investors,  including venture
capital firms.  To take advantage of the FCC's  Qualifying  Investor  Option,  a
F-Block  licensee must have met the Qualifying  Investor Option  requirements at
the time it filed  its  Short  Form and  must  continue  to meet the  Qualifying
Investor Option  requirements  for three years following the License Grant Date.
Commencing  the fourth year of the license term, the FCC rules (i) eliminate the
requirement that the Additional Control Group Members hold any of the licensee's
equity  interest  and (ii) allow the  licensee  to reduce the  minimum  required
equity  interest held by the Control  Group's  Qualifying  Investors from 15% to
10%.

         In  order  to  meet  the  Control  Group  Requirements,  the  Company's
Certificate of  Incorporation  provides that the Company's Class B Common Stock,
as a class,  must  constitute  50.1% of the  voting  power of the  Company.  See
"Description  of Capital Stock." There can be no assurance that the Company will
remain in  compliance  with the Control  Group  Requirements  or, if it fails to
continue to meet such  requirements,  that the FCC will not take action  against
the Company,  which could include  revocation of its PCS licenses.  Although the
Company has taken these and other steps to meet the Control Group  Requirements,
there can be no  assurance  that the  Company  has or will  continue to meet the
Control Group Requirements, and the failure to meet such requirements would have
a  material   adverse  effect  on  the  Company.   See  "Risk   Factors--F-Block
Requirements--Control Group Requirements."

         Asset  and  Revenue  Calculation.  In  determining  whether  an  entity
qualifies  as an  Entrepreneur  and/or as a Small  Business,  the FCC counts the
gross  revenues and assets of the  entity's  "financial  affiliates"  toward the
entity's total gross revenues and total assets.  Financial affiliation can arise
from  common  investments,   familial  or  spousal  relationships,   contractual
relationships,  voting trusts, joint venture agreements,  stock ownership, stock
options,   convertible  debentures  and  agreements  to  merge.   Affiliates  of
noncontrolling investors with ownership

                                      -31-

<PAGE>
interests  that do not exceed the applicable  FCC "passive"  investor  ownership
thresholds are not  attributed to F-Block  licensees for purposes of determining
whether such licensees  financially  qualify for the applicable  F-Block Auction
preferences.   The  Entrepreneurs  Requirements  and  the  Very  Small  Business
Requirements  provide that, to qualify as a passive investor,  an entity may not
own more than 25% of the Company's total equity on a fully diluted basis, unless
the Control Group owns at least 50.1% of the  Company's  total equity on a fully
diluted basis.  There can be no assurance that the Company will not exceed these
passive  investor  limits or  otherwise  violate the  Entrepreneur  Requirements
and/or the Small Business Requirements.

         In addition,  if an entity makes bona fide loans to a F-Block licensee,
the assets and revenues of the creditor  would not be attributed to the licensee
unless the creditor is otherwise  deemed an  affiliate of the  licensee,  or the
loan is  treated by the FCC as an equity  investment  and such  treatment  would
cause  the   creditor/investor  to  exceed  the  applicable  ownership  interest
thresholds (for purposes of both the financial affiliation and foreign ownership
rules).  Although the FCC permits a  creditor/investor  to use standard terms to
protect its investment in F-Block licensees, such as covenants,  rights of first
refusal and super-majority voting rights on specified issues, the FCC has stated
that it will be guided but not bound by criteria  used by the  Internal  Revenue
Service to  determine  whether a debt  investment  is bona fide debt.  The FCC's
application of its financial affiliation rules is largely untested and there can
be no  assurance  that the FCC or the  courts  will  not  treat  certain  of the
Company's lenders or investors as financial affiliates of the Company.

         Foreign Ownership  Limitations.  The  Communications  Act requires that
non-U.S.  citizens,  their representatives,  foreign governments or corporations
otherwise subject to domination and control by non-U.S.  citizens may not own of
record or vote (i) more than 20% of the capital contribution to a common carrier
radio station directly, or (ii) more than 25% of the capital contribution to the
parent  corporation  of a  common  carrier  radio  station  licensee  if the FCC
determines  such  holding  are not within the public  interest.  Because the FCC
classifies  PCS as a common carrier  offering,  PCS licensees are subject to the
foreign ownership limits.  Congress recently eliminated restrictions on non-U.S.
citizens  serving as members on the board of directors  and officers of a common
carrier radio licensee or its parent.  The FCC also recently adopted rules that,
subject to a public interest finding by the FCC, could allow additional indirect
foreign  ownership of CMRS  companies  to the extent that the  relevant  foreign
states extend reciprocal  treatment to U.S.  investors.  The Company's Long Form
filed by the Company with the FCC after the  completion  of the F-Block  Auction
indicates  that the  Company  is in  compliance  with the FCC  foreign-ownership
rules.  However,  if the foreign  ownership of the Company were to exceed 25% in
the future,  the FCC could  revoke the  Company's  PCS  licenses or impose other
penalties.  Further,  the Company's  Certificate  of  Incorporation  enables the
Company to redeem shares from holders of Common Stock whose  acquisition of such
shares results in a violation of such  limitation.  The  restrictions on foreign
ownership could  adversely  affect the Company's  ability to attract  additional
equity financing from entities that are, or are owned by, non-U.S. entities. The
recent World Trade  Organization  ("WTO") agreement on basic  telecommunications
services could eliminate or loosen foreign  ownership  limitation but could also
increase the Company's competition.  Under this agreement, the United States and
other   members   of   the   WTO   committed   themselves   to   opening   their
telecommunications  markets to competition and foreign ownership and to adopting
regulatory measures to protect competitors against  anticompetitive  behavior by
dominant telephone  companies,  effective as early as January 1, 1998. See "Risk
Factors--Foreign Ownership Limitations."

Transfer Restrictions

         License  Transfer  Restrictions.  During the first five years after the
License Grant Date, transfer or assignment of a F-Block license is prohibited to
any entity  that  fails to satisfy  the  Entrepreneurs  Requirements.  If such a
transfer occurs to an entity that does not qualify for bidding  credits,  such a
sale would be subject to payment of the  bidding  credit and the  licensee  must
adjust its  installment  payments to the FCC to effect the  bidding  credits and
payment plan  applicable  to the new entity (e.g.,  an enterprise  that is not a
Very Small  Business).  After five years,  all such transfers and assignments of
the licenses remain subject to the Unjust Enrichment Penalties.


                                      -32-

<PAGE>
         Unjust Enrichment. Any transfer during the full license term (10 years)
may  require  certain  costs and  reimbursements  to the  government  of bidding
credits  and/or  outstanding   principal  and  interest  payments  (the  "Unjust
Enrichment Penalties"). In addition, if the Company wishes to make any change in
ownership  structure  during the initial license term involving the de facto and
de jure control of the Company,  it must seek FCC approval and may be subject to
the same costs and reimbursement conditions indicated above.

F-Block Rules

         The Company (i) believes that it has  structured  itself to satisfy the
Entrepreneurs  Requirements,  (ii) intends to diligently pursue and maintain its
qualification  as a Very Small Business and (iii) has structured its securities,
including  certain  restrictions  on ownership,  in a matter  intended to ensure
compliance   with  the  applicable   FCC  Rules.   The  Company  has  relied  on
representations  of its  investors to determine  its  compliance  with the FCC's
rules applicable to F-Block licenses.  There can be no assurance,  however, that
the  Company's  investors or the Company  itself will  continue to satisfy these
requirements  during the term of any PCS license  granted to the Company or that
the  Company  will  be able  to  successfully  implement  divestiture  or  other
mechanisms  included in the  Company's  Certificate  of  Incorporation  that are
designed to ensure compliance with FCC rules. Any non-compliance  with FCC rules
could subject the Company to serious penalties,  including revocation of its PCS
licenses. See "Risk Factors--F-Block License Requirements," "--Effect of Control
by  Certain   Stockholders,"   "--Substantial   Debt  Obligations  to  the  U.S.
Government"  "--Foreign  Ownership  Limitations" and "Legislation and Government
Regulation."

Other Ongoing Requirements

         Build-Out  Requirements.  The FCC has mandated  that  recipients of PCS
licenses  adhere  to a five  year  build-out  requirement.  Under  the five year
build-out requirement, all 10 MHz PCS licensees (such as F-Block licensees) must
construct  facilities to offer adequate  service to at least  one-quarter of the
population  in their  service  area  within  five years from the date of initial
license  grants or make a showing of  substantial  service in its licensed areas
within five years of the initial  license  grants.  Service  must be provided to
two-thirds of the population within 10 years. Violation of this regulation could
result in license revocations or forfeitures or fines.

         Additional  Requirements.  As a F-Block  licensee,  the Company will be
subject to certain  restrictions that limit,  among other things,  the number of
PCS  licenses  it may  hold  as  well as  certain  cross-ownership  restrictions
pertaining to cellular and other wireless investments.

         Penalties  for Payment  Default.  In the event that the Company were to
become unable to meet its obligations  under the Government  Financing,  the FCC
could in such  instances  reclaim  some or  possibly  all of the  Company's  PCS
licenses,  reauction them, and subject the Company to a penalty comprised of the
difference  between the price at which it acquired its license and the amount of
the winning bid at reauction, plus an additional penalty of three percent of the
lesser of the subsequent  winning bid and the defaulting bidders bid amount. See
"Risk Factors--Government Regulation" and "--Substantial Debt Obligations to the
U.S. Government."

                                      -33-

<PAGE>
                                   MANAGEMENT

                        EXECUTIVE OFFICERS AND DIRECTORS

         The executive officers and directors of the Company,  and their ages as
of September 1, 1997 are as follows:

NAME                          AGE                  POSITION*
- ----                          ---                  ---------

Victoria G. Kane(1)            49           Class B Director and Chairman
T. Gibbs Kane, Jr.(1)          50           Class B Director
Mario J. Gabelli(2)            54           Class A Director
Marc J. Gabelli(2)             29           Class A Director
Robert E. Dolan                45           Assistant Secretary


         ----------------------
         *        Each of the  Class B  Directors  shall  have one and  one-half
                  votes and each of the Class A  Directors  shall have one vote.
                  See  "Description  of Capital  Stock -- Common Stock -- Voting
                  Rights."

         (1)      T. Gibbs Kane and Victoria G. Kane are husband and wife.
         (2)      Mario J. Gabelli and Marc J. Gabelli are father and son.


         VICTORIA G. KANE,  Entrepreneur  and investor.  Owner and instructor of
dance studio (from 1986 to 1996).

         T. GIBBS KANE, JR.,  President,  Sound Shore Management (since 1978), a
registered investment advisor; Director, Sound Shore Fund (since 1985), a mutual
fund.

         MARIO J. GABELLI,  Chairman and Chief Executive Officer of Lynch (since
1986);  Chairman and Chief  Executive  Officer of Gabelli  Funds,  Inc.,  (since
1980),  an investment  adviser and holding company for  subsidiaries  engaged in
various aspects of the securities business  (including GAMCO Investors,  Inc. of
which he is Chief  Executive  Officer);  Director/Trustee  and/or officer of The
Treasurer's Fund (Since 1997),  Gabelli  International  Growth Fund, Inc. (since
1995),   Gabelli  Capital  Series  Funds,  Inc.  (since  1994),  Gabelli  Global
Multimedia  Trust Inc. (since 1994),  Gabelli Gold Fund, Inc. (since 1994),  The
Gabelli Global Series Funds,  Inc. (since 1993),  Gabelli  Investor Funds,  Inc.
(since 1993),  Gabelli Equity Series Funds, Inc. (since 1991), The Gabelli Value
Fund Inc. (since 1989),  The Gabelli  Convertible  Securities  Fund, Inc. (since
1989),  The Gabelli  Equity Trust Inc.  (since  1986),  The Gabelli Money Market
Funds (since 1992),  The Gabelli  Growth Fund (since 1987) and The Gabelli Asset
Fund (since 1986).

         MARC J. GABELLI,  Portfolio  Manager of GAMCO  Investors,  Inc.  (since
1993), an investment  advisor;  Vice President of Research of Gabelli & Company,
Inc. (since 1993), a  broker-dealer;  Managing  Director of Gabelli Funds,  Inc.
(since 1996), an investment adviser and holding company for subsidiaries engaged
in various  aspects  of the  securities  business;  President  of Gabelli  Asset
Management  Company  International  Advisory  Services,  Ltd.  (since 1995),  an
advisor to an  offshore  investment  company;  Portfolio  Manager of The Gabelli
Global  Interactive  Couch  Potato Fund (since  1993),  an  investment  company.
Previously  employed  at  Lehman  Brothers  in  equity  research  and  arbitrage
(1989-1993).

         ROBERT E. DOLAN, Chief Financial Officer of Lynch (since February 1992)
and Controller (since May 1990);  Corporate  Controller of Plessey North America
Corporation,  formerly the United States  subsidiary of a United Kingdom defense
electronics/telecommunications company (1984-1989).

COMPENSATION OF DIRECTORS

         The Company is not  compensating  its  directors  at the present  time,
although  it may do so in the  future.  The  Company  does  indemnify  directors
pursuant to Delaware law and may reimburse them for certain  out-of-pocket costs
in connection with serving as directors.


                                      -34-

<PAGE>
EXECUTIVE COMPENSATION

         The Company  has no  employees  and has paid no  employee or  executive
compensation, although it may do so in the future.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

         Under Section 145 of the Delaware  General  Corporation  Law ("Delaware
Law"),  the Company has broad powers to  indemnify  its  directors  and officers
against  liabilities  they may incur in such capacities,  including  liabilities
under the Securities Act. The Company's  Certificate of  Incorporation  provides
that  directors and officers of the Company shall be  indemnified to the fullest
extent of Delaware law.

         The Delaware Law provides that a corporation may limit the liability of
each director to the corporation or its stockholders for monetary damages except
for  liability  (i) for any  breach of the  director's  duty of  loyalty  to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve  intentional  misconduct  or a knowing  violation of law,  (iii) in
respect  of  certain  unlawful   dividend   payments  or  stock  redemptions  or
repurchases and (iv) for any transaction  which the director derives an improper
personal benefit. The Certificate of Incorporation  provides for the elimination
and  limitation  of the  personal  liability  of  directors  of the  Company for
monetary  damages to the fullest extent  permitted by Delaware Law. In addition,
the  Certificate  of  Incorporation  provides that if Delaware Law is amended to
authorize the further  elimination or limitation of the liability of a director,
then the  liability  of the  directors  shall be  eliminated  or  limited to the
fullest  extent  permitted  by Delaware  Law, as so amended.  The effect of this
provision  is to  eliminate  the  rights  of the  Company  and its  stockholders
(through  stockholders'  derivative  suits on behalf of the  Company) to recover
monetary  damages against a director for breach of the fiduciary duty of care as
a director  (including  breaches  resulting from negligent or grossly  negligent
behavior) except in the situations  described in clauses (i) through (iv) above.
This  provision  does not limit or  eliminate  the rights of the  Company or any
stockholder to seek non-monetary relief such as an injunction or recision in the
event of a breach of a director's  duty of care.  The Company's  Certificate  of
Incorporation also provides that the Company shall, to the full extent permitted
by Delaware Law, as amended from time to time, indemnify and advance expenses to
each of its  currently  acting and former  directors,  officers,  employees  and
agents.

         The Company has no directors and officers  liability  insurance at this
time.

         At present,  there is no pending litigation or proceeding involving any
director,  officer,  employee or agent of the Company where indemnification will
be required or permitted.


                              CERTAIN TRANSACTIONS

         AFC and Lynch PCS Corporation F ("LPCS"), a subsidiary of Lynch, formed
a limited  partnership,  Aer Force Communications B, L.P. (the "Partnership") in
July 1996 for the  purpose of bidding for PCS  licenses in the F-Block  Auction.
AFC, the general  partner,  contributed  $100,200 to the Partnership for a 50.1%
equity  interest  and LPCS,  the  limited  partner,  contributed  $99,800 to the
Partnership  for  a  49.9%  equity  interest.  LPCS  also  agreed  to  loan  the
Partnership an additional  $11.4  million,  primarily for  down-payments  and to
service instalment payments on PCS licenses won in the auction.

         On August 13,  1997,  the  Company  was  incorporated  and prior to the
effective  date of the Spin Off,  the  Company  will  succeed  to the rights and
obligations of the Partnership.  At that time, AFC will receive 1,779,301 shares
of Class B Common Stock of the Company and LPCS will receive 1,772,198 shares of
Class A Common Stock of the Company.  Concurrently  with the Spin Off, LPCS will
transfer  1,417,048  shares of Class A Common  Stock to Lynch  shareholders  and
355,150  shares  of  Class A  Common  Stock  to GFI in  satisfaction  of  LPCS's
obligation to share a profits interest in LPCS's partnership interest.

         As a part of the reorganization creating the Company, AFC and LPCS will
contribute an additional $125,250 and $124,750,  respectively,  as equity to the
Company.  The Company's existing  indebtedness to LPCS ($7.8 million at December
1, 1997) will be converted into $7.8 million of redeemable  Preferred  Stock and
the obligation of LPCS to make additional loans to the Company will terminate.


                                      -35-

<PAGE>
                             PRINCIPAL STOCKHOLDERS

         The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock effective as of the Spin Off by (i) each
person who is known by the Company to own beneficially more than five percent of
the Company's Common Stock, (ii) each of the Company's directors,  (iii) each of
the Named  Officers and (iv) all current  executive  officers and directors as a
group.
<TABLE>
<CAPTION>

                          ----------------------------------------------------------------------------------------------------------
                                 Class A Beneficially            Class B Beneficially Owned            Total Beneficially Owned
                                         Owned
                          -------------------------------     ----------------------------------    --------------------------------

                              Shares          Percent            Shares            Percent            Shares               Percent
                          --------------   --------------     --------------    --------------    ---------------       ------------

<S>                            <C>               <C>             <C>                    <C>           <C>                    <C>  
AFC(1)                              --            --             1,779,301              100%          1,779,301              50.1%
Victoria G. Kane (1)                --            --             1,779,301              100%          1,779,301              50.1%
T. Gibbs Kane, Jr. (1)              --            --             1,779,301              100%          1,779,301              50.1%
Gabelli Funds, Inc.(2)         355,150           20.0%                  --                --            355,150              10.0%
Mario J. Gabelli (3)           682,576           38.5%                  --                --            682,576              19.2%
Marc J. Gabelli                     --            --                    --                --                 --               --
Robert E. Dolan (4)                235            --                    --                --                235               --
All Directors and              682,811           38.5%           1,779,301              100%             2,462,112            69.3%
Executive Officers as a
Group (5 in total)
</TABLE>

(1)      Victoria G. Kane is the sole  shareholder  of AFC and therefore  shares
         owned by AFC are set forth in this table as owned by  Victoria G. Kane.
         T. Gibbs Kane is the husband of Victoria G. Kane, and therefore  shares
         owned by Victoria G. Kane are also set forth as owned by T. Gibbs Kane.
         T. Gibbs Kane  disclaims  ownership of the shares.  The address of AFC,
         Victoria G. Kane and T. Gibbs Kane is 350 Stuyvesant  Avenue,  Rye, New
         York 10580.

(2)      Mario J. Gabelli is the Chairman and Chief Executive  Officer,  and the
         principal stockholder of Gabelli Funds, Inc.

(3)      Includes 255,426 shares owned directly by Mr. Gabelli  (including 3,512
         shares held for the benefit of Mr.  Gabelli in the Lynch 401(k) Savings
         Plan),  355,150  shares held by GFI, 2,000 shares owned by a charitable
         foundation of which Mr. Gabelli is a trustee and 70,000 shares owned by
         a limited  partnership in which Mr. Gabelli is the general  partner and
         has a 20% interest.  Mr. Gabelli  disclaims the ownership of the shares
         owned by the foundation,  by GFI to the extent of the minority interest
         in GFI held by third parties, and by the partnership except for his 20%
         interest  therein.  The address of GFI and Mr.  Gabelli is 555 Theodore
         Fremd Avenue, Corporate Center at Rye, Rye, NY 10580.

(4)      Includes 35 shares  registered in the name of Mr. Dolan's children with
         respect to which Mr. Dolan has voting and investment power.


                          DESCRIPTION OF CAPITAL STOCK

GENERAL

         The Company is authorized to issue  19,600,000  shares of Common Stock,
$.0001 par value,  and 16,000 shares of Preferred  Stock,  $1,000 par value. The
following  description  of the  Company's  capital  stock does not purport to be
complete  and is subject  to and  qualified  in its  entirety  by the  Company's
Certificate  of  Incorporation  and Bylaws,  and by the provisions of applicable
Delaware law.


                                      -36-

<PAGE>
COMMON STOCK

         The Company has two classes of Common Stock authorized:  Class A Common
Stock and Class B Common  Stock.  The  authorized  capital  stock of the Company
consists of 3,600,000  shares of Class A Common Stock and  16,000,000  shares of
Class B Common  Stock.  There  are  1,772,198  shares  of  Class A Common  Stock
outstanding and held by Lynch.  Concurrently  with the Spin Off,  355,150 shares
will  be  transferred  to GFI  and  1,417,048  shares  will  be  transferred  to
shareholders  of Lynch.  There  are  1,779,301  shares  of Class B Common  Stock
outstanding and held by AFC. The holders of Common Stock are entitled to receive
ratably  such  dividends,  if any, as may be  declared  from time to time by the
Board of  Directors  out of funds  legally  available  therefor.  See  "Dividend
Policy."  In the event of the  liquidation,  dissolution  or  winding  up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, if any, then outstanding.

Voting Rights

         Collectively,  the shares of Class A Common  Stock  represent  not more
than 49.9% of the Company's voting  interest,  with each share of Class A Common
Stock  issued and  outstanding  having one vote per share  (subject  to downward
adjustment  if  necessary  to comply with the 49.9%  maximum  class vote) on all
matters  except the election of  directors or as otherwise  provided by law. The
holders of the Class A Common Stock as a class will be entitled to elect members
to the Company's Board of Directors (the "Class A Directors")  who  collectively
will represent two of the five votes of the Company's Board of Directors. At the
present  time,  the  holders of the Class A Common  Stock will elect two Class A
Directors who will have one vote each.

         Collectively,  the shares of Class B Common  Stock  represent  at least
50.1% of the Company's voting interest,  with each share of Class A Common Stock
issued and outstanding  having 5 votes per share (subject to upward  adjustment,
if  necessary,  to comply with the 50.1%  minimum  class  vote),  on all matters
except the election of directors or as otherwise  provided by law.  With respect
to the election of  directors,  the Class B Common Stock,  voting  together as a
class,  may elect up to three members of the Company's  Board of Directors  (the
"Class B Directors").  The Class B Directors shall  collectively have three full
votes on each matter submitted to a vote of the Board of Directors.

Redemption By the Company

         If a holder of Class A Common Stock acquires additional shares of Class
A Common  Stock or otherwise is  attributed  with  ownership of such shares that
would cause the Company to violate the Entrepreneurs Requirements or the Foreign
Ownership  Restrictions  (collectively,  "FCC Violations"),  the Company, at its
option,  may redeem that number of such shares  necessary to  eliminate  the FCC
Violation  at a  redemption  price equal to (i) 75% of the fair market  value of
such shares where such holder  caused the FCC Violation or (ii) 100% of the fair
market value where the FCC Violation was caused by no fault of the holder.

Transfer Restriction

         The Class B Common  Stock  cannot  be  transferred,  sold or  otherwise
disposed of to any third  party,  directly or  indirectly,  except (i) to family
members,  or by will or by operation of the laws of descent and devise (in which
case the transferees will continue to be bound by these restrictions), (ii) such
number  of  shares  which  does  not  exceed  10% of the  Class B  Common  Stock
outstanding  as of the Spin Off, or (iii) pursuant to a transaction or series of
transactions on terms and conditions  which are  substantially  identical in the
opinion of the Company's  counsel to the terms and conditions  made available to
all  holders of the Class A Common  Stock,  including  form,  type and amount of
consideration  per share, the availability of such  consideration and the timing
of  payment.  To the extent it deems  necessary,  such  counsel  may rely on the
opinion of a nationally  recognized  investment  banking firm in evaluating  the
terms of any securities or other consideration being offered.

                                      -37-

<PAGE>
PREFERRED STOCK

         The Company has outstanding  7,800 shares of Preferred Stock, par value
$1,000 per share. The Preferred Stock (i) is entitled to preferred  dividends at
an annual rate of 5 shares of  additional  Preferred  Stock for each one hundred
shares of  Preferred  Stock  outstanding,  (ii) has no voting  rights  except as
provided by law,  and (iii) is entitled to be redeemed at $1,000 per share (plus
accrued and unpaid  dividends) on the earlier of (i) December 1, 2009, (ii) upon
a change of  control  of the Class A or Class B Common  Stock or (iii)  upon the
sale  of one or  more  PCS  licenses  for  cash  or a  non-cash  sale  which  is
subsequently  converted into or redeemed for cash in an amount  proportional  to
that number of persons  covered by the sale of such  licenses for cash,  or that
portion of a non-cash  sale  subsequently  converted  into or redeemed for cash,
compared  to the  total  persons  covered  by the  Company's  five  initial  PCS
licenses,  in each case based on the 1996 or most recent subsequent  estimate by
the United States  Bureau of Census.  Therefore,  the number of shares  redeemed
shall be computed by dividing  (i) the number of persons  covered by the sale by
(ii) the total number of persons  covered by the five initial PCS licenses owned
by the Corporation.

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,  BYLAWS,
DELAWARE LAW AND CONTROL GROUP REQUIREMENTS

Certificate of Incorporation and Bylaws

         Several  provisions of the Company's  Certificate of Incorporation  and
Bylaws could deter or delay unsolicited changes in control of the Company.

Delaware Takeover Statute

         The  Company  is  subject  to  Section  203  of  the  Delaware  General
Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits
a Delaware  corporation  from  engaging  in any  business  combination  with any
interested  stockholder for a period of three years following the date that such
stockholder  became an interested  stockholder,  unless: (i) prior to such date,
the  board  of  directors  of  the  corporation  approved  either  the  business
combination  or the  transaction  that resulted in the  stockholder  becoming an
interested stockholder;  (ii) upon consummation of the transaction that resulted
in  the  stockholder   becoming  an  interested   stockholder,   the  interested
stockholder  owned  at  least  85%  of  the  voting  stock  of  the  corporation
outstanding  at the time the  transaction  commenced,  excluding for purposes of
determining the number of shares  outstanding  those shares owned (a) by persons
who are  directors  and also  officers and (b) by employee  stock plans in which
employee participants do not have the right to determine  confidentially whether
shares held subject to the plan will be tendered in a tender or exchange  offer;
or (iii) on or subsequent to such date, the business  combination is approved by
the  board of  directors  and  authorized  at an annual or  special  meeting  of
stockholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the  outstanding  voting  stock  that  is not  owned  by the  interested
stockholder.

         Section 203 defines business  combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer,  pledge or other disposition of 10% or more of the assets of the
corporation  involving  the  interested  stockholder;  (iii)  subject to certain
exceptions,  any  transaction  that  results in the  issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder;  (iv)
any transaction  involving the corporation that has the effect of increasing the
proportionate  share of the  stock of any  class or  series  of the  corporation
beneficially  owned by the  interested  stockholder;  or (v) the  receipt by the
interested  stockholder  of the  benefit  of any  loans,  advances,  guarantees,
pledges or other financial  benefits provided by or through the corporation.  In
general,  Section 203 defines an interested  stockholder as any entity or person
beneficially  owning  15%  or  more  of  the  outstanding  voting  stock  of the
corporation  and  any  entity  or  person  affiliated  with  or  controlling  or
controlled by such entity or person.

Control Group Requirements

         In  order  to  meet  the  Control  Group  Requirements,  the  Company's
Certificate of  Incorporation  provides that the Company's Class B Common Stock,
as a class,  must  constitute  50.1% of the  voting  power of the  Company.  The
structure  that the Company has  adopted to ensure  compliance  with the Control
Group Requirements will likely deter and delay unsolicited changes in control of
the   Company.   See   "Risk   Factors--Government   Regulation--Control   Group
Requirements" and "--Effect of Control by Certain Stockholders."


                                      -38-

<PAGE>
TRANSFER AGENT AND REGISTRAR

         The  Transfer  Agent  and  Registrar  for the  Class A Common  Stock is
ChaseMellon Shareholder Services.


                       DESCRIPTION OF CERTAIN INDEBTEDNESS

Government Financing

         The Company is the obligor on  installment  payments to be made for the
F-Block PCS licenses  held the Company.  The  aggregate  debt  obligation of the
Company  to  the  U.S.  Government  pursuant  to  the  Government  Financing  is
approximately  $15.2  million.  The Company  will be  required to make  interest
expense  payments  based on an  interest  rate of  6.25%.  The  Company  will be
required to make quarterly  payments of interest only for the first two years of
the license and quarterly  payments of interest and principal over the remaining
eight  years of the license  term.  In the event that the Company (or any of its
affiliates)  becomes  unable  to  meet  its  obligations  under  the  Government
Financing,  is involved  in certain  bankruptcy  or  insolvency  proceedings  or
otherwise violates  regulations  applicable to holders of FCC licenses,  the FCC
could take a variety of actions,  including  requiring  immediate  repayment  of
amounts  due  under the  Government  Financing,  repayment  of  certain  bidding
credits,  revoking the  Company's  PCS licenses and fining the Company an amount
equal to the  difference  between  the price at which the Company  acquired  the
licenses  and  the  amount  of the  winning  bid at  their  reauction,  plus  an
additional  penalty of three percent of the lesser of the subsequent winning bid
and the Company's bid amount. There can be no assurance that the Company will be
able to meet their  obligations  under the  Government  Financing or that in the
event of a failure to meet such obligations,  the FCC will not require immediate
repayment of amounts due under the Government  Financing or revoke the Company's
PCS  licenses.  In either  such  event the  Company  may be unable to meet their
obligations to other creditors.

         In  connection  with  serving as the obligor on the payments to be made
for the F-Block PCS license it holds,  the Company has or must execute  notes to
the United States Treasury Department  documenting its payment obligations and a
security  agreement  creating a first priority security interest in favor of the
FCC in the  license  (and the  proceeds  of any sale  thereof) in the event of a
default.  The  security  agreement  permits the Company to grant a  subordinated
security interest in the license to a third party.


                         FEDERAL INCOME TAX CONSEQUENCES

         The distribution by Lynch to its holders of common stock of the Class A
Common  Stock of the  Company  will be  characterized  as a dividend  taxable as
ordinary  income to the extent of Lynch's  current or  accumulated  earnings and
profits.  Although the value of the stock  distributed as a dividend in the Spin
Off will be taxable to the  recipient,  the  Company  believes  that the taxable
amount will be fairly small. To the extent that all or part of a distribution to
a holder exceeds such holder's allocable share of Lynch's current or accumulated
earnings and  profits,  such amount will first be treated as a return of capital
that will reduce the  holder's  adjusted tax basis in his shares of Lynch common
stock and then to the extent that the  distribution  exceeds  such  basis,  such
excess  will be taxed as a capital  gain  (mid-term  capital  gain or  long-term
capital gain, depending upon whether the holder's holding period for such common
stock has been more than one year or more than 18 months, respectively). Any tax
liability  to the  Company  as a result of the Spin Off is also  expected  to be
small.

         A   corporate   holder   will   generally   be   entitled   to  a   70%
dividends-received  deduction with respect to distributions  that are treated as
dividends on shares of Lynch common stock that the corporate holder has held for
at least 46 days  during the 90-day  period that begins 45 days before the stock
becomes ex-dividend.  A taxpayer's holding period for this purpose is reduced by
periods during which the  taxpayer's  risk of loss with respect to the shares is
considered  diminished by reason of the existence of certain options,  contracts
to sell or other similar transactions.  Also, the  dividends-received  deduction
may be  reduced  or  eliminated  if a  corporation  has  indebtedness  "directly
attributable to its investment" in portfolio stock.

         A corporate holder is required to reduce its basis (but not below zero)
in stock by the  non-taxed  portion  (generally  the  portion  eligible  for the
dividends-received  deduction described above) of an "extraordinary dividend" as
defined in Section 1059 of the Internal Revenue Code, if the holder has not held
such  stock  subject  to a risk of loss for more  than two  years  before  Lynch
declared,  announced,  or agreed to,  the  amount or  payment of such  dividend,
whichever is earliest.  If any part of the non-taxed portion of an extraordinary
dividend has not been

                                      -39-

<PAGE>
applied  to reduce the basis as a result of the  limitation  on  reducing  basis
below  zero,  such part will be  treated  as gain from the sale or  exchange  of
stock.

         In  addition,  for purposes of computing  its  alternative  minimum tax
liability,  a corporate  holder  may, in general,  be required to include in its
alternative minimum taxable income a portion of any dividends-received deduction
allowed in computing regular taxable income.

         The  foregoing  does not  purport to be a complete  analysis of all the
potential  tax effects of the  distribution  of the Class A Common  Stock of the
Company,  and is limited  to United  States  federal  income  tax  matters.  The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations,  and Internal Revenue Service rulings and judicial decisions now in
effect,  all of  which  are  subject  to  change  at  any  time,  possibly  with
retroactive  effect,  by  legislative,  judicial or  administrative  action.  In
addition,  the tax consequences to a particular holder (including life insurance
companies,   tax-exempt  organizations,   financial  institutions,   dealers  in
securities,  foreign  corporations  and nonresident  alien  individuals)  may be
affected by matters not discussed herein.

         BECAUSE THE FEDERAL  INCOME TAX  CONSEQUENCES  DISCUSSED  HEREIN DEPEND
UPON EACH HOLDER'S  PARTICULAR  TAX STATUS,  AND DEPEND FURTHER UPON FEDERAL TAX
LAWS,  REGULATIONS,  RULINGS AND  DECISIONS  WHICH ARE SUBJECT TO CHANGE  (WHICH
CHANGES MAY BE  RETROACTIVE  IN EFFECT),  PROSPECTIVE  INVESTORS  SHOULD CONSULT
THEIR  OWN  TAX  ADVISORS  REGARDING  THE  PARTICULAR  TAX  CONSEQUENCES  OF THE
DISTRIBUTION,  INCLUDING,  BUT NOT LIMITED TO, THE APPLICATION AND EFFECT OF ANY
STATE,  LOCAL,  FOREIGN AND OTHER TAX LAWS, AS WELL AS THE  CONSEQUENCES  OF ANY
RECENT, PENDING OR PROPOSED CHANGES IN THE APPLICABLE LAWS.


                              PLAN OF DISTRIBUTION

         This distribution is self  underwritten;  neither the Company not Lynch
have employed an underwriter  for the  distribution  of shares of Class A Common
Stock in the Spin Off or to GFI. The Company  will bear all expenses  associated
with these transactions.


                                     EXPERTS

         The financial  statements of Aer Force  Communications  B, L.P. at June
30, 1997 and December 31, 1996, for the period from July 26, 1996 (inception) to
December 31,  1996,  the six months ended June 30, 1997 and the period from July
26, 1996  (inception)  to June 30, 1997 appearing in this  Prospectus  have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon  (which  contains an  explanatory  paragraph  with  respect to Aer Force
Communications  B,  L.P.'s  ability to continue  as a going  concern)  appearing
elsewhere  herein,  and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

         The validity of the shares of Class A Common Stock  distributed  in the
Spin Off and to GFI will be passed upon for the Company by Olshan Grundman Frome
& Rosenzweig LLP, New York, New York.

                             ADDITIONAL INFORMATION

         The Company has filed with the SEC a Registration Statement on Form S-1
(together  with  all  amendments  and  exhibits   thereto,   the   "Registration
Statement")  under the Securities Act covering the securities  described herein.
This  Prospectus  does  not  contain  all of the  information  set  forth in the
Registration  Statement,  certain parts of which are omitted in accordance  with
the  rules  and  regulations  of  the  SEC.   Statements   contained  herein  or
incorporated  herein by reference  concerning  the  provisions  of documents are
summaries of such documents,  and each statement is qualified in its entirety by
reference  to the  applicable  document  if filed with the SEC or attached as an
appendix  hereto.  For  further  information,  reference  is hereby  made to the
Registration  Statement  and the  exhibits  filed  therewith.  The  Registration
Statement  and  any  amendments  thereto,  including  exhibits  filed  as a part
thereof, are available for inspection and copying as set forth above.

         The Company hereby  undertakes to provide without charge to each person
to whom a copy of this  Prospectus  has been  delivered,  on the written or oral
request of any such person, a copy of any or all of the

                                      -40-

<PAGE>
documents  referred  to above  which  have been or may be  incorporated  in this
Prospectus by reference,  other than  exhibits to such  documents.  Requests for
such  copies  should be  directed to the  Company,  at its office and  telephone
number as listed on page 1.

                                    GLOSSARY


1996 Act................   Telecommunications Act of 1996.
BTA.....................   Basic  Trading Area, as set forth in the Rand McNally
                           Commercial Atlas & Marketing Guide (123d ed. 1992).
F-Block Auction.........   The  FCC   Auction  of  493  10  MHz  BTA   licenses,
                           restricted to entities meeting certain  financial and
                           other criteria.
Cellular................   The domestic public cellular radio telecommunications
                           service  authorized  by the  FCC in the  824-893  MHz
                           band,  in  which  each  of two  licenses  per  market
                           employs 25 MHz of spectrum to provide  service to the
                           public.  Cellular  systems are based on multiple base
                           stations, or "cells," that permit efficient frequency
                           reuse and on software that permits the system to hand
                           mobile  calls from cell to cell as  subscribers  move
                           through the cellular service area.
CDMA....................   Code  Division  Multiple  Access.  One of  the  three
                           leading   PCS   and   digital   cellular   technology
                           platforms.
CLEC....................   Competitive Local Exchange Carrier.
CMRS....................   Commercial Mobile Radio Service. A provider of mobile
                           telecommunications     services     that     provides
                           communications  services  (1) to the  public  (2) for
                           profit,  that are (3)  interconnected  to the  public
                           switched telephone network. The FCC has adopted rules
                           to regulate all  similarly  situated  CMRS  providers
                           under similar regulations.
Common Carriers.........   Companies   which   own   or   operate   transmission
                           facilities  and offer  telecommunication  services to
                           the general public on a non-discriminatory basis.
CTIA....................   The Cellular Telecommunications Industry Association.
                           A  trade   association  in  North  America  comprised
                           primarily  of  cellular  and  PCS  telephone  service
                           providers   and   some   mobile   satellite   service
                           providers.
Digital.................   A method  of  storing,  processing  and  transmitting
                           information through the use of distinct electronic or
                           optical pulses that represent the binary digits 0 and
                           1. Digital transmission/switching technologies employ
                           a sequence of discrete,  distinct pulses to represent
                           information,  as opposed to the continuously variable
                           analog  signal.  Digital PCS  networks  will  utilize
                           digital transmission.
ESMR....................   Enhanced  Specialized  Mobile Radio  Service,  an SMR
                           service that contemplates  expanded digital telephony
                           service  offerings  to the public in  general  rather
                           than local dispatch services to specialized  business
                           subscribers.
FCC.....................   The Federal Communications Commission.
GHz.....................   Gigahertz.  A unit of frequency  equal to one billion
                           cycles (or hertz) per second.
GSM.....................   Groupe Speciale Mobile.  One of the three leading PCS
                           and digital cellular technology platforms,  currently
                           widely deployed in Europe.


                                      -41-

<PAGE>

Handsets................   Portable,  fixed,  mobile,  wireless or transportable
                           devices used for the  reception and  transmission  of
                           voice communications.
IVDS....................   Interactive video and data service.
IXC.....................   Interexchange Carrier.
LATA....................   Local Access and Transport Areas.
LEC.....................   Local Exchange Carrier.
LMDS....................   Local Multipoint Distribution Service.
MHz.....................   Megahertz.  A unit of frequency  equal to one million
                           cycles (or hertz) per second.
MSS.....................   Mobile Satellite Service.
MTA.....................   Major Trading Area, as set forth in the Rand McNally
                           Commercial Atlas & Marketing Guide (123d ed. 1992).
PCS.....................   Personal Communications Services.
POPs....................   Persons  in  the  U.S.   population  based  upon  the
                           Population  Estimate  Program,  and Bureau of Census,
                           Release Date March 20, 1997 unless stated otherwise.
PSAP....................   Public Safety Answering Point.
RBOC....................   Regional Bell Operating Company.
RF......................   Radio Frequency.
SMR.....................   Specialized Mobile Radio, a two-way mobile radio
                           telephone system used traditionally mostly for local
                           dispatch services.
TDMA....................   Time  Division  Multiple  Access.  One of  the  three
                           leading   PCS   and   digital   cellular   technology
                           platforms.
WCS.....................   Wireless Communications Services.



                                      -42-

<PAGE>
                              FINANCIAL STATEMENTS
                        AER FORCE COMMUNICATIONS B, L.P.
                       (A DEVELOPMENT STAGE ENTERPRISE AND
                A PREDECESSOR TO EAST/WEST COMMUNICATIONS, INC.)

                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

<S>                                                                                                             <C>
Report of Independent Auditors..........................................................................        F-2

AUDITED FINANCIAL STATEMENTS
Balance Sheets at December 31, 1996 and June 30, 1997...................................................        F-3
Statements of Operations for the Period from July 26, 1996 (Inception) to
   December 31, 1996, the Six Months Ended June 30, 1997 and the Period
   from July 26, 1996 (Inception) to June 30, 1997......................................................        F-4
Statements of Changes in Partners' Equity/(Deficit) for the Period from
   July 26, 1996 (Inception) to December 31, 1996 and the Six Months
   ended June 30, 1997..................................................................................        F-5
Statements of Cash Flows for the Period from July 26, 1996 (Inception) to
   December 31, 1996, the Six Months Ended June 30, 1997 and the Period
   from July 26, 1996 (Inception) to June 30, 1997......................................................        F-6
Notes to Financial Statements...........................................................................        F-7

UNAUDITED FINANCIAL STATEMENTS
Balance Sheet at September 30, 1997.....................................................................       F-11
Statements of Operations for the Period from July 26, 1996 (Inception) to September 30, 1996, and
   the Nine Months Ended September 30, 1997.............................................................       F-12
   Statements of Cash Flows for the Period from July 26, 1996 (Inception) to September 30, 1996, and
   the Nine Months Ended September 30, 1997.............................................................       F-13
Notes to Financial Statements...........................................................................       F-14
</TABLE>


All  schedules  for  which  provision  is  made  in  the  applicable  accounting
regulation of the Securities and Exchange  Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.


                                       F-1

<PAGE>
Partners
Aer Force Communications B, L.P.

We have audited the accompanying  balance sheets of Aer Force  Communications B,
L.P. (the  "Partnership")  a development  stage  enterprise and a predecessor to
East/West  Communications,  Inc., as of December 31, 1996 and June 30, 1997, and
the related statements of operations, partners' equity/(deficit), and cash flows
for the period from July 26, 1996  (inception)  to December  31,  1996,  the six
months ended June 30, 1997 and for the period from July 26, 1996  (inception) to
June  30,  1997.  These  financial  statements  are  the  responsibility  of the
Partnership'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 financial  position of Aer Force  Communications B,
L.P. at December 31, 1996 and June 30, 1997,  and the results of its  operations
and its cash flows for the period from July 26, 1996 (inception) to December 31,
1996,  the six months  ended June 30,  1997 and the  period  from July 26,  1996
(inception) to June 30, 1997, in conformity with generally  accepted  accounting
principles.

The  accompanying  financial  statements  have been prepared  assuming Aer Force
Communications B, L.P. will continue as a going concern. As more fully described
in Note 1, the  Partnership  has incurred losses since inception and has not yet
adopted a business plan or  determined  how to finance its  operations  and will
need to obtain capital in the near future in order to fund its interest  payment
obligations  and for  working  capital  and general  corporate  purposes.  These
conditions raise substantial  doubt about the Partnership's  ability to continue
as a going concern.  The financial  statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.


Stamford, Connecticut
August 26, 1997, except for Note 4 as to
which the date is September 25, 1997

                                       F-2

<PAGE>

                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                                 Balance Sheets
<TABLE>
<CAPTION>

                                                                       December 31,        June 30,         Pro Forma
                                                                           1996              1997         June 30 1997,
                                                                                                              Note 6
                                                                   -------------------------------------------------------
                                                                                                           (Unaudited)
ASSETS
<S>                                                                <C>                 <C>               <C>
Cash                                                               $              -    $           -     $     250,000
Deposit with FCC                                                         12,000,000                -                 -
PCS Licenses                                                                      -       18,957,721        18,957,721
Capitalized costs                                                                 -          226,210           226,210
                                                                   -------------------------------------------------------
Total assets                                                            $12,000,000      $19,183,931       $19,433,931
                                                                   =======================================================

Liabilities and partners' equity/(deficit)
Accrued liabilities                                                $              -     $    926,230      $    926,230
                                                                   -------------------------------------------------------
Total current liabilities                                                         -          926,230           926,230

Long-term accrued liabilities                                                     -           96,490            96,490
Due to Limited Partner                                                    1,578,500        2,977,648                 -
Long-term debt:
  Loan from Limited Partner                                              11,800,000        2,708,044                 -
  Loan from FCC                                                                   -       15,166,177        15,166,177

Redeemable preferred stock                                                        -                -         5,685,692

Common stock                                                                      -                -               355
Additional paid-in capital                                                        -                -           449,645
Accumulated deficit                                                               -                -       (2,890,658)

General Partner's equity accumulated during the development
stage                                                                        84,415           71,293                 -
Limited Partner's deficit accumulated during the development
stage                                                                   (1,462,915)      (2,761,951)                 -
                                                                   -------------------------------------------------------
Total partners'/stockholders' deficit accumulated during the
development stage                                                       (1,378,500)      (2,690,658)                 -
                                                                   -------------------------------------------------------
Total liabilities and partners'/stockholders' deficit                   $12,000,000      $19,183,931       $19,433,931
                                                                   =======================================================
</TABLE>

See accompanying notes.

                                       F-3

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                            Statements of Operations
<TABLE>
<CAPTION>

                                                                   July 26, 1996
                                                                  (Inception) to        Six months        July 26, 1996
                                                                   December 31,           ended           (inception) to
                                                                       1996           June 30, 1997       June 30, 1997
                                                                -----------------------------------------------------------

<S>                                                                <C>                 <C>                 <C>
 Interest expense including commitment fees                        $(1,578,500)        $(1,312,158)        $(2,890,658)
                                                                -----------------------------------------------------------
         Net loss                                                  $(1,578,500)        $(1,312,158)        $(2,890,658)
                                                                ===========================================================

 Net loss allocated to general partner (1%)                        $   (15,785)      $     (13,122)      $     (28,907)
                                                                ===========================================================

 Net loss allocated to limited partner (99%)                       $(1,562,715)        $(1,299,036)        $(2,861,751)
                                                                ===========================================================
</TABLE>



See accompanying notes.

                                       F-4

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

               Statements of Changes in Partners' Equity/(Deficit)

FOR THE PERIOD FROM JULY 26, 1996  (INCEPTION)  TO DECEMBER 31, 1996 AND THE SIX
MONTHS ENDED JUNE 30, 1997


                                                    Partners'
                                                     Equity/
                                                    (Deficit)
                                                 -----------------

Capital contributions                             $    200,000
         Net loss                                  (1,578,500)
                                                 -----------------
Balance at December 31, 1996                       (1,378,500)

         Net loss                                  (1,312,158)
                                                 -----------------
Balance at June 30, 1997                          $(2,690,658)
                                                 =================



See accompanying notes.

                                       F-5

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                            Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                   July 26, 1996
                                                                  (Inception) to        Six months        July 26, 1996
                                                                   December 31,           ended           (inception) to
                                                                       1996           June 30, 1997       June 30, 1997
                                                                -----------------------------------------------------------

OPERATING ACTIVITIES
<S>                                                              <C>                 <C>                  <C>
Net loss                                                         $  (1,578,500)      $  (1,312,158)       $ (2,890,658)
Interest accrued, including commitment fees                           1,578,500           1,312,158           2,890,658
                                                                -----------------------------------------------------------
Net cash provided by operating activities                                     -                   -                   -

INVESTING ACTIVITIES
(Deposits with) refunds from the FCC                               (12,000,000)          10,104,228         (1,895,772)
Purchase of PCS licenses                                                      -         (1,012,272)         (1,012,272)
                                                                -----------------------------------------------------------
Net cash (used in) provided by investing activities                (12,000,000)           9,091,956         (2,908,044)

FINANCING ACTIVITIES
Proceeds from the issuance of loans from the Limited
         Partner                                                     11,800,000           1,012,272          12,812,272
Repayment of loans from the Limited Partner                                   -        (10,104,228)        (10,104,228)
Capital contributions                                                   200,000                   -             200,000
                                                                -----------------------------------------------------------
Net cash provided by (used in) financing activities                  12,000,000         (9,091,956)           2,908,044

Net change in cash                                                            -                   -                   -
Cash at beginning of period                                                   -                   -                   -
                                                                -----------------------------------------------------------
Cash at end of period                                             $           -     $             -       $           -
                                                                ===========================================================
</TABLE>



See accompanying notes.


                                       F-6

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                          Notes to Financial Statements

                       December 31, 1996 and June 30, 1997

1.       ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Aer Force  Communications B, L.P. ("the Partnership") was formed in July 1996 to
bid  for  personal  communications  services  ("PCS")  licenses  in the  Federal
Communications  Commission's ("FCC") F-Block auction.  East/West Communications,
Inc.  was  incorporated  on August 13,  1997 and will  succeed to the rights and
obligations of the  Partnership.  PCS is a second  generation  digital  wireless
service utilizing voice,  video or data devices that allow people to communicate
at anytime and virtually anywhere.  Over the past three years, the FCC auctioned
off PCS licenses,  a total of 120 MHZ of spectrum,  falling  within six separate
frequency  blocks labeled A through F. Frequency  blocks C and F were designated
by the FCC as  "entrepreneurial  blocks."  Certain  qualifying  small businesses
including the Partnership  were afforded bidding credits in the auctions as well
as  government  financing of the licenses  acquired.  The  Partnership  won five
licenses  in 1997 to  provide  personal  communications  services  over 10Mhz of
spectrum to a population of approximately 21 million,  including Los Angeles and
Washington,  D.C. Aer Force  Communications  Inc. is the General  Partner of the
Partnership  with  a  50.1%  equity   interest.   Lynch  PCS  Corporation  F,  a
wholly-owned subsidiary of Lynch Corporation ("Lynch"), a publicly held company,
is the Limited Partner of the Partnership with a 49.9% equity interest.

BASIS OF PRESENTATION

The financial  statements  are prepared in conformity  with  generally  accepted
accounting principals applicable to a development stage enterprise.

The  Partnership's  financial  statements  have been prepared on a going concern
basis which  contemplates  the  realization  of assets and the  satisfaction  of
liabilities in the normal course of business and do not include any  adjustments
to reflect the possible future effects on the  recoverability and classification
of assets and the amount and classifications of liabilities that may result from
the possible inability of the Partnership to continue as a going concern.

The  Partnership  believes  that its PCS licenses  have  substantial  potential.
However,  the  Partnership has not yet adopted a business plan or determined how
to finance its operations because of uncertainties  relating to PCS.  Therefore,
the  Partnership  has not yet determined  whether to develop its PCS licenses on
its own,  joint  venture  its  licenses  with  other PCS or  wireless  telephone
licensees or  operators,  or sell some or all of its licenses.  The  Partnership
expects to continually evaluate these factors and adopt a business plan once the
financing, regulatory and market aspects of PCS are less uncertain.

The  Partnership  has incurred  losses since  inception  and will need to obtain
capital in the near future in order to fund its interest payment obligations and
for  working  capital  and  general  corporate  purposes.  The  Partnership  has
determined  to  convert  from  a  limited  partnership  to  a  corporation  (the
"Corporation")  before  the  spin-off  described  in  Note  6.  There  can be no
assurance  that  the  Corporation  can  raise  sufficient  capital  to fund  its
obligations and finance the construction of its networks.  Accordingly, the lack
of funding creates substantial doubt about the Partnership's ability to continue
as a going concern.

                                       F-7

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                    Notes to Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

ADMINISTRATIVE SERVICES

The Partnership has no employees.  The Limited Partner provided the Partnership,
at its  request,  with certain  services in  connection  with the  Partnership's
bidding for PCS  licenses in the FCC  auction in late 1996  through  early 1997.
Aside from that  matter,  neither  the General  Partner nor the Limited  Partner
provided the Partnership with a substantial amount of services.  Neither partner
charged the  Partnership  for the  services  provided,  as such  amounts are not
significant.

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the carrying  amounts of assets and  liabilities  and  disclosures at the
date of the financial statements and the reported amounts of expenses during the
reporting period.  Actual results could differ from those estimates.

CAPITALIZED COSTS

Interest charges including commitment fees incurred prior to the granting of the
licenses have been  expensed.  Subsequent  to the license grant date,  and until
operations  commence,  all interest  charges and commitment  fees on outstanding
loan  balances  will be  capitalized.  These  costs will be  amortized  over the
remaining life of the respective loan when the Partnership commences operations.
Capitalized interest, included in capitalized costs, amounted to $133,793. Total
interest charges amounted to $355,638 and $1,053,804,  respectively, for the six
months ended June 30, 1997 and for the period from July 26, 1996  (inception) to
June 30, 1997.

The FCC licenses will be amortized over a period,  consistent  with the industry
standard, not to exceed 40 years, which will begin when operations commence.

INCOME TAXES

The results of operations of the  Partnership are included in the taxable income
or loss of the individual partners and,  accordingly,  no tax provision has been
recorded.

2. RELATED PARTIES

Due to Limited Partner represents amounts due for interest, including commitment
fees, on the loan outstanding which will be repaid according to the terms of the
loan.

3. PARTNERSHIP AGREEMENT

The Partnership was formed in July 1996 to bid for PCS licenses in the "F-Block"
auction. The General Partner contributed $100,200 to the Partnership for a 50.1%
equity interest and the Limited Partner  contributed  $99,800 to the Partnership
for a 49.9% equity interest.

                                       F-8

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                    Notes to Financial Statements (continued)

3. PARTNERSHIP AGREEMENT (CONTINUED)

Under the terms of the Partnership Agreement all items of deduction with respect
to interest expense and commitment fees are allocated 99% to the Limited Partner
and 1% to the General Partner.  All profits of the Partnership are allocated 99%
to the Limited Partner and 1% to the General Partner until the aggregate  amount
of all profits  allocated to the Limited  Partner and General  Partner equal the
items of  deduction  with  respect to  interest  expense  and  commitment  fees.
Subsequently,  all profits and losses will be allocated  to the Limited  Partner
and General  Partner in  proportion  to their  respective  interests,  49.9% and
50.1%, respectively.

4. LONG-TERM DEBT

Long-term debt consists of:
<TABLE>
<CAPTION>

                                                                                 DECEMBER 31,       June 30,
                                                                                     1996             1997
                                                                              -----------------------------------

<S>                                                                                <C>             <C>
    The Limited Partner loan at a fixed rate of 15% due in 2001                    $11,800,000     $  2,708,044

    FCC  financing of PCS licenses  awarded in the following
         markets and mature in 2007:
         Los Angeles, CA                                                                     -        3,579,000
         Washington, D.C.                                                                    -        7,068,000
         Sarasota, FL                                                                        -        1,322,400
         Reno, NV                                                                            -        1,429,800
         Santa Barbara, CA                                                                   -        1,766,977
                                                                              -----------------------------------
                                                                                             -       15,166,177
                                                                              -----------------------------------
                                                                                   $11,800,000      $17,874,221
                                                                              ===================================
</TABLE>

In connection with the PCS "F-Block"  auction,  $12.0 million was deposited with
the FCC of which $11.8  million was borrowed  from the Limited  Partner  under a
line of credit which is due and payable in five years.  The interest rate on the
outstanding  borrowings  under  the  line  is  fixed  at  15%;  additionally,  a
commitment  fee of 20% per annum is being  charged  on the total  line of credit
which is $11.4 million at June 30, 1997. The amounts due to the Limited Partner,
including  accrued  interest and commitment  fees, at December 31, 1996 and June
30, 1997 are $13.4  million and $5.7  million,  respectively.  In January  1997,
$10.1  million of this loan was repaid to the Limited  Partner  with the deposit
returned by the FCC.

Under a recapitalization  of the Partnership that is currently being considered,
the total amount due to the Limited  Partner would be converted to newly created
5% Redeemable  Preferred  Stock.  This  Preferred  Stock  including  accumulated
dividends would be mandatorily redeemable on October 1, 2009 (See Note 6).

                                       F-9

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                    Notes to Financial Statements (continued)

4. LONG-TERM DEBT (CONTINUED)

All of the FCC financing bears interest at 6.25% per annum.  Quarterly  interest
payments of  $236,972  are  required  for the first two years of the license and
quarterly  payments of principal  and interest of $605,879 are required over the
remaining  eight  years of the  license  term.  These  loans are  secured by the
licenses granted.  In April 1997, the FCC suspended the interest payments on the
debt. On September 25, 1997, the FCC indicated that such interest  payments will
be resumed  beginning  March 31, 1998 with the suspended  payments being made in
eight installments in addition to regular interest payments.

There were no cash payments for interest for the periods ended December 31, 1996
and June 30, 1997.

Aggregate principal maturities of long-term debt for each of the next five years
are as  follows:  1997--$0  million,  1998--$0  million,  1999--$0.743  million,
2000--$1.558 million and 2001--$1.658 million.

5. LEGAL MATTERS

The United  States  Department  of Justice has  initiated  an  investigation  to
determine  whether there has been bid rigging and market allocation for licenses
auctioned  by the FCC for PCS. The  Partnership,  together  with  various  other
bidders in the PCS auctions,  has received a civil investigative  demand ("CID")
requesting  documents and information relating to bidding, and in June 1997, the
Partnership  complied with the CID. The Partnership is not aware of what further
action, if any, the Justice  Department or the FCC may take and can not estimate
its exposure, if any, at this time.

6. SUBSEQUENT EVENTS

The  Partnership  has  determined  to convert  from a limited  partnership  to a
corporation (the "Corporation") before the contemplated spin-off under which the
General  Partner would receive 50.1% of the common stock of the  Corporation and
the Limited Partner, would receive 49.9% of the Common Stock of the Corporation.
It is also  contemplated  that the  partners  would make an  additional  capital
contribution  to the  Partnership  of  $250,000  in the  aggregate  and that the
indebtedness  (including  accrued  interest  and  commitment  fees)  owed by the
Corporation  to the Limited  Partner  ($5.7  million at June 30,  1997) would be
converted into an equivalent  principal amount of redeemable  Preferred Stock of
the  Corporation and the Limited  Partner's  obligation to make further loans to
the Partnership  would  terminate.  The Preferred Stock is entitled to preferred
dividends at an annual rate of 5 shares of additional  Preferred  Stock for each
one hundred shares of Preferred Stock  outstanding,  has no voting rights except
as  provided  by law,  and is  entitled  to be redeemed at $1,000 per share plus
accrued  and unpaid  dividends,  on November 1, 2009,  or earlier  upon  certain
circumstances.  The  Partnership has been informed by the Limited Partner that a
portion of the common stock of the  Corporation to be received by it is expected
to be spun-off to the shareholders of its parent company.

                                      F-10

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                                 Balance Sheets
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                    September 30,          Pro Forma
                                                                                         1997          September 30, 1997
                                                                                                          (see Notes)
                                                                                 ------------------------------------------

ASSETS
<S>                                                                                    <C>                   <C>       
Cash                                                                             $              -         $     250,000
Deposit with FCC                                                                                -                     -
PCS Licenses                                                                           18,957,721            18,957,721
Capitalized costs                                                                         785,402               785,402
                                                                                 ------------------------------------------
Total assets                                                                          $19,743,123           $19,993,123
                                                                                 ==========================================

LIABILITIES AND PARTNERS' EQUITY/(DEFICIT)
Accrued liabilities                                                              $                -       $           -
                                                                                 ------------------------------------------
Total current liabilities                                                                       -                     -

Long-term accrued liabilities                                                             338,532               338,532
Due to Limited Partner                                                                  3,702,716                     -
Long-term debt:
  Loan from Limited Partner                                                             3,634,274                     -
  Loan from FCC                                                                        15,166,177            15,166,177

Redeemable preferred stock                                                                      -             7,336,990

Common stock                                                                                    -                   355
Additional paid-in capital                                                                      -               449,645
Accumulated deficit                                                                             -           (3,298,576)

General Partner's equity accumulated during the development stage                          67,214                     -
Limited Partner's deficit accumulated during the development stage                    (3,165,790)                     -
                                                                                 ------------------------------------------
Total partners'/stockholders' deficit accumulated during the development
stage                                                                                 (3,098,576)                     -
                                                                                 ------------------------------------------
Total liabilities and partners'/stockholders' deficit                                 $19,743,123         $  19,993,123
                                                                                 ==========================================
</TABLE>


See accompanying notes.

                                      F-11

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                            Statements of Operations
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                             July 26, 1996          Nine Months
                                                            (Inception) to             Ended
                                                             September 30,         September 30,
                                                                 1996                   1997
                                                        ----------------------------------------

<S>                                                     <C>                    <C>
 Interest expense including commitment fees             $(556,167)             $ (1,720,076)
                                                        ------------------------------------
         Net loss                                       $(556,167)             $ (1,720,076)
                                                        ====================================

 Net loss allocated to general partner (1%)             $  (5,562)             $    (17,201)
                                                        ====================================

 Net loss allocated to limited partner (99%)            $(550,605)             $(1,702,875)
                                                        =============================================
</TABLE>



See accompanying notes.

                                      F-12

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                            Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                   July 26, 1996          Nine Months
                                                                                  (Inception) to             Ended
                                                                                   September 30,         September 30,
                                                                                       1996                   1997
                                                                              ---------------------------------------------

OPERATING ACTIVITIES
<S>                                                                                <C>                    <C>
Net loss                                                                           $    (556,167)         $ (1,720,076)
Interest accrued, including commitment fees                                             (556,167)           (1,720,076)
                                                                              ---------------------------------------------
Net cash provided by operating activities                                                      -                      -

INVESTING ACTIVITIES
(Deposits with) refunds from the FCC                                                 (12,000,000)            10,104,228
Purchase of PCS licenses                                                                       -            (1,895,772)
                                                                              ---------------------------------------------
Net cash (used in) provided by investing activities                                  (12,000,000)             8,208,456

FINANCING ACTIVITIES
         Proceeds from the issuance of loans from the Limited Partner                 11,800,000              1,895,772
         Repayment of loans from the Limited Partner                                                        (10,104,228)
         Capital contributions                                                           200,000                      -
                                                                              ---------------------------------------------
         Net cash provided by (used in) financing activities                          12,000,000             (8,208,456)

         Net change in cash                                                                    -                      -
         Cash at beginning of period                                                           -                      -
                                                                              ---------------------------------------------
         Cash at end of period                                                         $       -           $          -
                                                                              =============================================
</TABLE>


See accompanying notes.


                                      F-13

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                          Notes to Financial Statements
                                   (Unaudited)

                  For the period from July 26, 1996 (inception)
    to September 30, 1996 and the nine month period ending September 30, 1997


1.       ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Aer Force  Communications B, L.P. ("the Partnership") was formed in July 1996 to
bid for  personal  communications  services  ("PCS")  licenses  in th e  Federal
Communications  Commission's ("FCC") F-Block auction.  East/West Communications,
Inc.  was  incorporated  on August 13,  1997 and will  succeed to the rights and
obligations of the  Partnership.  PCS is a second  generation  digital  wireless
service utilizing voice,  video or data devices that allow people to communicate
at anytime and virtually anywhere.  Over the past three years, the FCC auctioned
off PCS licenses,  a total of 120 MHZ of spectrum,  falling  within six separate
frequency  blocks labeled A through F. Frequency  blocks C and F were designated
by the FCC as  "entrepreneurial  blocks."  Certain  qualifying  small businesses
including the Partnership  were afforded bidding credits in the auctions as well
as  government  financing of the licenses  acquired.  The  Partnership  won five
licenses  in 1997 to  provide  personal  communications  services  over 10Mhz of
spectrum to a population of approximately 21 million,  including Los Angeles and
Washington,  D.C. Aer Force  Communications  Inc. is the General  Partner of the
Partnership  with  a  50.1%  equity   interest.   Lynch  PCS  Corporation  F,  a
wholly-owned subsidiary of Lynch Corporation ("Lynch"), a publicly held company,
is the Limited Partner of the Partnership with a 49.9% equity interest.

BASIS OF PRESENTATION

The financial  statements  are prepared in conformity  with  generally  accepted
accounting  principals  applicable to a development stage enterprise for interim
financial information.  Accordingly,  they do not include all of the information
and footnotes required for generally accepted accounting principles for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.

The  Partnership's  financial  statements  have been prepared on a going concern
basis which  contemplates  the  realization  of assets and the  satisfaction  of
liabilities in the normal course of business and do not include any  adjustments
to reflect the possible future effects on the  recoverability and classification
of assets and the amount and classifications of liabilities that may result from
the possible inability of the Partnership to continue as a going concern.

The  Partnership  believes  that its PCS licenses  have  substantial  potential.
However,  the  Partnership has not yet adopted a business plan or determined how
to finance its operations because of uncertainties  relating to PCS.  Therefore,
the  Partnership  has not yet determined  whether to develop its PCS licenses on
its own,  joint  venture  its  licenses  with  other PCS or  wireless  telephone
licensees or  operators,  or sell some or all of its licenses.  The  Partnership
expects to continually evaluate these factors and adopt a business plan once the
financing, regulatory and market aspects of PCS are less uncertain.

                                      F-14

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                    Notes to Financial Statements (continued)
                                   (Unaudited)


1. ACCOUNTING POLICIES (CONTINUED)

The  Partnership  has incurred  losses since  inception  and will need to obtain
capital in the near future in order to fund its interest payment obligations and
for  working  capital  and  general  corporate  purposes.  The  Partnership  has
determined  to  convert  from  a  limited  partnership  to  a  corporation  (the
"Corporation")  before  the  spin-off  described  in  Note  6.  There  can be no
assurance  that  the  Corporation  can  raise  sufficient  capital  to fund  its
obligations and finance the construction of its networks.  Accordingly, the lack
of funding creates substantial doubt about the Partnership's ability to continue
as a going concern.

2. RELATED PARTIES

Due to Limited Partner represents amounts due for interest, including commitment
fees, on the loan outstanding which will be repaid according to the terms of the
loan.

3. PARTNERSHIP AGREEMENT

The Partnership was formed in July 1996 to bid for PCS licenses in the "F-Block"
auction. The General Partner contributed $100,200 to the Partnership for a 50.1%
equity interest and the Limited Partner  contributed  $99,800 to the Partnership
for a 49.9% equity interest.

Under the terms of the Partnership Agreement all items of deduction with respect
to interest expense and commitment fees are allocated 99% to the Limited Partner
and 1% to the General Partner.  All profits of the Partnership are allocated 99%
to the Limited Partner and 1% to the General Partner until the aggregate  amount
of all profits  allocated to the Limited  Partner and General  Partner equal the
items of  deduction  with  respect to  interest  expense  and  commitment  fees.
Subsequently,  all profits and losses will be allocated  to the Limited  Partner
and General  Partner in  proportion  to their  respective  interests,  49.9% and
50.1%, respectively.

4. LONG-TERM DEBT

Long-term debt consists of:
<TABLE>
<CAPTION>
                                                                           SEPTEMBER 30,     September 30,
                                                                                1996             1997
                                                                          --------------  -------------------


<S>                                                                        <C>               <C>
    The Limited Partner loan at a fixed rate of 15% due in 2001            $11,800,000       $  3,634,274
    FCC financing of PCS licenses awarded in the following
         markets and mature in 2007:
         Los Angeles, CA                                                             -          3,579,000
         Washington, D.C.                                                            -          7,068,000
         Sarasota, FL                                                                -          1,322,400
          Reno, NV                                                                   -          1,429,800
          Santa Barbara, CA                                                          -          1,766,977
                                                                          -----------------------------------
                                                                                     -         15,166,177
                                                                          -----------------------------------
                                                                           $11,800,000        $18,800,451
                                                                          ===================================
</TABLE>


                                      F-15

<PAGE>
                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                    Notes to Financial Statements (continued)
                                   (Unaudited)


4. LONG-TERM DEBT (CONTINUED)

In connection with the PCS "F-Block"  auction,  $12.0 million was deposited with
the FCC of which $11.8  million was borrowed  from the Limited  Partner  under a
line of credit which is due and payable in five years.  The interest rate on the
outstanding  borrowings  under  the  line  is  fixed  at  15%;  additionally,  a
commitment  fee of 20% per annum is being  charged  on the total  line of credit
which is $11.4  million at Sepetmber  30,  1997.  The amounts due to the Limited
Partner,  including  accrued interest and commitment fees, at September 30, 1996
and 1997 are $12.4  million and $7.3  million,  respectively.  In January  1997,
$10.1  million of this loan was repaid to the Limited  Partner  with the deposit
returned by the FCC.

Under a recapitalization  of the Partnership that is currently being considered,
the total amount due to the Limited  Partner would be converted to newly created
5% Redeemable  Preferred  Stock.  This  Preferred  Stock  including  accumulated
dividends would be mandatorily redeemable on November 1, 2009 (See Note 6).

All of the FCC financing bears interest at 6.25% per annum.  Quarterly  interest
payments of  $236,972  are  required  for the first two years of the license and
quarterly  payments of principal  and interest of $605,879 are required over the
remaining  eight  years of the  license  term.  These  loans are  secured by the
licenses granted.  In April 1997, the FCC suspended the interest payments on the
debt. On September 25, 1997, the FCC indicated that such interest  payments will
be resumed  beginning  March 31, 1998 with the suspended  payments being made in
eight installments in addition to regular interest payments.

There were no cash  payments for interest for the periods  ended  September  30,
1997 and 1996.

Aggregate principal maturities of long-term debt for each of the next five years
are as  follows:  1997--$0  million,  1998--$0  million,  1999--$0.743  million,
2000--$1.558 million and 2001--$1.658 million.

5. LEGAL MATTERS

The United  States  Department  of Justice has  initiated  an  investigation  to
determine  whether there has been bid rigging and market allocation for licenses
auctioned  by the FCC for PCS. The  Partnership,  together  with  various  other
bidders in the PCS auctions,  has received a civil investigative  demand ("CID")
requesting  documents and information relating to bidding, and in June 1997, the
Partnership  complied with the CID. The Partnership is not aware of what further
action, if any, the Justice  Department or the FCC may take and can not estimate
its exposure, if any, at this time.


                                      F-16

<PAGE>

                        Aer Force Communications B, L.P.
                       (A Development Stage Enterprise and
                A Predecessor to East/West Communications, Inc.)

                    Notes to Financial Statements (continued)
                                   (Unaudited)

6. SUBSEQUENT EVENTS

The  Partnership  has  determined  to convert  from a limited  partnership  to a
corporation (the "Corporation") before the contemplated spin-off under which the
General  Partner would receive 50.1% of the common stock of the  Corporation and
the Limited Partner, would receive 49.9% of the Common Stock of the Corporation.
It is also  contemplated  that the  partners  would make an  additional  capital
contribution  to the  Partnership  of  $250,000  in the  aggregate  and that the
indebtedness  (including  accrued  interest  and  commitment  fees)  owed by the
Corporation to the Limited Partner ($7.3 million at September 30, 1997) would be
converted into an equivalent  principal amount of redeemable  Preferred Stock of
the  Corporation and the Limited  Partner's  obligation to make further loans to
the Partnership  would  terminate.  The Preferred Stock is entitled to preferred
dividends at an annual rate of 5 shares of additional  Preferred  Stock for each
one hundred shares of Preferred Stock  outstanding,  has no voting rights except
as  provided  by law,  and is  entitled  to be redeemed at $1,000 per share plus
accrued  and unpaid  dividends,  on November 1, 2009,  or earlier  upon  certain
circumstances.  The  Partnership has been informed by the Limited Partner that a
portion of the common stock of the  Corporation to be received by it is expected
to be spun-off to the shareholders of its parent company.

                                      F-17


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