APPLIED CELLULAR TECHNOLOGY INC
POS AM, 1999-06-24
TELEPHONE & TELEGRAPH APPARATUS
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      As Filed with the Securities and Exchange Commission on June 24, 1999
     Post-Effective Amendment No. 1 to Registration Statement No. 333-64605*
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                         Post-Effective Amendment No. 1*
                                       to
                                    FORM S-3
                             REGISTRATION STATEMENT
                                      Under
                           THE SECURITIES ACT OF 1933
                        APPLIED CELLULAR TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)

            MISSOURI                   3661                        43-1641533
(State or other jurisdiction of  (Primary Standard Industrial  (I.R.S. Employer
incorporation or organization)   Classification Code Number) Identification No.)

                          400 Royal Palm Way, Suite 410
                            Palm Beach, Florida 33480
                                 (561) 366-4800
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices)

             ------------------------------------------------------
            Garrett A. Sullivan              Copies of all correspondence to:
       400 Royal Palm Way, Suite 410              Denis P. McCusker, Esq.
         Palm Beach, Florida 33480                    Bryan Cave LLP
               (561) 366-4800                    One Metropolitan Square
 (Name, address,  including zip code,             211 North Broadway,
    and telephone number,                       Suite  3600  St.  Louis,
including  area  code,  of agent for  service)    Missouri 63102-2750
                                                    (314) 259-2000

     Approximate  date of commencement of proposed sale to public:  from time to
time after this registration statement becomes effective.
     If any of the securities being registered on this form are to be offered on
a delayed or continuous  basis  pursuant to Rule 415 under the Securities Act of
1933, check the following box.                                               [X]
     If this Form is filed to  register  additional  securities  for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list  the  Securities  Act  registration  statement  number  of the  earlier
effective registration statement for the same offering.                      [ ]
     If this Form is a  post-effective  amendment  filed pursuant to Rule 462(c)
under the  Securities  Act,  check the following box and list the Securities Act
registration  statement number of the earlier effective  registration  statement
for the same offering.                                                       [ ]
     If this Form is a  post-effective  amendment  filed pursuant to Rule 462(d)
under the  Securities  Act,  check the following box and list the Securities Act
registration  statement number of the earlier effective  registration  statement
for the same offering.                                                       [ ]
     If delivery of the  prospectus is expected to be made pursuant to Rule 434,
please check the following box.                                              [ ]

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

*    Filed as  Post-Effective  Amendment on Form S-1 to  Registration  Statement
     filed on Form S-3 No. 333-64605 (filed 9/29/98).



<PAGE>
================================================================================
The  information  in this  preliminary  prospectus  is not  complete  and may be
changed.  We may not sell these  securities  until the amendment to registration
statement filed with the Securities and Exchange  Commission is effective.  This
preliminary  prospectus is not an offer to sell these  securities and we are not
soliciting  any offer to buy these  securities  in any state  where the offer or
sale is not permitted.
================================================================================
                  Subject to completion, Dated June 24, 1999

                                1,105,708 Shares

                                [GRAPHIC OMITTED]

                       Applied Cellular Technology, Inc.

                                  Common Stock

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

     This prospectus  relates to 1,105,708 shares of our Common Stock, par value
$.001 per share,  which have  previously  been registered for offering and sale.
Theses  shares are to be issued from time to time upon exchange or redemption of
Class A exchangeable  shares and Class B exchangeable  shares of ACT-GFX Canada,
Inc., an Ontario corporation,  which is one of our subsidiaries. The Class A and
Class B exchangeable  shares were issued by ACT-GFX in connection with ACT-GFX's
acquisition  of certain of the issued and  outstanding  shares in the capital of
Ground  Effects  Ltd., an Ontario  corporation,  and certain debt owed by Ground
Effects.  As a result,  Ground  Effects  became a  subsidiary  of ACT-GFX.  More
information about the shares is under "Description of Capital Stock."

     The registration  statement relating to these shares was filed with the SEC
on Form S-3. Since certain financial  information which we were required to file
with a  report  on Form 8-K was  filed  late  during  1998,  we are  temporarily
ineligible to use Form S-3 for the offering of these shares.  Accordingly,  this
prospectus  includes the more detailed  information  required in a  registration
statement on Form S-1.

     This  prospectus also relates to the resale from time to time of the Common
Stock after  shares of Common Stock have been issued in exchange for the Class A
and Class B  exchangeable  shares.  After such  issuance the Common Stock may be
sold in one or more transactions (which may include "block transactions") on the
NASDAQ Stock Market, in the over-the-counter  market, in negotiated transactions
or in a  combination  of such  methods of sales,  at fixed  prices  which may be
changed,  at market prices prevailing at the time of sales, at prices related to
such prevailing market prices or at negotiated prices.

     Our shares are listed on the NASDAQ Stock  Market under the symbol  "ACTC."
On June 18, 1999,  the last reported sale price of the Common Stock was $2 25/32
per share.  On or about July 1, 1999,  our corporate name will change to Applied
Digital Solutions, Inc., and our trading symbol will be "ADSX."

     We will not receive any  proceeds  from the sale of the Common Stock and we
will bear all the expenses incurred in connection with registering this offering
of Common Stock.

     The selling  shareholders  may sell the shares of Common Stock  directly or
through underwriters, dealers or agents. They may also pledge some of the shares
of Common Stock.  This  prospectus  also relates to any sale of shares of Common
Stock that might take place  following any  foreclosure  of such a pledge.  More
information  about the way the selling  shareholders  may  distribute the Common
Stock is under the heading "Plan of Distribution."

     See the  information  under the heading "Risk Factors"  starting on page 6,
which describes certain factors you should consider before purchasing the Common
Stock.

     Our  principal  office is at 400 Royal  Palm Way,  Suite 410,  Palm  Beach,
Florida 33480, and our telephone number is (561) 366-4800.

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

     Neither the  Securities and Exchange  Commission  nor any state  securities
commission has approved or disapproved of these  securities,  or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.

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

              The date of this prospectus is [_____________], 1999.
<PAGE>



                                TABLE OF CONTENTS
Summary........................................................................3
Selected Financial Data........................................................5
Risk Factors...................................................................6
Use of Proceeds................................................................9
Selected Financial Data.......................................................10
Our Business..................................................................12
Management's Discussion and Analysis of Financial Condition
   and Results of Operations..................................................18
Dividend Policy...............................................................34
Price Range of Common Stock...................................................34
Properties....................................................................35
Legal Proceedings.............................................................36
Management....................................................................37
Option Exercises and Fiscal Year-End Values...................................44
Certain Relationships and Related Transactions................................47
Beneficial Ownership of Common Stock..........................................49
Description of Capital Stock..................................................51
Plan of Distribution..........................................................52
Shares Eligible for Future Sale...............................................64
Legal Opinion.................................................................65
Experts.......................................................................65
Additional Information........................................................65
Index to Financial Statements.................................................67

















                                       2
<PAGE>

                                     SUMMARY

     You should  read the  following  summary  together  with the more  detailed
information  and  financial  statements  and  related  notes  thereto  appearing
elsewhere  in  this  prospectus.   This  prospectus   contains   forward-looking
statements.  The  outcome  of the  events  described  in  these  forward-looking
statements is subject to risks and actual results could differ  materially.  The
sections  entitled  "Risk  Factors,"  "Management's  Discussion  and Analysis of
Financial  Condition  and  Results  of  Operations,"  and  "Business"  contain a
discussion of the factors that could contribute to those differences.

                        Applied Cellular Technology, Inc.

Our Business

     We are a full  service  communications  company that offers a wide range of
products  and  services to the  wireless,  telecommunications  and digital  data
industries. We are building our core business around the following five business
segments in the communications industry:

o        Communications Infrastructure

         The   Communications   Infrastructure   division  is  involved  in  the
         fabrication,  installation  and  maintenance  of  microwave  towers and
         digital personal  communications  service towers,  and the construction
         and installation of fiber optic and voice/data  communications systems.
         The  division  also  provides   complete   installation,   service  and
         maintenance  of power  distribution  systems such as lighting,  standby
         power, alarms and security and video systems.

o        Network Infrastructure

         Our Network  Infrastructure  division  provides an array of information
         technology  business  solutions,  including  a broad  range of software
         operating systems and hardware platforms.

o        Telecommunications Systems

         Our  Telecommunications  division  integrates a wide range of voice and
         data  solutions,   from  business  communication  systems  to  computer
         telephony integration.

o        Internet

         Our Internet division assists customers in taking full advantage of the
         productivity  gained in utilizing the internet for business.  This will
         involve  developing   electronic  commerce  sites  for  businesses  and
         providing internet access services to customers of our other divisions.

o        Application Technology

         The  Application   Technology  division  develops  and  implements  the
         hardware  and  software   technology  needed  to  solve   communication
         requirements,  from  portable  data  collection  systems  to  inventory
         control  systems.  These solutions are helping  end-users  convert from
         analog to digital and from  wireline to wireless  systems.  We are also
         involved  in  the  design,   manufacture   and  support  of   satellite
         communication  technology,  including  satellite modems, data broadcast
         receivers and wireless  global  positioning for commercial and military
         applications.

Customers

     Our customers span virtually all  industries  and include  companies,  both
public and private, of all sizes. We also provide services to the public sector,
including the United States government.

Strategy

     Our goal is to be a single source  communications  provider that businesses
can turn to for integrated  communications  systems, and we are taking advantage
of the  communications  industry's move from analog to digital and from wireline
to wireless systems.

                                       3
<PAGE>

About Us

     We incorporated in Missouri in May 1993. Our principal  offices are located
at 400 Royal Palm Way,  Suite 410,  Palm Beach,  Florida  33480.  Our  telephone
number is (561) 366-4800.

ACT-GFX Canada, Inc.'s Acquisition of Ground Effects Ltd.

     Pursuant to a reorganization  agreement among us, ACT-GFX Canada,  Inc., an
Ontario corporation and one of our subsidiaries ("ACT-GFX"), Drummer Enterprises
Ltd., an Ontario  corporation,  Morstar  Holdings Ltd., a Manitoba  corporation,
Scozul  Enterprises  Ltd.,  an  Ontario  corporation,  James D. Scott and Ground
Effects Ltd., an Ontario corporation  ("Ground Effects"),  certain of the issued
and outstanding shares in the capital of Ground Effects and certain debt owed by
Ground Effects were acquired by ACT-GFX for a purchase price which was satisfied
by the  issuance  of  Class  A  exchangeable  shares  of  ACT-GFX  and  Class  B
exchangeable  shares of ACT-GFX (the Class A and Class B exchangeable  shares of
ACT-GFX  are  referred to as the  "Exchangeable  Shares").  As a result,  Ground
Effects became a subsidiary of ACT-GFX.  The Exchangeable Shares will be further
exchangeable  into or redeemable for shares of our Common Stock.  Holders of the
Exchangeable Shares will have economic and voting rights which are, as nearly as
possible, equivalent to those of holders of our Common Stock.



                                  The Offering

Common Stock offered by us....... 1,105,708 shares

Number of shares outstanding .... 43,672,595 shares as of June 18, 1999

NASDAQ Stock Market Symbol ...... ACTC.  Effective with our name change to
                                    Applied Digital Solutions,
                                    Inc.,  on or about July 1,
                                    1999,  our trading  symbol
                                    will be ADSX.

Dividend Policy ................. We have not paid dividends on our Common Stock
                                    and do not anticipate paying dividends.  See
                                    "Dividend Policy", page 34.

Market Price of Common Stock .... The marked price of the Common Stock has
                                    ranged from a high of $5 1/2 to a low of $1
                                    17/32 during the 12 months preceding the
                                    date of this prospectus.

Risk Factors .................... See "Risk Factors," starting on page 6, for a
                                    discussion of factors you should carefully
                                    consider before deciding to invest in our
                                    Common Stock.



                                       4
<PAGE>

                             SELECTED FINANCIAL DATA

     The following table provides selected financial information  concerning our
business.  This  information  should  be read in  conjunction  with the  audited
financial statements and related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>

      (In thousands, except per share    Quarter Ended March 31,                Year Ended December 31,
        data)
                                         ---------------------- -----------------------------------------------------
                                             1999       1998        1998       1997      1996       1995      1994
                                         ---------------------- -----------------------------------------------------
<S>                                       <C>        <C>         <C>        <C>       <C>         <C>      <C>

Summary Of Operations
Net Operating Revenue                     $  51,573  $ 38,784    $ 207,081  $103,159  $ 19,883    $2,336   $    323
Cost Of Goods Sold                           33,176    28,298      142,893    69,408    10,524     1,186        270
- --------------------------------------------------------------------------------------------------------------------
Gross Profit                                 18,397    10,486       64,188    33,751     9,359     1,150         53
Selling, General And Administrative
  Expenses                                   17,512     9,131       55,253    28,159     8,105       981        533
Restructuring and unusual costs               2,550
- --------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                      (1,665)    1,355        8,935     5,592     1,254       169       (480)
Interest Income                                 134       106          420       192       126        75         --
Interest Expense                               (445)     (234)      (1,653)     (978)     (200)      (15)        (2)
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations
  Before Provision (Benefit) for Income
  Taxes and Minority Interest
                                             (1,976)    1,227        7,702     4,806     1,180       229       (482)
Provision (Benefit) For Income Taxes           (575)      518        2,588     1,769       362        --         --
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Minority Interest       (1,401)      709        5,114     3,037       818       229       (482)
Minority Interest                               244        94          424       697       132        49         --
- --------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                            (1,645)      615        4,690     2,340       686       180       (482)
Preferred Stock Dividends                        --        18           44        72        60        --         --
====================================================================================================================
Net Income (Loss) Available To Common
  Stockholders                            $  (1,645) $    597    $   4,646  $  2,268  $    626    $  180   $   (482)
====================================================================================================================
Average Common Shares Outstanding            41,236    23,711       32,318    12,632     3,329     1,792        588
Average Common Shares Outstanding
  Assuming Dilution                          41,909    24,956       34,800    15,245     4,641     1,967        588
Per Common Share Data
Basic Net Income (Loss)                       (0.04)     0.03         0.14      0.18      0.19      0.10      (0.82)
Diluted Net Income (Loss)                     (0.04)     0.02         0.13      0.15      0.15      0.09      (0.82)
Cash Dividends                                   --        --           --        --        --        --         --
Balance Sheet Data
Cash and Cash Equivalents                 $    $698  $  5,923    $   4,555  $  7,657  $   $810    $  125   $      3
Property and Equipment                       15,914     6,597       15,627     5,339     2,915       138         36
Goodwill                                     41,708    16,381       33,430    12,787    14,528       907         --
Total Assets                                132,064    73,067      124,116    61,282    33,208     4,131      1,360
Long-Term Debt                                3,081     2,355        2,838     2,199     1,386        19          9
Total Debt                                   26,599     7,879       27,213     7,825     5,799       352        150
Minority Interest                             3,204     1,869        2,961     1,785       456        57         --
Redeemable Preferred Stock                       --       700           --       900    10,900        --         --
Stockholders' Equity                         70,007    42,834       67,560    36,285     8,252     3,052      1,128

</TABLE>



                                       5
<PAGE>

                                  RISK FACTORS

     You should  carefully  consider the risk factors  listed below.  These risk
factors may cause our future  earnings to be less or our financial  condition to
be less favorable than we expect. You should read this section together with the
other information in this prospectus.

Forward-Looking Statements and Associated Risk

     Certain statements under this heading and under the headings "Our Business"
and "Management's  Discussion and Analysis of Business and Financial  Condition"
in this  prospectus  constitute  "forward-looking  statements" as defined in the
Private  Securities  Litigation  Reform  Act of 1995.  All such  forward-looking
information  involves  risks  and  uncertainties  and  may be  affected  by many
factors, some of which are beyond our control. These factors include:

     o   our growth strategies,

     o   anticipated trends in our business and demographics,

     o   our  ability  to  successfully  integrate  the  business  operations of
         recently acquired companies, and

     o   regulatory, competitive or other economic influences.

Taxability of the Exchange

     The  exchange  of  Exchangeable  Shares for  shares of our Common  Stock is
generally  a taxable  event in Canada and the  United  States.  A  holder's  tax
consequences can vary depending on a number of factors,  including the residency
of the holder,  the method of the  exchange  (redemption  or  exchange)  and the
length of time that the  Exchangeable  Shares were held prior to  exchange.  See
"Canadian Tax Considerations" and "United States Federal Tax Considerations."

Differences in Canada and U.S. Trading Markets

     The Exchangeable  Shares will not be listed on any stock exchange in Canada
or the United  States.  We have agreed that our shares of Common Stock  issuable
from time to time in exchange for the Exchangeable  Shares will be listed on the
NASDAQ Stock Market.  There is no current  intention to list our Common Stock on
any other  stock  exchange  in Canada or the United  States.  As a result of the
foregoing,  we believe  that the market  price of the  Exchangeable  Shares will
reflect essentially the equivalent value of our Common Stock on the NASDAQ Stock
Market.  However, if a market for the Exchangeable Shares should develop,  there
can be no  assurances  that the market  price of the  Exchangeable  Shares would
correspond to that of our Common Stock.

Foreign Property

     The Exchangeable Shares and our Common Stock will be foreign property under
the Income Tax Act (Canada),  as amended (the  "Canadian  Tax Act"),  for trusts
governed by registered  pension  plans,  registered  retirement  savings  plans,
registered  retirement  income funds and deferred  profit  sharing  plans or for
certain other tax-exempt persons. See "Canadian Tax Considerations."

Uncertainty of Future Financial Results

     While we have been  profitable  for the last  three  fiscal  years,  future
financial results are uncertain. There can be no assurance that we will continue
to be operated in a profitable manner.  Profitability depends upon many factors,
including the success of our various  marketing  programs,  the  maintenance  or
reduction  of expense  levels and our  ability to  successfully  coordinate  the


                                       6
<PAGE>

efforts of the  different  segments of our  business.  We incurred a loss in the
first quarter of 1999.  See  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations."

Future Sales of and Market for the Shares

     As of  June  18,  1999,  there  were  43,672,595  shares  of  Common  Stock
outstanding.  In  addition,  1,392,877  shares of Common  Stock are reserved for
issuance in exchange for the  Exchangeable  Shares of ACT-GFX referred to herein
and in exchange  for certain  exchangeable  shares  issued by TigerTel  Services
Limited  (formerly,  Commstar Ltd.), one of our  subsidiaries.  Since January 1,
1999, we have issued an aggregate of 8,117,509  shares of Common Stock, of which
5,928,220   shares  of  Common   Stock  were  issued  as  earnout   payments  in
acquisitions,  1,952,263  shares were issued in  exchange  for the  Exchangeable
Shares of ACT-GFX  referred to herein and in exchange  for  exchangeable  shares
issued by TigerTel  Services  Limited,  121,465  shares were issued to acquire a
minority  interest,  and 115,561 shares of Common Stock were issued for services
rendered, including services under employment agreements and employee bonuses.

     Although we previously  announced  that we intend to limit the use of stock
in  future  acquisitions,  and to  focus  on cash  transactions,  we may  effect
acquisitions  or contract  for certain  services  through the issuance of Common
Stock or our other equity securities,  as we have typically done in the past. In
addition, we have agreed to certain "price protection" provisions in acquisition
agreements which may result in additional shares of common stock being issued to
selling  shareholders as of the effective date of the registration of the shares
such selling  shareholder  previously  received as  consideration  from us. Such
issuances of  additional  securities  may be dilutive of the value of the Common
Stock in  certain  circumstances  and may have an  adverse  impact on the market
price of the Common Stock.

Risks Associated with Acquisitions and Expansion

     We have engaged in a continuing program of acquisitions of other businesses
which  are  considered  to be  complementary  to our lines of  business,  and we
anticipate that such  acquisitions will continue to occur. Our total assets were
approximately  $132 million as of March 31, 1999 and $124 million,  $61 million,
$33  million  and $4 million  as of  December  31,  1998,  1997,  1996 and 1995,
respectively.  Net operating revenue was approximately $52 million for the three
months ended March 31, 1999 and approximately  $207 million,  $103 million,  $20
million and $2 million for the years ended  December  31, 1998,  1997,  1996 and
1995, respectively. Managing these dramatic changes in the scope of our business
will present  ongoing  challenges to  management,  and there can be no assurance
that  our  operations  as  currently  structured,   or  as  affected  by  future
acquisitions, will be successful.

     We and the  businesses  acquired by us may require  substantial  additional
capital,  and there can be no assurance as to the  availability  of such capital
when needed,  nor as to the terms on which such capital might be made  available
to us. On May 25, 1999, we entered into a credit facility  described below under
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Liquidity and Capital Resources."

     It is our policy to retain existing management of acquired companies, under
the overall supervision of our senior management.  The success of the operations
of these  subsidiaries  will depend, to a great extent, on the continued efforts
of the management of the acquired companies.

     We have entered into earnout  arrangements with selling  shareholders under
which they are entitled to additional  consideration  for their interests in the
companies  they sold to us. Under these  agreements,  assuming that all earnouts
are achieved, and assuming certain levels of profitability in the future, we are
contingently liable for additional consideration amounting to approximately $4.5
million  based on  achieved  1999  results,  approximately  $2 million  based on
achieved 2000 results,  approximately  $4 million based on achieved 2001 results
and  approximately  $2 million based on each of 2002 and 2004 achieved  results.
All amounts  earned and payable  have been accrued in the  accompanying  balance
sheets.



                                       7
<PAGE>

     We have  entered into put options  with the selling  shareholders  of those
companies in which we acquired less than a 100% interest.  These options provide
for us to acquire the remaining portion we do not own after periods ranging from
4 to 5 years from the dates of acquisition at amounts per share  generally equal
to 10% - 20% of the average  annual  earnings  per share of the  company  before
income taxes for,  generally,  a two-year period ending on the effective date of
the put  multiplied  by a multiple  ranging  from 4 to 5. The  requirements  are
recorded as changes in minority interest based upon current operating results.

Dependence on Key Individuals

     Our future  success is highly  dependent  upon our  ability to attract  and
retain qualified key employees.  We are organized with a small senior management
team, with each of our separate operations under the day-to-day control of local
managers.  If we  were  to lose  the  services  of any  members  of our  central
management  team, our overall  operations could be adversely  affected,  and the
operations of any of our individual  facilities  could be adversely  affected if
the services of the local managers should be  unavailable.  We have entered into
employment   contracts   with  our  key  officers  and   employees  and  certain
subsidiaries.  The  agreements  are for periods of one to ten years through June
2009. Some of the employment contracts also call for bonus arrangements based on
earnings.

     In July of 1998,  we  announced  that we had  formed  an  executive  search
committee to locate and interview  candidates  for the position of President and
Chief Operating  Officer.  We expect to fill this new position by the end of the
second quarter of 1999.

Lack of Dividends on Common Stock; Issuance of Preferred Stock

     We do not have a history of paying dividends on our Common Stock, and there
can be no assurance that such dividends will be paid in the foreseeable  future.
Under the terms of our term and revolving credit  agreement,  we may declare and
pay cash  dividends of up to $150,000 in any calendar year. We intend to use any
earnings  which may be  generated to finance the growth of our  businesses.  The
Board of Directors has the right to authorize  the issuance of preferred  stock,
without further shareholder approval,  the holders of which may have preferences
over the holders of the Common Stock as to payment of dividends.

Possible Volatility of Stock Price

     Our  Common  Stock is quoted on the NASDAQ  Stock  Market(R),  which  stock
market has  experienced  and is likely to experience  in the future  significant
price and volume  fluctuations  which could adversely affect the market price of
our Common Stock without regard to our operating  performance.  In addition,  we
believe that factors such as the significant  changes to our business  resulting
from  continued  acquisitions  and  expansions,  quarterly  fluctuations  in our
financial  results or cash flows,  shortfalls in earnings or sales below analyst
expectations,  changes in the  performance of other companies in our same market
sectors and the  performance  of the overall  economy and the financial  markets
could cause the price of our Common Stock to fluctuate substantially. During the
12  months  preceding  the date of this  prospectus,  the price per share of our
Common Stock has ranged from a high of $5 1/2 to a low of $1 17/32.

Termination Payments

     Our  employment  agreements  with three of our executive  officers  include
"change of control"  provisions,  under which the employees may terminate  their
employment within one year after a change of control, and be entitled to receive
specified  severance  payments  and/or  continued  compensation  payments for 60
months.  Also,  the agreements  for both Richard  Sullivan and Garrett  Sullivan
provide for certain "triggering  events" which include a change in control,  the
termination of Richard Sullivan's employment other than for cause, or if Richard
Sullivan ceases to hold his current  positions with us for any reason other than


                                       8
<PAGE>

a material  breach of the terms of his  employment  agreement.  In that case, we
would be  obligated  to pay,  in cash  and/or in stock,  $12.1  million and $3.5
million,  respectively, to Richard Sullivan and to Garrett Sullivan, in addition
to certain other compensation.

     Our  obligations  to make the  payments  described  in this  section  could
adversely affect our financial  condition or could discourage other parties from
entering into transactions with us which might be treated as a change in control
or    triggering    event    for    purposes    of   these    agreements.    See
"Management--Employment Agreements and Executive Compensation."

                                 USE OF PROCEEDS

     Because  shares  of our  Common  Stock  will be  issued  upon  exchange  or
redemption of the Exchangeable Shares, we will receive no net cash proceeds upon
issuance.























                                       9
<PAGE>


                             SELECTED FINANCIAL DATA

     The following  selected  financial data should be read in conjunction  with
our financial statements and related notes included elsewhere in this prospectus
and "Management's  Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.  The statements of operations
data for the quarters  ended March 31, 1998 and 1997, and the balance sheet data
as of March 31,  1999,  are  derived  from the  unaudited  financial  statements
included  elsewhere in this  prospectus.  The balance sheet data as of March 31,
1997 is derived from unaudited  financial  statements not included  herein.  The
statements of operations  data for the years ended  December 31, 1996,  1997 and
1998,  and the balance sheet data as of December 31, 1997 and 1998,  are derived
from the audited financial statements included elsewhere in this prospectus. The
balance sheet data as of December 31, 1996, 1995 and 1994, and the statements of
operations data for the years ended December 31, 1995 and 1994, are derived from
audited financial statements not included herein. The historical results are not
necessarily indicative of results to be expected for future periods.

<TABLE>
<CAPTION>

      (In thousands, except per share    Quarter Ended March 31,                Year Ended December 31,
        data)
                                         ---------------------- -----------------------------------------------------
                                             1999       1998        1998       1997      1996       1995      1994
                                         ---------------------- -----------------------------------------------------
<S>                                       <C>        <C>         <C>        <C>       <C>         <C>      <C>

Summary Of Operations
Net Operating Revenue                     $  51,573  $ 38,784    $ 207,081  $103,159  $ 19,883    $2,336   $    323
Cost Of Goods Sold                           33,176    28,298      142,893    69,408    10,524     1,186        270
- --------------------------------------------------------------------------------------------------------------------
Gross Profit                                 18,397    10,486       64,188    33,751     9,359     1,150         53
Selling, General And Administrative
  Expenses                                   17,512     9,131       55,253    28,159     8,105       981        533
Restructuring and unusual costs               2,550
- --------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                      (1,665)    1,355        8,935     5,592     1,254       169       (480)
Interest Income                                 134       106          420       192       126        75         --
Interest Expense                               (445)     (234)      (1,653)     (978)     (200)      (15)        (2)
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations
  Before Provision (Benefit) for Income
  Taxes and Minority Interest
                                             (1,976)    1,227        7,702     4,806     1,180       229       (482)
Provision (Benefit) For Income Taxes           (575)      518        2,588     1,769       362        --         --
- --------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Minority Interest       (1,401)      709        5,114     3,037       818       229       (482)
Minority Interest                               244        94          424       697       132        49         --
- --------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                            (1,645)      615        4,690     2,340       686       180       (482)
Preferred Stock Dividends                        --        18           44        72        60        --         --
====================================================================================================================
Net Income (Loss) Available To Common
  Stockholders                            $  (1,645) $    597    $   4,646  $  2,268  $    626    $  180   $   (482)
====================================================================================================================
Average Common Shares Outstanding            41,236    23,711       32,318    12,632     3,329     1,792        588
Average Common Shares Outstanding
  Assuming Dilution                          41,909    24,956       34,800    15,245     4,641     1,967        588
Per Common Share Data
Basic Net Income (Loss)                       (0.04)     0.03         0.14      0.18      0.19      0.10      (0.82)
Diluted Net Income (Loss)                     (0.04)     0.02         0.13      0.15      0.15      0.09      (0.82)
Cash Dividends                                   --        --           --        --        --        --         --
Balance Sheet Data
Cash and Cash Equivalents                 $     698  $  5,923    $   4,555  $  7,657  $    810    $  125   $      3
Property and Equipment                       15,914     6,597       15,627     5,339     2,915       138         36
Goodwill                                     41,708    16,381       33,430    12,787    14,528       907         --
Total Assets                                132,064    73,067      124,116    61,282    33,208     4,131      1,360
Long-Term Debt                                3,081     2,355        2,838     2,199     1,386        19          9
Total Debt                                   26,599     7,879       27,213     7,825     5,799       352        150
Minority Interest                             3,204     1,869        2,961     1,785       456        57         --
Redeemable Preferred Stock                       --       700           --       900    10,900        --         --
Stockholders' Equity                         70,007    42,834       67,560    36,285     8,252     3,052      1,128

</TABLE>

     Refer to Note 2 to our consolidated  financial statements for a description
of the business combinations that took place in 1998 and 1997.
     Refer to Note 20 to our consolidated financial statements for a description
of the segments of business in which we operate.



                                       10
<PAGE>

<TABLE>
<CAPTION>


QUARTERLY DATA (UNAUDITED)
(In thousands, except per share data)         First        Second       Third      Fourth       Full
Year Ended December 31,                      Quarter       Quarter      Quarter    Quarter      Year
- --------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>         <C>         <C>        <C>
1999
Net Operating Revenue                         $ 51,573
Gross Profit                                    18,397
Net Income (loss) Applicable to
   Common Stockholders                          (1,645)
Basic Net Income (loss) Per Share                (0.04)
Diluted Net Income (loss) Per Share              (0.04)
- --------------------------------------------------------------------------------------------------------
1998
Net Operating Revenue                         $ 38,784     $ 53,680    $ 59,044    $ 55,573   $ 207,081
Gross Profit                                    10,486       17,456      18,949      17,297      64,188
Net Income Available to Common Stockholders        597        2,351       1,654          44       4,646
Basic Net Income Per Share                        0.03         0.07        0.05           -        0.14
Diluted Net Income Per Share                      0.02         0.07        0.05           -        0.13
- --------------------------------------------------------------------------------------------------------
1997
Net Operating Revenue                         $ 18,127     $ 24,743    $ 29,195    $ 31,094   $ 103,159
Gross Profit                                     6,048        8,309      10,369       9,025      33,751
Net Income Available to Common Stockholders        279          519       1,174         296       2,268
Basic Net Income Per Share                        0.05         0.07        0.09        0.02        0.18
Diluted Net Income Per Share                      0.04         0.06        0.08        0.01        0.15
- --------------------------------------------------------------------------------------------------------
</TABLE>




















                                       11
<PAGE>

                                  OUR BUSINESS

General

     We are a full service  communications company that provides a wide range of
products  and  services to the  wireless,  telecommunications  and digital  data
industry.  Our  goal  is to be a  single  source  communications  provider  that
businesses can turn to for integrated  communications  systems.  To achieve this
goal,  we intend to take  advantage of the  communication  industry's  move from
analog to digital and from wireline to wireless  systems.  Our services  include
the  construction  and  installation  of  communications   infrastructure,   the
installation  of local and wide area networks and the development of specialized
software   for   business    applications.    We   also   provide    traditional
telecommunications  services  such as long  distance  toll  service,  one-number
dialing and call centers. We currently operate in the United States,  Canada and
the United Kingdom.

     In May 1993, our company was incorporated as a Missouri  corporation  under
the name Great Bay Acquisition Company, and acquired Axcom Computer Consultants,
which operated as a custom  programming and systems house. After acquiring Axcom
Computer  Consultants,  we changed the focus of Axcom's  business  operations to
marketing  and  sales  of  emerging   cellular  data  technology   hardware  and
vertically-focused,  proprietary  software.  Subsequently,  on May 27, 1993,  we
changed our name to Axcom Information Technology, Inc. and then changed it again
in April 1994 to Applied Cellular Technology, Inc. On June 1, 1998, we moved our
principal office from Nixa, Missouri to Palm Beach,  Florida.  Until June, 1998,
we had satellite corporate offices located in Amherst, New Hampshire, Cambridge,
Massachusetts and St. Louis, Missouri.

     Under our original Articles of Incorporation, we had the authority to issue
up to 10,000,000  common shares. In April 1994, we amended our Articles to allow
the issuance of up to 20,000 shares of  redeemable  Preferred  Stock,  par value
$10.00, per share. In August 1996, we again amended our Articles to increase the
number of shares of our authorized  Common Stock to 20,000,000,  and to increase
the number of  authorized  preferred  shares to  1,000,000.  In October 1997, we
amended our Articles to authorize  the  issuance of up to  40,000,000  shares of
Common  Stock  and  5,000,000  shares of  preferred  stock,  having  terms to be
specified by our Board of Directors  at the time of issuance.  In June 1998,  we
amended our  Articles to increase  the  authorized  Common  Stock to  80,000,000
shares.

Acquisitions and Developments

     The  majority  of our  current  operations  are the result of  acquisitions
completed  during the last five years.  Our net  operating  revenues were $207.1
million,   $103.2  million,   $19.9  million,  $2.3  million  and  $0.3  million
respectively, in 1998, 1997, 1996, 1995 and 1994. Since January 1, 1998, we have
completed  fourteen  acquisitions  of companies whose aggregate net revenues for
the year ended December 31, 1998 were approximately  $94.8 million,  or 45.8% of
our total revenues for 1998. Until 1999, each of these  acquisitions was managed
independently  and was  directed  by its own  management  team,  and had its own
marketing and operations support personnel. Our business has grown over the past
five years primarily as a result of the following acquisitions and developments,
which include  earnout  considerations  and  commissions  paid through March 31,
1999:

o    In November 1994, we formed a subsidiary, Kedwell International,  Inc., and
     capitalized it by issuing  180,000 shares of our Common Stock.  The name of
     the  subsidiary  was  changed  to Tech  Tools,  Inc.  in April,  1995.  The
     subsidiary  purchased  software in exchange  for the 180,000  shares of our
     Common Stock and 120,000 redeemable Class E Warrants,  which were exercised
     in August 1995 into 120,000 shares of our Common Stock.

o    In December 1994, we acquired  570,712  shares of Cadkey,  Inc., a software
     technology  company,  in exchange for 456,570  shares of our Common  Stock,
     resulting in a 29% investment in Cadkey, Inc.


                                       12
<PAGE>


o    During April 1995, we formed a subsidiary,  ACT Financial Corp., a Delaware
     corporation.  The  subsidiary  was  formed to hold a note  receivable  from
     Cadkey,  Inc. We purchased a  $1,000,000  note  receivable  in exchange for
     200,000  shares of Common  Stock at a market  price of $5.00.  In  November
     1996, we received  payment of $420,139 on the note  receivable from Cadkey,
     Inc. The balance on the note was  $307,768.  Additionally,  effective as of
     November 1, 1996,  we exchanged  our 29%  investment in Cadkey for a 76.67%
     interest in a $750,000 note receivable from DataCAD, L.L.C., a company that
     purchased one of Cadkey's product lines. Our share in the note is $575,000.
     The  remaining  23.33%  of the note  ($175,000)  is owned by Micro  Control
     System, Inc., the successor corporation to Cadkey.

o    In August 1995, we acquired 80% of the common  shares of Atlantic  Systems,
     Inc., a developer and manufacturer of software and hardware systems for the
     retail industry, for 124,066 shares of our Common Stock. In August 1995, we
     also acquired, for our subsidiary Tech Tools, Inc., certain assets of Baler
     Software  Corporation  in  exchange  for the payment of debt of $14,000 and
     113,009  shares of our Common  Stock.  Baler's  assets  purchased  were the
     source  code,  inventory  and manuals for a family of software  development
     tools (primarily Visual Baler, a spreadsheet  compiler).  Selected fixtures
     and furnishings were also included in the purchase.

o    In September  1995, we acquired 80% of the common shares of Elite  Computer
     Services,  Inc. for 102,160 shares of our Common Stock. This company's main
     business is the purchase of mainframe computers which are then stripped and
     the parts sold.

o    Effective  as of  February  1,  1996,  we  purchased,  for our  subsidiary,
     Atlantic Systems, a liquor store software package (with exclusive rights to
     sell and support the software, hardware and software support contracts with
     current  customers) and certain equipment from Quality  Solutions,  Inc. in
     consideration for cash of $40,784 and 33,494 shares of our Common Stock.

o    Effective as of March 1, 1996,  we acquired 80% of the  outstanding  common
     shares of Burling  Instruments,  Inc., a manufacturer of digital and analog
     temperature  control  devices for home and  industry  use, in exchange  for
     9,000 of our 8% redeemable preferred shares, at $100 per share, for a total
     consideration of $900,000.

o    Effective  as of September 1, 1996,  we acquired  81.9% of the  outstanding
     common  shares of CRA-TEK  Corp.,  in exchange  for  295,115  shares of our
     Common Stock.

o    In September  1996,  we formed a subsidiary  company,  ACT  Communications,
     Inc., a Delaware  company,  for the sole  purpose of acquiring  100% of the
     outstanding   common  shares  of  Advanced   Telecom   Holdings,   Inc.,  a
     telecommunications   solutions   provider.   We  issued   to  the   selling
     shareholders 1,618,180 shares of our Common Stock and 100,000 shares of our
     8% redeemable preferred shares at $100 per share. In addition, we issued to
     Advanced Telecom's selling shareholders 960,000 Class M Warrants evidencing
     the right to  purchase  960,000  shares of our Common  Stock at an exercise
     price of $5.31 per share.

o    Effective as of November 1, 1996, we acquired 80% of the outstanding common
     shares of Universal  Commodities  Corp.,  in exchange for 581,818 shares of
     our Common Stock.

o    Effective as of December 1, 1996, we acquired 80% of the outstanding common
     shares of US Electrical  Products Corp.,  trading as Gavan-Graham  Electric
     Products, in exchange for 258,988 shares of our Common Stock.

o    Effective as of January 1, 1997, we acquired 100% of the outstanding common
     shares  of  Hopper  Manufacturing  Co.,  Inc.,  a  re-manufacturer  of  and
     distributor  of  automotive  parts,  in exchange for 179,104  shares of our
     Common Stock.



                                       13
<PAGE>

o    Effective  as of January 1, 1997,  our  subsidiary,  Universal  Commodities
     Corp.,   acquired  80%  of  the   outstanding   common  shares  of  Pizarro
     Re-Marketing,  Inc., a provider of  re-marketing  services for the computer
     disc and tape industry, in exchange for 261,659 shares of our Common Stock.

o    Effective  as of January 1, 1997,  our  subsidiary,  Universal  Commodities
     Corp.,  acquired 80% of the outstanding  common shares of Norcom Resources,
     Inc.,  whose business  consists of sales,  service and support of mainframe
     computers, in exchange for 375,420 shares of our Common Stock.

o    Effective  February 1, 1997,  we acquired  100% of the  outstanding  common
     shares of MVAK  Technologies,  Inc., a re-manufacturer  of vacuum pumps, in
     exchange for 389,296 shares of our Common Stock.

o    In May 1997, we acquired 80% of Signal Processors,  Ltd., a manufacturer of
     satellite communication technology, in exchange for 1,416,455 shares of our
     Common Stock.

o    In July 1997, we acquired:  80% of Cybertech  Station,  Inc., a provider of
     computer  memory  products,  in exchange  for 217,085  shares of our Common
     Stock;  100% of DLS  Service  Corp.,  a value  added  reseller  of computer
     software,  in  exchange  for  57,600  shares of our Common  Stock;  100% of
     Intermatica, Inc., a software sales company, in exchange for 710,953 shares
     of our Common  Stock;  80% of PPL,  Ltd.,  a provider of leasing and rental
     services,  in exchange for 529,264  shares of our Common Stock;  and 80% of
     STC Netcom, Inc., a communications construction contractor, in exchange for
     1,670,000 shares of our Common Stock.

o    In October 1997, we acquired:  100% of Alacrity  Systems,  Inc., a software
     developer and marketer, in exchange for 935,385 shares of our Common Stock;
     100% of C.T.  Specialists,  Inc.,  a  distributor  of control  systems,  in
     exchange  for  757,610  shares of our Common  Stock;  and 100% of  Canadian
     Network Services,  Ltd., a provider of extended area calling  services,  in
     exchange for 1,404,447 shares of our Common Stock.

o    In January 1998, we acquired 100% of Information  Products Center,  Inc., a
     network infrastructure services provider, in exchange for 711,433 shares of
     our Common Stock and 100% of Winward  Electric,  a full service  electrical
     and communications systems contractor,  in exchange for 1,773,333 shares of
     our Common Stock.

o    In  April  1998,  we  acquired:  80%  of  Americom  Group,  a  provider  of
     communications infrastructure construction,  maintenance,  installation and
     training services, in exchange for 235,507 shares of our Common Stock; 100%
     of Aurora  Electric,  Inc., a full service  electrical  and  communications
     system  contractor,  in exchange for 1,138,039  shares of our Common Stock;
     80% of Blue Star Electronics,  a cable assembly  manufacturer,  in exchange
     for  222,643  shares  of our  Common  Stock;  100%  of  Consolidated  Micro
     Components,  a reseller of memory,  processors and mass storage devices, in
     exchange  for  429,805  shares  of our  Common  Stock;  100% of  Data  Path
     Technologies,  a seller of computer  systems,  peripherals,  components and
     software,  in exchange for 403,077 shares of our Common Stock;  100% of GDB
     Software Services, a provider of data processing  consulting  services,  in
     exchange for 412,308 shares of our Common Stock;  80% of Innovative  Vacuum
     Solutions,  Inc., a  re-manufacturer  of high-end vacuum pumps, in exchange
     for 276,079 shares of our Common Stock; 80% of Service Transport Company, a
     transporter  of computer  systems and  electronics,  in exchange for 35,000
     shares  of our  Common  Stock;  and 100% of  Teledata  Concepts,  Inc.,  an
     internet and telecommunications  services provider, in exchange for 144,828
     shares of our Common Stock.

o    In May 1998,  we acquired  100% of  TigerTel  Services  Limited  (formerly,
     Commstar  Ltd.),  a call centers,  voice  messaging and one number  dialing
     services provider, in exchange for 3,417,580 shares of our Common Stock.



                                       14
<PAGE>

o    In  June  1998,  we  acquired  85%  of  Signature  Industries,  Limited,  a
     manufacturer of high-grade  communications and safety devices,  in exchange
     for 3,605,948 shares of our Common Stock; and 85% of Ground Effects,  Ltd.,
     a  manufacturer  of aluminum  and steel tubes,  in exchange  for  1,105,707
     shares of our Common Stock.

o    In May 1999, we acquired 100% of the outstanding  shares of common stock of
     Port Consulting,  Inc., an integrator of information technology application
     systems and custom  application  development  services in consideration for
     $621,000 at closing, and the assumption of debt of approximately $579,000.

o    In June 1999, our subsidiary Intellesale.com,  Inc., agreed to purchase all
     of  the  shares  of  Bostek,  Inc.  and  Micro  Components   International,
     Incorporated for $30,055,000,  of which $10,055,000 will be payable in cash
     at closing, $10,000,000 will be payable in stock of Intellesale.com and the
     remaining  amount  will be payable in cash over time.  The  closing of this
     acquisition  is  scheduled  to occur on the  later of June 21,  1999 or the
     fifth  business day following  the  expiration  of the  applicable  waiting
     period under the Hart-Scott-Rodino  Antitrust  Improvements Act of 1976, as
     amended.  Bostek  and Micro  Components  are  engaged  in the  business  of
     acquiring  open-box and  off-specification  computer  equipment and selling
     such equipment, using the internet and other selling channels.

Business Divisions

     Prior to March 1999,  our  business  was  organized  into  three,  and then
eventually,  four  business  groups,  or industry  segments:  the  Services  and
Solutions   Group  (formerly  the  Retail  Group),   the  Computer  Group,   the
Manufacturing  Group and the International  Group.  Each operating  business was
conducted through a separate  subsidiary  company directed by its own management
team, and each subsidiary  company had its own marketing and operations  support
personnel.  Each management team originally  reported to our President,  who was
responsible for overall corporate control and coordination, as well as financial
planning.  Later,  a Group Vice  President  was added and the  management  teams
reported to the Group Vice President, who ultimately reported to our President.
The Chairman was responsible for our overall business and strategic planning.

     In March 1999,  we  announced a corporate  reorganization  at which time we
named five new  divisions  as  outlined  below.  Each  division  is managed by a
division  president who reports to the Senior Vice President who in turn reports
to the  President.  Each  division  either has in place or is in the  process of
hiring a vice president of marketing and a financial  controller.  We believe we
will attain increased  operating  efficiencies  through this  reorganization and
believe this structure will  facilitate the cross  marketing of our products and
services.

     Our primary businesses,  other than  Intellesale.com  (formerly  Inteletek,
Inc.) and the Non-Core  Business  Group,  are now  organized  into five business
divisions:

o    Telecommunications  --  offers  a wide  range  of  communications  services
     including  interconnect  and  computer  telephony  integration,  flat  rate
     extended  calling area service for  commercial  and  residential  accounts,
     commercial long distance toll service, toll free service, call centers, one
     number dialing, voice messaging and commercial long distance calling cards.

o    Network Infrastructure -- provides personal computer network infrastructure
     for the  development  of  local  and  wide  area  networks  as well as site
     analysis, configuration proposals, training and customer support services.



                                       15
<PAGE>

o    Internet  --  is  focused  on  developing  electronic  commerce  sites  for
     businesses and providing internet access services to customers of our other
     divisions.

o    Communications    Infrastructure--    provides   specialty   communications
     contracting services. It is involved in the fabrication,  installation, and
     maintenance  of  microwave,  cellular  and digital  personal  communication
     services (PCS) towers and the construction and installation of fiber optic,
     voice/data   communications  and  switchgear  systems.  The  division  also
     provides   complete   installation,   service  and   maintenance  of  power
     distribution  systems such as lighting,  standby power,  alarms,  security,
     video systems,  voice/data,  network infrastructure and the installation of
     fiber optics within customer premises.  The  Communications  Infrastructure
     division has secured  contracts and provided services for national accounts
     such as Sprint, AT&T Wireless, GTE, MCI WorldCom, Wiltel and Pacific Bell.

o    Application   Technology--   provides   software   applications   for  data
     acquisition,  asset  management and decision  support  systems and develops
     programs  for  portable  data  collection  equipment,   including  wireless
     hand-held  devices.  Its Flex  Connect  System links  corporate  systems to
     laptops, PDA's, handheld terminals and other mobile devices via wireless or
     wireline  connections.  It is also involved in the design,  manufacture and
     support of satellite  communication  technology including satellite modems,
     data  broadcast  receivers  and  wireless  global  positioning  systems for
     commercial and military  applications.  In addition,  the division develops
     and markets  peripheral  enhancement  software that creates a user-friendly
     environment  for sending  faxes,  email and scanning,  copying and managing
     documents on a desktop  computer with a multi-function  peripheral  device.
     Integration of these  capabilities into a single  multifunction  program is
     particularly advantageous to users in small offices, home offices and small
     workgroup environments.

     As of December  31,  1998,  1997 and 1996,  revenues  from these  divisions
together  accounted  for  57.0%,  48.8% and  70.1%,  respectively,  of our total
revenues.

Intellesale.com

     Intellesale.com,   Inc.  (formerly   Inteletek,   Inc.)  provides  leasing,
re-marketing,  parts-on-demand and consulting  services for mainframe,  midrange
and PC systems to industrial,  commercial and retail organizations.  It utilizes
e-commerce  and  traditional  distribution  channels  to  market  its  products.
Intellesale  is also a parts  supplier and purchases  electronic  components and
other scrap for de-manufacturing  and reclamation of precious materials,  steel,
aluminum and copper.

     As of December 31, 1998, 1997 and 1996, revenues from Intellesale accounted
for 29.4%, 38.2% and 10.0%, respectively, of our total revenues.

     We have  announced  our  intention  to seek a  separate  public  listing of
Intellesale's  shares but will continue to hold a significant  majority interest
in  Intellesale  for  the  foreseeable   future.  With  our  recently  announced
reorganization,  we  believe  that  Intellesale  should  conduct  business  as a
separate  publicly traded entity which can yield, over time, far greater returns
to its  shareholders  than under the current business  structure.  We anticipate
that we will file a registration  statement for the initial  public  offering of
Intellesale  by the end of July 1999,  although no assurances  can be given that
such offering will in fact be completed.

The Non-Core Business Group

     This  group  is  comprised  of six  individually  managed  companies  whose
businesses are as follows:

o    CRA-TEK Company is a specialized  manufacturer of custom digital and analog
     industrial electric controls and components.

o    C.T.  Specialists,  Inc. is a distributor and manufacturers  representative
     company,  specializing in the application and sales of controls for factory
     automation, combustion and commercial heating and air conditioning (HVAC).



                                       16
<PAGE>

o    Gavin-Graham  Electrical  Products is a custom  manufacturer  of electrical
     products,  specializing  in digital and analog  panelboards,  switchboards,
     motor controls and general control panels. The company also provides custom
     manufacturing  processes  such as  shearing,  punching,  forming,  welding,
     grinding, painting and assembly of various component structures.

o    Ground Effects, Ltd., based in Windsor, Canada, is a certified manufacturer
     and tier  one  supplier  of  standard  and  specialized  vehicle  accessory
     products to the automotive  industry.  The company  exports over 80% of the
     products it produces to the United States,  Mexico,  South America, the Far
     East and the Middle East.

o    Hopper  Manufacturing Co., Inc.  remanufactures and distributes  automotive
     parts.  This  primarily  includes  alternators,   starters,   water  pumps,
     distributors and smog pumps.

o    Innovative Vacuum Solutions,  Inc.  designs,  installs and  re-manufactures
     vacuum systems used in industry.

     As of December 31, 1998,  1997 and 1996,  revenues from this business group
accounted for 13.6%, 13.0% and 19.3%, respectively, of our total revenues.

     We announced our intention to divest,  in the ordinary  course of business,
these  non-core  businesses  at such  time  and on such  terms  as the  board of
directors determines advisable. There can be no assurance that we will divest of
any  or  all  of  these  businesses  or as  to  the  terms  of  any  divestiture
transaction.

Growth Strategy

     Our growth  strategy is focused on internal  expansion  and growth  through
acquisitions. The following are key elements of our strategy:

o    Become  a  Single  Source  Communications  Provider.  We  believe  that our
     expertise  in all five areas of the  communications  path will enable us to
     capitalize on the interest of businesses in fulfilling their communications
     services needs through one supplier.

o    Leverage  of  Existing  Customer   Relationships.   We  believe  there  are
     significant  opportunities within and between each division to cross market
     our services to our existing client base. We are in the process of hiring a
     vice president of marketing for each division who will be  responsible  for
     identifying these opportunities.

o    Profit  Center  Management.  While our corporate  management  team provides
     overall  guidance,  strategic  direction and  administrative  support,  our
     division  presidents have  responsibility for the day-to-day  operations of
     their  respective  groups.  We operate each business  division as a largely
     autonomous  profit  center,  which is held  accountable  for  achieving its
     financial  goals.  We believe this  approach to  management  increases  our
     responsiveness   to  changes  in  the   marketplace   and  our   customers'
     requirements and contributes to our ability to grow profitably.

o    Acquisitions.  Since 1994 we have  completed  35  acquisitions.  Management
     analyzes   each   acquisition    opportunity   using   criteria   including
     profitability  over a two to three year period, the strength of its balance
     sheet,  the  strength  of its  customer  base  and  the  experience  of its
     management team.  Going forward,  we intend to make  acquisitions  that fit
     within one of our five primary operating divisions.


                                       17
<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following  discussion  should be read in conjunction with our financial
statements  and  related  notes  included  elsewhere  in  this  prospectus.  The
following discussion contains forward-looking  statements that reflect our plans
and estimated  beliefs.  Our actual results could differ  materially  from those
anticipated  in the  forward-looking  statements.  Factors  that could  cause or
contribute to such  differences  include those  discussed below and elsewhere in
this prospectus, particularly in "Risk Factors."

     Beginning  in the fourth  quarter  of 1998 and  continuing  into  1999,  we
reorganized  into seven operating  segments to more  effectively and efficiently
provide  integrated  communications  products  and  services  to a broad base of
customers. The five operating segments that represent our core competency are:

o    Telecommunications  - The  Telecommunications  division provides  telephone
     services and systems,  computer  telephony  integration,  interactive voice
     response, call centers and voice messaging.

o    Network  Infrastructure  - The  Network  Infrastructure  division  provides
     computer systems, local area networks and application servers.

o    Internet - The Internet division provides electronic commerce, intranet and
     extranet services and wide area networks.

o    Communications  Infrastructure - The Communications Infrastructure division
     provides  communications towers, fiber optics,  cabling, power distribution
     and communications equipment.

o    Application  Technology  - The  Application  Technology  division  provides
     global  positioning  systems,  satellite systems,  field automation,  asset
     management,  corporate  enterprise access,  decision support and voice/data
     technology.

o    Operating segments outside our core competency are:

o    Intellesale.com - The Intellesale.com  division purchases and sells new and
     used computer equipment, and provides peripherals,  components, consulting,
     systems integration and transportation of all types of computer systems.

o    Non-Core - The Non-Core division provides  electrical  components,  control
     panels, design engineering,  manufacturing engineering,  automation systems
     and vacuum pumps.



                                       18
<PAGE>

Results of Operations

         Three  Months  ended  March 31,  1999 and  1998.  The  following  table
summarizes  our results of operations  as a percentage of net operating  revenue
for the three month periods ended March 31, 1999 and 1998.

<TABLE>
<CAPTION>

                                                    Relationship to Net
                                                     Operating Revenue
                                                 -------------------------------
                                                 Three Months      Three Months
                                                     Ended             Ended
                                                 March 31, 1999   March 31, 1998
                                                        %                %
                                                 --------------   --------------
        <S>                                        <C>              <C>

        Net operating revenue                       100.0            100.0
        Cost of goods sold                           64.3             73.0
                                                   -------          ------
        Gross margin                                 35.7             27.0
        Selling, general and administrative
          expenses                                   34.0             23.5
        Restructuring and unusual charges             4.9              0.0
                                                   -------          ------
        Operating income (loss)                      (3.2)             3.5
        Interest income                               0.3              0.3
        Interest expense                             (0.9)            (0.6)
                                                   -------          -------
        Income (loss) before provision for
          income taxes (benefit) and minority
          interest                                   (3.8)             3.2
        Provision (benefit) for income taxes          1.1             (1.4)
                                                   -------          -------
        Income (loss) before minority interest       (2.7)             1.8
        Minority interest                            (0.5)            (0.2)
                                                   -------          -------
        Net income (loss)                            (3.2)             1.6
        Preferred stock dividends                     0.0             (0.1)
                                                   =======          =======
        Net income (loss) available to common
          stockholders                               (3.2)             1.5
                                                   =======          =======
</TABLE>

     Years  Ended  December  31,  1998,  1997  and  1996.  The  following  table
summarizes  our results of operations  as a percentage of net operating  revenue
for the last three years:

<TABLE>
<CAPTION>

                                           Relationship to Net Operating Revenue
                                           -------------------------------------
                                                  1998         1997         1996
                                                  %            %            %
                                               -------      -------      -------
<S>                                             <C>          <C>          <C>

Net operating revenue                           100.0        100.0        100.0
Cost of goods sold                               69.0         67.3         52.9
                                                ------       ------       ------
Gross margin                                     31.0         32.7         47.1
Selling, general and administrative
   expenses                                      26.7         27.3         40.8
                                                ------       ------       ------
Operating income                                  4.3          5.4          6.3
Interest income                                   0.2          0.2          0.6
Interest expense                                 (0.8)        (0.9)        (1.0)
                                                ------       ------       ------
Income before provision for income taxes
    and minority interest                         3.7          4.7          5.9
Provision for income taxes                        1.2          1.7          1.8
                                                ------       ------       ------
Income before minority interest                   2.5          3.0          4.1
Minority interest                                 0.2          0.7          0.7
                                                ------       ------       ------
Net income                                        2.3          2.3          3.4
Preferred stock dividends                         0.0          0.1          0.3
                                                ======       ======       ======
Net income available to common stockholders       2.3          2.2          3.1
                                                ======       ======       ======
</TABLE>

                                       19
<PAGE>

Company Overview

     Revenue

     Three Month  Period  ended  March 31, 1999 and 1998.  Revenue for the first
three months of 1999 was $51.6 million,  an increase of $12.8 million, or 33.0%,
from $38.8 million for the first three months of 1998. This significant increase
is attributable to growth through  acquisition of companies acquired after March
31, 1998.

Revenue generated during the first three months of 1999 and 1998 was:

<TABLE>
<CAPTION>

 (In thousands)                                 1999             1998
                                            ---------       ----------
<S>                                          <C>             <C>

 Telecommunications                          $ 9,012         $  7,024
 Network Infrastructure                        4,006            5,446
 Internet                                        997             --
 Communications Infrastructure                 9,010           10,001
 Application Technology                        6,755            1,703
 Intellesale.com                              17,107           10,855
 Non-Core                                      6,201            3,776
 Corporate                                    (1,515)             (21)
                                             ========        =========
 Consolidated                                $51,573         $ 38,784
                                             ========        =========
</TABLE>


     Years ended December 31, 1998,  1997 and 1996.  Revenue for 1998 was $207.1
million,  an increase of $103.9 million, or 100.7%, from $103.2 million in 1997.
The 1997 revenue  represents  an increase of $83.3  million,  or 418.8% over the
$19.8 million reported in 1996. These significant  increases are attributable to
our growth of existing businesses and to our growth through acquisition.

     In  1997,  we  exited  the  cellular   phone   business,   a  part  of  our
Telecommunications  division, due to increased competition from industry leaders
and  changes in the  marketplace.  Revenue  from this line of  business  totaled
approximately  $12.6 million in 1997.  After  adjusting for the cellular line of
business,  revenue  from  internal  operations  grew  23.9% in 1998  from  1997,
compared to 43.4% in 1997 from 1996. Revenue from external customers for each of
the operating segments was:


<TABLE>


(In thousands)                           1998              1997           1996
                                     -----------       -----------     ---------
<S>                                  <C>               <C>             <C>

Telecommunications                    $  30,369         $  32,208       $10,537
Network Infrastructure                   21,282              --            --
Internet                                  2,901              --            --
Communications Infrastructure            43,729             8,545          --
Application Technology                   19,859             9,574         3,394
Intellesale.com                          60,877            39,445         1,993
Non-Core                                 28,064            13,387         3,839
Corporate                                  --                --             120
                                     ===========       ===========     =========
Consolidated                          $ 207,081         $ 103,159       $19,883
                                     ===========       ===========     =========
</TABLE>

     Gross Margin

     Three Month Period ended March 31, 1999 and 1998.  The gross margin for the
first three months of 1999 was $18.4  million,  an increase of $7.9 million,  or
75.4%, from $10.5 million for the first three months of 1998. As a percentage of
revenue, the gross margin was 35.7% for the first three months of 1999 and 27.0%
for the first three months of 1998.  The change from the prior year is primarily


                                       20
<PAGE>

due to the  acquisition of several  companies  with different cost  allocations.
Also affecting the gross margin percentages were changes within the business mix
and shifts in the  competitive  marketplace.  The largest growth of gross margin
dollar contributions came from the Intellesale.com,  Application  Technology and
Telecommunications  divisions.  The  Intellesale.com  division  contributed $5.1
million in gross margin for the first three months of 1999,  an increase of $3.2
million  or  167.9%  over  the  first  three  months  of 1998.  The  Application
Technology division contributed $3.6 million in gross margin for the first three
months of 1999,  an  increase  of $2.3  million or 176.3%  over the first  three
months of 1998.  The  Telecommunications  division  contributed  $5.1 million in
gross margin for the first three months of 1999,  an increase of $1.5 million or
42.6% over the first three months of 1998.

     Years ended December 31, 1998, 1997 and 1996. The gross margin for 1998 was
$64.2  million,  an increase of $30.4 million,  or 90.2%,  from $33.7 million in
1997. The 1997 gross margin represents an increase of $24.4 million,  or 260.6%,
over the $9.4 million  reported in 1996. As a percentage  of revenue,  the gross
margin  decreased  to 31.0% in 1998 from  32.7% in 1997 and 47.1% in 1996.  This
decrease is a result of changes within the business mix, increased  competition,
and to new acquisitions with lower overall gross margin contributions.

     Selling, General and Administrative Expense

     Three Month  Period  ended March 31,  1999 and 1998.  Selling,  general and
administrative  expenses  were $17.5 million for the first three months of 1999,
an increase of $8.4  million,  or 91.8%,  from $9.1  million for the first three
months of 1998. As a percentage of revenue,  selling, general and administrative
expenses  were  34.0% and 23.5%  for the  first  three  months of 1999 and 1998,
respectively.   The  increase  as  a  percentage   of  revenue  is  due  to  the
strengthening of the corporate infrastructure, additional costs incurred as part
of our reorganization  into seven business segments and additional  amortization
expense associated with goodwill from acquisitions.

     Years  ended  December  31,  1998,  1997 and  1996.  Selling,  general  and
administrative  expenses  were  $55.3  million  in 1998,  an  increase  of $27.1
million,  or 96.2%,  from $28.2 million in 1997. The 1997 expense  represents an
increase of $20.1 million or 247.4% over the $8.1 million reported in 1996. As a
percentage  of  revenue,  selling,  general  and  administrative  expenses  have
decreased to 26.7% in 1998 from 27.3% in 1997 and 40.8% in 1996.  This  decrease
as a  percentage  of revenue is due to  economies  of scale that we were able to
recognize as we grew larger.  Contributing  to the dollar increase as a whole is
the additional  amortization expense associated with goodwill from acquisitions.
Total  depreciation  and  amortization  expense  included in selling general and
administrative  expense was $4.5 million, $1.9 million and $0.7 million in 1998,
1997 and 1996 respectively. Information on depreciation and amortization expense
by  operating  segment  can be  found in Note 20 to our  consolidated  financial
statements.

     Restructuring and Unusual Charges

     Three  Month  Period  ended  March  31,  1999  and  1998.  As  part  of our
reorganization  of our core business into five reportable  business  groups,  we
have  implemented a  restructuring  plan.  The  restructuring  plan includes the
exiting  of  selected  lines  of  business  within  our  Telecommunications  and
Application  Technology business groups, and the associated write-off of assets.
The restructuring  charge of $2.2 million includes asset impairments,  primarily
software and other intangible assets, of $1.5 million, lease terminations of $.5
million, and employee separations of $.2 million. In addition,  during the first
quarter  of 1999,  as part of our core  business  reorganization,  we  realigned
certain  operations within our  Telecommunications  division and have recognized
impairment charges and other related costs of $.3 million.



                                       21
<PAGE>

     Operating Income

     Three Month Period ended March 31, 1999 and 1998.  The  operating  loss was
$1.7 million for the first three months of 1999, a decrease of $3.1 million,  or
222.9%,  from the $1.4 million of operating income for the first three months of
1998.  Excluding the $2.6 million  restructuring  and unusual charges  mentioned
above, operating income for the first three months of 1999 was $0.9 million.

     Operating  income  (loss)  earned during the first three months of 1999 and
1998 was:
<TABLE>
<CAPTION>

      (In thousands)                                     1999         1998
                                                     -----------  ------------
      <S>                                              <C>           <C>

      Telecommunications                               $    566       $   359
      Network Infrastructure                                230           612
      Internet                                              (23)           --
      Communications Infrastructure                         180           410
      Application Technology (1)                           (323)           42
      Intellesale.com                                     2,372           835
      Non-Core                                              101            (9)
      Corporate (including amounts incurred
         during consolidation) (1)                       (4,768)         (894)
                                                       ========       =======
      Consolidated                                     $ (1,665)      $ 1,355
                                                       ========       =======
</TABLE>
- ----------------------------
         (1)   Includes  restructuring and unusual charges incurred in the first
               three months of 1999 of $.3 million in the Application Technology
               division and $2.2 million in the corporate overhead expense.


     Years ended  December 31, 1998,  1997 and 1996.  Operating  income was $8.9
million in 1998,  an increase of $3.4  million,  or 59.8%,  from $5.6 million in
1997.  The 1997  operating  income  represents an increase of $4.3  million,  or
345.9% over the $1.3 million reported in 1996.

     Operating income for each of the operating segments was:

<TABLE>

(In thousands)                                   1998         1997        1996
                                               --------------------------------
<S>                                             <C>          <C>        <C>

Telecommunications                              $  852       $1,477     $   896
Network Infrastructure                           1,563           --          --
Internet                                           272           --          --
Communications Infrastructure                    3,789          348          --
Application Technology                           1,424        2,159         (68)
Intellesale.com                                  4,509        2,356         504
Non-Core                                         1,122          626         444
Corporate  (including  amounts  incurred
  during consolidation)                         (4,596)      (1,374)       (522)
                                                -------      -------    --------
Consolidated                                    $8,935       $5,592     $ 1,254
                                                =======      =======    ========

</TABLE>

     Interest Income and Expense

     Three Month Period ended March 31, 1999 and 1998.  Interest income was $0.1
million for the first three months of 1999 and 1998.  Interest  income is earned
primarily from short term investments and notes receivable.

     Interest  expense was $0.4  million for the first three  months of 1999 and
$0.2 million for the first three months of 1998. Interest expense is principally
associated with revolving credit lines and notes payable.

     Years ended  December 31,  1998,  1997 and 1996.  Interest  income was $0.4
million in 1998,  an increase of $0.2 million,  or 118.8%,  from $0.2 million in
1997. The 1997 interest  income  represents an increase of $66,000 or 52.4% over
the $0.1 million  reported in 1996.  Interest  income is earned  primarily  from
short term investments and notes receivable.



                                       22
<PAGE>

     Interest expense was $1.7 million in 1998, an increase of $0.7 million,  or
69.0%,  from $1.0 million in 1997.  The 1997 expense  represents  an increase of
$0.8 million, or 389.0% over the $0.2 million reported in 1996. Interest expense
is  principally  associated  with  revolving  credit  lines and  notes  payable.
Information on interest income and interest expense by operating  segment can be
found in Note 20 to our consolidated financial statements.

     Income Taxes

     Three  Month  Period  ended March 31,  1999 and 1998.  We had an  effective
income tax benefit  rate of 29.1% for the first three  months of 1999 and had an
effective  tax rate of 42.2% for the first three months of 1998.  The income tax
benefit in 1999 was a result of the loss arising in the quarter,  primarily  due
to the $2.6 million  restructuring and unusual charges mentioned above.  Changes
in the effective  rate primarily  arise from the effect of purchase  accounting,
given our acquisition activities in recent years.

     Years ended December 31, 1998, 1997 and 1996. Our effective income tax rate
was 33.6%, 36.8% and 30.7% in 1998, 1997 and 1996, respectively.  Changes in the
effective rate primarily arise from the effect of purchase accounting, given our
acquisition activities in recent years.

Segment Overview

     Telecommunications
<TABLE>
<CAPTION>
     Three Month Period ended March 31, 1999 and 1998
         (In thousands)                            1999     %        1998       %
                                                 -------  ------   --------   ------
         <S>                                     <C>      <C>      <C>        <C>

         Revenue                                 $9,012   100.0    $ 7,024    100.0
         Gross profit                             5,135    57.0      3,602     51.3
         Selling, general and administrative      4,569    50.7      3,243     46.2
         Operating income                        $  566     6.3    $   359      5.1
</TABLE>

     The  revenue  growth  in the  Telecommunications  division  came  from both
internal growth and through  acquisition.  Expansion into higher margin products
and services in Canadian  markets,  cost control and  economies of scale enabled
the margins to increase.


<TABLE>
<CAPTION>
Years  ended  December  31,  1998,  1997 and 1996

(In thousands)            1998       %        1997       %       1996        %
                        -------------------------------------------------------
<S>                     <C>        <C>      <C>       <C>      <C>        <C>

Revenue                 $ 30,369   100.0    $ 32,208  100.0    $ 10,537   100.0
Gross profit              17,870    58.8      16,215   50.3       5,523    52.4
Selling, general and
   administrative         17,018    56.0      14,738   45.8       4,627    43.9
Operating income             852     2.8       1,477    4.6         896     8.5

</TABLE>


     In 1997, we exited the cellular phone business due to increased competition
from  industry  leaders and changes in the  marketplace.  Revenue and  operating
income from this line of business totaled  approximately  $12.6 million and $0.2
million in 1997.  Excluding the cellular  business,  revenue increased 54.7% and
86.4% in 1998 and 1997, respectively. Of those amounts, 23.7% and 3.9% came from
internal growth in 1998 and 1997, respectively.


                                       23
<PAGE>

     The  cost  shift  in 1998  from  cost of  sales  to  selling,  general  and
administrative  expenses is due to different cost allocation  methods associated
with the Canadian  markets entered during 1998. The operating income decrease in
1998   primarily   reflected   increasing    competitive    pressures   in   the
telecommunications industry as a whole.

Network Infrastructure

<TABLE>
<CAPTION>

     Three  Month  Period  ended  March  31,  1999 and  1998

     (In thousands)                           1999       %        1998       %
                                            -------    -----     ------    -----
     <S>                                    <C>        <C>       <C>       <C>

     Revenue                                $4,006     100.0     $5,446    100.0
     Gross profit                              820      20.5      1,140     20.9
     Selling, general and administrative       590      14.7        528      9.7
     Operating income                       $  230       5.8     $  612     11.2
</TABLE>

     Due  to   increased   competition   within  the   industry,   the   Network
Infrastructure  division  has begun to  transition  from  sales of  hardware  to
installations and the providing of value added services.  During the first three
months of 1999,  hardware  sales were down compared to the first three months of
1998, as evidenced by the lower revenue, but the gross margin held steady due to
the higher  margins  attained from the service  business.  Selling,  general and
administrative  expenses  were fairly  consistent  for the first three months of
1999 and 1998,  but  increased as a  percentage  of revenue as a result of lower
revenues.

     Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

(In thousands)                           1998         %        1997      1996
                                       ---------    ------    ------    ------
<S>                                    <C>          <C>       <C>        <C>

Revenue                                $ 21,282     100.0     $ --        --
Gross profit                              3,862      18.1       --        --
Selling, general and administrative       2,299      10.8       --        --
Operating income                          1,563       7.3       --        --

</TABLE>

     The Network Infrastructure division began operations during 1998.

     Internet

     Three Month Period ended March 31, 1999 and 1998

<TABLE>
<CAPTION>

(In thousands)                             1999       %        1998       %
                                         -------    ------    ------     ----
<S>                                      <C>        <C>       <C>        <C>

Revenue                                  $ 997      100.0     $ --        --
Gross profit                               275       27.6       --        --
Selling, general and administrative        298       29.9       --        --
Operating income                         $ (23)      (2.3)      --        --

</TABLE>

     The Internet division began operations during the second quarter of 1998.





                                       24
<PAGE>

     Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

(In thousands)                            1998        %        1997       1996
                                         --------   ------    -------    ------
<S>                                      <C>        <C>       <C>        <C>

Revenue                                  $ 2,901    100.0     $ --       $ --
Gross profit                               1,200     41.4       --         --
Selling, general and administrative          928     32.0       --         --
Operating income                             272      9.4       --         --

</TABLE>

     The Internet division began operations during 1998.

     Communications Infrastructure

     Three Month Period ended March 31, 1999 and 1998

<TABLE>
<CAPTION>
(In thousands)                            1999        %         1998        %
                                         -------    -----     --------    -----
<S>                                      <C>        <C>       <C>         <C>
Revenue                                  $ 9,010    100.0     $ 10,001    100.0
Gross profit                               1,743     19.3        1,218     12.2
Selling, general and administrative        1,563     17.3          808      8.1
Operating income                         $   180      2.0     $    410      4.1

</TABLE>
     Revenue in the Communications  Infrastructure  division for the first three
months of 1999  decreased  from the first  three  months of 1998 due to  pricing
pressures  caused by  increased  competition  within the  industry.  The revenue
decline was partially offset by acquisitions  made in the second quarter of 1998
which  generated  approximately  $2.2  million  during the first three months of
1999. The increase in gross margin  percentage  came as a result of careful cost
management and  acquisitions  with higher gross margin  percentages.  The higher
selling,  general and administrative expenses, both in total and as a percentage
of revenue,  were due to the strengthening of the division's  infrastructure and
newly acquired companies with different cost allocations methods.

     Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
(In thousands)                            1998        %        1997       %     1996      %
                                         ---------  ------   -------    -----   -----    ----
<S>                                      <C>        <C>      <C>        <C>     <C>      <C>
Revenue                                  $ 43,729   100.0    $ 8,545    100.0   $ --      --
Gross profit                                8,887    20.3      1,274     14.9     --      --
Selling, general and administrative         5,098    11.7        926     10.8     --      --
Operating income                            3,789     8.7        348      4.1     --      --
</TABLE>

     The  Communications  Infrastructure  division began operations during 1997.
Revenue  increased 411.8% in 1998,  109.1% of which came from growth in internal
operations.  As a percentage of revenue,  operating  income was 8.7% and 4.1% in
1998 and 1997,  respectively.  This increased  profitability  is a result of the
division's successful move to a larger operations base. The selling, general and
administrative expenses, as a percentage of revenue,  increased to 11.7% in 1998
from  10.8%  in 1997 as a  result  of  increased  overhead  associated  with the
expansion of this divisions internal infrastructure.

     Application Technology

     Three Month Period ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
(In thousands)                          1999        %         1998         %
                                      --------    ------     -------    -------
<S>                                   <C>         <C>        <C>         <C>
Revenue                               $ 6,755     100.0      $ 1,703     100.0
Gross profit                            3,620      53.6        1,310      76.9
Selling, general and administrative     3,943      58.4        1,268      74.5
Operating income                      $  (323)     (4.8)     $    42       2.4

</TABLE>
                                       25
<PAGE>

     The Application  Technology  division has grown mostly though  acquisition.
Revenue  increased 296.7% in the first three months of 1999 over the first three
months of 1998. Due to the competitive  nature of this industry  segment,  gross
margins  declined from 76.9% for the first three months of 1998 to 53.6% for the
first three months of 1999 and could decline further in the future. The selling,
general and administrative expenses for the first three months of 1999 include a
$0.3 million charge for restructuring and unusual items.  Excluding this charge,
selling,  general and  administrative  expenses  would be 53.2% of revenue.  The
decline  in the gross  margin  combined  with  increased  selling,  general  and
administrative  expenses relating primarily to development of new products,  has
lowered the operating income as a percentage of revenue.

     Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

(In thousands)                              1998          %           1997       %           1996        %
                                           ---------    ------      --------   ------      --------   ------
<S>                                        <C>          <C>         <C>        <C>         <C>        <C>
Revenue                                    $ 19,859     100.0       $ 9,574    100.0       $ 3,394    100.0
Gross profit                                 11,613      58.5         5,846     61.1         1,374     40.5
Selling, general and administrative          10,189      51.3         3,687     38.5         1,442     42.5
Operating income                              1,424       7.2         2,159     22.6           (68)    (2.0)

</TABLE>

     The Application  Technology  division has grown mostly though  acquisition.
Revenue increased 107.5% and 182.0% in 1998 and 1997,  respectively.  Due to the
competitive  nature of this industry segment,  gross margins declined from 61.1%
in 1997 to 58.5% in 1998 and could decline further in the future. This, combined
with  increased  selling,   general  and  administrative  expenses  relating  to
development of new products, has lowered the operating income as a percentage of
revenue.

     Intellesale.com

     Three Month Period ended March 31, 1999 and 1998

<TABLE>
<CAPTION>

(In thousands)                               1999       %        1998       %
                                          --------   ------   --------   ------
<S>                                        <C>        <C>      <C>        <C>

Revenue                                    $17,107    100.0    $10,855    100.0
Gross profit                                 5,124     30.0      1,913     17.6
Selling, general and administrative          2,752     16.1      1,078      9.9
Operating income                           $ 2,372     13.9     $  835      7.7

</TABLE>

     Revenue for the first three months of 1999  increased  57.6% over  revenues
for the first three months of 1998.  Approximately $6.3 million of this increase
was contributed by companies acquired subsequent to March 31, 1998. Margins have
increased  steadily as a result of changes in the product mix and the additional
services offered as a result of additional business lines acquired.


     Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

(In thousands)                              1998          %          1997        %          1996         %
                                           ---------    ------     ---------   ------      --------   ------
<S>                                        <C>          <C>        <C>         <C>         <C>        <C>
Revenue                                    $ 60,877     100.0      $ 39,445    100.0       $ 1,993    100.0
Gross profit                                 12,871      21.1         6,243     15.8         1,142     57.3
Selling, general and administrative           8,362      13.7         3,887      9.9           638     32.0
Operating income                              4,509       7.4         2,356      6.0           504     25.3

</TABLE>

     Revenue  increased  54.3% and 1,880.1% in 1998 and 1997,  respectively.  Of
those  amounts,  9.1% and  281.6%  came from  internal  growth in 1998 and 1997,
respectively.  The  tremendous  revenue  growth in 1997 came at the  expense  of
margins due to the high volume, low profit businesses that were acquired in that
year.  Internal  growth and additional  acquisitions in 1998 helped to round out
the product mix. Gross margins  increased by 5.3% to 21.1% in 1998 from 15.8% in
1997. Gross margins had declined by 42.5% to 15.8% in 1997 from 57.3% in 1996 as


                                       26
<PAGE>

the business expanded into high volume but lower margin hardware sales. Selling,
general and administrative  expenses,  which were as high as 32.0% of revenue in
1996,  reduced to 13.7% of revenue in 1998. This decline  reflects the economies
of scale that have resulted from overall growth in the last two years.

     Non-Core

     Three Month Period ended March 31, 1999 and 1998

<TABLE>
<CAPTION>

(In thousands)                               1999         %       1998         %
                                           --------    ------   --------    ------
<S>                                        <C>         <C>      <C>         <C>

Revenue                                    $ 6,201     100.0    $ 3,776     100.0
Gross profit                                 1,661      26.8      1,216      32.2
Selling, general and administrative          1,560      25.2      1,225      32.4
Operating income                           $   101       1.6    $    (9)     (0.2)

</TABLE>

     Revenue for the first three months of 1999 increased 64.2% over revenue for
the first three months of 1998.  Although  there has been growth in the level of
business,  changes in product mix and pressures  from a competitive  marketplace
have  resulted  in a decline of the gross  margin from 32.2% for the first three
months of 1998 to 26.8% for the first three months of 1999. Margins may continue
to decline in the future.  Selling,  general and  administrative  expenses  have
declined as a percentage of revenue due to the  disposition of a subsidiary with
relatively higher selling,  general and administrative  costs as a percentage of
revenue and acquisitions of companies with relatively lower selling, general and
administrative costs as a percentage of revenue.

     Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

(In thousands)                               1998         %        1997         %       1996         %
                                           ---------    ------   ---------   ------    -------    ------
<S>                                        <C>          <C>      <C>         <C>       <C>        <C>

Revenue                                    $ 28,064     100.0    $ 13,387    100.0     $ 3,839    100.0
Gross profit                                  7,885      28.1       4,173     31.2       1,384     36.1
Selling, general and administrative           6,763      24.1       3,547     26.5         940     24.5
Operating income                              1,122       4.0         626      4.7         444     11.6

</TABLE>

     Revenue  increased  109.7%  and 248.7% in 1998 and 1997,  respectively.  Of
those  amounts,  25.4% and 60.2%  came  from  internal  growth in 1998 and 1997,
respectively.  Although  there  has  been  substantial  growth  in the  level of
business,  changes in product mix and pressures  from a competitive  marketplace
have  resulted  in a gradual  decline of the gross  margin from 36.1% in 1996 to
28.1% in 1998, which has contributed to the decline in operating income. Margins
may  continue to decline in the  future.  Selling,  general  and  administrative
expenses have remained relatively steady as a percentage of revenue.

Liquidity and Capital Resources

     As of March 31, 1999,  cash and cash  equivalents  totaled $0.7 million,  a
decrease  of $3.9  million,  or 84.7% from $4.6  million at December  31,  1998.
Excess  cash on hand has  been  concentrated  and  applied  against  our line of
credit.  Cash of $0.4  million was  provided by  operations  for the first three
months of 1999 and cash of $0.7 was used in  operations  during the first  three
months of 1998.  The cash generated in the first three months of 1999 was due to
net income, after adjusting for non-cash expenses. Accounts receivable increased
$2.0 million as a result of slower  collections.  Inventories  increased by $1.2
million  or 5.8% to $21.9  million  at March 31,  1999  from  $20.7  million  at
December 31, 1998.  This increase was primarily  attributable to the lower sales
in the first  quarter of 1999 compared to the fourth  quarter of 1998.  Accounts
payable and accrued  expenses  increased  by $3.6 million as a result of careful
management of accounts payable to accounts receivable collections. The cash used
in the  first  three  months  of 1998 was  primarily  due to net  income,  after
adjusting for non-cash expenses, and increases in inventory of $1.0 million.



                                       27
<PAGE>

     As of December 31, 1998, cash and cash equivalents  totaled $4.6 million, a
decrease of $3.1 million,  or 40.5% from $7.7 million at December 31, 1997. Cash
used in operating activities totaled $2.8 million, $3.3 million and $1.4 million
in 1998,  1997 and 1996,  respectively.  In all three  years,  the cash was used
primarily to fund increases in accounts receivable, inventory and prepaid assets
and to pay down  accounts  payable.  Accounts and unbilled  receivables,  net of
allowance  for doubtful  accounts  increased by $16.4  million or 90.6% to $34.4
million  in 1998  from  $18.0  million  in 1997.  This  increase  was  primarily
attributable  to the increased  volume of business in 1998 over 1997, as well as
the  increases as a result of  businesses  acquired in 1998.  As a percentage of
1998 and 1997 net  operating  revenue,  accounts and unbilled  receivables  were
16.6% and 17.5%, respectively. Inventories increased by $9.8 million or 90.0% to
$20.7  million in 1998 from $10.9  million in 1997.  This increase was primarily
attributable  to the increased  volume of business in 1998 over 1997, as well as
the  increases as a result of  businesses  acquired in 1998.  As a percentage of
1998  and  1997  cost  of  goods  sold,   inventories   were  14.5%  and  15.7%,
respectively.  Prepaid  expenses and other current assets  increased by 61.2% or
$0.7 million to $2.0 million in 1998 from $1.3 million in 1997. This increase is
attributable to the overall  increase in our size in 1998.  Accounts payable and
accrued  expenses  increased by $8.6  million or 59.2% to $23.1  million in 1998
from $14.5  million in 1997.  This increase was  primarily  attributable  to the
increased  volume of business in 1998 over 1997,  as well as the  increases as a
result of businesses  acquired in 1998. As a percentage of 1998 and 1997 cost of
goods  sold,  accounts  payable  and  accrued  expenses  were  16.1% and  20.9%,
respectively.

     Investing  activities  used cash of $3.3  million  during  the first  three
months of 1999 and $0.4 million  during the first three  months of 1998.  In the
first  quarter  of 1999,  cash of $2.4  million  was used to pay for the cost of
asset  and  business  acquisitions,  payments  of $0.8  million  were  made  for
property,  plant and equipment and $0.3 million was spent on other assets. These
investments were partially offset by payments  received on notes receivable from
officers.  During  the first  three  months of 1998,  $1.3  million  in cash was
acquired  in asset and  business  acquisitions.  This  source of cash was offset
mostly by payments for property, plant and equipment of $0.6 million,  increases
in other assets of $0.6 million and increases in notes receivable to officers of
$0.2 million.

     Investing activities used cash of $6.8 million in 1998 and provided cash of
$4.2  million and $0.8  million in 1997 and 1996,  respectively.  In 1998,  $7.4
million  was used  principally  to  increase  assets  such as notes  receivable,
property and equipment  and other  assets,  while $0.5 million was received from
the sale of assets. In 1997,  sources of cash primarily included $4.0 million of
cash  acquired in  acquisitions  and $2.3  million in proceeds  from the sale of
assets.  These  amounts  were  partially  offset by payments of $2.2 million for
property  and  equipment  and other  assets.  In 1996,  $1.2 million of cash was
provided by payments received on notes receivable and proceeds from the sales of
assets.  This was offset slightly by investments of $0.3 million in property and
equipment and other assets.

     Cash of $1.0  million  and $0.9  million was used in  financing  activities
during the first three months of 1999 and 1998, respectively. In the first three
months of 1999, proceeds from long term debt of $2.3 million were offset by $2.9
million  paid on notes  payable,  $0.3  million paid for long term debt and $0.1
million  paid for other  financing  costs.  In the first  three  months of 1998,
proceeds  from long term debt of $0.3  million  were offset by $0.7 million paid
toward long term debt, $0.2 million paid for the redemption of preferred shares,
$0.2 million paid on notes  payable and $0.1  million paid for  preferred  stock
dividends.

     Cash of $6.4  million,  $6.0  million  and $1.4  million  was  provided  by
financing  activities  in 1998,  1997 and  1996,  respectively.  In 1998,  $13.2
million was obtained  through  borrowings under notes payable and long term debt
and $1.4 million was obtained  through the  issuance of common  shares.  Uses of
cash in 1998 included repayments of $6.9 million on long term debt, $0.9 million
for the  redemption  of preferred  stock and $0.3 million for the  repurchase of
common stock.  In 1997, $9.4 million of cash was provided  primarily  though the
issuance of common stock and from long term debt proceeds. In 1997, $3.3 million
of cash was used to pay down notes  payable  and long term debt.  In 1996,  $1.6


                                       28
<PAGE>

million of cash came from  borrowings  under notes  payable and the  issuance of
common stock. $0.2 million of cash was used mostly to pay down long term debt.

     One of our  stated  objectives  is to  maximize  cash flow,  as  management
believes positive cash flow is an indication of financial strength. However, due
to  our   significant   growth  rate,  our  investment   needs  have  increased.
Consequently,  we may continue,  in the future,  to use cash from operations and
may continue to finance this use of cash through  financing  activities  such as
the sale of common stock and/or bank borrowing, if available.

     In August,  1998,  we entered  into a $20 million line of credit with State
Street Bank & Trust Company  secured by all of our domestic  assets at the prime
lending rate or at the London  Interbank  Offered  Rate, at our  discretion.  In
February 1999, the amount of the line of credit was increased to $23 million. As
of May 25, 1999, the outstanding balance was approximately $22 million

     On May 25, 1999, we entered into a Term and Revolving Credit Agreement with
IBM  Credit  Corporation.  On May 26,  1999 we repaid  the  amount  due to State
Street. The Term and Revolving Credit Agreement provides for:

     (a)  a revolving credit line of up to $33.5 million, designated as follows:
          (i) a USA revolving credit line of up to $22 million,  (ii) a Canadian
          revolving  credit  line  of up to $8.5  million,  and  (iii) a  United
          Kingdom revolving credit line of up to $3 million.

     (b)  a term loan A of up $22 million.

     (c)  a term loan B of up to $35 million, and

     (d)  a term  loan C  designated  in  Canadian  dollars  of up to  CND$6.645
          million.

     The  revolving  credit  line  may  be  used  for  general  working  capital
requirements, capital expenditures and certain other permitted purposes. The USA
revolving  credit line bears  interest at the 30-day LIBOR rate plus 1.75%;  the
Canadian  revolving  credit line bears interest at the base rate as announced by
the  Toronto-Dominion  Bank of Canada each month plus 0.1707%;  the UK revolving
credit  line  bears  interest  at the base  rate as  announced  by the  National
Westminster Bank PLC of England each month plus 1.4207%.

     Term loan A, which was used to pay off State  Street Bank & Trust  Company,
bears  interest  at the  30-day  LIBOR rate plus  1.75%,  will be  amortized  in
quarterly  installments  over six  years and is  repayable  in full on the third
anniversary of the closing date of the loan.

     Term loan B,  which may be used for  acquisitions,  bears  interest  at the
30-day LIBOR rate plus 1.75%,  will be amortized in quarterly  installments over
six years and is repayable in full on the third  anniversary of the closing date
of the loan.  As of June 18, 1999, no advances had been made under the Term loan
B facility.

     Term loan C, which will be used by our Canadian subsidiaries to repay their
outstanding loans to their existing lenders,  bears interest at the base rate as
announced by the Toronto-Dominion  Bank of Canada each month plus 0.1707%,  will
be amortized in quarterly  installments  over six years and is repayable in full
on the third  anniversary  of the closing date of the loan. As of June 18, 1999,
no advances had been made under the Term loan C facility.

     The agreement  contains  standard debt covenants  relating to the financial
position and performance as well as restrictions on the declarations and payment
of dividends.

     Our  sources of  liquidity  include,  but are not  limited  to,  funds from
operations and funds available under the credit  agreement,  which we anticipate
extending or  refinancing.  We may be able to use  additional  bank  borrowings,
proceeds  from  the sale of  common  and  preferred  shares,  proceeds  from the
exercise of stock options and  warrants,  and the raising of other forms of debt


                                       29
<PAGE>

or  equity  through  private  placement  or  public  offerings.  There can be no
assurance  however,  that these options will be available,  or if available,  on
favorable  terms.  We believe  that our  current  cash  position,  augmented  by
financing activities, if available, will provide us with sufficient resources to
finance our working capital requirements for the foreseeable future. Our capital
requirements  depend on a variety of factors,  including but not limited to, the
rate of increase or decrease in our existing business base; the success, timing,
and amount of investment required to bring new products on-line;  revenue growth
or decline;  and potential  acquisitions.  We believe that we have the financial
resources to meet our future business requirements.

Outlook

     Our  objective  is to  continue  to  grow  each of our  operating  segments
internally and through acquisitions,  both domestically and abroad. Our strategy
has  been,  and  continues  to be,  to invest  in and  acquire  businesses  that
complement and add to our existing business base. We have expanded significantly
through  acquisitions  in the last  twelve  months  and  continue  to do so. Our
financial  results and cash flows are  substantially  dependent  on not only our
ability to sustain and grow existing businesses, but to continue to grow through
acquisition.  We expect to continue to pursue our  acquisition  strategy in 1999
and future years,  but there can be no assurance that management will be able to
continue to find,  acquire,  finance and  integrate  high  quality  companies at
attractive prices.

     We are constantly looking for ways to maximize  shareholder value. As such,
we  are  continually  seeking  operational  efficiencies  and  synergies  within
operating segments as well as evaluating acquisitions of businesses and customer
bases which  complement  our  operations.  We have  retained  the services of an
investment  banking firm to help  evaluate  strategic  initiatives  and maximize
shareholder value. These strategic initiatives may include acquisitions, raising
additional  funds  through  debt or  equity  offerings,  or the  divestiture  of
non-core business units that are not critical to our long term strategy or other
restructuring  or  rationalization  of existing  operations.  We will review all
alternatives to ensure maximum  appreciation of our  shareholders'  investments.
There can be no assurance  however  that any  initiatives  will be found,  or if
found, that they will be on terms favorable to us.

Year 2000 Compliance

     Background.   Some  computers,   software  and  other   equipment   include
programming  code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct  results if "00" is interpreted to mean 1900,  rather
than 2000.  These  problems  are widely  expected to increase in  frequency  and
severity  as the year  2000  approaches,  and are  commonly  referred  to as the
"Millennium Bug" or "Year 2000 problem."

     Assessment.  The Year 2000  problem  could affect  computers,  software and
other  equipment  used,  operated,  or  maintained  by us.  Accordingly,  we are
reviewing our internal computers,  software,  applications and related equipment
and our systems other than  information  technology  systems to ensure that they
will be Year  2000  compliant.  We  believe  that our  Year  2000  plan  will be
completed in all material  respects prior to the  anticipated  Year 2000 failure
dates.  We spent  approximately  $.2 million in 1998 on our Year 2000 compliance
plan and estimate an additional $.5 million will be spent in 1999, most of which
relates to new  equipment.  There can be no  assurance  however,  that the total
costs will be limited to this amount.

     Software  Sold to  Consumers.  We are in the  process  of  identifying  all
potential  Year 2000 problems  with any of the software  products we develop and
market.  However,  management believes that it is not possible to determine with
complete  certainty that all Year 2000 problems  affecting our software products
will be  identified or corrected due to the  complexity  of these  products.  In
addition,  these  products  interact with other third party vendor  products and
operate on computer systems which are not under our control.  For  non-compliant


                                       30
<PAGE>

products, we are providing recommendations as to how an organization may address
possible Year 2000 issues regarding that product. Software updates are available
for most,  but not all,  known issues.  Such  information  is the most currently
available  concerning  the  behavior of our  products  and is  provided  "as is"
without   warranty  of  any  kind.   However,   variability  of  definitions  of
"compliance"  with the Year  2000 and of  different  combinations  of  software,
firmware and hardware  could likely lead to lawsuits  against us. The outcome of
any such lawsuits and the impact on us are not estimable at this time.

     Internal  Infrastructure.  We believe  that our major  computers,  software
applications  and  related  equipment  used  in  connection  with  our  internal
operations  are not  subject to  significant  Year 2000  problems,  because  the
computer  programs used by us are primarily  off-the-shelf,  recently  developed
programs from third-party vendors. We are in the process of obtaining assurances
from such vendors as to the Year 2000 compliance of their products. Most vendors
are reluctant to provide written  assurances and, although some vendors may make
verbal  assurances of Year 2000  compliance,  there can be no certainty that the
systems  utilized by us will not be  affected.  We have  assessed  all 34 of our
operating  locations  and have  determined  that 21 of the 34 locations are Year
2000 compliant. Of the remaining 13 locations, 7 are in the process of upgrading
their  current  systems  and  4  are  replacing  their  systems.   All  internal
infrastructure  systems and  equipment  are  expected to be Year 2000  compliant
prior to the anticipated Year 2000 failure dates.

     Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities  equipment,  such as
fax machines, photocopiers, telephone switches, security systems, elevators, and
other common devices may be affected by the Year 2000 problem.  We have assessed
all  34 of  our  operating  locations  and  have  determined  that  30 of the 34
locations are Year 2000 compliant.  The remaining 4 locations are in the process
of upgrading or replacing the current systems.  All  non-information  technology
systems  and  equipment  are  expected  to be Year 2000  compliant  prior to the
anticipated Year 2000 failure dates.

     Suppliers.  We have initiated  communications with third party suppliers of
the major computers, software, and other equipment used, operated, or maintained
by us to identify and, to the extent  possible,  to resolve issues involving the
Year 2000  problem.  However,  we have limited or no control over the actions of
these  third  party  suppliers.  Thus,  while we expect  that we will be able to
resolve any significant  Year 2000 problems with these systems,  there can be no
assurance  that these  suppliers will resolve any or all Year 2000 problems with
these systems before the occurrence of a material  disruption to our business or
any of our  customers.  Any failure of these third  parties to resolve Year 2000
problems  with their  systems in a timely  manner could have a material  adverse
effect on our business,  financial  condition,  results of  operations  and cash
flows.

     Contingency Plans. At certain subsidiaries,  where we feel it is necessary,
we are preparing contingency plans relating specifically to identified Year 2000
risks and developing cost estimates  relating to these plans.  Contingency plans
may  include  stockpiling  raw and  packaging  materials,  increasing  inventory
levels,  securing alternate sources of supply and other appropriate measures. We
anticipate   completion  of  the  Year  2000  contingency  plans  prior  to  the
anticipated Year 2000 failure dates. Once developed, Year 2000 contingency plans
and related cost  estimates will be tested in certain  respects and  continually
refined as additional information becomes available.

     Most Likely  Consequences of Year 2000 Problems.  We expect to identify and
resolve  all Year 2000  problems  that  could  materially  adversely  affect our
business operations and cash flows. However,  management believes that it is not
possible  to  determine  with  complete  certainty  that all Year 2000  problems
affecting us have been identified or corrected. The number of devices that could
be affected and the interactions among these devices are simply too numerous. In
addition,  one  cannot  accurately  predict  how many Year 2000  problem-related
failures  will occur or the severity,  duration,  or financial  consequences  of


                                       31
<PAGE>

these perhaps inevitable failures.  As a result,  management expects that we may
suffer the following consequences:

 o       A significant  number of operational  inconveniences and inefficiencies
         for us and our clients that may divert  management's time and attention
         and  financial  and  human   resources   from  its  ordinary   business
         activities; and

 o       A lesser number of serious system failures that may require significant
         efforts  by us or  our  customers  to  prevent  or  alleviate  material
         business disruptions.

     Based on the activities  described  above,  we do not believe that the Year
2000 problem will have a material  adverse  effect on our  business,  results of
operations or cash flows.  The estimate of the potential impact on our financial
position,  overall results of operations or cash flows for the Year 2000 problem
could change in the future.  The  discussion  of our efforts,  and  management's
expectations,  relating to Year 2000 compliance are forward-looking  statements.
Our ability to achieve Year 2000  compliance and the level of incremental  costs
associated  therewith,  could be adversely  impacted by, among other things, the
availability and cost of programming and testing resources,  vendors' ability to
modify  proprietary  software,  and  unanticipated  problems  identified  in the
ongoing compliance review.

Impact of Recently Issued Accounting Standards

     In 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards (FAS) 133, Accounting for Derivative  Instruments
and Hedging  Activities.  We do not have any  derivative  instruments or hedging
transactions.

Quantitative and Qualitative Disclosures About Market Risk

     With our Canadian and United Kingdom  subsidiaries,  we have operations and
sales in various regions of the world. Additionally, we may export and import to
and from other countries.  Our operations may therefore be subject to volatility
because  of  currency  fluctuations,  inflation  and  changes in  political  and
economic conditions in these countries. Sales and expenses may be denominated in
local currencies and may be affected as currency fluctuations affect our product
prices and operating costs or those of our competitors.

     We presently do not use any derivative  financial  instruments to hedge our
exposure to adverse  fluctuations  in interest  rates,  foreign  exchange rates,
fluctuations  in  commodity  prices or other market  risks,  nor do we invest in
speculative financial instruments.

     Our  domestic  borrowings  under our  credit  agreement  are at the  London
Interbank Offered Rate plus 1.75%. Such rate is subject to adjustment.

Changes in and  Disagreements  with  Accountants  on  Accounting  and  Financial
Disclosure

     On October 23, 1998, our Board of Directors voted to replace Rubin,  Brown,
Gornstein  & Co. LLP  ("RBG")  with  PricewaterhouseCoopers  LLP  ("PwC") as our
independent accountants for the year ending December 31, 1998.

     The  reports  of RBG on our  financial  statements  for the past two fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty,  audit scope, or accounting principles.
In connection  with the audits of our financial  statements  for each of the two
fiscal years ended  December 31, 1997 and 1996,  and in the  subsequent  interim
period through  November 2, 1998,  there were no  disagreements  with RBG on any
matters of accounting  principles or practices,  financial statement disclosure,
or auditing scope and procedures  which, if not resolved to the  satisfaction of
RBG, would have caused RBG to make reference to the matter in their report.



                                       32
<PAGE>

     During  the two most  recent  fiscal  years and in the  subsequent  interim
period through November 2, 1998,  there were no reportable  events as defined in
Regulation S-K Item 304(a)(1)(v).

     On November 2, 1998, we engaged PwC as our principal  accountants  to audit
our  consolidated  financial  statements for the year ending  December 31, 1998.
During fiscal 1996 and 1997 and in the  subsequent  interim  period,  we had not
consulted PwC on items which concerned the application of accounting  principles
generally,  or to a  specific  transaction  or  group  of  transactions,  either
completed  or proposed,  or the type of audit  opinion that might be rendered on
our consolidated financial statements.

     We  filed a  Current  Report  on Form  8-K on  November  4,  1998  with the
Securities and Exchange  Commission to report the engagement of PwC. Attached to
that report as an exhibit was a letter from RBG addressed to the  Securities and
Exchange  Commission  stating that they agreed with the disclosure  contained in
Current Report on Form 8-K.

Competition

     Each  segment of our  business  is highly  competitive,  and we expect that
competitive  pressures will continue.  Many of our competitors  have far greater
financial, technological,  marketing, personnel and other resources than us. The
areas which we have  identified  for  continued  growth and  expansion  are also
target  market  segments for some of the largest and most  strongly  capitalized
companies  in the United  States,  Canada and Europe.  There can be no assurance
that we will  have the  financial,  technical,  marketing  and  other  resources
required to compete successfully in this environment in the future.

Employees

     At  March  31,  1999,  we,   together  with  our   subsidiaries,   employed
approximately 1,700 employees.

Backlog

     At March 31, 1999, we had a backlog of  approximately  $15 million,  all of
which is expected to be filled in 1999.

Compliance with Environmental Regulations

     Federal,  state and local laws or  regulations  which have been  enacted or
adopted regulating the discharge of materials into the environment have not had,
and under  present  conditions we do not foresee that they will have, a material
adverse  effect  on  the  capital  expenditures,  earnings,  cash  flows  or our
competitive position. We will continue to monitor our operations with respect to
potential environmental issues, including changes in legally mandated standards.



                                       33
<PAGE>

                                 DIVIDEND POLICY

     Holders of our Common Stock are  entitled to receive such  dividends as may
be declared by our Board of Directors.  Other than the  distribution of warrants
pursuant to the Joint Actions by Unanimous Consent of the Board of Directors and
Shareholders  dated March 25,  1994,  since our  inception,  no dividends on our
Common Stock have ever been paid, and we do not  anticipate  that dividends will
be paid on our  Common  Stock in the  foreseeable  future.  Pursuant  to certain
restrictions  under a term and revolving  credit  agreement  dated as of May 25,
1999 with IBM Credit  Corporation,  we may declare and pay cash dividends to our
shareholders in the aggregate  amount of up to $150,000 in any calendar year. In
addition, we may only declare or pay dividends on our Common Stock if ACT-GFX is
able to, and simultaneously  does, declare or pay an equivalent  dividend on the
Exchangeable Shares referred to herein, and if our subsidiary, TigerTel Services
Limited  is able to,  and  simultaneously  does,  declare  or pay an  equivalent
dividend on the exchangeable  shares issued by TigerTel.  The Board of Directors
has the right to  authorize  the issuance of preferred  stock,  without  further
shareholder approval, the holders of which may have preferences as to payment of
dividends.

                           PRICE RANGE OF COMMON STOCK

     Our Common  Stock  trades on the NASDAQ  Stock  Market(R)  under the symbol
"ACTC." Effective with our name change to Applied Digital Solutions, Inc., on or
about July 1, 1999, our trading symbol will be "ADSX." The following  table sets
forth the high and low sale prices of the Common Stock as reported by the NASDAQ
for each of the quarters since the beginning of 1997.

                                                            High          Low
     1997
      First Quarter............................            5 7/8         4
      Second Quarter...........................            4 3/8         2 5/8
      Third Quarter ...........................            8 3/4         2 13/16
      Fourth Quarter ..........................            9 3/4         3 25/32
     1998
      First Quarter............................            5 1/2         4 1/32
      Second Quarter...........................            4 7/8         3 1/8
      Third Quarter ...........................            3 1/2         1 9/16
      Fourth Quarter ..........................            5 1/2         1 1/2
     1999
      First Quarter............................            4 3/16        2
      Second Quarter (through June 18, 1999)               3 1/8         2

Holders

     As of June 18,  1999,  there  were  1,227  holders  of record of our Common
Stock.




                                       34
<PAGE>



                                   Properties

     At  March  31,  1999,  we  leased  819,019  square  feet  of our  operating
facilities,  of which  231,501  square  feet is for office  facilities,  257,518
square  feet  is for  factory/warehouse  use  and  330,000  square  feet  is for
exhibition  space.  These  leases  expire at  various  dates  through  2009.  In
addition, we own office and manufacturing  facilities,  comprising 41,000 square
feet, of which 34,500 square feet is for  manufacturing and 6,500 square feet is
for office space.

     The following table sets forth the principal locations of our properties:



<TABLE>
<CAPTION>
                                                    Square Feet
                               --------------------------------------------------
                                            Factory /      Exhibit /
                                 Office     Warehouse      Other         Total
                               ---------    ----------     ---------   ----------
<S>                            <C>          <C>            <C>          <C>
Alaska                            6,000        23,532         --          29,532
California                        5,574        31,000         --          36,574
Canada                           79,041        73,600         --         152,641
Florida                           9,848          --           --           9,848
Illinois                         19,486         5,400         --          24,886
Louisiana                           500          --           --             500
Massachusetts                     3,781        10,791         --          14,572
Minnesota                         2,000         9,900         --          11,900
Missouri                          5,000          --           --           5,000
New Hampshire                     2,688          --           --           2,688
New Jersey                       43,247        59,370         --         102,617
New York                          3,240        21,000       330,000      354,240
Pennsylvania                     18,196         4,925         --          23,121
Texas                             2,750         2,500         --           5,250
United Kingdom                   32,150        40,000         --          72,150
Utah                              4,500        10,000         --          14,500
                                --------      --------      --------     --------
                                238,001       292,018       330,000      860,019
                                ========      ========      ========     ========
</TABLE>
     The following table sets forth our properties by business divisions:

<TABLE>
<CAPTION>
                                                    Square Feet
                               --------------------------------------------------
                                            Factory /      Exhibit /
                                 Office     Warehouse      Other         Total
                               ---------    ----------     ---------   ----------
<S>                              <C>          <C>           <C>          <C>

Telecommunications                106,723      10,325         --         117,048
Network Infrastructure              5,000       1,720         --           6,720
Internet                            5,500        --           5,500          --
Communications Infrastructure      13,974      33,532         --          47,506
Application Technology             53,947      40,000         --          93,947
Inteletek                          15,390      62,200       330,000      407,590
Non--Core                          30,431     144,241         --         174,672
Corporate                           7,036         --          7,036          --
                                 -----------------------------------------------

                                  238,001     292,018       330,000      860,019
                                 ===============================================
</TABLE>

                                       35
<PAGE>

                                LEGAL PROCEEDINGS

     We and certain of our  subsidiaries are parties to various legal actions as
either plaintiff or defendant.  In the opinion of management,  these proceedings
will not have a material adverse effect on the financial position, cash flows or
overall  trends in our  results.  The  estimate of the  potential  impact on our
financial  position,  overall  results  of  operations  or cash  flows for these
proceedings  could change in the future. We are not subject to any environmental
or governmental proceedings.

     On May 17,  1999,  we were  named as  defendants  in a suit  brought in the
United  States  District  Court for the District of New  Hampshire,  in a matter
styled John H. Martin, Jr. v. Applied Cellular Technology, Inc. The plaintiff, a
former  Vice  President  of sales  and Chief  Operating  Officer  of our  former
subsidiary,  Tech Tools,  Inc., alleges that: (i) we verbally agreed to sell our
controlling  interest in Tech Tools to plaintiff;  (ii) we repudiated  the sale;
and (iii) we caused  Tech  Tools to  commence a wrongful  civil  action  against
plaintiff for conversion and to file a false report against  plaintiff  alleging
plaintiff's  illegal diversion of Tech Tool's funds which subjected plaintiff to
criminal proceedings. Based on these allegations,  plaintiff is seeking monetary
damages in the amount of $20  million.  We believe that  plaintiff's  claims are
without merit and intend to defend ourselves  vigorously.  We do not expect this
litigation to have a material adverse effect on our financial position,  overall
results of operations or cash flows.

















                                       36
<PAGE>
                                   MANAGEMENT

Directors and Executive Officers of the Registrant

     Our directors and executive officers are as follows:

<TABLE>
<CAPTION>

               Name         Age    Position/Committees                            Position Held Since
- ------------------------------------------------------------------------------------------------------------
<S>                         <C>    <C>                                            <C>

Richard J. Sullivan         60     Chairman, CEO (1,2)                            May 1993
Garrett A. Sullivan         64     Director, President, COO (1,3)                 March 1995
Daniel E. Penni             51     Director (1,2,3)                               March 1995
Angela M. Sullivan          39     Director (1,2)                                 April 1996
Arthur F. Noterman          57     Director (1,3)                                 February 1997
Constance K. Weaver         46     Director (1,3)                                 June 1998
Andrew J. Hidalgo           42     Senior Vice President                          March 1999
Marc Sherman                35     Senior Vice President                          March 1999
Scott R. Silverman          35     Senior Vice President                          March 1999
Jerome C. Artigliere        45     Vice President                                 April 1998
Gary A. Gray                46     Vice President, Chief Technology Officer       April 1998
David A. Loppert            44     Vice President, Treasurer, CFO                 February 1997
John F. Reap                50     Vice President                                 November 1998
Tabitha N. Zane             39     Vice President                                 February 1999

</TABLE>
- ---------------------------------
(1)  Member of the Executive Committee
(2)  Member of the Compensation Committee
(3)  Member of the Audit Committee

     Richard J.  Sullivan:  Mr.  Sullivan was elected to the Board of Directors,
and named Chief Executive Officer,  in May 1993. He is Chairman of the Executive
and  Compensation  Committees  of our  Board  of  Directors.  He  was  appointed
Secretary  in March  1996.  Mr.  Sullivan  is  currently  Chairman  of Great Bay
Technology, Inc. From August 1989 to December 1992, Mr. Sullivan was Chairman of
the  Board  of  Directors  of  Consolidated   Convenience   Systems,   Inc.,  in
Springfield,  Missouri.  He has been the  Managing  General  Partner  of The Bay
Group, a merger and  acquisition  firm in New Hampshire since February 1985. Mr.
Sullivan was  formerly  Chairman and Chief  Executive  Officer of  Manufacturing
Resources,  Inc., an MRP II software  company in Boston,  Massachusetts  and was
Chairman and CEO of Encode Technology, a "Computer-Aided Manufacturing" Company,
in Nashua,  New Hampshire  from February  1984 to August 1986.  Mr.  Sullivan is
married to Angela M. Sullivan.

     Garrett A. Sullivan:  Mr. Sullivan has been our President since March 1995.
He was  elected  to the Board of  Directors  in August  1995.  He was our acting
secretary from March 1995 to March 1996 and acting Chief Financial  Officer from
March  1995 to  February  1997.  From  1993 to  1994  he was an  Executive  Vice
President of Envirobusiness,  Inc. From 1988 to 1993, he served as president and
chief  operating  officer of two medium sized  companies in the  electronics and
chemical industries which were owned by Philips North America. He was previously
a partner in the Bay Group, a merger and acquisition  firm in New Hampshire from
1988 to 1993. From 1981 to 1988 Mr.  Sullivan was President of Granada  Hospital
Group,  Burlington,  Massachusetts.  Mr.  Sullivan  received a Bachelor  of Arts
degree  from  Boston  University  in  1960  and  obtained  an MBA  from  Harvard
University in 1962.

     Daniel E. Penni: Mr. Penni has served as a Director since March 1995. Since
March  1998 he has  served as an Area  Executive  Vice  President  for Arthur J.
Gallagher  and Co., an insurance  agency since March 1998. He has worked in many


                                       37
<PAGE>

sales and  administrative  roles in the  insurance  business  since 1969. He was
President of the Boston Insurance Center,  Inc., an insurance agency until 1988.
Mr. Penni was founder and  President  of BIC  Equities,  Inc.,  a  broker/dealer
registered with the NASD. Mr. Penni graduated with a Bachelor of Sciences degree
in 1969 from the School of Management at Boston College.

     Angela M. Sullivan: Ms. Sullivan has served as a Director since April 1996.
From 1988 to the present,  Ms.  Sullivan has been a partner in the Bay Group,  a
private merger and acquisition  firm,  President of Great Bay Technology,  Inc.,
and President of Spirit Saver,  Inc. Ms. Sullivan received a Bachelor of Science
degree in Business Administration in 1980 from Salem State College. Ms. Sullivan
is married to Richard J. Sullivan.

     Arthur F. Noterman: Mr. Noterman, a Chartered Life Underwriter,  has served
as a Director since February  1997, and is Chairman of the Audit  Committee.  An
operator of his own insurance  agency,  Mr. Noterman is a registered NASD broker
affiliated with a Chicago,  IL registered  broker/dealer.  Mr. Noterman attended
Northeastern  University  from  1965 to 1975 and  obtained  the  Chartered  Life
Underwriters  Professional degree in 1979 from The American College,  Bryn Mawr,
Pennsylvania.

     Constance  K. Weaver:  Ms.  Weaver was elected to the Board of Directors in
July  1998.  From 1996 to the  present,  Ms.  Weaver  has been  Vice  President,
Investor Relations and Financial Communications for AT& T Corporation. From 1995
through  1996  she  was  Senior  Director,   Investor  Relations  and  Financial
Communications  for  Microsoft  Corporation.  From  1993  to 1995  she was  Vice
President,  Investor  Relations,  and  from  1991 to 1993  she was  Director  of
Investor  Relations,  for MCI  Communications,  Inc. Ms. Weaver is a director of
Primark  Corporation and the National Investor  Relations  Institute (NIRI). Ms.
Weaver  received a Bachelor of Science degree from the University of Maryland in
1975.

     Andrew J. Hidalgo:  Mr.  Hidalgo  joined us as Vice  President of Strategic
Relations in January 1998. In March 1999, he was appointed Senior Vice President
of our primary business group with overall  responsibility for the operations of
our   Communications   Infrastructure,   Network   Infrastructure,   Application
Technology,  Telecommunications and Internet divisions. From 1995 to 1997 he was
Divisional  Director  of  Bentley  Systems,  Inc.  From 1993 to 1995 he was Vice
President,  Sales and  Marketing,  of Cadkey,  Inc. Mr.  Hidalgo has over twenty
years of experience in a variety of sales,  marketing,  operations and executive
management  positions with such  organizations as 3M Company,  Schlumberger/MDSI
and General  Electric.  At General  Electric,  he was a member of the  corporate
strategic  business  development  committee.   Mr.  Hidalgo  attended  Fairfield
University in Fairfield Connecticut where he majored in marketing.

     Marc Sherman: Mr. Sherman is President of our Intellesale.com  division. He
was  appointed  as one of our Vice  Presidents  in April  1998 and  Senior  Vice
President in March 1999. Since 1994, Mr. Sherman has been President of Universal
Commodities Corporation,  a company acquired by us in November 1996. He has over
ten years of experience in marketing,  operations and executive management.  Mr.
Sherman attended Rider University and majored in Business Administration.

     Scott R.  Silverman:  Mr.  Silverman  joined  us in  December  1997 as Vice
President  of  Business  Development  with a focus  on  merger  and  acquisition
activity.  In March 1999,  he was  appointed  Senior Vice  President,  Corporate
Development  and  Legal  Affairs.  From  1995 to 1996  Mr.  Silverman  was  Vice
President  and  Corporate  Counsel  of  ATI  Communications.  He  was  appointed
President of ATI in November 1996 after ATI was acquired by us. Mr. Silverman is
a licensed attorney.  From 1989 to 1995 he practiced law in the Philadelphia and
South New Jersey area specializing in commercial  litigation and  communications
law. Mr.  Silverman  graduated from the University of  Pennsylvania  in 1985 and
Villanova University School of Law in 1988.

     Jerome  C.  Artigliere:  Mr.  Artigliere  joined  a  subsidiary  of ours as
President in December 1997,  and was appointed as one of our Vice  Presidents in


                                       38
<PAGE>

April 1998. From 1996 to 1997 he was Regional Vice President at General Electric
Capital  Corporation in Portsmouth,  NH. Prior to that, from 1994 to 1996 he was
State Vice President at First National Bank in Portsmouth, NH, a commercial bank
subsidiary  of  Peoples   Heritage   Bank  of  Portland,   MA.  He  received  an
undergraduate  degree in finance from Seton Hall  University in 1977, and an MBA
from Fairleigh Dickinson University in 1980.

     Gary A. Gray: Mr. Gray is our Vice President and Chief  Technology  Officer
and  President of one of our  operating  units.  He joined us at our founding in
1993 and  served as our  President  from 1993 to 1995.  From 1990 to 1992 he was
Vice President for Business Development of Consolidated Convenience Systems. Mr.
Gray has spent 22 years in the development  and marketing of computer  software.
He is a 1974 graduate of Hope  College,  Holland,  Michigan,  with a Bachelor of
Science degree in Physics.

     David A. Loppert:  Mr. Loppert joined us as Vice  President,  Treasurer and
Chief  Financial  Officer  in  February  1997.  From 1996 to 1997,  he was Chief
Financial Officer of Bingo Brain, Inc. From 1994 to 1996, he was Chief Financial
Officer of both C.T.A. America, Inc., and Ricochet  International,  L.L.C. Prior
to that he was  Senior  Vice  President,  Acquisitions  and  Due  Diligence,  of
Associated Financial Corporation.  Mr. Loppert started his financial career with
Price Waterhouse in 1978, in Johannesburg,  South Africa, before moving to their
Los Angeles Office in 1980 where he rose to the position of Senior  Manager.  He
holds  Bachelor  degrees in both  Accounting  and Commerce,  as well as a Higher
Diploma  in  Accounting,   all  from  the   University  of  the   Witwatersrand,
Johannesburg.  Mr. Loppert was designated a Chartered  Accountant (South Africa)
in 1980.

     John F. Reap:  Mr. Reap was  appointed a Vice  President in November  1998.
Since  October  1997 he has also  served as  President  of one of our  operating
units. From 1988 to 1994, he was Vice President, Finance, and from 1994 to 1997,
he was Executive Vice President of that operating  unit. Mr. Reap is a Certified
Public  Accountant  and  received a Bachelor  of Science  degree with a major in
accounting firm St. Peters College in 1975.

     Tabitha N. Zane:  Ms. Zane joined us in February 1999 as Vice  President of
Investor Relations.  Previously, from 1997 to 1999, she was Director of Investor
Relations for Vanguard Cellular System, until that company was acquired by AT&T.
From 1993 to 1997,  Ms. Zane served as Director of Investor  Relations  for U.S.
Long Distance  Corp.  Ms. Zane  obtained a Bachelor of Arts degree,  majoring in
political science, from Trinity College, Hartford, CT in 1981.

Board of Directors and Committees

     Board of Directors

     Our business is managed  under the  direction of our Board of Directors and
the number of  Directors  is  currently  fixed at six.  Since 1998,  our charter
provides that the Board shall be divided into three classes. The members of each
class of directors serve for staggered  three-year terms, and the class to which
each  Director has been  assigned is  designated as Group A, Group B or Group C.
Our Board is composed  of two Group A  Directors  (Daniel E. Penni and Angela M.
Sullivan),   whose  terms  will  expire  at  the  2002  Annual  Meeting  of  our
shareholders,  two Group B  Directors  (Arthur  F.  Noterman  and  Constance  K.
Weaver), whose terms expire at the 2000 Annual Meeting of our shareholders,  and
two Group C Directors (Richard J. Sullivan and Garrett A. Sullivan), whose terms
expire at the 2001  Annual  Meeting of our  shareholders.  Our basic  philosophy
mandates the inclusion of directors who will be  representative  of  management,
employees  and our  minority  shareholders.  Directors  may only be removed  for
"cause."

     Board Committees and Meetings

     We have standing Executive,  Audit and Compensation Committees of the Board
of Directors.

     The Executive  Committee  consists of Daniel E. Penni,  Angela M. Sullivan,
Constance K. Weaver,  Garrett A.  Sullivan and Arthur F. Noterman and Richard J.
Sullivan, as Chairman.



                                       39
<PAGE>

     The Audit  Committee  recommends  for  approval by the Board of Directors a
firm of certified public  accountants whose duty it is to audit our consolidated
financial  statements  for the fiscal  year in which they are  appointed  and to
monitor the  effectiveness  of the audit  effort,  our  internal  and  financial
accounting  organization  and  controls  and  financial  reporting.   The  Audit
Committee  consists of Daniel E. Penni,  Garrett A.  Sullivan  and  Constance K.
Weaver  and Arthur F.  Noterman,  as  Chairman.  The Audit  Committee  held four
meetings during 1998.

     The Compensation  Committee administers our 1996 Non-Qualified Stock Option
Plan,  including  the review and grant of stock  options to  officers  and other
employees  under  such plan,  and  recommends  the  adoption  of new plans.  The
Compensation  Committee also reviews and approves our various other compensation
policies  and  matters  and  reviews and  approves  salaries  and other  matters
relating to our  executive  officers.  The  Compensation  Committee  reviews all
senior  corporate  employees  after  the end of each  fiscal  year to  determine
compensation  for the  subsequent  year.  Particular  attention  is paid to each
employee's  contributions  to our  current and future  success  along with their
salary level as compared to the market value of  personnel  with similar  skills
and responsibilities.  The Compensation  Committee also looks at accomplishments
which are above and beyond management's normal expectations for their positions.
The  Compensation  Committee  consists of Daniel E. Penni and Angela M. Sullivan
and Richard J.  Sullivan,  as Chairman.  The  Compensation  Committee held seven
meetings during 1998.

     The Board of  Directors  held 58 meetings  during 1998 and acted by written
consent 25 times during 1998.  During the year,  all  Directors  attended 75% or
more of the Board of Directors'  meetings and the Board Committees to which they
were assigned.

     Compensation of Directors

     Prior to the fourth quarter of 1998, our non-employee  Directors received a
fee of $250 per  meeting,  for  their  attendance  at  meetings  of our Board of
Directors.  Beginning in the fourth quarter of 1998, the  non-employee  director
compensation  was  changed to fixed  quarterly  fees in the amount of $5,000 per
non-employee  director. In addition,  non-employee directors receive a quarterly
fee in the  amount  of $1,000  for each  committee  on which  they are a member.
Reasonable travel expenses are reimbursed when incurred.

     Prior to 1996,  Richard  J.  Sullivan,  our  Chairman  and Chief  Executive
Officer,  did not receive  direct  compensation  from us.  Starting in 1996, Mr.
Sullivan's  compensation  has been  determined  taking into  account the factors
identified in the preceding paragraph. See also "Executive Compensation."















                                       40
<PAGE>


Employment Agreements and Executive Compensation

     We, or our subsidiaries,  have entered into employment  agreements with the
following executive officers:

<TABLE>
<CAPTION>

                                                    Term
                                         --------------------------------             Base
                Name                      Length             Commencing             Salary
                ----                      ------         ----------------            ------
<S>                                       <C>            <C>                    <C>

Richard J. Sullivan                       5 years 1      July 1, 1998           $   450,000  2
Garrett A. Sullivan                       5 years 1      June 1, 1998           $   165,000
Andrew J. Hidalgo                         3 years        May 11, 1998           $   150,000  3
Marc Sherman                              3 years        November 13, 1996      $   210,000  4
Scott R. Silverman                        3 years        February 1, 1999       $   240,000  5
Jerome C. Artigliere                      3 years        December 16, 1997      $   100,000  6
Gary A. Gray                              3 years        December 18, 1998      $    42,000  7
David A. Loppert                          5 years 1      June 19, 1998          $   150,000
John F. Reap                              3 years        October 24, 1997       $   120,000
Tabitha Zane                              2 years        February 8, 1999       $   120,000

- --------------------------------------
</TABLE>


1 --  Automatically  renewed for  successive  additional  one-year terms on each
      anniversary.
2 --  Provides  for a  minimum  annual  bonus  of  $140,000.
3 --  Effective  as  of March 9,  1999.   Also  contains  a bonus  provision  if
      certain targets are met.
4 --  Effective as of January 1, 1999
5 --  Provides  for a  minimum  annual  increase  of 10% of  base  salary.
6 --  Effective as of February 1, 1999
7 --  In addition to base  compensation,  Mr. Gray  receives a commission of 10%
      of gross sales  revenue of Applied Cellular Technology of Missouri, Inc.

     In 1997, we entered into  employment  agreements  with Richard J. Sullivan,
Chairman; Garrett A. Sullivan,  President; and David A. Loppert, Chief Financial
Officer.  These  agreements were amended in 1998 and only covered certain of the
employment terms and conditions; the rest of the employment terms remained under
negotiation  until a final  agreement  was reached on March 23, 1999. As of that
date, each employment agreement for Richard J. Sullivan, Garrett A. Sullivan and
David A.  Loppert was revised  and  restated.  Such  employment  agreements,  as
revised and restated,  include  certain "change of control"  provisions.  At the
employee's  option,  he may terminate his employment  under the agreement at any
time within one year after such change of control.  We shall pay to the employee
a severance  payment equal to the maximum  amount which would not result in such
payment  being an excess  parachute  payment as defined in the Internal  Revenue
Code which  would be subject to an excise  tax.  However,  if any other  amounts
payable by us to the employee  are subject to the  parachute  provisions  of the
Internal  Revenue Code and reducing the severance  payment  would  eliminate the
excise tax on the  severance  payment  and such other  payments  and result in a
greater net payment,  the severance payment may be reduced.  Additionally,  upon
termination  of  employment  for any  reason  other  than for  breach  under the
agreement,  each of Garrett  Sullivan  and David  Loppert  shall be  entitled to
receive from us 60 equal monthly payments of 8.333% of his compensation  from us
over the  12-month  period  for which his  compensation  was the  greatest,  and
Richard  Sullivan  shall  receive 60 monthly  payments  of $37,500  each.  These
payments are reduced by any severance  payments.  Richard  Sullivan's  agreement
provides  that he may  elect to  receive a  percentage  of his  salary  for each
12-month period in our Common Stock. For the 12-month period  commencing July 1,
1998,  Richard  Sullivan has elected to receive  $200,000 of his compensation in
stock.

     Additionally, the agreements for both Richard Sullivan and Garrett Sullivan
provide for certain "triggering events" which include a change in control of us,
the  termination of Richard  Sullivan's  employment  other than for cause, or if


                                       41
<PAGE>

Richard  Sullivan  ceases to hold his current  positions  with us for any reason
other than a material  breach of the terms of his employment  agreement.  Within
ten days of the  occurrence of a triggering  event,  we shall pay, in cash or in
stock,   or  in  a  combination   thereof,   $12.1  million  and  $3.5  million,
respectively, to Richard Sullivan and to Garrett Sullivan. In addition, we shall
transfer to Richard Sullivan certain other property valued at approximately $0.5
million.  We would also be required  to make a gross up payment  that covers all
federal and state income taxes payable by Richard Sullivan,  if any, as a result
of the transfer.

     The following table sets forth certain summary  information  concerning the
total  remuneration  paid in 1998 and the two  prior  fiscal  years to our Chief
Executive Officer and our four other most highly compensated executive officers.

<TABLE>
<CAPTION>

                                            Summary Compensation Table
                                                                            Long-Term Compensation
                                                                     ---------------------------------
                                        Annual Compensation                  Awards          Payouts
                                -----------------------------------  ----------------------  ---------
                                                          Other
                                                          Annual       Restricted                       All Other
       Name and                                           Compensa-    Stock      Options/    LTIP      Compen-
Principal Position (1)    Year   Salary       Bonus (2)   tion (3)     Awards     SAR's (4)   Payouts   sation
<S>                       <C>    <C>          <C>          <C>           <C>    <C>          <C>        <C>

Richard J. Sullivan       1998   $  345,833   $ 180,000    $  79,882      --    1,500,000    $ --       $ --
Chairman, CEO and         1997   $  116,669   $ 140,000    $   3,623      --    1,000,000    $ --       $ --
Secretary                 1996   $       --   $      --    $  68,816      --    1,130,000    $ --       $ --

Garrett A. Sullivan (5)   1998   $  144,165   $  90,000    $   8,842      --      475,000    $ --       $ --
Director, President       1997   $  105,499   $  75,000    $     811      --      350,000    $ --       $ --
and COO                   1996   $  113,966   $  25,000    $      --      --      150,000    $ --       $ --

Andrew J. Hidalgo (6)     1998   $  122,326   $  25,000    $      --      --       80,000    $ --       $ --
Senior Vice President     1997       N/A      $      --    $      --      --      --         $ --       $ --
                          1996       N/A      $      --    $      --      --      --         $ --       $ --

Scott R. Silverman (7)    1998   $  204,000   $  10,000    $      --      --       50,000    $ --       $ --
Senior Vice President,    1997   $  197,000   $       0    $      --      --                 $ --       $ --
Corporate Development     1996   $  128,000   $       0    $      --      --       50,000    $ --       $ --
  and Legal Affairs

David A. Loppert (8)      1998   $  123,537   $  40,000    $  15,925      --      285,000    $ --       $ --
Vice President,           1997   $   64,423   $  25,000    $      --      --      150,000    $ --       $ --
Treasurer and Chief       1996       N/A      $      --    $      --      --      --         $ --       $ --
  Financial Officer
- -----------------------
</TABLE>
(1)  No executive officer served pursuant to an employment  contract through the
     1996 fiscal year. See  "Employment  Contracts and Termination of Employment
     and  Change-In-Control  Arrangements"  below for  agreements  entered  into
     subsequent to December 31, 1996.
 (2) The amounts in the Bonus column were  discretionary  awards  granted by the
     compensation  committee  in  consideration  of  the  contributions  of  the
     respective named executive officers.
 (3) Includes,  in 1998 for  Richard J.  Sullivan,  $73,394  reimbursed  for the
     payment of taxes. Prior to June 1997, Mr. Sullivan did not receive a salary
     from the Company.
 (4) Indicates number of securities underlying options.
 (5) Mr.  Sullivan was  Secretary  until March 1996 and Acting  Chief  Financial
     Officer until February  1997.
 (6) Mr.  Hidalgo began his  employment  with the Company in January 1998 as the
     Vice President of  Strategic  Relations  and  was  appointed   Senior  Vice
     President of the Company in March 1999.
 (7) Mr.  Silverman was Vice President and Corporate  Counsel of a subsidiary of
     the Company until  November 1996,  when he was appointed  President of that
     subsidiary. In December 1997, Mr. Silverman was appointed Vice President of


                                       42
<PAGE>

     Business  Development  of the Company,  and in March 1999 he was  appointed
     Senior Vice President of the Company.
 (8) Mr. Loppert was employed as Vice President,  Treasurer, and Chief Financial
     Officer of the Company in February 1997.

Option Grants in Last Fiscal Year

     The following  table  contains  information  concerning  our grant of Stock
Options under our 1996  Non-Qualified  Stock Option Plan to the named  executive
officers during 1998:

<TABLE>
<CAPTION>

                                       Option Grants In Last Fiscal Year
                                              Individual Grants
                           ---------------------------------------------------------
                            Number of      % of Total
                           Securities        Options
                           Underlying      Granted to     Exercise                      Grant Date
                             Options      Employees in      Price    Expiration Date  Present Value
            Name (1)       Granted (#)        1998         ($/Sh)                        (2) ($)
- -----------------------------------------------------------------------------------------------------
<S>                        <C>            <C>             <C>          <C>              <C>

Richard J. Sullivan         500,000         9.3%           $ 3.51         April-04      $ 635,000
                            500,000         9.3%           $ 3.03          June-04      $ 635,000
                            500,000         9.3%           $ 2.19      December-04      $ 635,000
Garrett A. Sullivan         150,000         2.8%           $ 3.51         April-04      $ 190,500
                            150,000         2.8%           $ 3.03          June-04      $ 190,500
                            175,000         3.3%           $ 2.19      December-04      $ 222,250
Andrew J. Hidalgo            30,000         0.6%           $ 3.03          June-04      $  38,100
                             50,000         0.9%           $ 2.19      December-04      $  63,500
Scott R. Silverman           50,000         0.9%           $ 2.19      December-04      $  63,500
David A. Loppert             35,000         0.7%           $ 3.51         April-04      $  44,450
                            125,000         2.3%           $ 3.03          June-04      $ 158,750
                            125,000         2.3%           $ 2.19      December-04      $ 158,750
</TABLE>

(1)  Options granted under the 1996 Non-Qualified Stock Option Plan were granted
     at an exercise price equal to 85% of the fair market value of the Company's
     common  shares on the grant  date.  These  options are  exercisable  over a
     five-year period beginning with the first anniversary of the grant date.

(2)  Based on the grant date  present  value of $1.27 per option share which was
     derived using the  Black-Scholes  option  pricing model in accordance  with
     rules and  regulations  of the  Securities  Exchange  Commission and is not
     intended to forecast  future  appreciation  of the  Company's  common share
     price.  The  Black-Scholes  model was used with the following  assumptions:
     dividend yield of 0%;  expected  volatility of 43.69%;  risk-free  interest
     rate of 8.5%; and expected lives of 5 years.













                                       43
<PAGE>


                   OPTION EXERCISES AND FISCAL YEAR-END VALUES

     The  following  table  sets  forth  information  with  respect to the named
executive   officers   concerning  the  exercise  of  options  during  1998  and
unexercised options held on December 31, 1998:

<TABLE>
<CAPTION>

 Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

                                                           Number of Securities Underlying        Value of Unexercised
                                                           Unexercised Options at Year End    In-The-Money Options at Year
                                                                      1998 (#)                      End 1998 ($) (1)
                                                          ---------------------------------- -------------------------------

                              Shares
                            Acquired on       Value
          Name             Exercise (#)    Realized ($)     Exercisable    Unexercisable    Exercisable     Unexercisable
 ---------------------    --------------  --------------  --------------  ---------------  -------------  ----------------
<S>                           <C>           <C>             <C>              <C>            <C>            <C>

 Richard J. Sullivan           --           $     --         1,685,000        1,500,000     $   --         $  5,343,750
 Garrett A. Sullivan           --           $     --           500,000          475,000     $   --         $  1,692,188
 Andrew J. Hidalgo             --           $     --                --           80,000     $   --         $    285,000
 Scott R. Silverman            --           $     --            50,000           50,000     $   --         $    178,125
 David A. Loppert              --           $     --           150,000          285,000     $   --         $  1,015,313

</TABLE>

(1)  Based on the closing  price of  the   Company's  Common Stock on the NASDAQ
     Stock Market(R)on December 31, 1998 ($3.5625).

Cash and Stock Incentive Compensation Programs

     To reward performance, we provide our executive officers and our divisional
executive  officers  with  additional  compensation  in the form of a cash bonus
and/or  stock  awards.   No  fixed  formula  or  weighting  is  applied  by  the
Compensation Committee to corporate performance versus individual performance in
determining  these  awards.  The  amounts of such awards are  determined  by the
Compensation Committee acting in its discretion.  Such determination,  except in
the  case  of the  award  for  the  Chairman,  is  made  after  considering  the
recommendations  of the Chairman  and  President  and such other  matters as the
Compensation Committee deems relevant. The Committee,  acting in its discretion,
may  determine to pay a lesser award than the maximum  specified.  The amount of
the total  incentive is divided  between cash and stock at the discretion of the
Committee.

Stock Options

     In August 1996,  our  shareholders  approved our 1996  Non-Qualified  Stock
Option Plan. Pursuant to the terms of the plan,  10,000,000 shares of our Common
Stock  are  reserved  for  issuance  thereunder.  The plan is a  long-term  plan
designed to link rewards with  shareholder  value over time.  Stock  options are
granted to aid in the  retention  of  employees  and to align the  interests  of
employees with  shareholders.  The plan will terminate on March 15, 2006, and no
option may be granted  pursuant to the plan  thereafter.  The Board of Directors
has the sole right and power to amend the plan at any time;  provided,  however,
that the Board may not amend the plan, without the approval of our shareholders,
in a manner  which would  violate  applicable  law.  Options are granted only to
persons who are our employees or employees of one of our  subsidiaries who agree
to  remain  in  the  employ  of,  and  render  services  to,  us or  one  of our
subsidiaries  for a period of at least one year from the date of the granting of
the option.  The term "employee"  includes officers,  directors,  executives and
supervisory  personnel,  as well as our other  employees  and  employees  of our
subsidiaries.

     The  purchase   price  under  each  option  issued  is  determined  by  the
Compensation Committee, at the time the option is granted. In no event, however,
shall the  purchase  price  under an option be less than 85% of the fair  market
value of our Common Stock on the date of the grant. All options issued under the


                                       44
<PAGE>

plan shall be for such period as the Compensation Committee shall determine, but
for not more than ten years from the date of the grant thereunder.

     Grants to our executive  officers and to officers of our  subsidiaries  are
made at the  discretion of the  Compensation  Committee.  The Committee may also
make  available  a pool of  options  to each  subsidiary  to be  granted  at the
discretion  of such  subsidiary's  president.  Stock  options  have value for an
employee only if the price of our stock increases above the fair market value on
the grant date and the  employee  remains in our employ for the period  required
for the stock option to be  exercisable,  thus  providing an incentive to remain
employed with us.

     In 1998,  stock  options for the  executive  officers were granted upon the
recommendation of management and approval of the Compensation Committee based on
their subjective  evaluation of the appropriate  amount for the level and amount
of responsibility for each executive officer.

Compensation Pursuant to Other Plans

     Other than as disclosed  above,  we have no plans pursuant to which cash or
non-cash  compensation was paid or distributed during the last fiscal year or is
proposed to be paid or distributed in the future,  to the individuals  described
above.

     Prior to the fourth quarter of 1998,  non-employee Directors of the Company
received a fee of $250 per  meeting,  for their  attendance  at  meetings of the
Company's  Board of  Directors.  Beginning  in the fourth  quarter of 1998,  the
non-employee  director  compensation  was changed to fixed quarterly fees in the
amount of $5,000 per non-employee director. In addition,  non-employee directors
receive a quarterly fee in the amount of $1,000 for each committee on which they
are  a  member.   Reasonable  travel  expenses  are  reimbursed  when  incurred.
Individuals  who become  directors of the Company are  automatically  granted an
initial option to purchase 25,000 shares of Common Stock on the date they become
directors.  Each of such  options  is granted  pursuant  to the  Company's  1996
Non-Qualified Stock Option Plan on terms and conditions  determined by the Board
of Directors.  In addition,  the following  options were granted to directors in
1998:  Arthur F.  Noterman - 30,000 at $3.51 in April  1998,  35,000 at $3.03 in
June 1998,  and 100,000 at $2.00 in December  1998;  Daniel E. Penni - 30,000 at
$3.51 in April  1998,  35,000 at $3.03 in June  1998,  and  100,000  at $2.00 in
December  1998;  Angela M.  Sullivan - 30,000 at $3.51 in April 1998,  35,000 at
$3.03 in June 1998,  and 100,000 at $2.00 in December  1998;  and  Constance  K.
Weaver - 35,000 at $2.76 in July 1998 and  100,000  at $2.00 in  December  1998.
Directors who are not also executive officers are not eligible to participate in
any other benefit plan of the Company.

1999 Flexible Stock Plan

     In April 1999, our Board of Directors adopted our 1999 Flexible Stock Plan,
which was approved by our  Shareholders  at our Annual  Meeting on June 5, 1999.
The flexible plan is intended to attract,  retain, motivate and reward employees
and  other  individuals  and to  encourage  ownership  by  employees  and  other
individuals  of our Common Stock.  The flexible plan provides for benefits to be
awarded in the form of incentive  stock  options,  non-qualified  stock options,
stock appreciation  rights,  restricted stock,  performance shares, cash awards,
and other stock based  awards.  Benefits  under the flexible plan may be granted
only to persons  who are our  employees,  members of our  Board,  employees  and
owners of entities which are not  affiliated  with us but which have a direct or
indirect ownership interest in us or one of our affiliates, individuals who, and
employees  and  owners  of  entities  which,  are our or one of our  affiliate's
customers or  suppliers,  individuals  who, and employees and owners of entities
which, render services to us or one of our affiliates,  and individuals who, and
employees and owners of entities which, have ownership or business  affiliations
with  any  individual  or  entity  previously  described.  The  plan  is  to  be
administered by a committee which will have complete  authority to determine the
terms, conditions and provisions of, and restrictions relating to, and to grant,
the benefits under the flexible plan.



                                       45
<PAGE>

     The number of shares of our Common Stock which may be issued in  connection
with benefits  granted under the flexible plan shall be 5,000,000 shares plus an
annual  increase,  effective on the first day of each calendar year, equal to 5%
of the number of outstanding  shares of Common Stock as of the first day of such
calendar year, but in no event more than 15,000,000 shares in the aggregate.  If
there is any  change  in our  Common  Stock,  the  number  and  class of  shares
available  under  the plan,  and/or  the price  thereof,  will be  appropriately
adjusted.

     Our Board of Directors may amend or terminate  the plan,  but the Board may
not amend the plan without the approval of our  shareholders,  if such amendment
would (i) cause the options  which are  intended to qualify as  incentive  stock
options  to fail to  qualify  as such,  (ii)  cause the plan to fail to meet the
requirements of Rule 16b-3, or (iii) violate applicable law.

     In the  event of a change  in  control,  the  committee  may  provide  such
protection as it deems necessary to maintain a participant's rights,  including:
(i) providing for the  acceleration of any time periods relating to the exercise
or realization of any benefit; (ii) providing for purchase of a benefit upon the
participant's request for an amount in cash equal to the amount which could have
been  attained  upon the  exercise  or  realization  of the  benefit had it been
currently   exercisable  or  payable;   (iii)  making  such  adjustment  to  the
outstanding benefits as the committee deems appropriate; and/or (iv) causing the
outstanding benefits to be assumed, or new benefits substituted therefor, by the
surviving corporation.

1999 Employees Stock Option Purchase Plan

     In April 1999, our Board of Directors also adopted our 1999 Employees Stock
Option  Purchase Plan,  which was also approved by our  Shareholders at our 1999
Annual  Meeting.  The  stock  purchase  plan is  intended  to  provide  eligible
employees an opportunity to acquire an ownership stake in us. Stock ownership by
employees ties their interests  directly to the performance of our Common Stock.
The stock purchase plan provides for the granting of options to employees of the
Company  and its  subsidiaries  who are  eligible  to  participate  in the stock
purchase plan and who elect to  participate.  Eligibility  to participate in the
plan will be determined by a committee which will administer the plan.

     The committee  will  determine all of the terms of each offering of options
under the plan,  including the entities whose  employees may  participate in the
offering, whether any employees of any such entity who may be excluded are to be
excluded,  the number of shares to be offered,  the maximum number of shares any
participant  may purchase,  each date options are  exercised,  the length of the
offering period, the exercise price per share, and whether interest will be paid
on participants' accounts. The exercise price may not be less than the lower of:
(i) 85% of the fair  market  value of the  shares  on the  date  the  option  is
granted;  or (ii) 85% of the fair  market  value of the  shares  on the date the
option is exercised.

     The  number of shares  for which  options  may be  granted  under the stock
purchase plan are 1,500,000  shares of Common  Stock,  plus an annual  increase,
effective as of the first day of the calendar year, equal to 5% of the number of
outstanding  shares of Common Stock as of the first day of such  calendar  year,
but in no event more than 3,000,000 shares in the aggregate. If our Common Stock
is changed,  the number and class of shares  available  for  options  and/or the
price of such shares shall be appropriately adjusted.

     Our Board of Directors may amend or terminate the stock  purchase plan, but
the Board may not amend the plan  without the approval of our  shareholders,  if
such  amendment  would (i) cause  the  stock  purchase  plan to fail to meet the
requirements of Section 423 of the Internal Revenue Code of 1986, as amended, or
(ii) violate applicable law or administrative regulation or rule.

Compensation Committee Interlocks and Insider Participation

     Richard J.  Sullivan,  our Chief  Executive  Officer,  is  Chairman  of the
Compensation Committee.


                                       46
<PAGE>

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Changes in Control

     There are no arrangements,  known to us, including any pledge by any person
of our  securities,  the operation of which may at a subsequent date result in a
change of control of us.

Indebtedness of Management

     Garrett A. Sullivan,  our President,  has executed two promissory  notes in
favor of us; one in the amount of $75,000, bearing interest at 7% per annum, and
one in the amount of $102,216.19.  This promissory note is non-interest  bearing
and is repayable from the proceeds of the sale of any shares of Common Stock Mr.
Sullivan  may receive  upon the  exercise  of  warrants  or options.  The entire
amounts due on such notes were outstanding on June 18, 1999.

     Scott R. Silverman,  our Senior Vice  President,  has executed a promissory
note  in  favor  of us in  the  amount  of  $195,000.  The  promissory  note  is
non-interest  bearing and was executed as consideration  for the purchase by Mr.
Silverman of 75,000  shares of our Common Stock.  As of June 18, 1999,  $150,000
was outstanding.

     Daniel E. Penni, a member of the Company's Board of Directors, has executed
a  revolving  line of  credit  promissory  note in  favor  of  Applied  Cellular
Technology  Financial  Corp.,  a  subsidiary  of the  Company,  in the amount of
$450,000.  The  promissory  note is  payable on demand,  with  interest  payable
monthly on the  unpaid  principal  balance  at the rate equal to one  percentage
point  above the base rate  announced  by Street Bank and Trust  Company  (which
interest rate shall fluctuate contemporaneously with changes in such base rate).
As of June 18, 1999, $175,000 had been advanced under this note.

     Marc Sherman, the President of the Company's  Intellesale.com division, and
a Vice President of the Company,  has executed a promissory note in favor of the
Company in the amount of $400,000.  The promissory note is non-interest  bearing
and was executed as  consideration  for the  purchase by Mr.  Sherman of 100,000
shares of the Company's  Common Stock.  $200,000 on such note was outstanding on
June 18, 1999. Additionally,  Mr. Sherman has executed promissory notes totaling
$595,000 in favor of the Company's  subsidiary,  Universal Commodities Corp. The
notes are payable on demand and bear interest at the rate of 6% per annum. As of
June 18, 1999, the entire amount due on such notes were outstanding.

     David A. Loppert,  our Chief Financial  Officer,  has executed a promissory
note  in  favor  of us in  the  amount  of  $260,000.  The  promissory  note  is
non-interest  bearing and was executed as consideration  for the purchase by Mr.
Loppert  of  100,000  shares  of our  Common  Stock.  $200,000  on such note was
outstanding on June 18, 1999.

Consulting Agreements

     On October 16, 1996, we entered into a Consulting  Agreement  ("Agreement")
with  Joseph,  Brian  &  Christopher  Associated,   a  Pennsylvania  partnership
("Consultant"). We engaged the Consultant to render acquisition advice to us and
to ACT Communications,  Inc., one of our wholly owned subsidiaries, for a fee of
$10,000  per month.  The  general  partners  of the  Consultant  are the selling
shareholders of ATI Communications,  a company that was acquired by us effective
as of September 1, 1996. This Agreement was terminated in December 1998.

Potential Conflicts of Interest and Related Party Transactions

     Richard J.  Sullivan,  our Chief  Executive  Officer,  is Managing  General
Partner of The Bay Group. Until June 1998, The Bay Group conducted business with
us and received compensation from it for various services,  including assistance


                                       47
<PAGE>

in identifying potential acquisition  candidates and in negotiating  acquisition
transactions.  The  relationships  among The Bay Group,  Mr. Sullivan and us may
involve  conflicts  of  interest.  For  services  rendered  in  connection  with
acquisitions  which  took  place in 1998,  1997 and 1996,  we paid The Bay Group
$597,500, $473,750 and $457,152, respectively, for investment banking services.

     In  December  1998,  we sold  our  eighty-percent  interest  in a  non-core
subsidiary  to a  company  controlled  by  Richard  J.  Sullivan  and  Angela M.
Sullivan,  one of our Directors.  In consideration,  we received 2,000 shares of
redeemable  preferred stock valued at $2 million. The sales price was determined
based  upon  competitive  offers  received  by us,  and the  highest  offer  was
accepted.   We  had  acquired  our  interest  in  the  subsidiary  in  1996  for
approximately $1 million.

Earnout Agreements

     We have entered into earnout  arrangements with selling  shareholders under
which they are entitled to additional  consideration  for their interests in the
companies  they sold to us. Under these  agreements,  assuming that all earnouts
are achieved, and assuming certain levels of profitability in the future, we are
contingently liable for additional consideration amounting to approximately $4.5
million  based on  achieved  1999  results,  approximately  $2 million  based on
achieved 2000 results,  approximately $4 million based on achieved 2001 results,
and  approximately  $2 million based on each of 2002 and 2004 achieved  results.
All amounts  earned and payable  have been accrued in the  accompanying  balance
sheets.

Put Options

     We have entered into put options with the selling  shareholders  of various
companies in which we acquired  less than a 100%  interest.  These options allow
the minority  shareholder  to require us to acquire the remaining  portion we do
not own  after  periods  ranging  from  four to five  years  from  the  dates of
acquisition  at  amounts  generally  equal to 10% to 20% of the  average  annual
earnings of the company  before income taxes for the two-year  period ending the
effective date of the put multiplied by a multiple ranging from four to five.

Employment Agreements

     At the time we  acquire a  particular  company,  we  generally  enter  into
employment agreements with the key selling  shareholder/officers of the acquired
company.  The agreements  are for periods of two to ten years,  and some provide
for  bonus   arrangements   based  on  the  earnings  of  the  subsidiary.   See
"Management-Employment Agreements and Executive Compensation" above.











                                       48
<PAGE>




                      BENEFICIAL OWNERSHIP OF COMMON STOCK

Beneficial Ownership of Common Stock by Management

     The following table sets forth information  regarding  beneficial ownership
of our Common Stock by each director and by each executive  officer named in the
Summary  Compensation Table and by all the directors and executive officers as a
group as of June 18, 1999:

<TABLE>
<CAPTION>
                                      Aggregate Number Of         Percent of
                                      Shares Beneficially        Outstanding
           Name                         Owned (1)                  Shares
- -----------------------               -------------------        -----------
<S>                                   <C>                        <C>
Daniel E. Penni                         459,065                   1.1%
Arthur F. Noterman                      130,000                    *
Angela M. Sullivan                      807,775 (2)               2.0%
Constance K. Weaver                         --                     *
Richard J. Sullivan                   3,522,024 (2)               8.7%
Garrett A. Sullivan                     800,000                   2.0%
Andrew J. Hidalgo                        31,000                    *
Scott R. Silverman                      110,434                    *
David A. Loppert                        400,000                    *

All Directors and Executive
   Officers as a Group
(15 Persons)                          6,129,427                  15.2%

</TABLE>

*  Represents  less than 1% of the issued and  outstanding  shares of our Common
Stock.

(1)  This table includes  presently  exercisable  stock  options.  The following
     directors and executive officers hold the number of exercisable options set
     forth following their respective names:  Daniel E. Penni - 125,000;  Arthur
     F. Noterman - 125,000; Angela M. Sullivan - 125,000;  Richard J. Sullivan -
     2,685,000; Garrett A. Sullivan - 800,000; Andrew J. Hidalgo - 30,000; Scott
     R.  Silverman - 50,000;  David A. Loppert - 310,000;  and all directors and
     executive officers as a group - 4,380,000.

(2)  Includes  310,598  shares owned by The Bay Group and 367,177  shares  owned
     by Great Bay  Technology,  Inc. The Bay Group is controlled  by Richard  J.
     Sullivan and Angela M.  Sullivan.  Great Bay Technology, Inc. is controlled
     by Richard J. Sullivan, Angela M. Sullivan and Stephanie Sullivan.







                                       49
<PAGE>


     The following table sets forth information  concerning warrants to purchase
shares of our Common Stock which are owned  beneficially  by  directors  and our
named executive officers individually and as a group as of June 18, 1999:

<TABLE>
<CAPTION>
                                         Class of      Number of    Percent of    Exercise Price
                     Name                 Warrants     Warrants (1)      Class        Per Share
- -------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>          <C>           <C>

Richard J. Sullivan (2)                  Class K       250,000      100.0%          $   5.31
                                         Class S       600,000      100.0%          $   3.00
Garrett A. Sullivan                      Class H       100,000       22.2%          $   2.00
                                         Class N       100,000       12.5%          $   3.00
Daniel E. Penni                             --            --            --               --
Angela M. Sullivan (2)                   Class K       250,000      100.0%          $   5.31
                                         Class S       600,000      100.0%          $   3.00
Constance K. Weaver                         --            --            --               --
Andrew J. Hidalgo                           --            --            --               --
Scott R. Silverman                          --            --            --               --
David A. Loppert                            --            --            --               --

All Directors and Executive              Class F        40,000       13.3%          $   2.50
   Officers as a Group (13 Persons)      Class H       100,000       22.2%          $   2.00
                                         Class K       250,000      100.0%          $   5.31
                                         Class N       200,000       25.0%          $   3.00
                                         Class S       600,000      100.0%          $   2.00
</TABLE>

(1)  Pursuant to Rule 13d-3 under the Exchange  Act,  beneficial  ownership of a
     security  consists of sole or shared voting power  (including  the power to
     vote  or  direct  the  voting)  and/or  sole  or  shared  investment  power
     (including the power to dispose or direct a disposition)  with respect to a
     security   whether   through  a   contract,   arrangement,   understanding,
     relationship  or  otherwise.   Unless  otherwise  indicated,   each  person
     indicated  above  has  sole  power  to  vote,  or  dispose  or  direct  the
     disposition  of  all  shares  beneficially  owned,  subject  to  applicable
     community property laws.
(2)  Represents  warrants  owned  by  Great Bay   Technology,  Inc.   Great  Bay
     Technology,  Inc.  is controlled by Richard J. Sullivan, Angela M. Sullivan
     and Stephanie Sullivan.

Principal Shareholders

         Set forth in the table  below is  information  as of June 18, 1999 with
respect to persons known to us (other than the directors and executive  officers
shown in the  preceding  table)  to be the  beneficial  owners of more than five
percent of our issued and outstanding Common Stock:

                                        Number of Shares
           Name and Address            Beneficially Owned       Percent of Class
- --------------------------------------------------------------------------------
None

                                       50
<PAGE>


                          DESCRIPTION OF CAPITAL STOCK

     Our Amended and Restated  Articles of Incorporation  authorize the issuance
of up to  80,000,000  shares of our Common Stock and up to  5,000,000  shares of
preferred stock (the "Preferred Stock").  The Preferred Stock may be issued from
time to time  and on such  terms as are  specified  by our  Board of  Directors,
without further authorization from our shareholders.

     As of June 18,  1999,  there were  43,672,595  shares of our  Common  Stock
outstanding.  In  addition,  1,392,877  shares of Common  Stock are reserved for
issuance in exchange for the  Exchangeable  Shares of ACT-GFX referred to herein
and in exchange  for certain  exchangeable  shares  issued by TigerTel  Services
Limited (formerly, Commstar Ltd.).

     As of June 18,  1999,  (a) there were  issued and  outstanding  warrants to
purchase  2,160,000  shares of our Common Stock at a weighted  average  exercise
price of $3.56 per share,  and (b)  options  held by our  employees  to purchase
9,431,229  shares of our Common Stock at a weighted  average  exercise  price of
$3.44  per  share.  All  of  the  warrants  are  currently  exercisable.  Of the
outstanding  options,  4,755,000  are  now  exercisable  at a  weighted  average
exercise  price of $4.01 per share,  and the rest become  exercisable at various
times over the next three years.

     Our Common Stock trades on the NASDAQ Stock Market under the symbol "ACTC."
Effective with our name change to Applied  Digital  Solutions,  Inc. on or about
July 1, 1999, our trading symbol will be "ADSX."

Rights of Holders of Our Common Stock

     Subject to the prior rights of any shares of preferred  stock that may from
time to time be  outstanding,  holders of our Common Stock are entitled to share
ratably in such dividends as may be lawfully  declared by the Board of Directors
and paid by us and, in the event of our liquidation,  dissolution or winding up,
are entitled to share ratably in all assets available for  distribution.  We are
prohibited from declaring or paying dividends on the Common Stock unless ACT-GFX
is able to, and simultaneously  does,  declare or pay an equivalent  dividend on
the Exchangeable  Shares referred to herein and unless our subsidiary,  TigerTel
Services  Limited  is  able  to,  and  simultaneously  does,  declare  or pay an
equivalent dividend on the exchangeable shares issued by TigerTel.  In the event
of our  liquidation,  dissolution or winding up, each  outstanding  Exchangeable
Share  (other  than  Exchangeable  Shares  held  by  us or  one  of  our  single
wholly-owned  subsidiaries)  will be  purchased by us in exchange for our Common
Stock as described below under "Plan of  Distribution--  Procedures for Issuance
of Common Stock-- Our Liquidation."

     The Common  Stock is  entitled to one vote per share held of record on each
matter submitted to a vote of shareholders.  Except as otherwise provided by law
or our Articles of  Incorporation,  the Common  Stock and the Special  Preferred
Share  referred to below will vote together as a single class in the election of
directors and on all matters submitted to a vote of our shareholders. Holders of
our Common Stock have no preemptive  rights to purchase any of our securities or
cumulative  voting rights.  All  outstanding  shares of Common Stock are validly
issued,  fully paid and nonassessable.  We are not prohibited by our Articles of
Incorporation from repurchasing shares of our Common Stock. Any such repurchases
would be subject to any  limitations  on the amount  available  for such purpose
under applicable  corporate law, any applicable  restrictions under the terms of
any  outstanding  preferred  stock or  indebtedness  and,  in the case of market
purchases,  such restrictions on the timing, manner and amount of such purchases
as might apply in the circumstances under applicable securities laws.

     The transfer agent,  registrar and dividend disbursing agent for our Common
Stock is Florida Atlantic Stock Transfer, Inc.



                                       51
<PAGE>

Special Voting Preferred Stock

     Our Board of Directors authorized the issuance of a single share of Special
Voting  Preferred  Stock (the  "Special  Preferred  Share"),  to Montreal  Trust
Company of Canada  (the  "Voting  Trustee")  under a Voting and  Exchange  Trust
Agreement  (the "Voting and Exchange  Trust  Agreement")  which was entered into
among us, ACT-GFX,  Drummer  Enterprises  Ltd.,  Morstar  Holdings Ltd.,  Scozul
Enterprises Ltd. and the Voting Trustee.  Except as otherwise required by law or
our Articles of Incorporation, the Special Preferred Share will be entitled to a
number of votes equal to the number of outstanding Exchangeable Shares not owned
by us or  certain  of our  subsidiaries,  and may be  voted in the  election  of
directors and on all other matters submitted to a vote of our shareholders.  The
holders of our Common  Stock and the Voting  Trustee,  as holder of the  Special
Preferred Share, will vote together as a single class on all matters,  except to
the extent  voting as a separate  class is  required  by  applicable  law or our
Articles of  Incorporation.  The Voting Trustee will exercise such voting rights
in  respect  of the  Special  Preferred  Share on behalf of the  holders  of the
Exchangeable Shares, as provided in the Voting and Exchange Trust Agreement. The
Voting  Trustee will not be entitled to receive any dividends or to  participate
in any distribution of assets to our shareholders.  When all Exchangeable Shares
have been  exchanged  or redeemed  for shares of our Common  Stock,  the Special
Preferred Share will be cancelled.

                              PLAN OF DISTRIBUTION

The Reorganization

     Pursuant to the  Reorganization  Agreement,  effective  as of June 30, 1998
(the "Effective Date"), among us, ACT-GFX,  Drummer Enterprises Ltd., an Ontario
corporation   ("Drummer"),   Morstar  Holdings  Ltd.,  a  Manitoba   corporation
("Morstar"),  Scozul Enterprises Ltd., an Ontario corporation ("Scozul"),  James
D. Scott and Ground Effects, certain of the issued and outstanding shares in the
capital of Ground  Effects and certain debt owed by Ground Effects were acquired
by ACT-GFX for a purchase  price which was  satisfied by the issuance of Class A
Exchangeable  Shares of ACT-GFX and Class B Exchangeable  Shares of ACT-GFX (the
Class A and  Class B  Exchangeable  Shares of  ACT-GFX  are  referred  to as the
"Exchangeable  Shares"),  and as a result, Ground Effects became a subsidiary of
ACT-GFX. The Exchangeable Shares will be further exchangeable into or redeemable
for shares of our Common Stock as described  below.  Holders of the Exchangeable
Shares will have  economic  and voting  rights which are, as nearly as possible,
equivalent to those of holders of our Common Stock.

Exchangeable Shares

     The  Exchangeable  Shares were issued in  consideration  for certain of the
issued and outstanding  shares in the capital of Ground Effects and certain debt
owed by Ground Effects. Thereafter, the Exchangeable Shares may be exchanged for
an  equivalent  number of shares of our  Common  Stock as  described  below.  No
broker,  dealer or underwriter  has been engaged in connection with the offering
of our Common Stock covered hereby.

     The  specific  terms under which our Common Stock may be issued in exchange
for  or  on  redemption  of  the  Exchangeable  Shares  are  set  forth  in  the
Exchangeable Share provisions attached to ACT-GFX's Articles of Incorporation, a
certain call agreement entered into among us, ACT-GFX,  Drummer, Morstar, Scozul
and James D. Scott (the "Call  Agreement")  and in the Voting and Exchange Trust
Agreement. The Exchangeable Share provisions,  the Call Agreement and the Voting
and  Exchange  Trust  Agreement  are  included as  exhibits to the  Registration
Statement  of  which  this  Prospectus  constitutes  a part,  and the  following
description is qualified in its entirety by reference to the Exchangeable  Share
provisions, the Call Agreement and the Voting and Exchange Trust Agreement.



                                       52
<PAGE>

Procedures for Issuance of Our Common Stock

     Upon any exchange or redemption of  Exchangeable  Shares  referred to below
(whether by ACT-GFX or us),  the holders will  receive an  equivalent  number of
shares of our Common Stock,  plus an amount,  if any,  equal to all declared and
unpaid dividends on the Exchangeable  Shares. If only a part of the Exchangeable
Shares  represented  by  any  certificate  is  redeemed  or  exchanged,   a  new
certificate  for the balance of such  Exchangeable  Shares will be issued to the
holder at ACT-GFX's expense.

     In lieu of any redemption of Exchangeable  Shares referred to below, we may
elect to purchase such  Exchangeable  Shares.  Our Common Stock (and  additional
payment, if any,  representing declared and unpaid dividends on the Exchangeable
Shares)  to be  received  by the  holders  of the  Exchangeable  Shares  will be
unaffected by such election.

     Upon any exchange or redemption  of  Exchangeable  Shares,  the holder must
surrender the Exchangeable  Share  certificates  representing such shares,  duly
endorsed  in blank and  accompanied  by such  instruments  of  transfer as we or
ACT-GFX may reasonably require.

     Election  by Holders to  Exchange  Exchangeable  Shares.  At any time on or
prior to the  Automatic  Redemption  Date (as  defined  below),  holders  of the
Exchangeable Shares may retract (i.e.,  require ACT-GFX to redeem) any or all of
their  Exchangeable  Shares,  by presenting the  certificates  representing  the
shares at the office of ACT-GFX  together  with a duly executed  statement  (the
"Retraction  Request")  specifying the number of Exchangeable  Shares the holder
wishes to retract and such other documents and instruments as may be required to
effect the retraction of the  Exchangeable  Shares.  The retraction  will become
effective  at the close of business on the sixth  business day after the request
is received by ACT-GFX (the  "Retraction  Date").  The retraction price for such
Exchangeable Shares is to be satisfied by the issuance of our Common Stock.

     The Retraction  Request shall be substantially in the form attached to this
Prospectus  as  Exhibit A or in such other  form as may be  acceptable  to us or
ACT-GFX for the Exchangeable Shares in their sole discretion.

     Redemption  of  Exchangeable  Shares.  ACT-GFX  is  required  to redeem the
Exchangeable  Shares (by  exchanging  our Common  Stock as  described  above) as
follows:

     (a)  with respect to the Class A Exchangeable Shares:

          (i)  on June 30, 2005; or

          (ii) on a date  specified  by  ACT-GFX  if less than 5% of the Class A
               Exchangeable Shares originally issued remain outstanding (as such
               number may be adjusted as a result of subdivision, consolidation,
               stock dividend or other events); and

     (b)  with respect to the Class B Exchangeable Shares:

          (i)  on June 30, 2005; or

          (ii) on a date  specified  by  ACT-GFX  if less than 5% of the Class B
               Exchangeable Shares originally issued remain outstanding (as such
               number may be adjusted as a result of subdivision, consolidation,
               stock dividend or other events).

         The  earlier  of either  date to occur  with  respect  to each class of
Exchangeable Shares is referred to as the "Automatic Redemption Date."

     Liquidation  of ACT-GFX.  In the event of the  liquidation,  dissolution or
winding  up of  ACT-GFX  or any other  proposed  distribution  of the  assets of
ACT-GFX among its  shareholders  for the purpose of winding up its affairs,  (a)
holders of the Class B Exchangeable  Shares will be entitled to our Common Stock


                                       53
<PAGE>

in exchange for their Class B Exchangeable  Shares as described above before any
distribution  to the  holders  of the Class A  Exchangeable  Shares,  the common
shares or any other shares of ACT-GFX ranking junior to the Class B Exchangeable
Shares;  and (b) holders of the Class A Exchangeable  Shares will be entitled to
our Common Stock in exchange for their Class A Exchangeable  Shares as described
above before any  distribution  to the holders of the common shares or any other
shares of ACT-GFX  ranking junior to the Class A Exchangeable  Shares.  Upon the
bankruptcy  or insolvency  of ACT-GFX,  the Voting  Trustee under the Voting and
Exchange Trust Agreement may require us to purchase the  Exchangeable  Shares in
exchange for our Common Stock as described above.

     Liquidation  of Us. If any of the following  occur,  we will be required to
purchase the  Exchangeable  Shares in exchange for our Common Stock as described
above: (a) any  determination  by our Board of Directors to institute  voluntary
liquidation,  dissolution  or  winding-up  proceedings  with respect to us or to
effect any other  distribution  of our  assets  among our  shareholders  for the
purpose  of winding  up our  affairs or (ii)  receipt by us of notice of, or our
otherwise becoming aware of, any threatened or instituted claim, suit,  petition
or other proceeding with respect to our involuntary liquidation,  dissolution or
winding  up or to  effect  any  other  distribution  of  our  assets  among  our
shareholders for the purpose of winding up our affairs.

     Resales of Our Common Stock After Issuance. After the issuance of shares of
our Common Stock in exchange for Exchangeable Shares, shares of our Common Stock
may be sold in one or more transactions (which may include "block" transactions)
on the NASDAQ  Stock  Market,  in the  over-the-counter  market,  in  negotiated
transactions or in a combination of such methods of sales, at fixed prices which
may be  changed,  at market  prices  prevailing  at the time of sale,  at prices
related to such prevailing  market prices or at negotiated  prices.  The selling
shareholders  may effect such  transactions  by selling  the shares  directly to
purchasers, or may sell to or through agents, dealers or underwriters designated
from  time to  time,  and such  agents,  dealers  or  underwriters  may  receive
compensation  in the form of  discounts,  concessions  or  commissions  from the
selling  shareholders  and/or the purchaser(s) of the shares of our Common Stock
for whom they may act as agent or to whom they may sell as principals,  or both.
The selling  shareholders  may also  pledge  certain of the shares of our Common
Stock from time to time, and this  prospectus also relates to any sale of shares
of our Common Stock that might take place  following any  foreclosure  of such a
pledge.  The selling  shareholders and any agents,  dealers or underwriters that
act in  connection  with the sale of the  shares of our  Common  Stock  might be
deemed  to be  "underwriters"  within  the  meaning  of  Section  2(11)  of  the
Securities  Act, and any discount or commission  received by them and any profit
on the  resale of the  shares as  principal  might be deemed to be  underwriting
discounts or commissions under the Securities Act.

     We will receive no portion of the proceeds  from the sale of the shares and
will bear all of the costs relating to the  registration  of this offering.  Any
commissions,  discounts or other fees payable to a broker, dealer,  underwriter,
agent or market maker in connection with the resale of any of the shares will be
borne by the selling shareholders.


                                       54
<PAGE>
                           CANADIAN TAX CONSIDERATIONS

Canadian Federal Income Tax Considerations

     The following is a summary of the  principal  Canadian  federal  income tax
considerations  generally  applicable  to  ACT-GFX  shareholders,  who,  for the
purposes of the Income Tax Act (Canada)  (the  "Canadian  Tax Act"),  hold their
Exchangeable  Shares and will hold our Common Stock as capital property and deal
at arm's length with us and ACT-GFX,  and represents the opinion of our Canadian
counsel,  Cassels Brock & Blackwell,  as to certain  material  Canadian  federal
income tax  consequences  thereof.  This summary does not apply to a holder with
respect to whom we are a foreign  affiliate  within the meaning of the  Canadian
Tax Act.

     Certain  provisions  of the Canadian Tax Act (the  "mark-to-market"  rules)
relating to financial  institutions  (including certain financial  institutions,
registered securities dealers and corporations  controlled by one or more of the
foregoing) will deem such financial  institutions not to hold their Exchangeable
Shares and our Common Stock as capital property for purposes of the Canadian Tax
Act.  This  summary  does  not  apply  to  financial  institutions  to whom  the
mark-to-market rules apply.  Shareholders that are financial institutions should
consult their own tax advisors to determine the tax  consequences to them of the
application of the mark-to-market  rules. In addition,  all shareholders  should
consult  their own tax  advisors as to whether,  as a matter of fact,  they hold
their Exchangeable Shares and will hold our Common Stock as capital property for
purposes of the Canadian Tax Act.

     This  summary is based on the current  provisions  of the Canadian Tax Act,
the regulations  thereunder,  the current provisions of the Canada-United States
Income Tax Convention,  1980 (the "Tax Treaty") and counsel's  understanding  of
the current  administrative  practices  of Revenue  Canada,  Taxation  ("Revenue
Canada"). This summary takes into account the amendments to the Canadian Tax Act
and regulations  publicly announced by the Minister of Finance prior to the date
hereof (the "Proposed Amendments") and assumes that all such Proposed Amendments
will be enacted in their present form.  However, no assurances can be given that
the Proposed Amendments will be enacted in the form proposed, or at all.

     Except for the Proposed Amendments, this summary does not take into account
or anticipate  any changes in law,  whether by  legislative,  administrative  or
judicial  decision  or  action,  nor  does  it  take  into  account  provincial,
territorial  or foreign  income tax  legislation  or  considerations,  which may
differ from the Canadian federal income tax considerations described herein.

     WHILE THIS SUMMARY IS INTENDED TO ADDRESS ALL  PRINCIPAL  CANADIAN  FEDERAL
INCOME TAX CONSIDERATIONS, IT IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, NOR  SHOULD IT BE  CONSTRUED  TO BE,  LEGAL,  BUSINESS  OR TAX ADVICE TO ANY
PARTICULAR  SHAREHOLDER.  THEREFORE,  SUCH HOLDERS  SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR PARTICULAR  CIRCUMSTANCES.  NO ADVANCE INCOME TAX
RULING HAS BEEN OBTAINED FROM REVENUE CANADA TO CONFIRM THE  CONSEQUENCES OF ANY
OF THE TRANSACTIONS DESCRIBED HEREIN.

     For  purposes  of  the  Canadian  Tax  Act,  all  amounts  relating  to the
acquisition,  holding or disposition of our Common Stock,  including  dividends,
adjusted  cost base and proceeds of  disposition  must be determined in Canadian
dollars.

     In computing a shareholder's  liability for tax under the Canadian Tax Act,
(a)  any  cash  amount  received  by the  shareholder  in U.S.  dollars  must be
converted into the product obtained by multiplying the U.S. dollar amount by the
noon spot  exchange  rate on such date for U.S.  dollars  expressed  in Canadian
dollars as  reported  by the Bank of Canada  and (b) the amount of any  non-cash
consideration received by the shareholder must be expressed in Canadian dollars,
generally determined at the time such consideration is received.



                                       55
<PAGE>

Shareholders Resident in Canada

     The  following   portion  of  the  summary  is  applicable  to  holders  of
Exchangeable  Shares who,  for purposes of the Canadian Tax Act, are resident or
deemed to be resident in Canada.

Dividends

     In the case of a shareholder  who is an individual,  dividends  received or
deemed to be received on the  Exchangeable  Shares will be included in computing
the shareholder's  income,  and will be subject to the gross-up and dividend tax
credit rules  normally  applicable  to taxable  dividends  received from taxable
Canadian corporations.

     The Exchangeable Shares will be "taxable preferred shares", "term preferred
shares" and "short-term  preferred shares" for purposes of the Canadian Tax Act.
Accordingly,  ACT-GFX  will be  subject  to a 66 2/3% tax under Part VI.1 of the
Canadian  Tax Act on  dividends  paid or deemed  to be paid on the  Exchangeable
Shares. In certain circumstances,  ACT-GFX will be entitled to a deduction under
Part I of the  Canadian  Tax Act which will  substantially  offset the impact of
Part VI.1 tax.  Dividends  received or deemed to be received on the Exchangeable
Shares  will not be subject to the 10% tax under Part IV.1 of the  Canadian  Tax
Act applicable to certain corporations.

     If we or any  person  with  whom  we do  not  deal  at  arm's  length  is a
"specified financial  institution" under the Canadian Tax Act at a point in time
that a dividend  is paid or deemed to be paid on an  Exchangeable  Share,  then,
dividends  received  or  deemed  to  be  received  by a  shareholder  that  is a
corporation will not be deductible in computing taxable income but will be fully
includable in taxable income under Part I of the Canadian Tax Act. Such dividend
will not be subject to tax under Part IV of the Canadian Tax Act. A  corporation
will generally be a specified financial  institution for these purposes if it is
a  bank,  a trust  company,  a  credit  union,  an  insurance  corporation  or a
corporation  whose  principal  business is the lending of money to persons  with
whom the  corporation  is  dealing  at arm's  length or the  purchasing  of debt
obligations  issued by such persons or a combination  thereof,  and corporations
controlled by or related to such entities.

     Subject  to  the  foregoing,  in  the  case  of  a  shareholder  that  is a
corporation,  other than a "specified  financial  institution" as defined in the
Canadian  Tax  Act,   dividends  received  or  deemed  to  be  received  on  the
Exchangeable Shares will normally be deductible in computing its taxable income.

     In the case of a shareholder that is a specified financial  institution and
in addition to the foregoing requirements, such a dividend will be deductible in
computing its taxable income only if either:

     (a) the specified  financial  institution did not acquire the  Exchangeable
         Shares  in the  ordinary  course  of the  business  carried  on by such
         institution; or

     (b) at the time of the  receipt or deemed  receipt of the  dividend  by the
         specified financial  institution,  the Exchangeable Shares on which the
         dividend  has been paid are listed on a  prescribed  stock  exchange in
         Canada  and  the  specified  financial  institution,  either  alone  or
         together with persons with whom it does not deal at arm's length,  does
         not receive (or is not deemed to receive)  dividends in respect of more
         than 10% of the issued and outstanding Exchangeable Shares on which the
         dividend   has  been  paid.   ACT-GFX  does  not  expect  to  list  the
         Exchangeable Shares on a prescribed stock exchange in Canada.

     A shareholder  that is a "private  corporation" (as defined in the Canadian
Tax Act) or any other corporation resident in Canada and controlled or deemed to
be  controlled  by or for the  benefit of an  individual  or a related  group of
individuals  may be  liable  under  Part  IV of the  Canadian  Tax  Act to pay a
refundable tax of 33 1/3% on dividends  received or deemed to be received on the
Exchangeable  Shares  to the  extent  that  such  dividends  are  deductible  in
computing the shareholder's taxable income.



                                       56
<PAGE>

Redemption or Exchange of Exchangeable Shares

     On the  redemption  (including a retraction)  of an  Exchangeable  Share by
ACT-GFX,  the holder of an Exchangeable  Share will be deemed to have received a
dividend equal to the amount, if any, by which the redemption proceeds (the fair
market value at the time of the  redemption of our Common Stock  received by the
shareholder  from  ACT-GFX on the  redemption  plus the  amount,  if any, of all
accrued but unpaid  dividends  on the  Exchangeable  Share)  exceeds the paid-up
capital, at that time, of the Exchangeable Share so redeemed.  The amount of any
such deemed dividend will be subject to the tax treatment  accorded to dividends
described  above.  On the redemption,  the holder of an Exchangeable  Share will
also be considered to have disposed of the Exchangeable Share, but the amount of
such deemed dividend will be excluded in computing the shareholder's proceeds of
disposition  for purposes of computing  any capital gain or capital loss arising
on the disposition of the Exchangeable  Share. In the case of a shareholder that
is a corporation,  in some  circumstances the amount of any such deemed dividend
may be treated as proceeds of  disposition  and not as a dividend  under certain
rules contained in the Canadian Tax Act.

     On the exchange of an Exchangeable  Share by the holder thereof with us for
a share of our Common Stock,  including  pursuant to the retraction  call right,
the holder will realize a capital  gain (or a capital  loss) equal to the amount
by which the  proceeds of  disposition  of the  Exchangeable  Share,  net of any
reasonable  costs of disposition,  exceed (or are exceeded by) the adjusted cost
base to the holder of the Exchangeable  Share. For these purposes,  the proceeds
of  disposition  will be the fair market value of a share of our Common Stock at
the time of exchange plus the amount of all accrued but unpaid  dividends on the
Exchangeable Share received by the holder as part of the exchange consideration.

     Three-quarters  of any such capital gain (the "taxable  capital gain") will
be  included  in  the   shareholder's   income  for  the  year  of  disposition.
Three-quarters  of any capital loss so realized (the  "allowable  capital loss")
may be  deducted by the holder  against  taxable  capital  gains for the year of
disposition.  Any excess of allowable  capital losses over taxable capital gains
of the  shareholder  for the year of disposition may be carried back up to three
taxation years or forward  indefinitely and deducted against net taxable capital
gains in those other years.

     If the holder of an Exchangeable Share is a corporation,  the amount of any
capital loss arising from a disposition or deemed disposition of an Exchangeable
Share may be reduced by the amount of dividends  received or deemed to have been
received by it on such share or on the Ground  Effects  common  shares or Ground
Effects Class B preference shares previously owned by such holder, to the extent
and under  circumstances  prescribed by the Canadian Tax Act.  Similar rules may
apply where a  corporation  is a member of a partnership  or a beneficiary  of a
trust that owns  Exchangeable  Shares or where a trust or partnership of which a
corporation  is a  beneficiary  or a member  is a member of a  partnership  or a
beneficiary of a trust that owns Exchangeable Shares.

     The cost base of a share of our Common  Stock  received on the  retraction,
redemption or exchange of an Exchangeable Share will be equal to the fair market
value of a share of our Common Stock at the time of such event.

     Due to the existence of the retraction call right, a holder  exercising the
right of retraction in respect of an  Exchangeable  Share cannot control whether
such holder will receive a share of our Common Stock by way of redemption of the
Exchangeable Share by ACT-GFX or by way of purchase of the Exchangeable Share by
us. As  described  above,  the Canadian  federal  income tax  consequences  of a
redemption differ from those of a purchase.

     Dividends on Our Common Stock.  Dividends received on our Common Stock will
be included in the recipient's  income for the purposes of the Canadian Tax Act.
Such dividends received by an individual  shareholder will not be subject to the
gross-up and  dividend  tax credit rules in the Canadian Tax Act. A  corporation


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<PAGE>

which is a shareholder  will include such  dividends in computing its income and
generally  will not be  entitled  to  deduct  the  amount of such  dividends  in
computing its taxable income. United States non-resident withholding tax on such
dividends will be eligible for foreign tax credit or deduction  treatment  where
applicable under the Canadian Tax Act.

     Disposition of Our Common Stock.  A disposition or deemed  disposition of a
share of our Common  Stock by a holder will  generally  result in a capital gain
(or capital loss) equal to the amount by which the proceeds of disposition,  net
of any reasonable costs of disposition, exceed (or are exceeded by) the adjusted
cost base to the holder of our Common  Stock.  See above  under  "Redemption  or
Exchange of  Exchangeable  Shares" for a discussion  of the treatment of capital
gains.

     A  shareholder  that is a  "Canadian-controlled  private  corporation"  (as
defined in the Canadian Tax Act) may be liable to pay an  additional  refundable
tax of 6 2/3% on  dividends  from  Exchangeable  Shares or shares of our  Common
Stock that are not deductible in computing taxable income and on taxable capital
gains.

Eligibility for Investment

     Qualified Investments.  Provided our Common Stock is listed on a prescribed
stock  exchange  (which  currently  includes  the  Nasdaq  Stock  Market),  such
securities will be qualified  investments  under the Canadian Tax Act for trusts
governed by registered  retirement savings plans,  registered  retirement income
funds and deferred profit sharing plans  (collectively,  "Tax Deferred  Plans").
The voting rights and exchange  rights will not be qualified  investments  under
the Canadian Tax Act. However,  we are of the view that the fair market value of
these  rights  is  nominal.  The  Exchangeable  Shares  will  not  be  qualified
investments for Tax Deferred Plans.

     Where at the end of any month a Tax Deferred  Plan holds  property  that is
not a  qualified  investment,  a  penalty  tax is  imposed  by Part  XI.1 of the
Canadian Tax Act.

     Foreign  Property.  Our Common  Stock and the  Exchangeable  Shares will be
foreign  property  under the  Canadian  Tax Act as will the  voting  rights  and
exchange rights.

     A penalty  tax is  imposed by Part XI of the  Canadian  Tax Act if the cost
amount of a taxpayer's  investment  in foreign  property  exceeds the  statutory
limit.

     Foreign Property Information Reporting. A holder of our Common Stock who is
a  "specified  Canadian  entity" (as defined in the  Canadian Tax Act) and whose
cost  amount  for such  shares  at any time in a year or fiscal  period  exceeds
Canadian  $100,000 will be required to file an information  return in respect of
such shares disclosing the holder's cost amount,  any dividends  received in the
year and any gains or losses  realized in the year in respect of such shares.  A
specified Canadian entity means a taxpayer resident in Canada in the year, other
than a  corporation  or a trust exempt from tax under Part I of the Canadian Tax
Act, a non-resident-owned  investment corporation,  a mutual fund corporation, a
mutual fund trust and certain other trusts and partnerships.

Shareholders Not Resident in Canada

     The  following  portion  of the  summary  is  applicable  to holders of the
Exchangeable Shares who, for purposes of the Canadian Tax Act, have not been and
will not be  resident  or deemed to be resident in Canada at any time while they
have held the Exchangeable Shares or will hold shares of our Common Stock and in
the case of a  non-resident  of Canada who carries on an  insurance  business in
Canada and elsewhere, the shares are not effectively connected with its Canadian
insurance business.

     The Exchangeable  Shares will be "taxable Canadian property" (as defined in
the Canadian Tax Act) to non-resident shareholders.



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<PAGE>

     Generally,  our Common  Stock will not be taxable  Canadian  property  to a
non-resident holder,  provided that such shares are listed on a prescribed stock
exchange (which currently includes the Nasdaq Stock Market), the holder, persons
with whom such  holder  does not deal at arm's  length,  or the  holder and such
persons, has not owned (or had under option) 25% or more of the issued shares of
any class or series of our capital stock at any time within five years preceding
the date in question.  A capital gain  realized on an exchange  (including  on a
redemption or a retraction) of an Exchangeable Share and a capital gain realized
on a disposition of our Common Stock which constitutes taxable Canadian property
to a shareholder will be taxable as discussed  above, for shareholders  resident
in Canada,  unless relief is available under an applicable tax convention,  such
as the Tax  Treaty.  Such  holders  should  consult  their own tax  advisors  to
determine the tax consequences in their own situation.

     Unless the  non-resident  holder complies with the procedures  contained in
Division D of Part I of the  Canadian Tax Act relating to the payment of tax, we
or  ACT-GFX,  as the case may be,  will be required to withhold a portion of our
Common Stock otherwise payable to the holder.

     Dividends paid or deemed to be paid on the Exchangeable  Shares are subject
to  non-resident  withholding tax under the Canadian Tax Act at the rate of 25%,
although such rate may be reduced under the  provisions of an applicable  income
tax treaty. For example,  under the Tax Treaty, the rate is generally reduced to
15% in respect of dividends paid to a person who is the beneficial owner and who
is resident in the United States for purposes of the Tax Treaty.

     A holder whose  Exchangeable  Shares are redeemed  (either under  ACT-GFX's
redemption right or pursuant to the holder's  retraction  rights) will be deemed
to receive a dividend as described above,  for shareholders  resident in Canada,
which deemed  dividend  will be subject to  withholding  tax as described in the
preceding  paragraph.  ACT-GFX  will  satisfy  its  withholding  and  remittance
obligations  on behalf of the holder by disposing of our Common Stock  otherwise
payable to the holder.


                    UNITED STATES FEDERAL TAX CONSIDERATIONS

     The following is a summary of the principal  United States  federal  income
tax  considerations  generally  applicable to a United States Holder (as defined
below) of  Exchangeable  Shares  arising  from and  relating  to the receipt and
ownership  of our Common  Stock to be issued in  exchange  for the  Exchangeable
Shares, and represents the opinion of our United States counsel, Bryan Cave LLP,
as to certain material federal income tax consequences thereof.

     This  summary is limited to United  States  Holders  who hold  Exchangeable
Shares as capital assets.  As used herein, a United States Holder is a holder of
Exchangeable  Shares  who  is  a  "United  States  person,"  including:  (a)  an
individual  who is a citizen or resident of the United States for federal income
tax purposes,  (b) a corporation or partnership created or organized in or under
the laws of the United States, or of any political  subdivision  thereof, (c) an
estate,  the income of which is subject to United States federal income taxation
regardless  of source,  or (d) any trust if a court within the United  States is
able to exercise primary  supervision over the  administration  of the trust and
one or more United  States  persons have  authority  to control all  substantial
decisions  of the trust.  This  summary  does not  address all aspects of United
States  federal  income  taxation that may be  applicable  to particular  United
States Holders subject to special provisions of United States federal income tax
law,  such  as  tax-exempt  organizations,   financial  institutions,  insurance
companies, broker-dealers, persons having a "functional currency" other than the
United States dollar, United States Holders who hold Exchangeable Shares as part
of a  straddle,  wash sale,  hedging or  conversion  transaction  (other than by


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<PAGE>

virtue of their  participation  in an  exchange of  Exchangeable  Shares for our
Common  Stock as  contemplated  herein) and United  States  Holders who acquired
their  Exchangeable  Shares  through the exercise of employee  stock  options or
otherwise as compensation for services.

     This summary is based on United States  federal income tax law in effect as
of the  date  of this  Prospectus.  No  statutory,  judicial  or  administrative
authority  exists that directly  addresses  certain of the United States federal
income tax  consequences  of the  ownership  of  instruments  comparable  to the
Exchangeable  Shares.  Consequently,  some aspects of the United States  federal
income tax  treatment of the exchange of  Exchangeable  Shares for shares of our
Common  Stock are not certain.  No advance  income tax ruling has been sought or
obtained from the United States Internal  Revenue Service (the "IRS")  regarding
the tax consequences of the transactions described herein.

     This summary does not address  aspects of United States taxation other than
United States federal income taxation under the United States  Internal  Revenue
Code of 1986, as amended (the "U.S.  Code"),  nor does it address all aspects of
United  States  federal  income  taxation that may be applicable to a particular
United  States  Holder  in  light  of  the  United  States  Holder's  particular
circumstances.  In addition,  this  summary  does not address the United  States
Holder's state or local tax  consequences or the foreign tax consequences of the
receipt and ownership of our Common Stock.

     UNITED STATES  HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE UNITED STATES FEDERAL,  STATE AND LOCAL TAX  CONSEQUENCES AND THE FOREIGN
TAX CONSEQUENCES OF THE RECEIPT AND OWNERSHIP OF OUR COMMON STOCK.

     Exchange of Exchangeable Shares. A United States Holder that exercises such
Holder's  right to  exchange  its  Exchangeable  Shares for shares of our Common
Stock generally,  subject to the discussion below, should recognize gain or loss
on such exchange, assuming such exchange does not constitute a reorganization.

     Such gain or loss will be equal to the  difference  between the fair market
value of the  shares of our  Common  Stock at the time of the  exchange  and the
United States Holder's tax basis in the  Exchangeable  Shares  surrendered.  The
gain or loss generally will be capital gain or loss,  except that,  with respect
to any declared but unpaid dividends on the Exchangeable Shares, ordinary income
may be recognized.  Noncorporate taxpayers generally are taxed at a maximum rate
of 20 percent on net capital gains attributable to gains realized on the sale of
property held for more than one year. A United States Holder generally,  subject
to the discussion below, will have a tax basis in the shares of our Common Stock
received  equal  to the fair  market  value  of such  shares  at the time of the
exchange.  The  holding  period  for  such  shares  generally,  subject  to  the
discussion  below,  will  begin on the day  after  the  exchange.  The IRS could
assert,  however,  that  the  Exchangeable  Shares  and  certain  of the  rights
associated  therewith  constitute  "offsetting  positions"  for  purposes of the
straddle  rules set forth in Section 1092 of the U.S.  Code.  In such case,  the
holding  period of the  Exchangeable  Shares would not increase  while held by a
United States Holder.

     It is also possible that the exchange of Exchangeable  Shares for shares of
our Common  Stock could be treated as a tax-free  exchange  if the  Exchangeable
Shares were treated as our stock for United States  federal income tax purposes.
Given the lack of  authority  on the  treatment  of shares  having  features and
attendant rights similar to the Exchangeable Shares, it is uncertain whether the
Exchangeable  Shares  will be  treated  as shares of our  Common  Stock for this
purpose. Even if the Exchangeable Shares are not treated as shares of our Common
Stock,  an exchange of  Exchangeable  Shares for our Common Stock that otherwise
would be taxable may be  characterized  as a tax-free  exchange  depending  upon
facts and  circumstances  existing at the time of the exchange,  which cannot be
accurately predicted as of the date hereof.



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<PAGE>

     If the exchange of Exchangeable  Shares for our Common Stock did qualify as
a tax-free  exchange,  a United States Holder would not recognize  gain or loss.
The United States  Holder's tax basis in the shares of our Common Stock received
would be equal to such Holder's tax basis in the  Exchangeable  Shares exchanged
therefor.  The holding period of the shares of our Common Stock received by such
United States Holder would include the holding period of the Exchangeable Shares
exchanged therefor.

     For  United  States  federal  income tax  purposes,  gain  realized  on the
exchange of Exchangeable Shares for shares of our Common Stock generally will be
treated as United  States source gain,  except that,  under the terms of the Tax
Treaty,  such gain may be treated as sourced in Canada. Any Canadian tax imposed
on the  exchange  may be available as a credit  against  United  States  federal
income taxes, subject to applicable limitations.  A United States Holder that is
ineligible for a foreign tax credit with respect to any Canadian tax paid may be
entitled to a deduction therefor in computing United States taxable income.

     Passive  Foreign   Investment  Company   Considerations.   ACT-GFX  may  be
classified as a passive foreign  investment  company  ("PFIC") for United States
federal  income tax  purposes  for any taxable  year if either (a) 75 percent or
more of its gross  income was  passive  income  (as  defined  for United  States
federal income tax purposes) or (b) on average for such taxable year, 50 percent
or more of its assets (as determined in accordance  with Section  1297(f) of the
U.S.  Code)  produced or were held for the  production  of passive  income.  For
purposes of  applying  the  foregoing  tests,  the assets and gross  income with
respect to which  ACT-GFX  owns at least 25 percent of the stock (by value) will
be attributed to ACT-GFX.

     There can be no assurance with respect to the  classification of ACT-GFX as
a PFIC.  Moreover,  in connection with the transactions  contemplated herein, no
opinion will be rendered regarding ACT-GFX's status as a PFIC. Currently, we and
ACT-GFX  intend to endeavor to cause ACT-GFX to avoid PFIC status in the future,
although there can be no assurance that they will be able to do so or that their
intent will not change.  For each year,  ACT-GFX will  endeavor to notify United
States Holders of Exchangeable Shares if it believes that ACT-GFX was a PFIC for
that taxable year.

     If ACT-GFX were to be classified as a PFIC,  the  consequences  to a United
States Holder will depend in part on whether the United States Holder has made a
"Mark-to-Market  Election"  or a "QEF  Election"  with  respect to  ACT-GFX.  If
ACT-GFX is a PFIC during a United States Holder's  holding period and the United
States Holder does not make a  Mark-to-Market  Election or a QEF  Election,  the
United States Holder  generally  will be required to pay a special United States
tax, in lieu of the United States tax that would otherwise apply, if such United
States  Holder (a)  realizes a gain upon the sale or  exchange  of  Exchangeable
Shares or (b) receives an "excess distribution" from ACT-GFX on the Exchangeable
Shares.  If a United  States  Holder  makes a  Mark-to-Market  Election or a QEF
Election, it generally will be required to include amounts in income, based upon
ACT-GFX's income or the value of the Exchangeable  Shares,  even if ACT-GFX does
not make actual distributions to Holders of Exchangeable Shares.

     The  foregoing  summary of the  possible  application  of the PFIC rules to
ACT-GFX and the United States Holders of  Exchangeable  Shares is only a summary
of certain  material  aspects of those rules.  Because the United States federal
income tax  consequences  to United States Holders under the PFIC provisions are
significant  and  complex,  United  States  Holders  are urged to discuss  those
consequences with their tax advisors.

Shareholders Not Resident in or Citizens of the United States.

     The following summary is applicable to holders of Exchangeable Shares or of
our  Common  Stock  that  are not  United  States  Holders  ("non-United  States
Holders"). Subject to the discussion below, a non-United States Holder generally
will  not be  subject  to  United  States  federal  income  tax on gain (if any)
recognized on the exchange of the Exchangeable Shares for our Common Stock or on
the sale or  exchange  of shares of our  Common  Stock,  unless (a) such gain is
attributable  to an  office  or  fixed  place  of  business  and is  effectively
connected with a trade or business of the non-United States Holder in the United


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<PAGE>

States or, if a tax treaty applies, is attributable to a permanent establishment
maintained  by the  non-United  States  Holder  in the  United  States,  (b) the
non-United  States Holder is an individual who holds the Exchangeable  Shares or
our Common  Stock,  as the case may be, as capital  assets and is present in the
United  States  for 183 days or more in the  taxable  year of  disposition,  and
certain other conditions are satisfied,  or (c) the non-United  States Holder is
subject to tax pursuant to the U.S. Code provisions applicable to certain United
States expatriates. If an individual non-United States Holder falls under clause
(a) or (c) above,  he or she will be taxed on his or her net gain  derived  from
the sale under regular United States federal income tax rates. If the individual
non-United States Holder falls under clause (b) above, he or she will be subject
to a flat 30 percent tax on the gain derived from the sale,  which may be offset
by United States source capital losses  (notwithstanding the fact that he or she
is not  considered  a resident of the United  States).  Dividends  received by a
non-United  States  Holder  with  respect  to our  Common  Stock  that  are  not
effectively  connected with the conduct by such Holder of a trade or business in
the United States generally will be subject to United States  withholding tax at
a rate of 30  percent,  which rate may be reduced  by an  applicable  income tax
treaty in effect  between the United States and the non-United  States  Holder's
country of residence  (currently  15 percent,  generally,  on dividends  paid to
residents of Canada under the Tax Treaty).

     Under current  United States  Treasury  Regulations,  dividends  paid to an
address in a country  outside  the United  States are  presumed  to be paid to a
resident of such country for purposes of the withholding discussed above (unless
the payor has knowledge to the contrary) and under the current interpretation of
United  States   Treasury   Regulations,   for  purposes  of   determining   the
applicability of a tax treaty rate (the "address rule"). Thus, non-United States
Holders who receive  dividends at addresses  outside the United States generally
are not yet  required to file tax forms to obtain the  benefit of an  applicable
treaty rate. Under recently issued Treasury Regulations scheduled to take effect
January  1, 2000 (the  "Final  Regulations"),  the  address  rule will no longer
apply,  and a  non-United  States  Holder  who seeks to claim the  benefit of an
applicable  treaty rate would be required to satisfy certain  certification  and
other  requirements.  The Final Regulations also provide special rules regarding
whether,  for purposes of determining the applicability of an income tax treaty,
dividends paid to a non-United States Holder that is an entity should be treated
as being paid to the entity itself or to the persons holding an interest in that
entity.

     United  States Real Property  Holding  Corporation.  The  discussion of the
United States  taxation of non-United  States Holders  assumes that we are at no
time a United States real  property  holding  corporation  within the meaning of
Section  897(c) of the U.S.  Code.  Under  present law, we would not be a United
States real property holding corporation so long as (a) the fair market value of
its United States real property interests is less than (b) 50 percent of the sum
of the fair market  value of its United  States  real  property  interests,  its
interests in real property  located  outside the United  States,  plus its other
assets that are used or held for use in a trade or business.  We believe that we
are not a United States real property  holding  corporation and do not expect to
become such a corporation.

     Federal  Estate  Tax.  Our  Common  Stock  (or  our  previously   triggered
obligation or that of any of our  subsidiaries to deliver our Common Stock along
with unpaid  dividends) held by a non-United  States Holder at the time of death
will be included in such holder's  gross estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding Tax

     Dividends paid to non-United  States Holders outside the United States that
are subject to the  withholding  described  above  generally will be exempt from
United States  backup  withholding  (which  generally is imposed at a rate of 31
percent on certain payments to persons that fail to furnish certain  information
under United  States  information  reporting  requirements),  but we must report
annually to the United States  Internal  Revenue  Service and to each non-United


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States  Holder the amount of dividends  paid to such Holder and the tax withheld
from such dividend  payments,  regardless of whether  withholding  was required.
Backup withholding and information  reporting generally will apply,  however, to
dividends paid on shares of our Common Stock to a non-United States Holder at an
address in the United States,  if such Holder fails to establish an exemption or
to provide certain other information to the payor.

     Generally,  we may rely on the non-United  States Holder's  address outside
the United States  (absent  knowledge to the contrary) in  determining  that the
withholding  tax discussed  above  applies,  and  consequently,  that the backup
withholding provisions do not apply.

     Under the currently effective Treasury Regulations ("Current Regulations"),
the payment of the  proceeds  of the sale of our Common  Stock to or through the
United  States office of a broker will be subject to  information  reporting and
possible  backup  withholding at a rate of 31 percent unless the owner certifies
its non-United States status under penalties of perjury or otherwise establishes
an exemption.  The payment of the proceeds of the sale of our Common Stock to or
through the foreign  office of a broker  generally will not be subject to backup
withholding.  In the case of the payment of proceeds from the disposition of our
Common Stock through a foreign office of a broker that is a United States person
or a "United States related person," the Current Regulations require information
reporting on the payment unless the broker has documentary evidence in its files
that the  owner is a  non-United  States  person  and the  broker  has no actual
knowledge to the contrary or the holder otherwise establishes an exemption.  For
this purpose,  a "United  States  related  person" is (a) a "controlled  foreign
corporation"  for United  States  federal  income tax  purposes or (b) a foreign
person 50  percent  or more of whose  gross  income  for a  specified  period is
derived from  activities  that are  effectively  connected with the conduct of a
United States trade or business.

     Under the Treasury  Regulations  effective for payments made after December
31,  1999,  the  payment  of  dividends  or the  payment  of  proceeds  from the
disposition of our Common Stock to a non-United  States Holder may be subject to
information  reporting and backup  withholding  unless such recipient  satisfies
applicable certification requirements or otherwise establishes an exemption. Any
amounts  withheld  under  the  backup  withholding  rules  from a  payment  to a
non-United  States  Holder  will be allowed as a refund or credit  against  such
non-United  States Holder's United States federal income tax,  provided that the
required information is furnished to the IRS.





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<PAGE>


                         SHARES ELIGIBLE FOR FUTURE SALE

     Future sales of  substantial  amounts of common stock in the public  market
could adversely affect market prices of the Common Stock. Furthermore,  sales of
substantial  amounts of our  Common  Stock in the public  market  after  various
restrictions  lapse could also adversely affect the prevailing  market price and
our ability to raise additional equity capital if we should desire to do so.

     We have  outstanding an aggregate of 43,672,595  shares of Common Stock. Of
these  shares,   34,787,029   shares  are  generally  freely  tradeable  without
restriction or further  registration  under the Securities Act, 1,105,708 shares
which  will be  freely  tradeable  immediately  upon the  effectiveness  of this
Post-Effective  Amendment No. 1 to our  Registration  Statement on Form S-3. The
remaining 7,779,858 shares of our Common Stock held by existing shareholders are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act and may be sold in the public  market only if  registered or if they qualify
for an exemption from  registration  under Rules 144,  144(k) or 701 promulgated
under the Securities Act.

     In  addition,  there  are  outstanding  options  held by our  employees  to
purchase  9,431,229  shares of our Common Stock at a weighted  average  exercise
price of $3.44 per share, and outstanding  warrants to purchase 2,160,000 shares
of our Common Stock at a weighted  average exercise price of $3.56 per share. We
have filed registration statements on Form S-8 under the Securities Act covering
shares of Common Stock  reserved for  issuance  under our employee  stock option
plans.  Shares  registered under such  registration  statement will generally be
available for sale in the open market, unless such shares are subject to vesting
restrictions with us.

     In general,  under Rule 144 as  currently  in effect,  a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year,  including  the  holding  period  of any prior  owner  except an
affiliate,  would be entitled to sell within any three-month  period a number of
shares that does not exceed the greater of:

     o   one  percent  of  the  number  of   shares  of  our   Common Stock then
         outstanding; or

     o   the average  weekly  trading  volume of the common  stock on the NASDAQ
         Stock Market during the four calendar  weeks  preceding the filing of a
         notice on Form 144 with respect to such sale.

     Sales  under  Rule 144 are also  subject to manner of sale  provisions  and
notice  requirements and to the availability of current public information about
us.  Under  Rule  144(k),  a person  who is  deemed  not to have been one of our
affiliates  at any  time  during  the 90  days  preceding  a  sale,  and who has
beneficially  owned the restricted shares for at least two years,  including the
holding period of any prior owner except an affiliate,  is entitled to sell such
shares without  complying with the manner of sale,  public  information,  volume
limitation  or  notice  provisions  of Rule  144;  therefore,  unless  otherwise
restricted,  such "144(k) shares" may be sold immediately upon the completion of
this offering.



                                       64
<PAGE>

                                  LEGAL OPINION

     Bryan Cave LLP, St. Louis,  Missouri, as our counsel, has issued an opinion
as to the legality of the Common Stock.

                                     EXPERTS

     Our consolidated  financial statements for the year ended December 31, 1998
included in this  prospectus  have been  included  herein in  reliance  upon the
report of  PricewaterhouseCoopers  LLP,  independent  accountants,  given on the
authority of said firm as experts in auditing and accounting.  Our  consolidated
financial  statements  for the year ended  December  31,  1997  included in this
prospectus  have been included  herein in reliance upon the report of audited by
Rubin,  Brown,  Gornstein & Co. LLP,  independent  public  accountants,  and are
included  herein by  reference  in reliance  upon the  authority of said firm as
experts in auditing and  accounting  in giving said  reports.  The  consolidated
financial  statements of Signature  Industries  Limited for the year ended March
31, 1998 included in this  prospectus have been included herein in reliance upon
the report of Ernst & Young, independent accountants,  given on the authority of
said firm as experts in auditing and accounting.

                             ADDITIONAL INFORMATION

     We have filed with the SEC a registration statement on Form S-1 to register
the shares of Common Stock  offered  hereby.  This  prospectus is a part of that
Registration  Statement.  As allowed by the SEC rules,  this prospectus does not
contain all the  information you can find in the  registration  statement or the
exhibits to that registration statement. For further information with respect to
us and the Common Stock offered  hereby,  reference is made to the  registration
statement and the exhibits to that  registration  statement.  Statements in this
prospectus concerning the contents of any contract or any other document are not
necessarily  complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to that exhibit. Each statement in this
prospectus  relating  to a  contract  or  document  filed as an  exhibit  to the
registration statement is qualified by the filed exhibits. You can obtain a copy
of the registration  statement and the exhibits through the SEC or the SEC's web
site as described below.

     In addition,  we file reports,  proxy statements and other information with
the SEC. Our SEC filings are also  available  over the Internet at the SEC's Web
sit at  http://www.sec.gov.  You may also read and copy any  document we file at
the SEC's public  reference  rooms in Washington,  D.C., New York, New York, and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for more information on
the public  reference  rooms and their copy  charges.  You may also  inspect our
reports and other  information  filed with the SEC at the NASDAQ  Stock  Market,
Inc., 1735 K Street, N.W., Washington, D.C. 20606-1500.



                                       65
<PAGE>

                                                                       Exhibit A

                              NOTICE OF RETRACTION

TO:  Applied Cellular Technology, Inc. ("Applied")

This notice is given  pursuant to Article 5 of the  provisions  attaching to the
share(s)  (the  "Share  Provisions")  represented  by this  certificate  and all
capitalized  words and  expressions  used in this notice that are defined in the
Share  Provisions  have the meanings  ascribed to such words and  expressions in
such Share Provisions.

The undersigned  hereby notifies the Corporation that, subject to the Retraction
Call Right referred to below,  the  undersigned  desires to have the Corporation
redeem in accordance with Article 5 of the Share Provisions:

                  all shares(s) represented by this certificate, or

                     ________________ share(s) only.

The  undersigned  acknowledges  the Retraction Call Right of Applied to purchase
all but not less than all the  Retracted  Shares from the  undersigned  and that
this notice shall be deemed to be an  irrevocable  offer (subject as hereinafter
provided)  by the  undersigned  to sell  the  Retracted  Shares  to  Applied  in
accordance  with  the  Retraction  Call  Right  on the  Retraction  Date for the
Retraction  Call Purchase Price and on the other terms and conditions set out in
the Call  Agreement.  If Applied  determines not to exercise the Retraction Call
Right,  the  Corporation  will  notify the  undersigned  of such fact as soon as
possible.  The offer  contained in this notice may be revoked by the undersigned
by a  further  notice  in  writing  addressed  to the  Corporation  and  Applied
specifically  referencing  this  Notice  of  Retraction  and  delivered  to  the
Corporation at any time prior to the Retraction Date.

The  undersigned  acknowledges  that if, as a result of solvency  provisions  of
applicable  law or  otherwise,  the  Corporation  fails to redeem all  Retracted
Shares,  the undersigned will be deemed to have exercised the Exchange Right (as
defined in the Voting and Exchange Trust  Agreement) so as to require Applied to
purchase the unredeemed Retracted Shares.

The  undersigned  hereby  represents and warrants to the Corporation and Applied
that the  undersigned  has good title to, and owns, the share(s)  represented by
this  certificate to be acquired by the Corporation or Applied,  as the case may
be, free and clear of all Liens.

- --------------------   -----------------------------   -------------------------
       (Date)            (Signature of Shareholder)     (Guarantee of Signature)

NOTE:    This panel must be completed and this  certificate,  together with such
         additional documents as the Corporation may require,  must be deposited
         with the  Corporation  at its  principal  transfer  office in  Windsor,
         Ontario.  The  securities  resulting from the retraction or purchase of
         the Retracted Shares will be issued and registered in, and made payable
         to,  respectively,  the name of the  shareholder  as it  appears on the
         register of the  Corporation  and the  securities  resulting  from such
         retraction  or  purchase  will  be  delivered  to such  shareholder  as
         indicated above,  unless the form appearing  immediately  below is duly
         completed.

- --------------------------------------------------------------------------------
    Name of Person in Whose Name Securities or                 Date
    Cheque(s) Are To Be Registered, Issued or
             Delivered (please print)

- --------------------------------------------------------------------------------
            Street Address or P.O. Box                Signature of Shareholder

- -------------------------------------------------
                  City-Province                  -------------------------------
                                                   Signature Guaranteed by

NOTE:    If the  notice  of  retraction  is for less  than  all of the  share(s)
         represented  by  this  certificate,   a  certificate  representing  the
         remaining  shares of the  Corporation  will be issued and registered in
         the  name of the  shareholder  as it  appears  on the  register  of the
         Corporation,  unless the Share Transfer Power on the share  certificate
         is duly completed in respect of such shares.

                                       66
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS

Financial Statements of Applied Cellular Technology, Inc. for  the  Years  ended
    December 31, 1998, 1997 and 1996

Report of Management..........................................F-1
Reports of Independent Accountants............................F-3
Financial Statements
         Consolidated Balance Sheets..........................F-5
         Consolidated Statements of Operations................F-6
         Consolidated Statements of Stockholders' Equity......F-7
         Consolidated Statements of Cash Flows................F-8
         Notes to Consolidated Financial Statements...........F-9

Financial Statement Schedule

         Valuation and Qualifying Accounts....................F-29

Unaudited  Financial  Statements of Applied  Cellular  Technology,  Inc. for the
    Three Months ended March 31, 1999

         Consolidated Balance Sheets..........................F-30
         Consolidated Statements of Operations................F-31
         Consolidated Statements of Stockholders' Equity......F-32
         Consolidated Statements of Cash Flows................F-33
         Notes to Consolidated Financial Statements...........F-34



Financial  Statements of Signature  Industries  Limited for the year ended March
31, 1998

Profit and Loss Accounts .....................................F-39
Balance Sheets ...............................................F-40
Statements of Cash Flows .....................................F-41
Notes to the Accounts ........................................F-42
Report of Independent Auditors ...............................F-55


Unaudited Pro Forma Condensed Consolidated Statement of Operations
 for the year ended December 31, 1998.........................F-56













                                       67
<PAGE>

                              Report Of Management



Management is responsible for the preparation and integrity of the  Consolidated
Financial  Statements  appearing in our Annual Report. The financial  statements
were  prepared in  conformity  with  generally  accepted  accounting  principles
appropriate in the circumstances and, accordingly, include certain amounts based
on our best judgments and estimates. Financial information in this Annual Report
is consistent with that in the financial statements.

Management  is  responsible  for  maintaining  a system of  internal  accounting
controls and  procedures  to provide  reasonable  assurance,  at an  appropriate
cost/benefit   relationship,   assets  are  safeguarded  and   transactions  are
authorized,  recorded and reported  properly.  The internal  accounting  control
system is augmented by a program of internal audits and  appropriate  reviews by
management,  written policies and guidelines,  careful selection and training of
qualified  personnel  and a written  Code of  Business  Conduct  adopted  by the
Company's Board of Directors, applicable to all employees of the Company and its
subsidiaries. In our opinion, the Company's internal accounting controls provide
reasonable  assurance  that assets are  safeguarded  against  material loss from
unauthorized use or disposition and that the financial  records are reliable for
preparing financial statements and other data and for maintaining accountability
of assets.

The Audit Committee of the Company's Board of Directors,  composed of a majority
of Directors  who are not officers of the  Company,  meets with the  independent
accountants,  management and internal auditors  periodically to discuss internal
accounting controls and auditing and financial reporting matters.  The Committee
reviews  with the  independent  accountants,  the scope and results of the audit
effort. The Committee also meets  periodically with the independent  accountants
and the director of internal audit without management present to ensure that the
independent  accountants  and the director of internal audit have free access to
the Committee.


                                      F-1
<PAGE>


Report of Management (Continued)




The independent accountants,  PricewaterhouseCoopers LLP, are recommended by the
Audit  Committee of the Board of  Directors,  selected by the Board of Directors
and  ratified  by  the  Company's  stockholders.  PricewaterhouseCoopers  LLP is
engaged to audit the  Consolidated  Financial  Statements  of  Applied  Cellular
Technology,  Inc. and subsidiaries and conduct such tests and related procedures
as it deems necessary in conformity with generally accepted auditing  standards.
The  opinion of the  independent  accountants,  based  upon their  audits of the
Consolidated Financial Statements, is contained in this Annual Report.


 /S/ Richard J. Sullivan
- -------------------------------------
Richard J. Sullivan
Chairman, Board of Directors and
Chief Executive Officer



 /S/ Garrett A. Sullivan
- -------------------------------------
Garrett A. Sullivan
President and Chief Operating Officer



 /S/ David A. Loppert
- -------------------------------------
David A. Loppert
Vice President, Treasurer and
Chief Financial Officer

February 19, 1999



                                       F-2
<PAGE>



                        Report of Independent Accountants



To the Board of Directors and
   Shareholders of Applied Cellular Technology, Inc.


In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
Applied Cellular Technology, Inc. and its subsidiaries at December 31, 1998, and
the results of their  operations and their cash flows for the year in conformity
with generally accepted accounting principles.  In addition, in our opinion, the
financial  statement  schedule listed in the accompanying index presents fairly,
in all  material  respects,  the  information  set  forth  therein  when read in
conjunction with the related consolidated financial statements.  These financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements and financial  statement  schedule based on our audit.  We
conducted our audit of these  statements in accordance  with generally  accepted
auditing  standards  which  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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for the opinion expressed above.



 /S/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 19, 1999


                                      F-3
<PAGE>

                        Report of Independent Accountants



Board of Directors and Stockholders
Applied Cellular Technology, Inc.


We have audited the accompanying  consolidated balance sheet of Applied Cellular
Technology,  Inc. and  subsidiaries  as of December  31,  1997,  and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the two  years in the  period  ended  December  31,  1997.  We have also
audited the financial  statement schedule listed in the accompanying index as of
December 31, 1997 and for each of the two years in the period ended December 31,
1997.  These  financial  statements  and  financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Applied
Cellular  Technology,  Inc. and  subsidiaries  as of December 31, 1997,  and the
consolidated  results of their  operations  and their cash flows for each of the
two years in the period ended  December 31, 1997, in conformity  with  generally
accepted  accounting  principles.  In addition,  in our opinion,  the  financial
statement  schedule presents fairly, in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial statements.



 /S/ Rubin, Brown, Gornstein & Co., LLP
- ---------------------------------------
Rubin, Brown, Gornstein & Co., LLP
St. Louis, Missouri
February 24, 1998






                                      F-4


<PAGE>



<TABLE>
<CAPTION>

               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except par value)

                                     Assets

                                  December 31,
                                                        ----------------------
                                                         1998            1997
                                                        -------         ------
<S>                                                     <C>           <C>
Current Assets
   Cash and cash equivalents                            $   4,555     $   7,657
   Accounts receivable and unbilled receivables
      (net of allowance for doubtful accounts of
      $990 in 1998 and $675 in 1997)                       34,390        18,039
   Inventories                                             20,657        10,872
   Notes receivable                                         3,600         1,040
   Prepaid expenses and other current assets                2,042         1,267
                                                        ---------      --------

         Total Current Assets                              65,244        38,875

Property And Equipment, net                                15,627         5,339

Notes Receivable                                            1,445         1,275

Goodwill, net                                              33,430        12,787

Other Assets                                                8,370         3,006
                                                        ---------     ---------
                                                        $ 124,116     $  61,282
                                                        =========     =========


                      Liabilities And Stockholders' Equity

Current Liabilities
   Notes payable                                        $  23,217       $ 4,783
   Current maturities of long-term debt                     1,158           843
   Accounts payable and accrued expenses                   23,070        14,487
   Other current liabilities                                3,312            --
                                                        ---------     ---------
         Total Current Liabilities                         50,757        20,113

Long-Term Debt                                              2,838         2,199
                                                        ---------     ---------
         Total Liabilities                                 53,595        22,312
                                                        ---------     ---------
Commitments And Contingencies

Minority Interest                                           2,961         1,785
                                                        ---------     ---------
Redeemable Preferred Shares                                    --           900
                                                        ---------     ---------
Stockholders' Equity
   Preferred shares:
      Authorized 5,000 shares in 1998 of $10 par value;  special voting,  issued
         and outstanding 1 share in 1998, Class B voting, issued and outstanding
         1 share in 1998                                       --            --
   Common shares:
      Authorized  80,000 and 40,000  shares in 1998 and 1997,  respectively,  of
         $.001 par value;  issued 35,683 shares and outstanding 35,577 shares in
         1998 and 20,672 shares issued
         and outstanding in 1997                               36            21
   Common and preferred additional paid-in capital         60,517        33,680
   Retained earnings                                        7,232         2,586
   Treasury stock (carried at cost, 106 shares)              (337)           --
   Accumulated other comprehensive income                     112            (2)
                                                        ---------     ---------
         Total Stockholders' Equity                        67,560        36,285
                                                        ---------     ---------
                                                        $ 124,116      $ 61,282
                                                        =========     =========
</TABLE>

        See the accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                      For The Years Ended December 31,
                                                  --------------------------------------
                                                     1998           1997          1996
                                                  --------------------------------------
<S>                                               <C>            <C>            <C>


Net Operating Revenue                             $ 207,081      $103,159       $ 19,883

Costs Of Goods Sold                                 142,893        69,408         10,524
                                                  ---------      --------       --------
Gross Profit                                         64,188        33,751          9,359

Selling, General And Administrative Expenses         55,253        28,159          8,105
                                                  ---------      --------       --------
Operating Income                                      8,935         5,592          1,254

Interest Income                                         420           192            126

Interest Expense                                     (1,653)         (978)          (200)
                                                  ---------      --------       --------
Income Before Provision For Income
   Taxes And Minority Interest                        7,702         4,806          1,180

Provision For Income Taxes                            2,588         1,769            362
                                                  ---------      --------       --------
Income Before Minority Interest                       5,114         3,037            818

Minority Interest                                       424           697            132
                                                  ---------      --------       --------
Net Income                                            4,690         2,340            686
Preferred Stock Dividends                                44            72             60
                                                  ---------      --------       --------
Net Income Available To Common Stockholders       $   4,646      $  2,268       $    626
                                                  =========      ========       ========
Earnings Per Common Share - Basic                 $     .14      $    .18       $    .19
                                                  =========      ========       ========
Earnings Per Common Share - Diluted               $     .13      $    .15       $    .15
                                                  =========      ========       ========
Weighted Average Number Of Common
   Shares Outstanding - Basic                        32,318        12,632          3,329
                                                  =========      ========       ========
Weighted Average Number Of Common
   Shares Outstanding - Diluted                      34,800        15,245          4,641
                                                  =========      ========       ========

</TABLE>


See the accompanying notes to consolidated financial statements.


                                      F-6

<PAGE>


<TABLE>
<CAPTION>

               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES

                           CONSOLIDATED STATEMENTS OF
                    STOCKHOLDERS' EQUITY For The Years Ended
                        December 31, 1998, 1997 And 1996
                                 (In thousands)


                                                                                                         Accumulated
                                                                                                         Other       Total
                                        Preferred Stock   Common Stock   Additional Retained             Compre-     Stock-
                                        ----------------  -------------  Paid-In    Earnings   Treasury  hensive     holders
                                        Number   Amount   Number Amount  Capital    (Deficit)  Stock     Income      Equity
                                        ------   ------   ------ ------  --------   ---------  --------  ------     ----------
<S>                                     <C>      <C>      <C>     <C>    <C>        <C>        <C>       <C>        <C>

Balance - December 31, 1995               --     $ --      2,268  $   2  $  3,358   $   (308)  $   --    $  --      $   3,052
   Net income                             --       --         --     --        --        686       --       --            686
   Issuance of common shares              --       --        483      1       132         --       --       --            133
   Issuance of common shares for
      acquisitions                        --       --      2,788      3     3,604         --       --       --          3,607
   Warrants redeemed for common shares    --       --        260     --       650         --       --       --            650
   Payments received on note receivable   --       --         --     --        72         --       --       --             72
   Settlement of note receivable          --       --         --     --       112         --       --       --            112
   Preferred stock dividends paid         --       --         --     --        --        (60)      --       --            (60)
                                        ----     ----     ------   ----  --------   --------   -------   -----       --------
Balance - December 31, 1996               --       --      5,799      6     7,928        318       --       --          8,252
                                        ----     ----     ------   ----  --------   --------   -------   -----       --------

   Net income                             --       --         --     --        --      2,340       --       --          2,340
   Comprehensive income - foreign
     currency translation                 --       --         --     --        --         --       --       (2)            (2)
                                        ----     ----     ------   ----  --------   --------   -------   -----       --------
         Total comprehensive income       --       --         --     --        --      2,340       --       (2)         2,338
   Issuance of common shares              --       --      1,572      2     5,534         --       --       --          5,536
   Issuance of common shares to redeem    --       --
        preferred stock                   --       --      1,354      1     2,499         --       --       --          2,500
   Issuance of common shares for
        acquisitions                      --       --      9,624     10    10,263         --       --       --         10,273
   Warrants redeemed for common shares    --       --      2,323      2     7,456         --       --       --          7,458
   Preferred stock dividends paid         --       --         --     --        --        (72)      --       --            (72)
                                        ----     ----     ------   ----  --------   --------   -------   -----       --------
Balance - December 31, 1997               --       --     20,672     21    33,680      2,586       --       (2)        36,285
                                        ----     ----     ------   ----  --------   --------   -------   -----       --------
   Net income                             --       --         --     --        --      4,690       --       --          4,690
   Comprehensive income - foreign
     currency translation                 --       --         --     --        --         --       --      114            114
                                        ----     ----     ------   ----  --------   --------   -------   -----       --------
         Total comprehensive income       --       --         --     --        --      4,690       --      114          4,804
   Issuance of common shares              --       --         50     --       100         --       --       --            100
   Issuance of common shares for
      acquisitions                        --       --     12,511     12    18,770         --       --       --         18,782
   Issuance of preferred shares           --       --         --     --     6,020         --       --       --          6,020
   Conversion of preferred shares to
        common shares                     --       --      1,600      2        (2)        --       --       --             --
   Warrants redeemed for common shares    --       --        850      1     1,949         --       --       --          1,950
   Preferred dividends paid               --       --         --     --        --        (44)      --       --            (44)
   Common shares repurchased              --       --       (106)    --        --         --     (337)      --           (337)
                                        ----     ----     ------   ----  --------   --------   -------   -----       --------

Balance - December 31, 1998               --     $ --     35,577   $ 36  $ 60,517   $  7,232   $ (337)   $ 112       $ 67,560
                                        ====     ====     ======   ====  ========   ========   =======   =====       ========

</TABLE>

See the accompanying notes to consolidated financial statements.


                                       F-7
<PAGE>




               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                      For The Years Ended December 31,
                                                                  ----------------------------------------
                                                                        1998            1997          1996
                                                                  ----------------------------------------
<S>                                                               <C>              <C>          <C>

Cash Flows From Operating Activities
   Net income                                                     $    4,690       $   2,340    $      686
   Adjustments to reconcile net income to net cash
      used in operating activities:
         Depreciation and amortization                                 4,501           1,874           712
         Minority interest                                               424             697           132
         (Gain) loss on sale of assets                                  (873)         (1,679)            2
         Net change in operating assets and liabilities              (11,525)         (6,549)       (2,974)
                                                                  -----------      ----------   ----------
Net Cash Used In Operating Activities                                 (2,783)         (3,317)       (1,442)
                                                                  -----------      ----------   ----------
Cash Flows From Investing Activities
   (Increase) decrease in notes receivable                            (2,338)            122           607
   Proceeds from sale of assets                                          507           2,296           564
   Payments for property and equipment and other assets               (5,068)         (2,243)         (318)
   (Payments for) proceeds from asset and business acquisitions
      (net of cash balances acquired)                                     57           3,983           (81)
                                                                  -----------      ----------   ----------
Net Cash Provided By (Used In) Investing Activities                   (6,842)          4,158           772
                                                                  -----------      ----------   ----------
Cash Flows From Financing Activities
   Net amounts borrowed (paid) on notes payable                       12,202          (2,847)          663
   Proceeds from long-term debt                                        1,011             335            21
   Payments for long-term debt                                        (6,936)           (494)         (214)
   Issuance of common shares                                           1,354           9,084           945
   Repurchase of common stock                                           (337)             --            --
   Redemption of preferred shares                                       (900)             --            --
   Preferred stock dividends paid                                        (44)            (72)          (60)
                                                                  -----------      ----------   ----------
Net Cash Provided By Financing Activities                              6,350           6,006         1,355
                                                                  -----------      ----------   ----------
Net Increase (Decrease) In Cash                                       (3,275)          6,847           685

Effect Of Exchange Rate Changes On Cash                                  173              --            --

Cash And Cash Equivalents - Beginning Of Year                          7,657             810           125
                                                                  -----------      ----------   ----------
Cash And Cash Equivalents - End Of Year                           $    4,555       $   7,657    $      810
                                                                  ==========       =========    ==========

Supplemental Disclosure Of Cash Flow Information
   Income taxes paid                                              $    2,430       $     964    $        3
   Interest paid                                                       1,534           1,012           162


</TABLE>



See the accompanying notes to consolidated financial statements.


                                      F-8
<PAGE>




               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 And 1997

1.       Organization And Summary Of Significant Accounting Policies


         Organization


         Applied Cellular  Technology,  Inc. and subsidiaries (the Company) is a
         full  service  communications  company  that  provides  a wide range of
         products and services to the wireless,  telecommunications  and digital
         data   industry.   The  Company's   goal  is  to  be  a  single  source
         communications  provider to which  businesses  can turn for  integrated
         communications  systems  and  it  intends  to  take  advantage  of  the
         communications  industry  move from analog to digital and from wireline
         to wireless  systems.  The Company's  services include the construction
         and installation of communications infrastructure,  the installation of
         local  and  wide  area  networks  and the  development  of  specialized
         software  for  business   applications.   The  Company  also   provides
         traditional  telecommunications  services  such as long  distance  toll
         service,  one-number  dialing and call centers.  The Company  currently
         operates in the United States, Canada and the United Kingdom.

         Principles of Consolidation

         The consolidated  financial  statements include the accounts of Applied
         Cellular  Technology,  Inc.  and its wholly  owned and  majority  owned
         subsidiaries.  All significant  intercompany  accounts and transactions
         have been eliminated upon consolidation.

         As  further  discussed  in Note 2, the  Company  acquired  subsidiaries
         during  1998 and 1997 all of which  have been  accounted  for under the
         purchase method of accounting.

         Use of Estimates

         The preparation of the financial statements requires management to make
         certain  estimates and assumptions  that affect the amounts reported in
         the  financial  statements  and  accompanying  notes.   Although  these
         estimates are based on the knowledge of current  events and actions the
         Company may undertake in the future,  they may  ultimately  differ from
         actual results.

         Foreign Currencies

         The Company's  foreign  subsidiaries  use their local currency as their
         functional currency. Results of operations and cash flow are translated
         at average exchange rates during the period, and assets and liabilities
         are translated at end of period exchange rates. Translation adjustments
         resulting  from  this  process  are  included  in   accumulated   other
         comprehensive income in stockholders' equity.

         Transaction gains and losses that arise from exchange rate fluctuations
         on  transactions  denominated  in a currency  other than the functional
         currency, are included in the results of operations as incurred.

         Cash And Cash Equivalents

         The Company  considers all highly liquid  investments  purchased with a
         maturity of three months or less to be cash equivalents.

         Unbilled Receivables


         Unbilled  receivables  consist  of certain  direct  costs  incurred  in
         connection with projects not yet billed.

         Inventories

         Inventories  consist of raw  materials,  work in process  and  finished
         goods.  Inventory is valued at the lower of cost or market,  determined
         by the first-in,  first-out  method.  The Company closely  monitors and
         analyzes  inventory for potential  obsolescence  and slow-moving  items
         based  upon  the  aging of the  inventory  and the  inventory  turns by
         product.  Inventory  items  designated as obsolete or  slow-moving  are
         reduced to net realizable value.


                                       F-9

<PAGE>





APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)

          Property And Equipment


          Property  and  equipment  are  carried  at  cost,   less   accumulated
          depreciation  and  amortization   computed  using   straight-line  and
          accelerated   methods.   Building  and  leasehold   improvements   are
          depreciated and amortized over periods ranging from 10 to 40 years and
          equipment is depreciated over periods ranging from 3 to 10 years.

          Goodwill And Other Intangible Assets

          Goodwill and other intangible  assets are stated on the cost basis and
          are  amortized,   principally  on  a  straight-line  basis,  over  the
          estimated  future  periods to be benefitted  (not exceeding 20 years).
          Goodwill and other  intangible  assets are  periodically  reviewed for
          impairment based on expected future  undiscounted cash flows to ensure
          that they are appropriately valued.

          Purchased Computer Software

          Purchased  computer  software  is  stated  at  cost  less  accumulated
          amortization.  Amortization  is  computed  over the greater of current
          revenues  divided by the total of expected  revenues or  straight-line
          over the number of years of expected revenue.  The straight-line  life
          is determined to be no more than five years.

          Proprietary Software In Development

          In accordance with Statement of Financial  Accounting  Standards (FAS)
          No. 86,  Accounting  for the Costs of  Computer  Software  to be Sold,
          Leased,  or Otherwise  Marketed,  the Company has capitalized  certain
          computer   software   development  costs  upon  the  establishment  of
          technological feasibility.  Technological feasibility is considered to
          have occurred upon  completion of a detailed  program design which has
          been confirmed by documenting and tracing the detail program design to
          product specifications and has been reviewed for high-risk development
          issues,  or to the extent a detailed  program  design is not  pursued,
          upon  completion of a working model that has been confirmed by testing
          to be consistent  with the product  design.  Amortization  is provided
          based on the greater of the ratios that current  gross  revenues for a
          product  bear to the total of current  and  anticipated  future  gross
          revenues  for  that  product,  or the  straight-line  method  over the
          estimated  useful  life  of the  product.  The  straight-line  life is
          determined to be 2 to 5 years.

         Revenue Recognition

         For  programming,   consulting  and  software  licensing  services  and
         construction  contracts,  the Company  recognizes  revenue based on the
         percent  complete for fixed fee  contracts,  with the percent  complete
         being  calculated  as either  the number of direct  labor  hours in the
         project to date  divided by the  estimated  total direct labor hours or
         based upon the completion of specific task orders.  It is the Company's
         policy to record  contract  losses in their  entirety  in the period in
         which such losses are foreseeable.  For non fixed fee jobs,  revenue is
         recognized  based on the actual direct labor hours in the job times the
         standard  billing rate and adjusted to realizable  value, if necessary.
         For product sales, the Company recognizes revenue upon shipment.  There
         are no  significant  post contract  support  obligations at the time of
         revenue  recognition.  The Company's accounting policy regarding vendor
         and  post-contract  support  obligations  is based on the  terms of the
         customers'  contract,  billable  upon the  occurrence  of the post-sale
         support.  Revenue from royalties is recognized  when licensed  products
         are shipped. Costs of goods sold are recorded as the related revenue is
         recognized.

         The  Company  does not  experience  significant  product  returns,  and
         therefore,  management  is of the opinion that no  allowance  for sales
         returns is necessary.  The Company has no obligation  for warranties on
         hardware sales,  because the warranty is provided by the  manufacturer.
         The Company does not offer a warranty policy for services to customers.

                                       F-10
<PAGE>


APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)

          Advertising Costs


          The   Company   generally   expenses   production   costs   of   print
          advertisements  as of the first date the  advertisements  take  place.
          Advertising expense,  included in selling,  general and administrative
          expenses, was $0.7 million in 1998, $0.9 million in 1997, $0.5 million
          in 1996.

          Income Taxes


          The Company  accounts  for income  taxes in  accordance  with FAS 109,
          Accounting  for Income Taxes,  which  requires the asset and liability
          approach for the financial  accounting and reporting for income taxes.
          Income taxes include U.S. and international taxes. The Company and its
          U.S.  subsidiaries  file a  consolidated  federal  income tax  return.
          Income taxes are paid by the parent  company and are allocated to each
          subsidiary through intercompany charges.


          Minority Interest

          The Company has recorded the minimum  liability for minority  interest
          put rights.


          Earnings Per Common And Common Share Equivalent


          The Company has adopted the provisions of FAS 128, Earnings Per Share,
          effective  December 31, 1997.  FAS 128  requires the  presentation  of
          basic and diluted  earnings per share (EPS).  Basic EPS is computed by
          dividing  income  available  to common  stockholders  by the  weighted
          average number of common shares  outstanding  for the period.  Diluted
          EPS is computed giving effect to all dilutive  potential common shares
          that were  outstanding  during the period.  Dilutive  potential common
          shares consist of incremental  shares  issuable upon exercise of stock
          options and warrants,  conversion of preferred  stock  outstanding and
          contingently  issuable  shares.  All prior  period  earnings per share
          amounts have been restated to comply with FAS 128.

          New Accounting Standards


          In 1998, the Company adopted FAS 131, Disclosures about Segments of an
          Enterprise  and  Related  Information.  FAS  131  supersedes  FAS  14,
          Financial Reporting for Segments of a Business  Enterprise,  replacing
          the "industry  segment" approach with the "management"  approach.  The
          management approach designates the internal  organization that is used
          by management for making operating decisions and assessing performance
          as the  source  of the  Company's  reportable  segments.  FAS 131 also
          requires  disclosures  about products and services,  geographic areas,
          and major customers. The adoption of FAS 131 did not affect results of
          operations  or  financial  position but did affect the  disclosure  of
          segment information (see Note 20).

          In 1998, the Company adopted FAS 130, Reporting  Comprehensive Income,
          which   establishes   standards  for   reporting  and   disclosure  of
          comprehensive income and its components.  The Company's  comprehensive
          income  consists of foreign  currency  translation  adjustments and is
          reported in the consolidated statements of stockholders' equity.



                                      F-11

<PAGE>


APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)



2.       Acquisitions


 The  following  represents  acquisitions  which  occurred  in 1998 and 1997 (in
thousands):

<TABLE>
<CAPTION>
                                                                               Common/
                                          Date Of    Percent   Acquisition    Preferred
                                       Acquisition   Acquired    Price        Shares Issued Business Description
<S>                                    <C>           <C>       <C>            <C>    <C>

1998 Acquisitions
Information Products Center, Inc.      01/01/98       100%     $   1,297      1,104  Network Infrastructure services provider
Winward Electric                       01/01/98       100%         3,606      1,773  Full service electrical and communications
                                                                                     systems contractor
Americom Group                         04/01/98        80%           404        227  Provider of communications infrastructure
                                                                                     construction, maintenance, installation and
                                                                                     training services
Aurora Electric, Inc.                  04/01/98       100%         1,897      1,098  Full service electrical and communications
                                                                                     system contractor
Blue Star Electronics                  04/01/98        80%           431        203  Cable assembly manufacturer
Consolidated Micro Components          04/01/98       100%           698        392  Reseller of memory, processors and mass storage
                                                                                     devices
Data Path Technologies                 04/01/98       100%           671        385  Seller of computer systems, peripherals,
                                                                                     components and software
GDB Software Services                  04/01/98       100%           681        385  Provider of data processing consulting services
Ground Effects, Ltd.                   04/01/98        85%         2,046      1,106  Manufacturer of aluminum and steel tubes
Innovative Vacuum Solutions, Inc.      04/01/98        80%           455        276  Re-manufacturer of high-end vacuum pumps
Service Transport Company              04/01/98        80%            89         35  Transporter of computer systems and electronics
Teledata Concepts, Inc.                04/01/98       100%           308        138  Internet and telecommunications services
                                                                                     provider
TigerTel Services, Ltd.                05/01/98       100%         6,384      3,418  Call centers, voice messaging and one number
                                                                                     dialing services provider
Signature Industries, Ltd.             06/01/98        85%         4,963      3,571  Manufacturer of high-grade communications and
                                                                                     safety devices
1997 Acquisitions
Hopper Manufacturing Co., Inc.         01/01/97       100%           287        179  Re-manufacturer and distributor of automotive
                                                                                     parts
Norcom Resources, Inc.                 01/01/97        80%           538        359  Sales, service and support of mainframe
                                                                                     computers
Pizarro ReMarketing, Inc.              01/01/97        80%           356        234  Re-marketing services for the computer disc and
                                                                                     tape industry
MVAK Technologies, Inc.                02/01/97       100%           786        389  Re-manufacturer of vacuum pumps
Advanced Telecommunications, Inc.      05/01/97        80%         3,195      2,824  Telecommunications solutions provider
Signal Processors, Ltd.                05/01/97        80%         1,368      1,391  Manufacturer of satellite communication
                                                                                     technology
Cybertech Station, Inc.                07/01/97        80%           289        222  Provider of computer memory products
DLS Service Corp.                      07/01/97       100%            73         58  Value added reseller of computer software
Intermatica, Inc.                      07/01/97       100%           753        711  Software sales company
PPL, Ltd.                              07/01/97        80%           719        504  Leasing and rental services
STC Netcom, Inc.                       07/01/97        80%         1,415      1,600  Communications construction contractor
Alacrity Systems, Inc.                 10/01/97       100%         1,348        935  Software developer and marketer
C.T. Specialists, Inc.                 10/01/97       100%         1,027        758  Distributor of control systems
Canadian Network Services, Ltd.        10/01/97       100%         1,639      1,404  Provider of extended area calling services

- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

          All of the  above  acquisitions  have  been  accounted  for  using the
          purchase  method of  accounting  and,  accordingly,  the  consolidated
          financial statements reflect the results of operations of each company
          from the date of acquisition.  The costs of  acquisitions  include all
          payments  according  to the  acquisition  agreements  plus  costs  for
          investment banking services,  legal services and accounting  services,
          that were direct costs of acquiring these assets.  Goodwill  resulting
          from these  acquisitions is being amortized on a straight-line  basis,
          over twenty years. Certain acquisition agreements include the issuance
          of additional shares contingent on profits of the acquired subsidiary,
          which  continue  through  2001.  The  number of shares to be issued is
          variable,  based upon future  earnings levels achieved by the acquired
          companies.  Upon issuance of these shares,  the value will be recorded
          as additional  goodwill.  The  acquisitions  above include  contingent
          shares  issued  upon  attainment  of certain  profits by  subsidiaries
          through  December  31,  1998.  See  Note 22 for  unaudited  pro  forma
          information for the above acquisitions that occurred in 1998 and 1997.



                                      F-12
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)

3.       Restructuring

         Towards  the end of the  third  quarter  of 1997,  the  Company  made a
         decision  to exit its  retail  cellular  operations.  During the fourth
         quarter of 1997,  the Company  completed its exit strategy and incurred
         costs  related  to the  restructuring  of these  operations,  including
         provisions  for  terminations  of leases and employees and writedown of
         the carrying values of inventory and other assets. Costs totalling $1.7
         million were included in selling,  general and administrative  expenses
         in 1997 and no material costs are to be incurred in future periods.
         All amounts were paid in 1997.


4.       Inventories (In thousands)

<TABLE>
<CAPTION>

                                                             1998            1997
<S>                                                       <C>             <C>
Raw materials                                             $   4,437       $   1,962
Work in process                                               2,349           1,085
Finished goods                                               15,246           8,721
                                                           --------        --------
                                                             22,032          11,768
Less:  Allowance for excess and obsolescence                  1,375             896
                                                           --------        --------
                                                          $  20,657       $  10,872
                                                          =========       =========
</TABLE>

5.       Notes Receivable (In thousands)


<TABLE>
<CAPTION>

                                                             1998           1997
<S>                                                       <C>             <C>


Due from purchaser of cellular assets, personally
guaranteed by company owners,  bears interest at 6.5%,
$350 due 1/1/99, remaining  payable in monthly
installments of $25 including interest starting
July 1999                                                 $   1,300       $      --


Due from purchaser of interconnect service business,
unsecured, payable in two payments due through December
1999                                                          1,350           1,350


Due from officers of subsidiaries, unsecured, bear
interest at varying interest rates, due on demand             1,594             328


Due from customer, unsecured, bears interest at the
prime rate, due on demand                                       226              62


Due from other,  secured by maker's assets,  bears
interest at 8.7% and provides for monthly  payments of
principal and interest  equal to 10% of the maker's net
cash revenue for each preceding month, balance due
October 2001                                                    575             575

                                                          ---------       ---------
                                                              5,045           2,315
Less:  Current portion                                        3,600           1,040
                                                          ---------       ---------
                                                          $   1,445       $   1,275
                                                          =========       =========
</TABLE>

The Company  performs a credit  evaluation and considers the holders'  financial
condition before entering into notes receivable.

                                      F-13
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)

6.       Property And Equipment (In thousands)

<TABLE>
<CAPTION>

                                                            1998           1997
<S>                                                      <C>             <C>

Land                                                     $     755       $     759
Building and leasehold improvements                          4,097             875
Equipment                                                   18,021           8,691
                                                         ---------       ---------
                                                            22,873          10,325
Less:  Accumulated depreciation and amortization             7,246           4,986
                                                         ---------       ---------
                                                         $  15,627       $   5,339
                                                         =========       =========
</TABLE>


          Included above are vehicles and equipment acquired under capital lease
          obligations  in the amount of $1,577 and $908 at December 31, 1998 and
          1997, respectively.  Related accumulated depreciation amounted to $602
          and $428 at December 31, 1998 and 1997, respectively.

          Depreciation  and  amortization  charged  against  income  amounted to
          $2,260,  $846 and $207 for the years ended December 31, 1998, 1997 and
          1996, respectively.


7.        Goodwill (In thousands)


          Goodwill  consists  of the excess of cost over fair value of  tangible
          and identifiable intangible assets of companies purchased. The Company
          applies the  principles of Accounting  Principles  Board (APB) Opinion
          No.  16,  Business  Combinations,  and uses  the  purchase  method  of
          accounting  for  acquisitions  of  wholly  owned  and  majority  owned
          subsidiaries.


<TABLE>
<CAPTION>

                                                         1998          1997
<S>                                                     <C>           <C>


Original balance                                        $  35,920     $  13,790
Accumulated amortization                                   (2,490)       (1,003)
                                                        ----------    ----------
Carrying value                                          $  33,430     $  12,787
                                                        =========     =========

</TABLE>

         Amortization  expense  amounted  to $1,487,  $670 and $295 for the year
         ended December 31, 1998, 1997, and 1996, respectively.

         The Company has entered  into  various  earnout  arrangements  with the
         selling   shareholders   of  certain   acquired   subsidiaries.   These
         arrangements provide for additional  consideration to be paid in future
         years if certain  earnings  levels are met.  These amounts are added to
         goodwill as earned.


                                      F-14

<PAGE>


APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


8.       Other Assets (In thousands)

<TABLE>
<CAPTION>
                                                                   1998            1997
<S>                                                               <C>             <C>


Proprietary software                                              $ 5,586         $ 2,722
Purchased computer software                                           393             387
Other assets                                                          417             272
                                                                  -------         -------
                                                                    6,396           3,381
Less:  Accumulated amortization                                     1,730             976
                                                                  -------         -------
                                                                    4,666           2,405
Investment in preferred stock                                       3,000              --
Other                                                                 704             601
                                                                  -------         -------
                                                                  $ 8,370         $ 3,006
                                                                  =======         =======

</TABLE>

         Amortization  of other assets charged  against income amounted to $754,
         $358 and $210 for the years ended  December  31,  1998,  1997 and 1996,
         respectively.


9.       Notes Payable (In thousands)
<TABLE>
<CAPTION>

                                                                      1998         1997
<S>                                                                 <C>           <C>

         Notes payable - banks, collateralized by business
         assets and by personal guarantees of
         officers/stockholders of certain subsidiaries.
         Interest is payable monthly at rates varying from
         prime plus 1/2% to prime plus 2-1/4% in 1998.  The
         credit lines are due through December 1999.                $ 5,974       $ 4,505

         Revolving credit line - bank,  collateralized by all
         domestic assets of the Company, bearing interest at
         the prime lending rate or the London Interbank Offered
         Rate, as elected by the Company, expiring in July 1999      17,193           --

         Notes payable - other, unsecured, due on demand                 50           278
                                                                   --------       -------
                                                                   $ 23,217       $ 4,783
                                                                   ========       =======
</TABLE>

         During the third  quarter of 1998,  the Company  entered  into a twenty
         million  dollar  line  of  credit  with a bank,  collateralized  by all
         domestic assets of the Company (the "Credit  Agreement"),  at the prime
         lending rate or at the London Interbank Offered Rate, as elected by the
         Company.  The Credit  Agreement  expires on July 31, 1999 and  contains
         standard debt covenants  relating to financial position and performance
         as well as restrictions on the  declarations  and payment of dividends.
         As of December 31, 1998,  the  outstanding  balance was $17,193 and the
         availability was $2,807.

         On February 4, 1999, the bank increased the amount  available under the
         revolving line of credit to twenty-three million dollars.

         The  weighted  average  interest  rate was 8.8% and 9.8% for the  years
         ended December 31, 1998 and 1997, respectively.


                                      F-15
<PAGE>


APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


10.      Long-Term Debt (In thousands)
<TABLE>
<CAPTION>

                                                                 1998        1997
         <S>                                                   <C>         <C>

         Notes payable - banks, collateralized by subsidiaries' business assets,
         payable in monthly installments totalling $28 plus interest at rates of
         prime plus 1.5% and prime plus 2.5% in 1997, originally due through May
         2001, paid
         off in 1998                                           $     --    $ 1,105

         Notes payable - bank, collateralized by land,
         building and aassets, payable in monthly
         installments of principal and interest totalling
         $25, bearing interest at rates between 8.15% and
         prime plus 1.5%, due through October 2002                  805         --

         Note payable - bank, collateralized by subsidiary's
         business assets, payable in monthly principal
         payments of $62 plus interest at the prime rate
         plus 1/2%, due in November 2002                          1,402         --

         Mortgage notes payable - bank, collateralized by
         buildings, payable in monthly installments of
         principal and interest  totalling $8, bearing
         interest at rates  ranging from 4.2% to 10.75% in
         1998 and $5,  bearing interest at 9.5% in 1997,
         due through April 2028                                     802        529


         Notes payable - finance companies and banks,
         collateralized by vehicles, payable in monthly
         principal installments of $6, bearing interest at
         rates ranging from 8.0% to 10.9% in 1998 and $6,
         bearing interest at rates ranging from 9.75% to 10.9%
         in 1997, due through June 2003                             132        114

         Notes payable - bank,  collateralized  by business
         assets, payable in monthly installments of principal
         and interest  totalling $23, bearing interest at
         rates ranging from 5.61% to prime plus 2%, due
         through June 2003                                          118        869
           Capital lease obligations                                737        425
                                                                -------    -------
                                                                  3,996      3,042
           Less:  Current maturities                              1,158        843
                                                                -------    -------
                                                                $ 2,838    $ 2,199
                                                                =======    =======
</TABLE>


         The scheduled  maturities of long-term debt at December 31, 1998 are as
follows:


                Year                                            Amount

                1999                                           $ 1,158
                2000                                               907
                2001                                               689
                2002                                               546
                2003                                               177
                Thereafter                                         519
                                                               -------
                                                               $ 3,996
                                                               =======

         Interest  expense on the long and short-term  notes payable  (including
         notes  payable in Note 9)  amounted  to  $1,653,  $978 and $200 for the
         years ended December 31, 1998, 1997, 1996, respectively.


                                      F-16
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


11.      Fair Value Of Financial Instruments


         The following  methods and  assumptions  were used to estimate the fair
         value of each class of financial instruments:

         Cash And Cash Equivalents

         The  carrying  amount  approximates  fair  value  because  of the short
         maturity of those instruments.

         Notes Receivable

         The carrying value of the notes  approximate  fair value because either
         the interest rates of the notes  approximate  the current rate that the
         Company could  receive on a similar note, or because of the  short-term
         nature of the notes.

         Notes Payable

         The carrying amount  approximates  fair value because of the short-term
         nature of the notes.

         Long-term Debt


         The carrying amount  approximates  fair value because either the stated
         interest  rates  fluctuate  with  current  market rates or the interest
         rates  approximate  the current rates at which the Company could borrow
         funds on a similar note.

         Accounts Payable and Accrued Expenses

         The carrying amount approximates fair value.

12.      Income Taxes (In thousands)

         The provision for income taxes consists of:
<TABLE>
<CAPTION>

                                                        1998     1997     1996
<S>                                                   <C>       <C>       <C>
         Current:

           United States at statutory rates           $1,747    $1,570    $ 477
           International                                 930       533       --
           Current taxes covered by net operating
                loss                                      --       (88)     (32)
                                                      -------   -------   ------
           Current income tax provision                2,677     2,015      445
                                                      -------   -------   ------
         Deferred:
           United States                                  94      (246)     (83)
           International                                (183)      --        --
                                                      -------   -------   ------
           Deferred income taxes provision (credit)      (89)     (246)     (83)
                                                      -------   -------   ------
                                                      $2,588    $1,769    $ 362
                                                      =======   =======   ======
</TABLE>

                                      F-17
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)

         The tax effects of temporary  differences and  carryforwards  that give
         rise to  significant  portions of deferred  tax assets and  liabilities
         consist of the following:
<TABLE>
<CAPTION>
                                                           1998            1997
<S>                                                    <C>             <C>

             Deferred Tax Assets:
                Liabilities and reserves               $    557        $    269
                Net operating loss carryforwards          3,892           3,749
                                                       --------        --------
                Gross deferred tax assets                 4,449           4,018
                Valuation allowance                      (2,994)         (3,514)
                                                       --------        --------
                                                          1,455             504
                                                       --------        --------
             Deferred Tax Liabilities:
                Accounts Receivable                         719              --
                Notes Receivable                            361              --
                Property and equipment                       10              45
                Intangible assets                           365              59
                                                       --------        --------
                                                          1,455             104
                                                       --------        --------
             Net Deferred Tax Asset                    $     --        $    400
                                                       ========        ========
</TABLE>

          The valuation  allowance  for deferred tax asset  decreased by $520 in
          1998 and  increased  by  $3,514 in 1997.  Management  has  recorded  a
          valuation  allowance  as it  believes  sufficient  uncertainty  exists
          regarding the realizability of the net deferred tax asset.

          Approximate  domestic and  international  income before  provision for
          income taxes consists of :

<TABLE>
<CAPTION>

                                          1998        1997          1996
<S>                                     <C>          <C>          <C>


Domestic                                $ 5,082      $ 3,132      $ 1,180
International                             2,620        1,674           --
                                        -------      -------      -------
                                        $ 7,702      $ 4,806      $ 1,180
                                        =======      =======      =======
</TABLE>

         At December 31, 1998,  the company had  aggregate  net  operating  loss
         carryforwards  of  approximately  $10,200 for income tax purposes which
         expire  in  various  amounts  through  2012.  The  net  operating  loss
         carryforwards  were acquired in  connection  with various 1997 and 1998
         acquisitions  and are limited as to use in any particular year based on
         Internal  Revenue  Code  sections  related to separate  return year and
         change of ownership  restrictions.  Utilization  of the  Company's  net
         operating   loss   carryforwards   are   estimated  to  be  limited  to
         approximately  $941 per year.  When  realized,  the tax  benefit of the
         acquired net operating loss  carryforwards will be recorded a reduction
         of goodwill or other long-term assets.

         The reconciliation of the effective tax rate with the statutory federal
         income tax rate is as follows:
<TABLE>
<CAPTION>
                                                  1998        1997        1996
<S>                                               <C>         <C>         <C>
                                                   %           %           %
                                                  ----        ----        ----
Statutory rate                                     34          34          34
State income taxes, net of federal benefits         5           7           4
International tax rates different from the
   the statutory US federal rate                   --          (3)         --
Realization of deferred tax asset valuation
   allowance                                       (6)         (5)         (3)
Other                                               1           4          (4)
                                                  ----        ----        ----
                                                   34          37          31
                                                  ====        ====        ====
</TABLE>
                                      F-18
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


13.  Earnings Per Share (In thousands, except per share data)

     In accordance with the disclosure requirements of FAS 128, a reconciliation
     of the  numerator and  denominator  of basic and diluted EPS is provided as
     follows:
<TABLE>
<CAPTION>

                                                              1998          1997            1996
<S>                                                         <C>           <C>             <C>

           Numerator:
              Net income                                    $ 4,690       $ 2,340         $   686
              Preferred stock dividends                         (44)          (72)            (60)
                                                            --------      --------        --------
           Numerator for basic earnings per share -
              net income available to common
              stockholders                                    4,646         2,268             626

           Effect of dilutive securities:
              Preferred stock dividends                          44            72              60
                                                            --------      --------        --------
           Numerator For Diluted Earnings
              Per Share - Income Available To
              Common Stockholders                           $ 4,690       $ 2,340         $   686
                                                            ========      ========        ========
           Denominator:
              Denominator for basic earnings per
                 share - weighted-average shares             32,318        12,632           3,329
                                                            --------      --------        --------
              Effect of dilutive securities:
                 Redeemable preferred stock                      85           998             580
                 Warrants                                       477           779             628
                 Employee stock options                         266           451             104
                 Contingent stock - acquisitions              1,654           385              --
                                                            --------      --------        --------
              Dilutive potential common shares                2,482         2,613           1,312
                                                            --------      --------        --------
           Denominator For Diluted Earnings
              Per Share - Adjusted Weighted-
              Average Shares And Assumed
              Conversions                                    34,800        15,245           4,641
                                                            ========      ========        ========
           Basic Earnings Per Share                         $   .14       $   .18         $   .19

           Diluted Earnings Per Share                       $   .13       $   .15         $   .15
</TABLE>

14.      Commitments And Contingencies

         Rentals of space, vehicles, and office equipment under operating leases
         amounted to approximately  $3.9 million,  $2.7 million and $0.8 million
         for the years ended December 31, 1998, 1997, and 1996, respectively.

         The Company has entered into employment contracts with key officers and
         employees of the Company and certain  subsidiaries.  The agreements are
         for  periods  of  one to ten  years  through  June  2009.  Some  of the
         employment contracts also call for bonus arrangements based on earnings
         of the particular subsidiary.

                                      F-19
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)

         The approximate  minimum  payments  required under operating leases and
         employment  contracts that have initial or remaining terms in excess of
         one year at December 31, 1998 are (in thousands):

<TABLE>
<CAPTION>


                                            Minimum                  Employment
               Year                         Rental Payments          Contracts
               <S>                          <C>                       <C>
               1999                         $   3,753                 $   7,400
               2000                             3,251                     6,700
               2001                             2,740                     5,000
               2002                             2,195                     4,000
               2003                             1,316                     1,600
               Thereafter                       2,775                       800
                                             --------                  --------
                                             $ 16,030                  $ 25,500
                                             ========                  ========
</TABLE>

         The Company has entered into put options with the selling  shareholders
         of various  companies  in which the Company  acquired  less than a 100%
         interest.  These  options  provide  for  the  Company  to  acquire  the
         remaining  portion it does not own after  periods  ranging  from 4 to 5
         years  from the dates of  acquisition  at  amounts  generally  equal to
         10%-20% of the average  annual  earnings of the company  before  income
         taxes for the  two-year  period  ending the  effective  date of the put
         multiplied by a multiple ranging from 4 to 5.

         The employment  agreements  for three  officers of the Company  include
         certain "change of control"  provisions.  At the employee's  option, he
         may terminate his employment under the agreement at any time within one
         year  after  such  change  of  control.  The  Company  shall pay to the
         employee a severance  payment  based on formulas  relating to parachute
         payment provisions of the Internal Revenue Code and prior compensation.

         Additionally,  the  agreements  for two  officers  provide  for certain
         "triggering  events"  which  include a change in control of the Company
         and the  termination  of  employment  other  than for  cause.  Upon the
         occurrence of a triggering  event, the Company shall pay, in cash or in
         stock,  or in a  combination  thereof,  $12.1 million and $3.5 million,
         respectively, to these two officers.

15.      Profit Sharing Plan

         The  Company  has a Section  401(k)  Plan for the  benefit of  eligible
         United States  employees.  The Company has made no contributions to the
         Section 401(k) Plan.

         The  Company's  International   subsidiaries  operate  certain  defined
         contribution  pension  schemes.  The Company's  expense relating to the
         schemes approximated $0.3 million in 1998.

16.      Redeemable Preferred Shares

         In  March  1996,  the  Company  issued  nine  thousand  8%  convertible
         preferred  shares at $100 per  share,  in  exchange  for 80% of Burling
         Instruments,  Inc. If, and to the extent,  the preferred shares had not
         been converted to common stock by the second anniversary of the initial
         issuance  of the  shares,  the  Company  was  required  to  redeem  the
         preferred shares by paying $100 per share. Each holder of the preferred
         shares had the ability to convert  their  preferred  shares into common
         shares by  dividing  the  redemption  price  ($100) by $5.75 per common
         share. The shares were redeemed in 1998.


                                      F-20

<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)

          In October 1996, the Company issued one hundred thousand 8% redeemable
          preferred  shares at $100 per share as partial  consideration  for the
          100% purchase of ATI Communications.  There was no existing market for
          these  shares.  During  1997,  the  one  hundred  thousand  shares  of
          preferred stock were redeemed for 1.4 million of the Company's  common
          shares, valued at $2,500. The purchase price of ATI Communications has
          been  revised  to reflect  the fair  value of the final  consideration
          given.


17.      Stockholders' Equity

         Preferred Shares

         The Company has authorized 5 million shares of preferred stock,  $10.00
         par value, to be issued from time to time on such terms as is specified
         by the Board of Directors.

         In May 1998, in connection  with the Company's  acquisition of Commstar
         Limited,  an Ontario corporation  ("Commstar"),  the Board of Directors
         authorized the issuance of one share of the Company's  Preferred  Stock
         ($10.00 par value) designated as the Company's Special Voting Preferred
         Stock (the "Special Preferred  Share").  The Special Preferred Share is
         entitled to a number of votes equal to the number of outstanding shares
         of Commstar  not owned by the  Company  that can be  exchanged  for the
         Company's common shares.  The holder of the Special  Preferred Share is
         not  entitled  to  receive  any   dividends  or   participate   in  any
         distribution of assets to the stockholders of the Company.  When all of
         Commstar's  exchangeable  shares have been  exchanged  or redeemed  for
         shares of the Company's Common Stock, the Special  Preferred Share will
         be  cancelled.  The  Company  has the  right  to call  the  outstanding
         exchangeable  shares with the  occurrence of various  events  including
         liquidation  of Commstar and at the five-year  anniversary  date of the
         acquisition.  The Company initially  reserved 3.4 million shares of its
         Common  Stock  to be  exchanged  for  exchangeable  shares  held by the
         Commstar selling shareholders, 1.4 million of which have been exchanged
         into shares of Common  Stock and 2.0  million are  reserved at December
         31,  1998.  On July 30, 1998,  Commstar  acquired  certain  assets from
         Western Inbound Network, Inc., an Ontario corporation, in consideration
         for 0.4 million exchangeable shares.

         In June 1998, in connection  with the Company's  acquisition  of Ground
         Effects Limited, an Ontario corporation  ("Ground Effects"),  the Board
         of  Directors  authorized  the  issuance of one share of the  Company's
         Preferred Stock ($10.00 par value)  designated as the Company's Class B
         Voting  Preferred Stock (the "Class B Special  Preferred  Share").  The
         Class B Special  Preferred Share is entitled to a number of votes equal
         to the number of outstanding  shares of Ground Effects not owned by the
         Company that can be exchanged  for the  Company's  common  shares.  The
         holder  of the  Class B  Special  Preferred  Share is not  entitled  to
         receive any dividends or participate in any  distribution  of assets to
         the stockholders of the Company. When all exchangeable shares of Ground
         Effects have been  exchanged  or redeemed  for shares of the  Company's
         Common  Stock,  the  Special  Preferred  Share will be  cancelled.  The
         Company has the right to call the outstanding  exchangeable shares with
         the  occurrence  of  various  events  including  liquidation  of Ground
         Effects and at the five-year  anniversary date of the acquisition.  The
         Company  has  reserved  1.1  million  shares of its Common  Stock to be
         exchanged  for  exchangeable  shares  held by  Ground  Effects  selling
         shareholders,  0.2 million of which have been  exchanged into shares of
         common stock and 0.9 million are reserved as of December 31, 1998.

         Since the Preferred  Shares provide votes for the equivalent  number of
         common  shares  that may be  exchanged  and the  common  shares  may be
         exchanged at any time at the holders' option, for purposes of computing
         basic and diluted  earnings per share (Note 13),  the  reserved  common
         shares  are  considered  to be  outstanding  for all  periods  that the
         Preferred Shares are issued.


                                      F-21
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


          Warrants

          Warrants are valued at fair value at the date of grant.

          The  Company  has issued  warrants  convertible  into shares of common
          stock for  consideration,  as follows (in thousands,  except  exercise
          price):

<TABLE>
<CAPTION>

Class Of                                                  Exercise                        Exercisable
Warrants       Authorized    Issued       Exercised       Price       Date Of Issue       Period
<S>             <C>          <C>          <C>             <C>         <C>                 <C>


Class F            300          300           260         $ 2.50         December 1994     5 years
Class H            450          450           350           2.00           August 1995     5 years
Class K            250          250            --           5.31        September 1996     5 years
Class L             51           51            50           5.35          October 1996     5 years
Class L             74           74            --           3.00          October 1996     5 years
Class N            800          800           600           3.00           August 1997     5 years
Class P            520          520            --           3.00        September 1997     5 years
Class Q            250          250           250           8.38        September 1997     5 years
Class R            125          125            --           8.38          October 1997     5 years
Class S            600          600            --           2.00            April 1998     5 years
Class U            250          250            --           8.38         November 1998     5 years
                 -----        -----         -----
                 3,670        3,670         1,510
                 =====        =====         =====
</TABLE>

Stock Option Plan


          During 1996,  the Company  adopted a  non-qualified  stock option plan
          (the Option  Plan) and applies APB 25 and related  Interpretations  in
          accounting  for the Option Plan.  Under the Option  Plan,  options are
          granted at an exercise price equal to fair value on the date of grant.
          Accordingly,   no   compensation   cost  has  been   recognized.   Had
          compensation  cost for the Option  Plan been  determined  based on the
          fair  value at the grant  dates for  awards  under  the  Option  Plan,
          consistent  with the  alternative  method  set  forth  under  FAS 123,
          Accounting  for  Stock-Based  Compensation,  the  Company's net income
          applicable to common  stockholders  and earnings per common and common
          equivalent  share would have been  reduced.  The pro forma amounts are
          indicated below (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                     1998                1997
<S>                                                <C>                 <C>


Net Income Available To Common
  Stockholders
   As reported                                     $ 4,646             $ 2,268
   Pro forma                                       $ 2,408             $ 1,614

Earnings Per Common Share - Basic
   As reported                                      $  .14              $  .18
   Pro forma                                        $  .07              $  .13

Earnings Per Common Share - Diluted

   As reported                                      $  .13              $  .15

   Pro forma                                        $  .07              $  .11
</TABLE>

         Under the Option Plan,  options for ten million and five million common
         shares were  authorized for issuance to certain  officers and employees
         of the Company at December 31, 1998 and 1997 respectively, of which 9.8
         million had been issued through  December 31, 1998. The options may not
         be  exercised  until one to three  years  after the  options  have been
         granted, and are exercisable for a period of five years.


                                   F-22
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


         The fair value of each option granted is estimated on the date of grant
         using  the  Black-Scholes   option-pricing  model  with  the  following
         weighted-average assumptions used for grants in 1998 and 1997: dividend
         yield of 0% in both years;  expected  volatility  of 43.69% and 44.03%;
         risk-free interest rate of 8.5% for both years; and expected lives of 5
         years  for both  years.  The  weighted-average  fair  value of  options
         granted  was $1.27 for the year ended  December  31, 1998 and $1.58 for
         the year ended  December 31,  1997.


     A summary of stock  option  activity  for 1998 and 1997 is as  follows  (in
     thousands, except for per share data):

<TABLE>
<CAPTION>

                                              1998                    1997
                                       ---------------------   -------------------
                                                   Weighted-             Weighted-
                                                     Average               Average
                                                    Exercise              Exercise
                                       Shares          Price   Shares        Price
<S>                                    <C>         <C>         <C>       <C>


Outstanding on January 1                3,835      $  4.39      2,180    $  4.40
Granted                                 5,367         2.80      2,487       4.62
Exercised                                  --                    (650)      4.25
Forfeited                                 (97)        4.79       (182)      4.23
                                        -----      -------      ------   -------
Outstanding on December 31              9,105         3.55      3,835       4.39
                                        -----      -------      ------   -------
Exercisable on December 31              2,885         4.48        705       4.44
                                        -----      -------      ------   -------
Shares available on December 31 for
   options that may be granted            450                   1,145
                                        -----                   ------

</TABLE>

The following table summarizes  information  about stock options at December 31,
1998 (in thousands, except for exercise price data and contractual life):

<TABLE>
<CAPTION>

                                  Outstanding Stock Options                Exercisable Stock Options
                       ------------------------------------------------  -------------------------------
                                            Weighted-
                                              Average        Weighted-                        Weighted-
                                            Remaining          Average                          Average
      Range Of                            Contractual         Exercise                         Exercise
  Exercise Prices             Shares             Life            Price          Shares            Price
<S>                           <C>           <C>               <C>               <C>            <C>

   $2.00 to $3.00              2,825             6.22           $ 2.35              70           $ 2.71
   $3.01 to $4.00              3,446             5.49             3.53             930             3.93
   $4.01 to $5.00              1,929             4.70             4.38           1,185             4.38
   $5.01 to $6.00                855             5.03             5.53             700             5.57
   $6.01 to $7.00                 50             5.76             6.99              --               --
                              ------                            ------           -----           ------
   $2.00 to $7.00              9,105                            $ 3.55           2,885           $ 4.48
                              ======                            ======           =====           ======

</TABLE>



18.      Legal Proceedings

         The Company is party to various  legal  proceedings.  In the opinion of
         management, these proceedings are not likely to have a material adverse
         affect on the  financial  position or overall  trends in results of the
         Company.  The estimate of potential  impact on the Company's  financial
         position,  overall  results of  operations  or cash flows for the above
         legal proceedings could change in the future.



                                      F-23
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)



19.      Supplemental Cash Flow Information

         The  changes in  operating  assets and  liabilities  are as follows (in
thousands):
<TABLE>
<CAPTION>

                                                For The Years Ended December 31,
                                                -----------------------------------

                                                       1998        1997        1996
<S>                                             <C>           <C>         <C>

(Increase) decrease in accounts receivable
   and unbilled receivables                     $   (1,922)   $ (3,992)   $     65
Increase in inventories                             (4,148)       (657)       (826)
Increase in prepaid expenses                          (422)       (676)       (140)
Increase in deferred tax asset                         (89)       (121)        (83)
Increase (decrease) in accounts payable
   and accrued expenses                             (4,944)     (1,103)     (1,990)
                                                 ----------   ---------   ---------
                                                 $ (11,525)   $ (6,549)   $ (2,974)
                                                 ==========   =========   =========
</TABLE>

         In the years ended  December 31, 1998,  1997 and 1996,  the Company had
         the  following   noncash   investing  and  financing   activities   (in
         thousands):

<TABLE>
<CAPTION>

                                                1998          1997             1996
<S>                                             <C>           <C>             <C>


Payment of debt in exchange for common stock    $     --       $     521      $     300

Assets acquired for long-term debt                 2,042             490             --

Assets acquired for common stock                  25,408          13,485         14,396

Capital leases                                       593             124            128

Sale of assets for preferred stock                 3,000              --             --

Other                                                132              --             37
</TABLE>

         On December  31,  1998,  the Company  entered  into a Purchase and Sale
         Agreement  for  the  sale  of  certain  of  its  cellular  assets.   In
         consideration,  the Company  received one  thousand  shares of 6% first
         series  preferred  stock of the purchaser of the cellular assets in the
         face amount and having a  liquidation  value of $1  million.  The first
         series preferred stock may be redeemed at any time through December 31,
         2004.  This sale  resulted in a gain of $647,000  included in operating
         income.

         On December 31, 1998, the Company entered into an Agreement for Sale of
         Stock  for the  sale of its  investment  in a  subsidiary  company.  In
         consideration, the Company received two thousand shares of 6% preferred
         stock of the purchaser of the  subsidiary in the face amount and having
         a  liquidation  value of $2 million,  due December 31, 2003.  This sale
         resulted in a gain of $86,000 included in operating income.


20.       Segment Information


          In 1998, the Company adopted  FAS No. 131. Prior year  information has
          been restated to present the Company's reportable segments.

          The Company is  organized  into seven  operating  segments.  The seven
          segments and their principal products and services are as follows:


                                      F-24
<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


           Operating Segment           Principal Products and Services


Telecommunications                    o   Telephone services and systems
                                      o   Computer telephony integration
                                      o   Interactive voice response
                                      o   Call centers
                                      o   Voice messaging

Network Infrastructure                o   Computer systems
                                      o   Local area networks
                                      o   Application servers

Internet                              o   Electronic commerce
                                      o   Intranet
                                      o   Extranet
                                      o   Wide area networks

Communications Infrastructure         o   Communications towers
                                      o   Fiber optics
                                      o   Cabling
                                      o   Power distribution
                                      o   Communications equipment

Application Technology                o   Global positioning systems
                                      o   Field automation
                                      o   Asset management
                                      o   Satellite systems
                                      o   Corporate enterprise access
                                      o   Decision support
                                      o   Voice/data technology

Inteletek                             o   Purchase/sale of new and used computer
                                          equipment
                                      o   Peripherals
                                      o   Components
                                      o   Business continuity services
                                      o   Consulting
                                      o   Systems integration


Non-Core                              o   Transportation
                                      o   Electrical components
                                      o   Control panels
                                      o   Design engineering
                                      o   Manufacturing engineering
                                      o   Automation systems
                                      o   Vacuum pumps



The  accounting  policies  of the  operating  segments  are the  same  as  those
described  in the  summary  of  significant  accounting  policies,  except  that
intersegment sales and transfers are generally  accounted for as if the sales or
transfers were to third parties at current market prices;  segment data includes
an allocated charge for the corporate headquarters costs; and segment income tax
expense is allocated to the segments by an application of the effective tax rate
to the  profit or loss of each  segment.  It is on this  basis  that  management
utilizes  the  financial  information  to assist in  making  internal  operating
decisions.  The  Company  evaluates  performance  based on stand  alone  segment
operating income.


                                       F-25
<PAGE>
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


     The   "Eliminations"   category   includes  all  amounts   recognized  upon
     consolidation  of the Company's  subsidiaries  such as the  elimination  of
     intersegment  revenues,  expenses,  assets  and  liabilities  and  goodwill
     amortization expense.


<TABLE>
<CAPTION>

                                                                         1998 (In thousands)
                                    Communi-
                                 Network cations
                            Telecommun- Infra-              Infra-    Application                    Corporate  Elimina-  Consol-
                            ications    structure Internet  structure Technology Inteletek Non-Core  Overhead   tions     idated
<S>                         <C>         <C>       <C>       <C>       <C>        <C>       <C>       <C>        <C>       <C>

Net revenue from external
  customers                 $ 30,369    $ 21,282  $ 2,901   $ 43,729  $ 19,859   $ 60,877  $ 28,064  $    --    $     --  $207,081

Intersegment net revenue          --          --       --         --       --       1,949        --       --      (1,949)       --
                            --------    --------  -------   --------  --------   --------  --------  ---------  --------  --------
Total revenue                 30,369      21,282    2,901     43,729    19,859     62,826    28,064       --      (1,949)  207,081
                            ========    ========  =======   ========  ========   ========  ========  =========  ========  ========
Depreciation and
  amortization                   653          39       24        458     1,241        251       477      137       1,221     4,501
Operating income                 852       1,563      272      3,789     1,424      4,509     1,122   (3,376)     (1,220)    8,935
Interest income                  128          14        1         71        47         45        12      686        (584)      420
Interest expense                 468         144       63        111       192        340       448      471        (584)    1,653
Income tax expense
  (benefit)                     (935)        498       43      1,050      (359)       757       163      440         931     2,588

Segment assets                21,066       5,528      923     13,497    22,849     13,595    15,777  147,518    (116,637)  124,116
Expenditures for property        226          46        5        574        73        138       214      674          --     1,950

</TABLE>

<TABLE>
<CAPTION>
                                                                      1997 (In thousands)

                                    Communi-
                                 Network cations
                            Telecommun- Infra-              Infra-    Application                    Corporate  Elimina-  Consol-
                            ications    structure Internet  structure Technology Inteletek Non-Core  Overhead   tions     idated
<S>                         <C>         <C>       <C>       <C>       <C>        <C>       <C>       <C>        <C>       <C>

Net revenue from external
  customers                 $ 32,208    $     --  $    --   $  8,545  $  9,574   $ 39,445  $ 13,387  $    --    $     --  $103,159
Intersegment net revenue          --          --       --         --        --      2,127        --       --      (2,127)       --
                            --------    --------  -------   --------  --------   --------  --------  ---------  --------  --------
Total revenue                 32,208          --       --      8,545     9,574     41,572    13,387       --      (2,127)  103,159
                            ========    ========  =======   ========  ========   ========  ========  =========  ========  ========
Depreciation and
  amortization                   300          --       --        104       459        108       173       17         713     1,874
Operating income               1,477          --       --        348     2,159      2,356       626     (665)       (709)    5,592
Interest income                   62          --       --          1        26          1         6      130         (34)      192
Interest expense                 491          --       --         44       103        152       212        9         (33)      978
Income tax expense
  (benefit)                      251          --       --        125       312        883       161     (203)        240     1,769

Segment assets                12,559          --       --      4,490    77,886      8,736     8,177    3,523     (54,089)   61,282
Expenditures for property        118          --       --         62       141        364       216       15          --       916

</TABLE>

                                      F-26

<PAGE>
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>

                                                                        1996 (In thousands)
                                    Communi-
                                 Network cations
                            Telecommun- Infra-              Infra-    Application                    Corporate  Elimina-   Consol-
                            ications    structure Internet  structure Technology Inteletek Non-Core  Overhead   tions      idated
<S>                         <C>         <C>       <C>       <C>       <C>        <C>       <C>       <C>        <C>        <C>

Net revenue from external
  customers                 $ 10,537    $     --  $    --   $     --  $  3,394   $  1,993  $  3,839  $   120    $     --   $ 19,883
Intersegment net revenue          --          --       --         --        --         --        --       --          --         --
                            --------    --------  -------   --------  --------   --------  --------  ---------  --------   --------
Total revenue                 10,537          --       --         --     3,394      1,993     3,839      120          --     19,883
                            ========    ========  =======   ========  ========   ========  ========  =========  ========   ========
Depreciation and
  amortization                    83          --       --         --       241          2        37        9         340        712
Operating income                 896          --       --         --       (68)       504       444      241        (763)     1,254
Interest income                   31          --       --         --        --          1         4       90          --        126
Interest expense                 137          --       --         --        23         10        23        7          --        200
Income tax expense
  (benefit)                      296          --       --         --      (181)       190       158      (37)        (64)       362
Segment assets                24,280          --       --         --    24,198      1,920     2,608    3,033     (22,831)    33,208
Expenditures for property         25          --       --         --        26          8        13       37          --        109

</TABLE>

Revenues are attributed to geographic  areas based on the location of the assets
producing the revenues.  Information concerning principal geographic areas as of
and for the years ended December 31, was as follows (in thousands):


<TABLE>
<CAPTION>
                                                 United
                   United States    Canada       Kingdom       Consolidated
<S>                <C>              <C>          <C>           <C>

1998
Net revenue        $ 172,369        $ 22,017     $ 12,695      $ 207,081
Total assets          91,458          18,137       14,521        124,116


1997
Net revenue        $  96,796        $  1,381     $  4,982      $ 103,159
Total assets          56,177           1,254        3,851         61,282


1996
Net revenue        $  19,883        $    --      $    --       $  19,883
Total assets          33,208             --           --          33,208

</TABLE>

                                      F-27

<PAGE>

APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)


21.       Related Party Transactions



          In connection with the acquisitions which took place in 1998, 1997 and
          1996, the Company paid a related party, $0.6 million, $0.5 million and
          $0.5 million,  respectively,  for investment  banking services.  These
          payments were  included in the total cost of assets  purchased and are
          being amortized over the life of the related assets.

          In 1998, the Company sold its investment in a subsidiary  company to a
          related party for two thousand shares of preferred stock.


22.       Pro Forma Information (Unaudited)



          The following pro forma  consolidated  information  of the Company for
          the  years  ended  December  31,  1998 and 1997  gives  effect  to the
          acquisitions,  disclosed  in  Note 2, as if  they  were  effective  at
          January 1, 1997. The statement gives effect to the acquisitions  under
          the purchase method of accounting.

          The pro forma  information  may not be  indicative of the results that
          would have actually occurred if the acquisitions had been effective on
          the dates  indicated  or of the  results  that may be  obtained in the
          future.  The pro forma information  should be read in conjunction with
          the  consolidated  financial  statements  and  notes  thereto  of  the
          Company.
<TABLE>
<CAPTION>


                                    Pro Forma
                                 (In thousands)
                                  December 31,
                                                    ----------------------------
<S>                                                  <C>             <C>

                                                          1998            1997

Net operating revenue                                $ 230,425       $ 231,151

Net income                                               2,803           2,873

Net income available to common stockholders              2,759           2,312

Earnings per common share - basic                          .08             .08

Earnings per common share - diluted                        .08             .07

</TABLE>

                                   F-28
<PAGE>

<TABLE>


                                                   APPLIED CELLULAR TECHNOLOGY, INC.

                                             SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                                            (In Thousands)

<CAPTION>

                                                                                   Additions
                                                                          --------------------------
                                                            Balance At     Charged To     Valuation                   Balance At
                                                            Beginning       Cost And      Accounts                      End Of
                   Description                              Of Period       Expenses      Acquired     Deductions       Period
- ------------------------------------------------------------------------- -------------- ----------- ---------------  -----------
<S>                                                         <C>            <C>            <C>          <C>            <C>

Valuation reserve deducted in the balance sheet from the
  asset to which it applies:
      Accounts Receivable:
         1998 Allowance for doubtful accounts                $ 675         $ 1,031        $ 262         $ 978            $ 990
         1997 Allowance for doubtful accounts                  101             328          270            24              675
         1996 Allowance for doubtful accounts                  ---              43          100            42              101
      Inventory:
         1998 Allowance for excess and obsolescence            896             468           11           ---            1,375
         1997 Allowance for excess and obsolescence            ---             ---        1,108           212              896
         1996 Allowance for excess and obsolescence            ---             ---          ---           ---              ---



</TABLE>






                                      F-29

<PAGE>

               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except par value)
                                   (Unaudited)


                                      Assets
                                                    March 31,     December 31,
                                                       1999             1998
                                                    ----------    ------------
Current Assets
   Cash and cash equivalents                        $     698       $    4,555
   Accounts receivable (net of allowance for
      doubtful accounts of $772 in 1999
      1999 and $990 in 1998)                           36,423           34,390
   Inventories                                         21,847           20,657
   Notes receivable                                     3,224            3,600
   Prepaid expenses and other current assets            2,386            2,042
                                                    ---------       ----------
         Total Current Assets                          64,578           65,244

Property And Equipment, net                            15,914           15,627

Notes Receivable                                        1,538            1,445

Goodwill, net                                          41,708           33,430

Other Assets                                            8,326            8,370
                                                    ---------        ---------

                                                    $ 132,064        $ 124,116
                                                    =========        =========

                      Liabilities And Stockholders' Equity

Current Liabilities
   Notes payable                                     $ 20,283        $  23,217
   Current maturities of long-term debt                 3,235            1,158
   Accounts payable and accrued expenses               32,254           26,382
                                                     --------        ----------
         Total Current Liabilities                     55,772           50,757

Long-Term Debt                                          3,081            2,838
                                                     --------        ----------

         Total Liabilities                             58,853           53,595
                                                    ---------        ----------

Commitments And Contingencies                              --               --
                                                    ---------        ----------

Minority Interest                                       3,204            2,961
                                                    ---------        ----------

Stockholders' Equity
   Preferred shares:
      Authorized 5,000 shares of $10 par value;
         special voting, issued and
         outstanding 1 share, Class B voting,
         issued and outstanding 1 share                    --               --
   Common shares:
      Authorized 80,000 shares of $.001 par
         value;  issued  40,556  shares and
         outstanding 40,450 shares in 1999 and
         issued 35,683 shares and outstanding
         35,577 shares in 1998                             40               36
   Common and preferred additional paid-in
         capital                                       64,719           60,517
   Retained earnings                                    5,587            7,232
   Treasury stock (carried at cost, 106 shares)          (337)            (337)
   Accumulated other comprehensive income                  (2)             112
                                                    ---------        ----------
         Total Stockholders' Equity                    70,007           67,560
                                                    ---------        ----------
                                                    $ 132,064        $ 124,116
                                                    =========        ==========

See the accompanying notes to consolidated financial statements.

                                      F-30
<PAGE>
               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)


                                                         For The Three Months
                                                            Ended March 31,
                                                       1999              1998
                                                       -----------------------

Net Operating Revenue                                $ 51,573           38,784

Cost of Goods Sold                                     33,176           28,298
- ------------------------------------------------------------------------------

Gross Profit                                           18,397           10,486
- ------------------------------------------------------------------------------

Operating Costs and Expenses
   Selling, general and administrative expenses        17,512            9,131
   Restructuring and unusual costs                      2,550               --
- ------------------------------------------------------------------------------
         Total Operating Costs And Expenses            20,062            9,131
- ------------------------------------------------------------------------------

Operating Income (Loss)                                (1,665)           1,355

Interest Income                                           134              106

Interest Expense                                         (445)            (234)
                                                       -------          -------

Income (Loss) Before Provision (Benefit) For Income
   Taxes And Minority Interest                         (1,976)           1,227

Provision (Benefit) For Income Taxes                     (575)             518
                                                       -------          ------

Income (Loss) Before Minority Interest                 (1,401)             709

Minority Interest                                         244               94
                                                     ---------         -------

Net Income (Loss)                                      (1,645)             615

Preferred Stock Dividends                                  --               18
                                                     ---------         -------

Net Income (Loss) Available to Common Stockholders   $ (1,645)         $   597
                                                     =========         =======

Net Income (Loss) Per Common Share - Basic           $   (.04)         $   .03
Net Income (Loss) Per Common Share - Diluted         $   (.04)         $   .02

Weighted Average Number Of Common
   Shares Outstanding - Basic                          41,236           23,711
Weighted Average Number Of Common
   Shares Outstanding - Diluted                        41,909           24,956


See the accompanying notes to consolidated financial statements.


                                      F-31
<PAGE>
<TABLE>
<CAPTION>

               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
            For The Three Month Periods Ended March 31, 1999 And 1998
                                 (In thousands)
                                   (Unaudited)




                                                                                                         Accumulated   Total
                                      Preferred Stock    Common Stock          Additional                Other         Stock-
                                      ---------------  ----------------  Paid-In    Retained   Treasury  Comprehensive holders'
                                       Number  Amount  Number    Amount  Capital    Earnings   Stock     Income        Equity
                                      -------  ------  -------   ------  --------   ---------  --------  ------------- --------
<S>                                   <C>      <C>     <C>      <C>      <C>        <C>        <C>        <C>          <C>

Balance - January 1, 1998                --    $ --    20,672    $ 21    $ 33,680   $  2,586   $   --     $     (3)    $ 36,284
                                      ------   -----   ------    ----    --------   ---------  -------    ---------    --------

   Net income                            --      --        --      --          --        615       --           --          615
   Comprehensive income -
      foreign currency translation       --      --        --      --          --         --       --           32           32
                                      ------   -----   ------    ----    --------   ---------  -------    ---------    --------
         Total comprehensive income      --      --        --      --          --        615       --           32          647
                                      ------   -----   ------    ----    --------   ---------  -------    ---------    --------
   Issuance of common stock              --      --     3,843       4       5,917         --       --           --        5,921
   Preferred stock dividends paid        --      --        --      --          --        (18)      --           --          (18)
                                      ------   -----   ------    ----    --------   ---------  -------    ---------    ---------

Balance - March 31, 1998                 --    $ --    24,515    $ 25    $ 39,597   $  3,183   $   --      $    29     $ 42,834
                                      ======   =====   ======    ====    ========   =========  =======     ========    ========

Balance - January 1, 1999                --    $ --    35,577    $ 36    $ 60,517   $  7,232   $ (337)     $   112     $ 67,560
                                      ------   -----   ------    ----    --------   ---------  -------     --------    --------

   Net loss                              --      --        --      --          --     (1,645)      --           --       (1,645)
   Comprehensive loss -
      foreign currency translation       --      --        --      --          --         --       --         (114)        (114)
                                      ------   -----   ------    ----    --------   ---------  -------    ---------    --------
         Total comprehensive loss        --      --        --      --          --     (1,645)      --         (114)      (1,759)
                                      ------   -----   ------    ----    --------   ---------  -------    ---------    --------
   Issuance of common shares             --      --         5      --          16         --       --           --           16
   Issuance of common shares for
      accquisition                       --      --     4,868       4       4,186         --       --           --        4,190
                                      ------   -----   ------    ----    --------   ---------  -------    ---------    --------

Balance - March 31, 1999                 --    $ --    40,450    $ 40    $ 64,719   $  5,587   $ (337)     $    (2)    $ 70,007
                                      ======   =====   ======    ====    ========   =========  =======    =========    ========

</TABLE>


See the accompanying notes to consolidated financial statements.


                                      F-32
<PAGE>


<TABLE>
<CAPTION>
               APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

                                                               For The Three Months
                                                                  Ended March 31,
                                                             -----------------------
                                                                1999         1998
                                                             -----------   ---------
<S>                                                          <C>           <C>

Cash Flows From Operating Activities
   Net income (loss)                                         $   (1,645)   $    615
   Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
         Depreciation and amortization                            1,486         695
         Minority interest                                          244          94
         Gain on sale of equipment                                   --         (14)
         Loss on restructuring                                      205          --
         Change in assets and liabilities:
            (Increase) decrease in accounts receivable           (2,032)         91
            (Increase) in inventories                            (1,190)     (1,011)
            (Increase) in prepaid expenses                         (267)       (352)
            Decrease in deferred tax asset                           --          29
            Increase (decrease) in accounts payable and
               accrued expenses                                   3,617        (894)
                                                             -----------   --------
Net Cash Provided By (Used In) Operating Activities                 418        (747)
                                                             -----------   --------
Cash Flows From Investing Activities
   (Increase) decrease in notes receivable - officers               130        (211)
   (Increase) in other assets                                      (257)       (584)
     Proceeds from sale of property and equipment                    20          86
   Payments for property and equipment                             (757)       (611)
   Proceeds from (payments for) costs of asset and
      business acquisitions (net of cash balances
      acquired)                                                  (2,411)      1,279
                                                             -----------   --------
Net Cash Provided By (Used In) Investing Activities              (3,275)        (41)
                                                             -----------   --------
Cash Flows From Financing Activities
   Net amounts (paid) on notes payable                           (2,935)       (192)
   Proceeds from long-term debt                                   2,331         255
   Payments on long-term debt                                      (289)       (737)
   Redemption of preferred shares                                    --        (200)
   Preferred stock dividends paid                                    --         (72)
   Other financing costs                                           (107)         --
                                                             -----------   --------
Net Cash Provided By (Used In) Financing Activities              (1,000)       (946)
                                                             -----------   --------
Net Decrease In Cash And Cash Equivalents                        (3,857)     (1,734)

Cash And Cash Equivalents - Beginning Of Period                   4,555       7,657
                                                             -----------   --------

Cash And Cash Equivalents - End Of Period                     $     698    $  5,923
                                                             ===========   ========

Supplemental Disclosure Of Cash Flow Information
   Income taxes paid                                          $     178    $    300
   Interest paid                                                    462         154
   Noncash investing and financing activities:
      Property acquired for long-term debt                          279         352
                                                             -----------   --------

</TABLE>

See the accompanying notes to consolidated financial statements.

                                      F-33
<PAGE>


                        APPLIED CELLULAR TECHNOLGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (In thousands, except per share data)
                                   (Unaudited)

1.       Basis of Presentation

         The accompanying unaudited consolidated financial statements of Applied
Cellular  Technology,  Inc. (the "Company") as of and for the three months ended
March 31, 1999 and 1998 have been prepared in accordance with generally accepted
accounting   principles  for  interim   financial   information   and  with  the
instructions  to Form 10-Q and Article 10 of  Regulation  S-X of the  Securities
Exchange Act of 1934.  Accordingly,  they do not include all of the  information
and footnotes required by generally accepted accounting  principles for complete
financial   statements.   In  the  opinion  of  Applied  Cellular   Technology's
management,  all adjustments  (consisting of only normal recurring  adjustments)
considered  necessary to present fairly the  consolidated  financial  statements
have been made.

         The  consolidated  statement of  operations  for the three months ended
March  31,  1999  is  not  necessarily  indicative  of the  results  that may be
expected for the entire year.  These  statements  should be read in  conjunction
with the consolidated financial statements and related notes thereto included in
our Annual Report on Form 10-K for the year ended December 31, 1998.

2.       Principles of Consolidation

         The  financial  statements  include the accounts of the Company and its
wholly owned and  majority  owned  subsidiaries.  All  significant  intercompany
accounts and transactions have been eliminated in consolidation.

3.       Inventory

         Inventory at March 31, 1999 and December 31, 1998 consists of:

                                                        March 31,   December 31,
                                                          1999          1998
                                                        ---------   ------------
         Raw materials                                  $  4,515      $ 4,437
         Work in process                                   2,015        2,349
         Finished goods                                   15,919       15,246
                                                        ---------   ----------
                                                          22,449       22,032
         Allowance for excess and obsolescence              (602)      (1,375)
                                                        =========   ==========
                                                        $ 21,847      $20,657
                                                        =========   ==========

4.       Business Restructuring and Unusual Charges

         In the first  quarter of 1999,  a pre-tax charge of $2,550 was recorded
to cover restructuring costs of $2,236 and unusual charges of $314.

Restructuring Charge

         As part of the Company's  reorganization of its core business into five
reportable  business groups,  the Company has implemented a restructuring  plan.
The restructuring plan includes the exiting of selected lines of business within
the Company's Telecommunications and Application Technology business groups, and

                                      F-34

<PAGE>

                        APPLIED CELLULAR TECHNOLGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (In thousands, except per share data)
                                   (Unaudited)

the associated  write-off of assets. The restructuring charge of $2,236 includes
asset  impairments,  primarily  software and other intangible assets, of $1,522,
lease  terminations of $541, and employee  separations of $173. The total charge
reduced net income by $1,588.

         The following  table sets forth the rollforward of the liabilities  for
business  restructuring  from January 1, 1999 through March 31, 1999:
<TABLE>
<CAPTION>

                                   Balance,                            Balance,
                                   January 1,                          March 31,
        Type of Cost               1999        Additions  Deductions   1999
        ----------------------     ----------  ---------  ----------   ---------
        <S>                         <C>        <C>        <C>           <C>


        Asset Impairment            $    0     $ 1,522    $ (1,522)     $     0
        Lease terminations               0         541         (30)         511
        Employee separations             0         173         (30)         143
                                    ======     =======    =========     =======
        Total                       $    0     $ 2,236    $ (1,582)     $   654
                                    ======     =======    =========     =======
</TABLE>


         Management   believes   that  the   remaining   reserves  for  business
restructuring are adequate to complete its plan and anticipates completing it by
the end of 1999.

Unusual Items

         During  the  first  quarter  of  1999,  as part of the  Company's  core
business  reorganization,  the Company realigned  certain  operations within its
Telecommunications  division  and has  recognized  impairment  charges and other
related costs of $314. The total charge reduced net income by $223.

                                      F-35
<PAGE>
                        APPLIED CELLULAR TECHNOLGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (In thousands, except per share data)
                                   (Unaudited)

5.       Earnings Per Share

         The following is a  reconciliation  of the numerator and denominator of
basic and diluted earnings per share:
                                                           Three Months Ended
                                                                March 31,
                                                          ======================
                                                           1999          1998
                                                          ---------    ---------
         Numerator:
         Net (loss) income                                $ (1,645)    $    615
         Preferred stock dividends                              --          (18)
                                                          ---------    ---------
         Numerator for basic earnings per share -
              Net (loss) income available to common
                stockholders                                (1,645)         597
         Effect of dilutive securities:
             Preferred stock dividends                          --           18
                                                          ---------    ---------
         Numerator for diluted earnings per share -
             Net (loss) income available to common
                stockholders                              $ (1,645)    $    615
                                                          =========    =========
         Denominator:
         Denominator for basic earnings per share -
             Weighted-average shares (1)                    41,236       23,711
                                                          ---------    ---------
         Effect of dilutive securities -
             Redeemable preferred stock                         --          122
             Warrants                                          293          624
             Employee stock options                            380          499
                                                          ---------    ---------
         Dilutive potential common shares                      673        1,245
                                                          ---------    ---------
         Denominator for diluted earnings per share -
             Adjusted Weighted-average shares and
             assumed conversions
                                                            41,909       24,956
                                                          =========    =========

         Basic earnings per share                         $  (0.04)       $0.03
                                                          =========    =========

         Diluted earnings per share                       $  (0.04)       $0.02
                                                          =========    =========
         -----------------------

         1.       Includes,  for the three month  period  ended March 31,  1999,
                  1,257  shares of common  stock  reserved  for  issuance to the
                  holders of  TigerTel  Services  Limited's  (formerly  Commstar
                  Ltd.) Exchangeable  Shares  and  136  shares  of common  stock
                  reserved  for  issuance  to the  holder's  of ACT-GFX  Canada,
                  Inc.'s Exchangeable Shares.

                                      F-36
<PAGE>
                        APPLIED CELLULAR TECHNOLGY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (In thousands, except per share data)
                                   (Unaudited)


6.       Segment Information

          In 1998,  the  Company  adopted   Statement  of  Financial  Accounting
Standard  No.  131,  Disclosures  about  Segments of an  Enterprise  and Related
Information.  Prior year information has been restated to present our reportable
segments.

         The accounting policies of the operating segments are the same as those
described in the summary of  significant  accounting  policies in the  Company's
Annual  Report on Form 10-K filed for the year ended  December 31, 1998,  except
that  intersegment  sales and transfers  are  generally  accounted for as if the
sales or transfers were to third parties at current market prices. It is on this
basis that  management  utilizes the financial  information  to assist in making
internal  operating  decisions.   Segment  performance  is  evaluated  based  on
stand-alone segment operating income.

         Following is the  selected  segment data as of and for the three months
ended March 31, 1999:
<TABLE>
<CAPTION>

                       --------- ---------- --------  --------- -------  --------   --------  --------- ------------  ------------
                                                      Communi-  Appli-
                       Tele-     Network              cations   cation
                       communi-  Infra-               Infra-    Tech-    Intelle-             Corporate
                       cations   structure  Internet  structure nology   sale.com   Non-Core  Overhead  Eliminations  Consolidated
                       --------- ---------- --------  --------- -------  ---------  --------  --------- ------------  ------------
<S>                    <C>         <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>           <C>

External revenue        $9,012     $4,006    $997      $9,010    $6,755   $15,574   $ 6,201      $ 18     $   --       $ 51,573
Intersegment revenue        --         --      --          --        --     1,533        --        --     (1,533)            --
                        ======     ======   ======    =======    ======   =======   =======   ========   ========      =========
 Total revenue           9,012      4,006     997       9,010     6,755    17,107     6,201        18     (1,533)        51,573
                        ======     ======   ======    =======    ======   =======   =======   ========   ========      =========

Operating income
(loss)                     566        230     (23)        180      (323)    2,372       101    (4,381)      (387)        (1,665)
                        ======     ======   ======    =======   =======   =======   =======   =======   ==========     =========

Total assets            23,400      3,516   1,205      12,771    21,501    16,938    16,636   156,361   (120,264)       132,064
                       =======     ======   ======    =======   =======   =======   =======   =======   ==========     =========
</TABLE>


<TABLE>
         Following is the  selected  segment data as of and for the three months
ended March 31, 1998:
<CAPTION>
                       --------- ---------- --------  --------- -------  --------   --------  --------- ------------  ------------
                                                      Communi-  Appli-
                       Tele-     Network              cations   cation
                       communi-  Infra-               Infra-    Tech-     Intelle-            Corporate
                       cations   structure  Internet  structure nology    sale.com  Non-Core  Overhead  Eliminations  Consolidated
                       --------- ---------- --------  --------- -------   --------- --------  --------- ------------  ------------

<S>                    <C>         <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>           <C>

External revenue        $7,024     $5,446    $--      $10,001    $1,703   $10,622   $ 3,776   $   212     $   --        $38,784
Intersegment revenue        --         --     --           --        --       233       --        --        (233)           --
                        ======     ======   =====     =======   =======   =======   ========  ========  =========       =======
Total revenue            7,024      5,446     --       10,001     1,703    10,855     3,776       212       (233)        38,784
                        ======     ======   =====     =======   =======   =======   ========  ========  =========       =======

Operating income
(loss)                     359        612     --          410        42       835        (9)     (652)      (242)         1,355
                       =======     ======   =====     =======   =======   =======   ========  ========  =========       =======

Total assets            11,376      3,472     --       11,290     9,329     8,689     8,320    87,253    (66,662)        73,067
                       =======     ======   =====     =======   =======   =======   ========  ========  =========       =======
</TABLE>

                                     F-37
<PAGE>

7.       Subsequent Events

         On May 7,  1999 the  Company  entered  into an  agreement  to merge its
wholly  owned  Canadian  subsidiary,  TigerTel  Services  Limited,  with Contour
Telecom Management,  Inc., a Canadian company.  Subject to Contour's shareholder
approval,  the Company  expects to  receive,  in a reverse  merger  transaction,
27,257,188 shares of Contour's common stock,  representing  approximately 80% of
the total  outstanding  shares.  The transaction is expected to be accounted for
under the purchase method of accounting.




















                                      F-38
<PAGE>


Signature Industries Limited
- --------------------------------------------------------------------------------

PROFIT AND LOSS ACCOUNTS
for the years ended 31 March 1998 and 31 March 1997

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



<TABLE>
<CAPTION>

                                                                1998        1997
                                                    Notes (pound)000  (pound)000

<S>                                                    <C>    <C>         <C>
TURNOVER                                                2     12,266      14,820
Cost of sales                                                  7,499       8,590
                                                          ----------  ----------
Gross profit                                                   4,767       6,230
Administrative expenses                                        5,693       5,337
                                                          ----------  ----------
OPERATING (LOSS)/PROFIT                                 3       (926)        893
Bank interest receivable                                          26          23
Interest payable                                        6       (138)       (151)
                                                          ----------  ----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION          (1,038)        765
Taxation                                                7        (57)        145
                                                          ----------  ----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION             (981)        620
Dividends on non-equity shares                          8        282         332
                                                          ----------  ----------
RETAINED (LOSS)/PROFIT FOR THE YEAR                           (1,263)        288
                                                          ==========  ==========
</TABLE>




There are no recognised gains or losses other than as shown above.

A statement of the movement on reserves is shown in note 19 to the accounts.

A summary of the significant adjustments to (loss)/profit on ordinary activities
after  taxation  that would be  required  if United  States  generally  accepted
accounting  principles were to be applied instead of those generally accepted in
the United Kingdom is shown in note 23 to the accounts.




                                                                               1

                                      F-39
<PAGE>


Signature Industries Limited
- --------------------------------------------------------------------------------

BALANCE SHEETS
at 31 March 1998 and 31 March 1997

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


<TABLE>
<CAPTION>

                                                                 1998       1997
                                                       Notes pound)000 pound)000

<S>                                                       <C>   <C>        <C>
FIXED ASSETS
Intangible assets                                          9    1,246      1,371
Tangible assets                                           10      951      1,111
Investments                                               11      290        290
                                                              -------    -------
                                                                2,487      2,772
                                                              -------    -------
CURRENT ASSETS
Stocks                                                    12    1,514      1,555
Debtors                                                   13    1,979      3,321
Cash at bank and in hand                                            2      1,032
                                                              -------    -------
                                                                3,495      5,908
CREDITORS: amounts falling due within one year            14    2,944      4,758
                                                              -------    -------
NET CURRENT ASSETS                                                551      1,150
                                                              -------    -------
TOTAL ASSETS LESS CURRENT LIABILITIES                           3,038      3,922

CREDITORS: amounts falling due after more than one year   16      171        159
                                                              -------    -------
                                                                2,867      3,763
                                                              =======    =======
CAPITAL RESERVES
Called up share capital                                   18      370        370
Share premium account                                     19    3,330      3,330
Profit and loss account                                   19     (833)        63
                                                              -------    -------
Shareholders' funds (including non-equity interests)      19    2,867      3,763
                                                              =======    =======
</TABLE>

A summary of the significant  adjustments to  shareholders'  funds that would be
required if United States generally  accepted  accounting  principles were to be
applied  instead of those  generally  accepted in the United Kingdom is shown in
note 23 to the accounts.



                                                                               2

                                      F-40
<PAGE>


Signature Industries Limited
- --------------------------------------------------------------------------------

STATEMENTS OF CASH FLOWS
for the years ended 31 March 1998 and 31 March 1997

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

<TABLE>
<CAPTION>



                                                                     1998          1997
                                                      Notes    (pound)000    (pound)000

<S>                                                      <C>       <C>           <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES                 3(b)         24         1,273
                                                              -----------   -----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received                                                      26            23
Interest paid                                                         (36)          (75)
Interest element of finance lease rental payments                     (17)           (2)
Preference dividends paid                                            (400)            -
                                                              -----------   -----------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS
 AND SERVICING OF FINANCE                                            (427)          (54)
                                                              -----------   -----------
TAXATION
Corporation tax paid                                                 (201)          (10)
                                                              -----------  -----------
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets                             (79)         (280)
Receipts from sales of tangible fixed assets                            -            16
                                                              -----------   -----------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE                             (79)         (264)
                                                              -----------   -----------
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING                           (683)          945
                                                              ===========   ===========
FINANCING
Repayments of borrowings                                 17           500           500
Capital element of finance lease rental payments         17            66            15
                                                              -----------   -----------
NET CASH OUTFLOW FROM FINANCING                                       566           515
(DECREASE)/INCREASE IN CASH                                        (1,249)          430
                                                              -----------   -----------
                                                                     (683)          945
                                                              ===========   ===========
</TABLE>

<TABLE>

        RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS

<CAPTION>
                                                                   1998          1997
                                                              (pound)000    (pound)000

<S>                                                               <C>              <C>
(Decrease)/increase in cash in the year                           (1,249)          430
Net cash outflow from decrease in debt and lease financing           566           515
                                                             -----------   -----------
Change in net cash resulting from cash flows                        (683)          945
New finance leases                                                  (115)         (215)
                                                             -----------   -----------
Movement in net (debt)/funds in the year                            (798)          730

Net funds/(debt) at beginning of year                                186          (544)
                                                             -----------   -----------
Net (debt)/funds at end of year                                     (612)          186
                                                             ===========   ===========
</TABLE>

A  summary  of the  significant  differences  between  the  cashflow  statements
presented  above and those  required  under  United  States  generally  accepted
accounting  principles were to be applied instead of those generally accepted in
the United Kingdom is shown in note 23 to the accounts.



                                                                               3

                                      F-41
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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


1.      ACCOUNTING POLICIES

Accounting convention

The accounts are prepared under the historical cost convention and in accordance
with applicable United Kingdom accounting standards.

Group  accounts

The company is not  required to prepare  group  accounts by virtue of S229(5) of
the  Companies  Act 1985,  on the grounds that the  inclusion of its  subsidiary
undertaking is not material for the purpose of giving a true and fair view.

The accounts  therefore  present  information about the company as an individual
undertaking and not about its group.

Goodwill

Goodwill is the  difference  between the amount paid on the  acquisition  of the
business and the aggregate  fair value of its separable net assets.  It is being
written off in equal annual  instalments over its estimated  economic life of 15
years.

Depreciation

Depreciation  is provided on all tangible  fixed assets at rates  calculated  to
write off the cost less estimated  residual value, of each asset evenly over its
expected useful life, as follows:

Short leasehold buildings     -      10 - 20 years
Plant and machinery           -      2 - 10 years
Fixtures and fittings         -      10 years
Computer equipment            -      5 years

Stocks

Stocks are stated at the lower of cost and net realisable value as follows:

Cost incurred in bringing each product to its present location and condition:

     Raw  materials  and  goods  for  resale  -  purchase  cost  on a  first-in,
          first-out basis.

     Work in progress and finished  goods - cost of direct  materials and labour
          plus attributable overheads based on a normal level of activity.

Net realisable value is based on estimated  selling price less any further costs
expected to be incurred to completion and disposal.

Research and development

Research and development expenditure is now written off as incurred.




                                                                               4

                                      F-42
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

1.      ACCOUNTING POLICIES (continued)

Provision for warranties

Provisions for the estimated costs of maintenance  under  warranties are charged
to the profit and loss account in the year of sale.

Deferred taxation

Deferred taxation is provided on the liability method on all timing  differences
which are expected to reverse in the future without being  replaced,  calculated
at the rate at which it is estimated that taxation will be payable.

Foreign currencies

Transactions  in foreign  currencies are recorded at the rate ruling at the date
of the transaction.

Leasing and hire purchase commitments

Assets held under finance leases,  which are leases where  substantially all the
risks and rewards of ownership of the asset have passed to the company, and hire
purchase contracts are capitalised in the balance sheet and are depreciated over
their useful lives. The capital elements of future  obligations under the leases
and hire purchase  contracts are included as  liabilities  in the balance sheet.
The interest  elements of the rental  obligations  are charged in the profit and
loss  account  over the periods of the leases and hire  purchase  contracts  and
represent  a  constant   proportion   of  the  balance  of  capital   repayments
outstanding.

Rentals  paid under  operating  leases are charged to income on a straight  line
basis over the lease term.

Pensions

The company operates a defined  contribution  pension scheme.  Contributions are
charged to the profit and loss account as they become payable in accordance with
the rules of the scheme.

Statutory accounts

These  accounts do not  comprise the  company's  statutory  accounts  within the
meaning of the Companies Act 1985.  Statutory  accounts for years ended 31 March
1998 and  1997,  on which  the  auditors  reports  were  unqualified,  have been
delivered to the registrar of Companies for England and Wales.


2.      TURNOVER

Turnover, which is stated net of value added tax, represents amounts invoiced to
third parties and is attributable to the principal activity of the company,  all
of which is continuing.

An analysis of turnover by geographical market is given below:
<TABLE>
<CAPTION>

                                                  1998             1997
                                            (pound)000       (pound)000

<S>                                             <C>              <C>
United Kingdom                                  10,065           11,524
Other European Union                             1,325            1,415
Other                                              876            1,881
                                           -----------      -----------
                                                12,266           14,820
                                           ===========      ===========
</TABLE>



                                                                               5

                                      F-43
<PAGE>
Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

3. OPERATING (LOSS)/PROFIT

(a) This is stated after charging/(crediting):
<TABLE>
<CAPTION>
                                                              1998        1997
                                                        (pound)000  (pound)000

<S>                                                           <C>         <C>
Auditors' remuneration        -      audit services             21          18
                              -      non-audit services         19          18
Depreciation on owned assets                                   306         250
Depreciation on assets held under finance leases                44          14
Amortisation of goodwill                                       125         125
Operating lease rentals       -      plant and machinery        36          33
                              -      land and buildings        213         206
                              -      other                     170         207
Rentals receivable from short term hire of assets             (351)       (168)
Investment and bringing to market new products                 511         459
Redundancy and reorganisation costs                            156           -
                                                        ==========  ==========
</TABLE>

(b)  Reconciliation of operating (loss)/profit to net cash inflow from operating
     activities:

<TABLE>
<CAPTION>
                                                               1998        1997
                                                         (pound)000  (pound)000

<S>                                                          <C>          <C>
Operating (loss)/profit                                        (926)        893
Depreciation                                                    350         264
Amortisation of goodwill                                        125         125
Loss/(gain) on disposal of tangible fixed assets                  4          (5)
Loss on disposal of intangible fixed assets                       -          34
Decrease in stocks                                               41         192
Decrease/(increase) in debtors                                1,455        (725)
(Decrease)/increase in creditors                             (1,025)        495
                                                        -----------   ----------
Net cash inflow from continuing operating activities             24       1,273
                                                        ===========   ==========
</TABLE>

4.      DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000

<S>                                                             <C>          <C>
Payments to third parties in respect of services as directors    46           37
Other emoluments                                                228          259
Pension scheme contributions                                     19           18
Ex Gratia payments                                               22            -
                                                         ----------  -----------
                                                                315          314
                                                        ===========   ==========
</TABLE>

The number of directors to whom  retirement  benefits are accruing in respect of
qualifying services under a money purchase scheme is 3 (1997 - 3).

<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000
<S>                                                             <C>          <C>
Emoluments of the highest paid director:
 Other emoluments                                               101          117
 Pension scheme contributions                                     9            8
                                                        -----------  -----------
                                                                110          125
                                                        ===========   ==========
</TABLE>

                                                                               6

                                      F-44
<PAGE>
Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

5.      STAFF COSTS
<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000

<S>                                                           <C>          <C>
Sub-contract/temps                                              526          587
Wages and salaries                                            3,821        3,898
Social security costs                                           325          340
Other pension costs                                              97           97
                                                        -----------  -----------
                                                              4,769        4,922
                                                        ===========   ==========
</TABLE>

The average weekly number of employees during the year was as follows:
<TABLE>
<CAPTION>

                                                               1998         1997
                                                                No.          No.

<S>                                                             <C>          <C>
Sales and office management                                     118          119
Manufacturing                                                   145          154
                                                        -----------  -----------
                                                                263          273
                                                        ===========   ==========
</TABLE>

6.      INTEREST PAYABLE
<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000

<S>                                                             <C>          <C>
Bank loan and overdraft and other loans wholly
  repayable within five years                                    36           75
Unpaid preference dividends                                      85           74
Finance charges payable under finance leases
  and hire purchase contracts                                    17            2
                                                        -----------  -----------
                                                                138          151
                                                        ===========   ==========
</TABLE>

7.      TAXATION
<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000

<S>                                                            <C>           <C>
UK corporation tax                                             (110)         145
Corporation tax overprovided in prior year                      (44)           -
ACT written off                                                  97            -
                                                        -----------  -----------
                                                                (57)         145
                                                        ===========   ==========
</TABLE>

A deferred tax asset, arising from timing differences in respect of depreciation
charged in advance of capital allowances, has not been recognised.


                                                                               7

                                      F-45
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

8.      DIVIDENDS ON NON-EQUITY SHARES
<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000

<S>                                                             <C>          <C>
10% cumulative `A' preference shares                            202          185
5% cumulative `B' preference shares                              80           70
Preferred ordinary shares                                         -           77
                                                        -----------  -----------
                                                                282          332
                                                        ===========   ==========
</TABLE>

Due to the  non-redemption of 400,000 `A' preference shares on 30 April 1996 and
30 April 1997, and the  non-redemption  of 280,000 `B'  preference  shares on 30
April 1997,  the dividend rate on these shares has increased from 10% to 14% and
5% to 9% respectively with effect from that date.


9.      INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
                                                      Development
                                           Goodwill   expenditure         Total
                                         (pound)000    (pound)000    (pound)000
<S>                                           <C>             <C>        <C>
Cost:
At 1 April 1996                               1,871            46         1,917
Written off during the year                       -           (46)          (46)
                                        -----------   -----------   -----------
At 31 March 1997 and 31 March 1998            1,871             -         1,871
                                        -----------   -----------   -----------
Amortisation:
At 1 April 1996                                 375            12           387
Provided during the year                        125             -           125
Written off                                       -           (12)          (12)
                                        -----------   -----------   -----------
At 31 March 1997                                500             -           500
Provided during the year                        125             -           125
                                        -----------   -----------   -----------
At 31 March 1998                                625             -           625
                                        -----------   ------------  -----------
Net book value at 31 March 1998               1,246             -         1,246
                                        ===========   ===========   ===========
Net book value at 1 April 1997                1,371             -         1,371
                                        ===========   ===========   ===========
</TABLE>

Goodwill arising on the acquisition of various divisions from FKI Communications
Limited is being  amortised over the directors'  estimate of its useful economic
life of 15 years.


                                                                               8

                                      F-46
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

10.     TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
                                 Short         Plant     Fixtures
                             leasehold           and          and      Computer
                             buildings     machinery     fittings     equipment         Total
                            (pound)000    (pound)000   (pound)000    (pound)000    (pound)000
<S>                                <C>         <C>            <C>           <C>         <C>
Cost:
At 1 April 1996                    285           941           62           313         1,601
Additions                            2           445           27            21           495
Disposals                            -           (86)          (6)          (16)         (108)
                           -----------   -----------  -----------   -----------   -----------
At 31 March 1997                   287         1,300           83           318         1,988
Additions                            -           147           19            28           194
Disposals                            -           (21)          (1)           (2)          (24)
                           -----------   -----------  -----------   -----------   -----------
At 31 March 1998                   287         1,426          101           344         2,158
                           -----------   -----------  -----------   -----------   -----------
Depreciation:
At 1 April 1996                     94           381           16           219           710
Provided during the year            32           178           17            37           264
Disposals                            -           (78)          (4)          (15)          (97)
                           -----------   -----------  -----------   -----------   -----------
At 31 March 1997                   126           481           29           241           877
Provided during the year            31           259           17            43           350
Disposals                            -           (17)          (1)           (2)          (20)
                           -----------   -----------  -----------   -----------   -----------
At 31 March 1998                   157           723           45           282         1,207
                           -----------   -----------  -----------   -----------   -----------
Net book value:
At 31 March 1998                   130           703           56            62           951
                           ===========   ===========  ===========   ===========   ===========
At 1 April 1997                    161           819           54            77         1,111
                           ===========   ===========  ===========   ===========   ===========
</TABLE>

Included within plant and machinery are assets  available for short term hire at
a cost of  (pound)244,740  (1997 -  (pound)193,734)  and a  related  accumulated
depreciation  charge of (pound)131,866  (1997 - (pound)85,709).  Also,  included
within plant and machinery are assets held under finance  leases with a net book
value of (pound)264,053 (1997 - (pound)205,224).


                                                                               9
                                      F-47
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

11.     INVESTMENTS
                                                     Subsidiary       Subsidiary
                                                    undertaking      undertaking
                                                           1998             1997
                                                     (pound)000       (pound)000

Cost at 31 March 1997 and 31 March 1998                     290              290
                                                    ===========      ===========

The  investment  represents  the cost of 100% of the  issued  share  capital  of
Keyswitch  Varley  Limited,  a company  registered  in England  and Wales.  This
company does not trade.  The aggregate  amount of its capital and reserves at 31
March 1998 was (pound)290,523 (1997 - (pound)290,523).

It is the opinion of the directors that the aggregate value of the investment is
not less than the amount stated above.


12.     STOCKS
<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000

<S>                                                           <C>          <C>
Raw materials and consumables                                   594          734
Work in progress                                                584          716
Finished goods and goods for resale                             336          105
                                                        -----------  -----------
                                                              1,514        1,555
                                                        ===========  ===========
</TABLE>

The difference  between  purchase  price or production  cost of stocks and their
replacement cost is not material.


13.     DEBTORS
<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000

<S>                                                           <C>          <C>
Trade debtors                                                 1,642        2,964
Corporation tax                                                 113            -
Other debtors                                                    27           30
Prepayments and accrued income                                  197          327
                                                        -----------  -----------
                                                              1,979        3,321
                                                        ===========  ===========
</TABLE>


                                                                              10
                                      F-48
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

14.     CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
                                                               1998         1997
                                                         (pound)000   (pound)000

<S>                                                           <C>          <C>
Current instalment due on bank loan                               -          500
Bank overdraft                                                  365          146
Payments received in advance                                      -          203
Trade creditors                                               1,530        2,288
Obligations under finance leases (note 15)                       78           41
Corporation tax                                                   -          145
Other taxes and social security costs                           229          340
Other creditors                                                 141          561
Accruals                                                        601          534
                                                        -----------  -----------
                                                              2,944        4,758
                                                        ===========  ===========
</TABLE>

The bank loan is secured by a fixed and  floating  charge over the assets of the
company.

The overdraft is secured by a mortgage debenture over the assets of the company.

Included within other creditors  is(pound)10,107 (1997 -(pound)10,318)  relating
to outstanding contributions payable to the pension scheme.


15. OBLIGATIONS UNDER FINANCE LEASES AND HIRE PURCHASE CONTRACTS

The maturity of these amounts is as follows:

<TABLE>
<CAPTION>
                                                               1998        1997
                                                         (pound)000  (pound)000
Amounts payable:
<S>                                                             <C>         <C>
 Within one year                                                 91          55
 In two to five years                                           185         184
                                                        ----------- -----------
                                                                276         239
Less:
 Finance charges allocated to future periods                    (27)        (39)
                                                        ----------- -----------
                                                                249         200
                                                        ===========  ===========
</TABLE>

Finance leases and hire purchase contracts are analysed as follows:
<TABLE>
<CAPTION>

<S>                                                             <C>          <C>
Current obligations                                              78           41
Non-current obligations                                         171          159
                                                        -----------  -----------
                                                                249          200
                                                        ===========  ===========
</TABLE>

16.     CREDITORS: amounts falling due after more than one year
                                                               1998         1997
                                                         (pound)000   (pound)000

Obligations under finance leases (note 15)                      171          159
                                                        ===========  ===========


                                                                              11
                                      F-49
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

17.     ANALYSIS OF CHANGES IN NET FUNDS/(DEBT)
<TABLE>
<CAPTION>
                                        At                  Other         At                 Other         At
                                   1 April       Cash    non-cash   31 March       Cash   non-cash   31 March
                                      1996       flow     changes       1997       flow    changes       1998
                                (pound)000  (pound)000  (pound)000 (pound)000 (pound)000 (pound)000 (pound)000

<S>                                 <C>          <C>         <C>       <C>       <C>         <C>         <C>
Cash at bank and in hand               542        490                  1,032     (1,030)                    2
Overdrafts                             (86)       (60)                  (146)      (219)                 (365)
                               ------------ ----------             ---------- -----------           ----------
                                       456        430                    886     (1,249)                 (363)
Debt due after one year               (500)       500                      -          -                     -
Debt due within one year              (500)         -                   (500)       500                     -
Finance leases                           -         15        (215)      (200)        66       (115)      (249)
                               ------------ ---------- ----------- ---------- ------------  ------- -------------
                                    (1,000)       515        (215)      (700)       566       (115)      (249)
                               ------------ ---------- ----------- ---------- ------------  ------- -------------
                                      (544)       945        (215)       186       (683)      (115)      (612)
                               ============ ========== =========== ========== ============  ======= =============
</TABLE>

18. SHARE CAPITAL
<TABLE>
<CAPTION>
                                                                                      Allotted called up
                                                                  Authorised              and fully paid
                                                           1998         1997          1998          1997
                                                            No.          No.    (pound)000    (pound)000

<S>                      <C>                          <C>          <C>                 <C>           <C>
Ordinary shares of 10p each                             240,000      240,000            24            24
Preferred ordinary shares of 10p each                   360,000      360,000            36            36
`A' preference shares of 10p each                     1,700,000    1,700,000           170           170
`B' preference shares of 10p each                     1,400,000    1,400,000           140           140
                                                --------------- -------------- -----------   -----------
                                                      3,700,000    3,700,000           370           370
                                                =============== ============== ===========   ===========
</TABLE>

The `A' and `B'  preference  shares  entitle the  holders to a fixed  cumulative
preferential  dividend  at the rate of 10% and 5% per annum on the  subscription
price, respectively. On a winding up the holders are entitled in priority to all
other  shareholders  to  participate in the surplus assets of the company to the
extent of an amount equal to the  subscription  price for the preference  shares
together with any dividend arrears.

The `A' preference  shares entitle the holders to attend general meetings of the
company but do not entitle  the holders to vote upon any  resolution  unless the
dividend thereon is two months or more in arrears or the company fails to redeem
the shares on the  redemption  date or the  business of the  meeting  includes a
resolution  for the winding up of the company or reducing  its share  capital or
the approval of the giving of financial  assistance or the purchase by it of any
of its shares, in which event each holder will be entitled to one vote.

The `B' preference  shares entitle the holders to attend general meetings of the
company but do not entitle  the holders to vote upon any  resolution  unless the
resolution directly or indirectly varies,  modifies,  alters or abrogates any of
the rights  attaching to the `B'  preference  shares or is for the winding up of
the company or reducing  its share  capital or the  purchase by it of any of its
shares, in which event each holder will be entitled to one vote.


                                                                              12
                                      F-50
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

18.     SHARE CAPITAL (continued)

The preferred  ordinary shares entitle the holders to a cumulative cash dividend
of 10% of profit before tax from the accounting  period ending 31 March 1996. On
a winding up the holders are entitled,  subject to the rights of the `A' and `B'
preference   shareholders  but  in  priority  to  all  other  shareholders,   to
participate  in the  surplus  assets of the  company  to the extent of an amount
equal to the subscription  price for the preferred ordinary shares together with
any dividend arrears.  Thereafter,  they shall rank pari-passu with the ordinary
shareholders after the ordinary shareholders shall have received an amount equal
to the subscription  price for the shares. The preferred ordinary shares entitle
the  holders  to  attend  general  meetings  of  the  company  and  vote  on all
resolutions.

The `A' and `B' preference shares shall be redeemed at the subscription price at
the option of the  shareholder on the occurrence of certain  events,  or with at
least 14 days'  notice  from the  company,  but in any event,  on the  following
dates:

                                         `A' preference   `B' preference
                                                 shares           shares

30 April 1998                                   400,000          280,000
30 April 1999                                   500,000          280,000
30 April 2000                                         -          280,000
30 April 2001                                         -          280,000

On 30 April 1996 and 30 April 1997 400,000 `A' preference  shares were due to be
redeemed  and on 30 April 1997  280,000  `B'  preference  shares  were due to be
redeemed.  These  redemptions did not take place and hence the dividend on those
shares not redeemed has increased from 10% to 14% and 5% to 9% respectively  per
annum in accordance with the terms of the shareholder agreement.

On the  occurrence of certain  events,  the preferred  ordinary  shares shall be
converted and  re-designated as ordinary shares or deferred shares at the option
of the shareholder.


19.     MOVEMENTS ON RESERVES AND RECONCILIATION OF SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>

                                                           Share        Profit
                                              Share      premium      and loss
                                            capital      account       account         Total
                                         (pound)000   (pound)000    (pound)000    (pound)000

<S>                                             <C>        <C>          <C>           <C>
At 1 April 1996                                 370        3,330          (231)        3,469
Retained profit for the year                                               288           288
Unpaid preference dividends                                                332           332
Interest on unpaid preference dividends                                     74            74
Transfer to current liabilities                                           (400)         (400)
                                        -----------  -----------   -----------   -----------
At 31 March 1997                                370        3,330            63         3,763
Retained loss for the year                                              (1,263)       (1,263)
Unpaid preference dividends                                                282           282
Interest on unpaid preference dividends                                     85            85
                                        -----------  -----------   -----------   -----------
At 31 March 1998                                370        3,330          (833)        2,867
                                        ===========  ===========   ===========   ===========
</TABLE>

                                                                              13
                                      F-51
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

19. MOVEMENTS ON RESERVES AND RECONCILIATION OF SHAREHOLDERS'  FUNDS (continued)
Shareholders' funds are analysed as follows:

<TABLE>
<CAPTION>
                                                          1998             1997
                                                    (pound)000       (pound)000

<S>                                                     <C>                <C>
Equity interests                                        (1,752)            (499)
Non-equity interests:
 Preferred ordinary                                        449              449
 `A' preference shares                                   2,478            2,220
 `B' preference shares                                   1,692            1,593
                                                   -----------      -----------
                                                         2,867            3,763
                                                   ===========      ===========
</TABLE>

20.     PENSION COMMITMENTS
The company operates a defined contribution pension scheme for its directors and
employees.  The  assets of the  scheme  are held  separately  from  those of the
company in an independently administered fund.


21.     OTHER FINANCIAL COMMITMENTS
At 31 March  1998 the  company  had  annual  commitments  under  non-cancellable
operating leases as set out below:
<TABLE>
<CAPTION>

                                       Land and buildings            Other
                                        1998        1997        1998        1997
                                  (pound)000  (pound)000  (pound)000  (pound)000
<S>                                      <C>         <C>         <C>         <C>
Operating leases which expire:
 within one year                           -           -          29          28
 within two to five years                  9           9         114         126
 in over five years                      210         198           -          32
                                 ----------- ----------- -----------  ----------
                                         219         207         143         186
                                 =========== =========== ===========  ==========
</TABLE>

22.     POST BALANCE SHEET EVENTS

On 30 April 1998,  400,000  `A'  preference  shares and  280,000 `B'  preference
shares  were due to be redeemed at the  subscription  price.  This event did not
take place and therefore the rate of the preference dividend on those shares not
redeemed  will increase from 10% to 14% for the `A' shares and from 5% to 9% for
the `B' shares until they have been redeemed.

On 8 June 1998  Applied  Cellular  Technology  Inc.  purchased  85% of the share
capital  of  Signature  Industries  Limited.  From  that date  Applied  Cellular
Technology Inc. became Signature  Industries  Limited's ultimate parent company.
The accounts of that company are available  from 400 Royal Palm Way,  Suite 410,
Palm Beach, Florida 33480.


                                                                              14
                                      F-52
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

23.  DIFFERENCES  BETWEEN  UNITED KINGDOM AND UNITED STATES  GENERALLY  ACCEPTED
ACCOUNTING  PRINCIPLES

The company  prepares  its accounts in  accordance  with  accounting  principles
generally  accepted in the United  Kingdom  ("UK GAAP") which differ from United
States generally  accepted  accounting  principles ("US GAAP").  The significant
differences as they apply to the company are summarised below.

Deferred taxation

Under UK GAAP,  the company  provides for deferred  taxation using the liability
method on all timing  differences  which are  expected  to reverse in the future
without being  replaced,  calculated  at the rate at which it is estimated  that
taxation  will  be  payable.   Deferred  tax  assets  are  recognised  if  their
realisation is probable.

Under US GAAP,  deferred  taxation is provided for on all temporary  differences
between the book and tax bases of assets and  liabilities.  Deferred  tax assets
are recognised to the extent their recoverability is more likely than not.

Consolidation

Under UK GAAP, the company's subsidiary does not have to be consolidated.

Under US GAAP, the subsidiary would be consolidated.

Preference shares

Under US GAAP, the company's `A' and `B' preference shares which are mandatorily
redeemable by April 1999 and April 2001, respectively,  would not be included in
shareholders' equity.

The  following  is a  summary  of the  significant  adjustments  to  income  and
shareholders'  funds  which  would be  required  in US GAAP  were to be  applied
instead of UK GAAP:

<TABLE>
<CAPTION>

                                                                1998        1997
Income                                                    (pound)000  (pound)000

<S>                                                           <C>           <C>
(Loss)/profit on ordinary activities after taxation as reported under
 UK GAAP                                                      (981)         620
Adjustments:
 Deferred tax                                                  135          (91)
 ACT write off                                                  97            -
                                                            ---------   --------
Net (loss)/income under US GAAP                               (749)         529
                                                            =========   ========
</TABLE>


<TABLE>
<CAPTION>
                                                              1998         1997
Shareholders' funds                                     (pound)000   (pound)000

<S>                                                         <C>          <C>
Shareholders' funds as reported under UK GAAP                2,867        3,763
Adjustments:
 Deferred tax (assets)                                         135          (91)
 ACT recoverable                                                97            -
Share capital:
 `A' preference shares                                        (170)        (170)
 `B' preference shares                                        (140)        (140)
Share premium                                               (2,790)      (2,790)
                                                            ---------   --------
Shareholders' funds under US GAAP                               (1)         572
                                                            =========   ========
</TABLE>

                                                                              15
                                      F-53
<PAGE>

Signature Industries Limited
- --------------------------------------------------------------------------------

NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997

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

23.  DIFFERENCES  BETWEEN  UNITED KINGDOM AND UNITED STATES  GENERALLY  ACCEPTED
ACCOUNTING  PRINCIPLES  (continued) Cash flows The cash flow statements prepared
under UK GAAP present substantially the same information as those required under
US GAAP but they differ with respect to the  classification of items within them
and as  regards  the  definition  of  cash  under  UK GAAP  and  cash  and  cash
equivalents under US GAAP.

Under UK GAAP,  cash  comprises  cash at bank and in hand less bank  overdrafts.
Under US GAAP, cash and cash equivalents would not include bank overdrafts which
would be treated as  borrowings.  Under US GAAP,  only three  categories of cash
flow would be presented: operating, investing and financing as compared with the
five  under UK GAAP.  Under US GAAP,  cash flows from  taxation  and  returns on
investments and servicing of finance would be included in operating  activities,
under US GAAP,  the  payment  of  dividends  would be  included  as a  financing
activity and capital expenditure would be included as an investing activity.

The categories of cash flow activity under US GAAP can be summarised as follows:
<TABLE>
<CAPTION>

                                                                1998        1997
                                                          (pound)000  (pound)000

<S>                                                            <C>       <C>
Cash inflow/(outflow) from operating activities                (604)     1,209
Cash inflow/(outflow) from investing activities                 (79)      (264)
Cash inflow/(outflow) from financing activities                (347)      (455)
                                                            --------- ---------
Increase in cash and cash equivalents                         1,030        490
Cash and cash equivalents at 1 April                          1,032        542
                                                            --------- ---------
Cash and cash equivalents at 31 March                             2      1,032
                                                            ========= =========
</TABLE>


                                                                             16
                                      F-54
<PAGE>

REPORT OF INDEPENDENT AUDITORS to the directors of Signature Industries Limited



We have  audited the balance  sheets of  Signature  Industries  Limited as at 31
March 1998 and 1997,  and the related profit and loss accounts and statements of
cash  flows  for each of the  years in the  period  ended 31 March  1998.  These
accounts are the responsibility of the company's management.  Our responsibility
is to express an opinion on these accounts based on our audits.

We conducted our audits in accordance  with United  Kingdom  auditing  standards
which do not differ in any  significant  respect  from United  States  generally
accepted  auditing  standards.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the accounts are free of
material  misstatement.  An audit  includes  examination,  on a test  basis,  of
evidence relevant to the amounts and disclosures in the accounts.  An audit also
includes assessing the accounting principles used and significant estimates made
by  management  as well as  evaluating  the overall  accounts  presentation.  We
believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the accounts  referred to above present fairly, in all material
respects,  the financial  position of Signature  Industries  Limited at 31 March
1998 and 1997,  and the results of its operations and its cash flows for each of
the  years in the  period  ended 31 March  1998 in  conformity  with  accounting
principles  generally  accepted in the United  Kingdom  which  differ in certain
respects  from those  followed in the United States (see note 23 of notes to the
accounts).



Ernst & Young
London
England

6 August 1998 except for
note 23 - differences between United Kingdom and
United States Generally Accepted Accounting Principles
as to which the date is 15 December 1998





                                      F-55
<PAGE>


              UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS

                                  INTRODUCTION

The  accompanying  unaudited  pro  forma  condensed  consolidated  statement  of
operations   reflects  the  consolidated   results  of  operations  of  Cellular
Technology,  Inc.  (the  "Company")  for the year ended  December 31, 1998 after
giving pro forma effect to the  purchase of an eighty five  percent  interest in
Signature Industries Limited ("Signature") completed on June 8, 1998.

The unaudited pro forma financial  information does not purport to be indicative
of actual  results that would have been  achieved had the  acquisition  actually
been completed as of the date  indicated  below nor which may be achieved in the
future.

<TABLE>
                        Applied Cellular Technology, Inc.

       Unaudited Pro Forma Condensed Consolidated Statement of Operations

                      For the year ended December 31, 1998
                                 (In thousands)
<CAPTION>
                                                Company As                                    Pro Forma
                                                 Reported      Signature                     Consolidated
                                               December 31,   Industries      Pro Forma      December 31,
                                                 1998 (A)         (B)        Adjustments         1998
- --------------------------------------------- --------------- ------------ -------------    -------------
<S>                                            <C>            <C>           <C>             <C>

Net Revenues                                   $ 207,081      $ 7,464       $ --              $ 214,545
Direct Costs                                     142,893        4,891         --                147,784
                                               ----------     --------      ----------        -----------
Gross Profit                                      64,188        2,573         --                 66,761
Operating Expenses                                55,253        3,907          23  C             59,183
                                               ----------     --------      ----------        -----------
Operating Income (Loss)                            8,935       (1,334)        (23)                7,578
Interest Income                                      420           --         --                    420
Interest Expense                                  (1,653)         (14)        --                 (1,667)
Minority Interest                                   (424)          --         202  D               (222)
Provision for Income Tax                          (2,588)          --         425  E             (2,163)
                                               ----------     --------      ----------        -----------
Net Income (Loss)                                  4,690       (1,348)        604                 3,946
Dividends                                            (44)          --         --                    (44)
                                               ==========     ========      ==========       ============
Net Income (Loss) Available to Common
    Stockholders                                 $ 4,646      $(1,348)      $ 604               $ 3,902
                                               ==========     ========      ==========        ===========

Net Income per Common Share - Basic               $ 0.14                                         $ 0.12
                                               ==========
                                                                                              ===========
Net Income per Common Share - Diluted
                                                  $ 0.13                                         $ 0.11
                                               ==========                                     ===========

Weighted Average Number of Common Shares
    Outstanding - Basic                           32,318                                         32,067
                                               ==========                                     ===========
Weighted Average Number of Common Shares
    Outstanding - Diluted                         34,800                                         34,549
                                               ==========                                   =============
</TABLE>




                                      F-56
<PAGE>


NOTES TO  THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma condensed  consolidated  statement of operations for the
year  ended  December  31,  1998  gives  effect to the  consolidated  results of
operations  for the  year  ended  December  31,  1998 as if the  acquisition  of
Signature  Industries  occurred  on  January  1,  1998.  These  results  are not
necessarily  indicative of the consolidated results of operations of the Company
as they may be in the  future or as they  might  have been had this  event  been
effective  January 1,  1998.  The  unaudited  pro forma  condensed  consolidated
financial  information  should  be  read  in  conjunction  with  the  historical
financial  statements of the Company and Signature  Industries and related notes
thereto.

PRO  FORMA  ADJUSTMENTS  FOR THE  UNAUDITED  PRO  FORMA  CONDENSED  CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 ARE AS FOLLOWS:

(A)  Represents the historical condensed consolidated results of the Company for
     the year ended December 31, 1998.
(B)  Represents the historical condensed results of Signature Industries for the
     five months ended May 31, 1998.
(C)  Represents the net increase to  amortization  of the cost over the net book
     value of Signature Industries amortized over a period of twenty years.
(D)  Represents  the minority  interest in the net loss of Signature  Industries
     attributable to the percentage interest not acquired by the Company (15%).
(E)  Represents a decrease in the tax provision  due to the pro forma  reduction
     in earnings, before non-deductible dividend expense.













                                      F-57
<PAGE>




                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  Other Expenses of Issuance and Distribution.

     The  following  table  sets forth the  expenses  (other  than  underwriting
discounts  and  commissions),  which  other  than the SEC  registration  fee are
estimates,   payable  by  the  Registrant  in  connection   with  the  sale  and
distribution of the shares registered hereby**:

         SEC Registration Fee ..................................   $    815
         Accounting Fees and Expenses...........................     10,000*
         Legal Fees and Expenses................................     20,000*
         Miscellaneous Expenses.................................      1,185*
                                                                   --------
                     Total .....................................   $ 32,000*
                                                                    =======
- -------------
*     Estimated

**    The selling  shareholders  will pay any sales  commissions or underwriting
      discount  and  fees  incurred  in  connection  with  the  sale  of  shares
      registered hereunder.

Item 14.  Indemnification of Directors and Officers.

     Sections 351.355(1) and (2) of The General and Business  Corporation Law of
the State of Missouri  provide that a  corporation  may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action,  suit or proceeding by reason of the fact that he is or was
a director,  officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director,  officer,  employee or agent of
another  corporation,  partnership,  joint venture,  trust or other  enterprise,
against expenses,  judgments,  fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he  reasonably  believed  to be in or not
opposed  to the best  interests  of the  corporation  and,  with  respect to any
criminal  action or proceeding,  had no reasonable  cause to believe his conduct
was  unlawful,  except that, in the case of an action or suit by or in the right
of the  corporation,  the  corporation  may not indemnify  such persons  against
judgments and fines and no person shall be indemnified as to any claim, issue or
matter as to which  such  person  shall  have  been  adjudged  to be liable  for
negligence  or  misconduct in the  performance  of his duty to the  corporation,
unless  and only to the  extent  that the court in which the  action or suit was
brought  determines upon  application  that such person is fairly and reasonably
entitled to indemnity for proper expenses.  Section 351.355(3) provides that, to
the extent that a director,  officer,  employee or agent of the  corporation has
been  successful  in the defense of any such action,  suit or  proceeding or any
claim,  issue or  matter  therein,  he shall be  indemnified  against  expenses,
including  attorneys' fees,  actually and reasonably incurred in connection with
such action, suit or proceeding.  Section 351.355(7) provides that a corporation
may  provide  additional  indemnification  to  any  person  indemnifiable  under
subsection (1) or (2), provided such additional indemnification is authorized by
the  corporation's  articles of  incorporation  or an amendment  thereto or by a
shareholder-approved  bylaw or  agreement,  and provided  further that no person
shall thereby be indemnified  against conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct or which
involved an accounting  for profits  pursuant to Section 16(b) of the Securities
Exchange Act of 1934.

     The bylaws of the Registrant  provide that the Registrant  shall indemnify,
to the full extent permitted under Missouri law, any director, officer, employee
or agent of the  Registrant who has served as a director,  officer,  employee or
agent of the  Registrant  or,  at the  Registrant's  request,  has  served  as a
director, officer, employee or agent of another corporation,  partnership, joint
venture, trust or other enterprise.



                                      II-1
<PAGE>

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be  permitted  to  directors,  officers or persons  controlling  the
Registrant pursuant to such provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange  Commission such  indemnification  is
against public policy as expressed in such Act and is therefore unenforceable.

Item 15.  Recent Sales of Unregistered Securities.

     The  following  table  lists  all  unregistered   securities  sold  by  the
Registrant from January 1, 1996 through June 18, 1999.  These shares were issued
without  registration in reliance upon the exemption provided by Section 4(2) of
the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

<TABLE>
<CAPTION>
                                                                                                         Number of
            Name/Entity/Nature                   Note            Issued For          Date Issued       Common Shares
- --------------------------------------------  ------------   -------------------  ------------------  ----------------
<S>                                              <C>         <C>                   <C>                   <C>
Advanced Telecommunications, Inc.                  1            Acquisition            July-97            2,100,480
Advanced Telecommunications, Inc.                  2            Acquisition         September-98            775,822
Alacrity Systems, Inc.                             3            Acquisition          October-97             640,959
Alacrity Systems, Inc.                             4            Acquisition          January-98             321,768
Amherst Systems                                    5               Assets             August-98              66,667
ATI Communications, Inc.                           6            Acquisition          October-96           1,618,180
ATI Communications, Inc.                           7            Acquisition           March-98              200,000
ATI Communications, Inc.                           8            Acquisition           April-99              550,000
ATI Communications, Inc.                           9          Preferred Stock         June-97-            1,354,167
                                                                 Conversion          October-97
Aurora Electric, Inc.                             10            Acquisition            July-98            1,138,039
Blue Star Electronics, Inc.                       11            Acquisition           August-98             222,643
Burling Industries, Inc.                          12            Acquisition           August-96              22,126
Burling Industries, Inc.                          13               Assets             March-97               36,422
Canadian Network Services, Inc.                   14            Acquisition          December-97          1,116,460
Canadian Network Services, Inc.                   15            Acquisition          January-98             322,512
Commstar Limited                                  16            Acquisition            June-98            3,849,590
Commstar Limited                                  17            Acquisition          February-99             43,877
Consolidated Micro Components, Inc.               18            Acquisition            July-98              429,805
Consolidated Micro Components, Inc.               19            Acquisition            June-99              649,696
Cra-Tek Company                                   20            Acquisition          October-96             310,734
Cra-Tek Company                                   21            Acquisition          October-97               6,726
Cra-Tek Company                                   22            Acquisition            June-99              121,465
CT Specialists, Inc.                              23            Acquisition          December-97            787,914
CT Specialists, Inc.                              24            Acquisition           August-98               7,328
Cybertech Station, Inc.                           25            Acquisition          October-97             167,238
Cybertech Station, Inc.                           26            Acquisition           March-98               49,847
Cybertech Station, Inc.                           27            Acquisition           April-99               49,806


                                      II-2
<PAGE>

Data Path Technologies, Inc.                      28            Acquisition            July-98              403,077
Data Path Technologies, Inc.                      29            Acquisition            June-99            1,393,230
DLS Service Corporation                           30            Acquisition            July-97               57,600
Employee Stock Award                              31            Stock Award          January-96             167,000
Employee Stock Sales                              32           Stock Purchase        See Note 32            275,000
                                                                   Assets
Fiscal Advantage Corporation                      33               Assets             March-99                7,018
GDB Software Services, Inc.                       34            Acquisition            July-98              412,308
GDB Software Services, Inc.                       35            Acquisition            June-99              627,879
Great Bay Technology, Inc.                        36              Services            March-97              100,000
Ground Effects Limited                            37            Acquisition            June-98            1,105,708
Hopper Manufacturing Co., Inc.                    38            Acquisition           March-97              196,572
Information Products Center, Inc.                 39            Acquisition           March-98              711,433
Information Products Center, Inc.                 40            Acquisition           April-99              662,252
Innovative Vacuum Solutions, Inc.                 41            Acquisition            July-98              276,079
Innovative Vacuum Solutions, Inc.                 42            Acquisition            June-99              426,213
Intermatica, Inc.                                 43            Acquisition            June-97              710,953
Loan Conversions                                  44                Loan             See Note 44            135,000
                                                                Conversions
MVAK Technologies, Inc.                           45            Acquisition          February-97            408,131
Norcom Resources, Inc.                            46            Acquisition           March-97              300,753
Norcom Resources, Inc.                            47            Acquisition           March-98               74,667
Pizarro Re-Marketing, Inc                         48            Acquisition           March-97              218,936
Pizarro Re-Marketing, Inc                         49            Acquisition           March-98               42,723
PPL, Ltd.                                         50            Acquisition          October-97             528,852
PPL, Ltd.                                         51            Acquisition           April-99              929,230
Private Placements                                52              Private            See Note 52            222,044
                                                                 Placements
Quality Solutions, Inc.                           53               Assets            February-96             33,494
Richard J. Sullivan                               54          Salary Elections       See Note 54            104,249
Service Transportation Company                    55            Acquisition           April-98               37,181
Services                                          56              Services            January-96 -          498,507
                                                                                        June-99
Signal Processors Limited                         57            Acquisition            July-97              488,162
Signal Processors Limited                         58            Acquisition          February-98            928,293
Signature Industries Limited                      59            Acquisition            June-98            3,605,948
STC Netcom, Inc.                                  60            Acquisition         September-97          1,670,000
Stock Options Exercised                           61             Stock Option        November-97            650,000
                                                                   Exercise
Teledata Concepts, Inc.                           62            Acquisition            June-98              144,828
The Americom Group, Inc.                          63            Acquisition            June-98              235,507
The Americom Group, Inc.                          64            Acquisition           April-99              106,581


                                      II-3
<PAGE>

The Bay Group, Inc.                               65              Services             June-97              193,265
The Bay Group, Inc.                               66              Services             May-98               218,682
Universal Commodities Corp.                       67            Acquisition          November-96            581,818
Universal Commodities Corp.                       68            Acquisition          December-97            260,708
US Electrical Products Corp.                      69            Acquisition                                 258,988
Warrants Exercised                                70              Warrants                                3,433,500
                                                                 Exercised
Winward Electric, Inc.                            71            Acquisition           March-98            1,816,400
Winward Electric, Inc.                            72            Acquisition           April-99              533,333
                                                                                                         ============
Total                                                                                                    43,152,373
- --------------------------------------------                                                             ============
</TABLE>
1.   Includes (a) 2,048,000 shares issued to the selling shareholders to acquire
     their 80 percent  interest in the company and (b) 52,480  shares  issued as
     finder's fees.
2.   Represents  shares  issued  in  connection  with  the  "price   protection"
     provision of the Agreement of Sale.
3.   Includes (a) 622,755 shares issued to the selling  shareholders  to acquire
     their 100 percent  interest in the company and (b) 18,204  shares issued as
     finder's fees.
4.   Includes  (a) 312,630  shares  issued to the selling  shareholders  and (b)
     9,138  shares  issued as finder's  fees all in  connection  with the "price
     protection" provision of the Agreement of Sale.
5.   Represents  shares issued to Amherst Systems to acquire  customer lists for
     the Registrant's subsidiary, Atlantic Systems, Inc.
6.   Represents  shares issued to the selling  shareholders to acquire their 100
     percent interest in the company.
7.   Represents the first and second  installments of shares issued to a selling
     shareholder in connection  with the earnout  provision  under the Agreement
     and Plan of Merger.
8.   Represents the final installment of shares issued to a selling  shareholder
     in connection  with the earnout  provision  under the Agreement and Plan of
     Merger.
9.   Represents  shares issued to the selling  shareholders  upon  conversion of
     their Redeemable Preferred Stock.
10.  Includes (a)  1,098,039  shares issued to selling  shareholders  to acquire
     such  shareholders'  100 percent  interest in the  company,  and (b) 40,000
     shares issued as a finder's fee.
11.  Includes (a) 202,667  shares issued to the selling  shareholder  to acquire
     such  shareholder's 80 percent  interest in the company,  (b) 19,394 shares
     issued as a  finder's  fee,  and (c) 582  shares  issued  for  services  in
     connection with the acquisition.
12.  Represents  shares  issued  as  a  finder's  fee  in  connection  with  the
     acquisition.
13.  Represents  shares issued in connection  with the  acquisition of Burling's
     building.
14.  Represents  shares  issued to the Stage I selling  shareholders  to acquire
     their interest in the company.
15.  Includes (a) 7,530  shares  issued to the Stage I selling  shareholders  to
     correct the initial  issuance of shares,  (b) 170,683  shares issued to the
     Stage II selling  shareholders  upon acquisition of their minority interest
     in 1998,  (c)  109,774  shares  issued to the Stage I and Stage II  selling
     shareholders  in connection  with the "price  protection"  provision of the
     Agreement of Sale, and (d) 34,525 shares issued as a finder's fee.
16.  Represents   shares  of  stock   reserved  for  issuance  in  exchange  for
     exchangeable shares of TigerTel Services Limited (formerly, Commstar Ltd.),
     in connection with the Registrant's acquisition of 100 percent of TigerTel,
     and TigerTel's  acquisition of certain assets from Western Inbound Network,
     Inc. As of June 18, 1999, 2,593,141  exchangeable shares had been converted
     into shares of the  Registrant's  common stock,  and  1,256,449  shares are
     reserved for conversion.
17.  Represents  shares  issued  as  a  finder's  fee  in  connection  with  the
     acquisition.
18.  Includes (a) 392,157  shares issued to the selling  shareholder  to acquire
     such  shareholder's  80 percent  interest  in the  company,  and (b) 37,648
     shares issued as a finder's fee.
19.  Includes  (a)  606,061  shares  issued  in  connection  with the  "earnout"
     provision  of the  Agreement  of Sale,  and (b)  43,635  shares  issued  as
     additional finders fees in connection with the "earnout" payment.
20.  Represents  shares issued to the selling  shareholders  to acquire their 80
     percent interest in the company.
21.  Represent   shares  issued  to  a  selling   shareholder  to  acquire  such
     shareholders minority interest.
22.  Represents  shares  issued  to  a  selling   shareholder  to  acquire  such
     shareholders minority interest.
23.  Includes (a) 757,610  shares issued to selling  shareholder to acquire such
     shareholders'  100 percent  interest in the company,  and (b) 30,304 shares
     issued as a finder's fee.
24.  Represents additional shares issued as finder's fees in connection with the
     "price protection" provision of the Agreement of Sale.
25.  Includes (a) 158,351  shares issued to the selling  shareholder  to acquire


                                      II-4
<PAGE>

     such shareholder's 80 percent interest in the company, and (b) 8,887 shares
     issued as a finder's fee.
26.  Includes (a) 26,444 additional shares issued to the selling shareholder and
     805 additional shares issued as finder's fees in connection with the "price
     protection"  provision  of the  Agreement  of Sale,  and (b) 22,598  shares
     issued to the selling  shareholder as part of the earnout  provision in the
     Agreement of Sale.
27.  Represents shares issued in connection with the "earnout"  provision of the
     Agreement of Sale.
28.  Includes (a) 384,616 shares issued to selling  shareholders to acquire such
     shareholders'  100 percent  interest in the company,  and (b) 18,461 shares
     issued as a finder's fee.
29.  Includes (a)  1,353,844  shares  issued in  connection  with the  "earnout"
     provision  of the  Agreement  of Sale,  and (b)  39,386  shares  issued  as
     additional finders fees in connection with the "earnout" payment.
30.  Represents  shares issued to the selling  shareholders to acquire their 100
     percent interest in the Registrant.
31.  Represents  shares  issued to  certain  employees  of the  Registrant  as a
     discretionary bonus.
32.  Includes (a) 100,000 shares sold to David A. Loppert,  the Chief  Financial
     Officer of the Registrant,  in May 1997, (b) 75,000 shares sold to Scott R.
     Silverman, Senior Vice President, in June 1997, and (c) 100,000 shares sold
     to Marc Sherman, Senior Vice President, in May 1998.
33.  Represents  shares  issued  to  acquire  certain  customer  lists  for  the
     Registrant's subsidiary, Intellesale.com (formerly Inteletek, Inc.).
34.  Includes (a) 384,616  shares issued to the selling  shareholder  to acquire
     such  shareholder's  80 percent  interest  in the  company,  and (b) 27,692
     shares issued as a finder's fee.
35.  Includes  (a)  606,060  shares  issued  in  connection  with the  "earnout"
     provision  of the  Agreement  of Sale,  and (b)  21,819  shares  issued  as
     additional finders fees in connection with the "earnout" payment.
36.  Represents  shares issued in connection with  acquisition  services for the
     Registrant in 1996 and 1997.  Great Bay  Technology,  Inc. is controlled by
     Richard  J.  Sullivan,  Chairman  and  CEO of  the  Registrant,  Angela  M.
     Sullivan, a Director of the Registrant, and Stephanie Sullivan.
37.  Represents   shares  of  stock   reserved  for  issuance  in  exchange  for
     Exchangeable  Shares  of  ACT-GFX  Canada,  Inc.  referred  to  herein,  in
     connection  with the  Registrant's  acquisition  of 85  percent  of  Ground
     Effects Limited. As of June 18, 1999, 969,280  Exchangeable Shares had been
     converted into shares of the  Registrant's  common stock and 136,428 shares
     are reserved for conversion.
38.  Includes (a) 179,104 shares issued to the selling  shareholders  to acquire
     such  shareholders'  100 percent  interest in the  company,  and (b) 17,468
     shares issued as a finder's fee.
39.  Represents  shares  issued  to the  selling  shareholder  to  acquire  such
     shareholder's 100 percent interest in the company.
40.  Represents shares issued in connection with the "earnout"  provision of the
     Agreement of Sale.
41.  Represents   shares  issued  to  selling   shareholders   to  acquire  such
     shareholders' 80 percent interest in the company.
42.  Represents shares issued in connection with the "earnout"  provision of the
     Agreement of Sale.
43.  Represents  shares issued to the selling  shareholders to acquire their 100
     percent interest in the company.
44.  Includes (a) 125,000  shares  issued to Great Bay  Technology,  Inc. in May
     1996 upon the  conversion of a loan, and (b) 10,000 shares issued to Daniel
     E.  Penni,  a  Director  of the  Registrant,  in  September  1997  upon the
     conversion of a loan.
45.  Includes (a) 389,296 shares issued to the selling  shareholders  to acquire
     such  shareholders'  100 percent  interest in the  company,  and (b) 18,835
     shares issued as a finder's fee.
46.  Includes (a) 284,444 shares issued to the selling  shareholders  to acquire
     such  shareholders'  80 percent  interest  in the  company,  and (b) 16,309
     shares issued as a finder's fee.
47.  Represents shares issued in connection with the "earnout"  provision of the
     Agreement of Sale.
48.  Includes (a) 190,833  shares issued to the selling  shareholder  to acquire
     such  shareholder's  80 percent  interest  in the  company,  and (b) 28,103
     shares issued as a finder's fee.
49.  Represents shares issued in connection with the "earnout"  provision of the
     Agreement of Sale.
50.  Includes (a) 503,669 shares issued to the selling  shareholders  to acquire
     such  shareholders'  80 percent  interest  in the  company,  and (b) 25,183
     shares issued as a finder's fee.
51.  Represents shares issued in connection with the "earnout"  provision of the
     Agreement of Sale.
52.  Includes (a) 49,822 and 22,222  shares  issued to The Bay Group in November
     1996 and February 1997, respectively, in Private Placement transactions and
     (b) 150,000 shares issued to a private  investment group in March 1997. The
     Bay Group is controlled by Richard J. Sullivan and Angela M. Sullivan.
53.  Represents  shares  issued to acquire  certain  software  source  code from
     Quality Solutions, Inc. for the Registrant's subsidiary,  Atlantic Systems,
     Inc.
54.  Represents  48,109 and 56,140  shares issued to Richard J. Sullivan in June
     1997 and August 1998, respectively,  in lieu of cash compensation under the
     terms of his employment  agreement with the Registrant for the fiscal years
     beginning June 1, 1997 and 1998, respectively.
55.  Includes (a) 35,000  shares issued to the selling  shareholders  to acquire
     such shareholders' 80 percent interest in the company, and (b) 2,181 shares
     issued for acquisition services.
56.  Represents  shares issued for professional  services or under employment or
     other such agreements.
57.  Includes (a) 475,920 shares issued to the selling  shareholders  to acquire
     such  shareholders'  80 percent  interest  in the  company,  and (b) 12,242
     shares issued for acquisition services.


                                      II-5
<PAGE>

58.  Includes (a) 915,167  shares  issued to the selling  shareholders,  and (b)
     13,126  shares  issued  as  finder's  fees in  connection  with the  "price
     protection" provision of the Agreement of Sale.
59.  Includes (a)  3,571,235  shares issued to selling  shareholders  to acquire
     such  shareholders'  85 percent  interest  in the  company,  and (b) 34,713
     shares issued as a finder's fee.
60.  Includes (a) 1,600,000 shares issued to the selling shareholders to acquire
     such  shareholders'  80 percent  interest  in the  company,  and (b) 70,000
     shares issued as a finder's fee.
61.  Represents  shares  issued  upon the  exercise of Stock  Options  under the
     Registrant's 1996 Non-Qualified Stock Option Plan.
62.  Includes (a) 140,138  shares issued to the selling  shareholder  to acquire
     such  shareholder's  100  percent  interest in the  company,  and (b) 4,690
     shares issued as a finder's fee.
63.  Represents  shares  issued  to the  selling  shareholder  to  acquire  such
     shareholder's 80 percent interest in the company.
64.  Represents shares issued in connection with the "earnout"  provision of the
     Agreement of Sale.
65.  Represents shares issued for investment banking services in connection with
     certain acquisition made by the Registrant in 1997.
66.  Represents shares issued for investment banking services in connection with
     certain acquisition made by the Registrant in 1998.
67.  Represents  shares  issued  to the  selling  shareholder  to  acquire  such
     shareholder's 80 percent interest in the company.
68.  Includes  (a)  152,896  shares  issued  in  connection  with the  "earnout"
     provision  of the  Agreement  of Sale  and (b)  107,812  shares  issued  in
     connection with amendments to the Agreement of sale.
69.  Includes (a) 247,278 shares issued to the selling  shareholders  to acquire
     such  shareholders'  80 percent  interest  in the  company,  and (b) 11,710
     shares issued as a finder's fee.
70.  Includes  shares  issued  upon the  exercise  of  Warrants  by the  warrant
     holders, as follows:

                                                        Number of
       Date Exercised          Class of Warrants          Shares


July 1996                              F                  260,000
March 1997                             H                   10,000
April 1997                             H                   50,000
July 1997                              H                  250,000
August 1997                            H                   40,000
April 1997                             I                   10,000
June 1997                              I                  340,000
July 1997                              I                   50,000
August 1997                            I                   50,000
September 1997                         J                  200,000
October 1997                           L                  123,500
July 1997                              M                  390,000
September 1997                         M                  610,000
April 1998                             N                  600,000
December 1997                          O                  200,000
April 1998                             Q                  250,000
                                                  ================

        Total                                           3,433,500
                                                  ================


71. Includes (a) 1,778,543  shares issued to the selling  shareholder to acquire
    such  shareholder's  100  percent  interest in the  company,  and (b) 37,857
    shares issued as a finder's fee.
72. Represents  shares issued in connection with the "earnout"  provision of the
    Agreement of Sale.


Item 16.  Exhibits and Financial Statements.

     See Exhibit Index and Financial Statements schedule.



                                      II-6
<PAGE>

Item 17.  Undertakings.

     (a) The undersigned issuer hereby undertakes:

               (1) To file, during any period in which offers or sales are being
         made, a post-effective amendment to this Registration Statement:

                           (i)   To include any prospectus required  by  Section
                  10(a)(3) of the Securities Act;

                            (ii) To  reflect  in the  prospectus  any  facts  or
                  events arising after the effective  date of this  registration
                  statement (or the most recent post-effective amendment hereof)
                  which,   individually   or  in  the  aggregate,   represent  a
                  fundamental  change  in the  information  set  forth  in  this
                  Registration Statement;

                            (iii)  To  include  any  material  information  with
                  respect to the plan of distribution  not previously  disclosed
                  in this Registration  Statement or any material change to such
                  information in this Registration Statement;

         provided,  however,  that  paragraphs  (i) and (ii) do not apply if the
         information  required to be included in a  post-effective  amendment by
         those  paragraphs  is  contained  in  periodic  reports  filed  by  the
         registrant  pursuant to Section 13 or Section  15(d) of the  Securities
         Exchange  Act of  1934  that  are  incorporated  by  reference  in this
         Registration Statement.

               (2) That, for the purpose of determining  any liability under the
         Securities Act, each such  post-effective  amendment shall be deemed to
         be a new  Registration  Statement  relating to the  securities  offered
         therein,  and the  offering  of such  securities  at that time shall be
         deemed to be the initial bona fide offering thereof.

               (3) To  remove  from  registration  by means of a  post-effective
         amendment any of the securities being registered which remain unsold at
         the termination of the offering.

     (b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors,  officers and controlling
persons of the small business  issuer pursuant to the foregoing  provisions,  or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is,  therefore,  unenforceable.  In the event that a
claim for  indemnification  against such liabilities  (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling  person of the registrant in the  successful  defense of any action,
suit or proceeding) is asserted by such director,  officer or controlling person
in connection with the securities  being  registered,  the small business issuer
will,  unless in the  opinion of its  counsel  the  matter  has been  settled by
controlling  precedent,  submit  to a  court  of  appropriate  jurisdiction  the
question  whether  such  indemnification  by  it is  against  public  policy  as
expressed  in the Act and will be  governed  by the final  adjudication  of such
issue.








                                      II-7
<PAGE>


                                   SIGNATURES
     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this  Registration  Statement  to be signed on its behalf by the
undersigned,  thereunto  duly  authorized,  in the City of Palm Beach,  State of
Florida, on June 21, 1999.

                                   APPLIED CELLULAR TECHNOLOGY, INC.

                                   By:     /s/ DAVID A. LOPPERT
                                          --------------------------------------
                                          David A. Loppert, Vice President,
                                          Treasurer and Chief Financial Officer

     Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the dates indicated.

         Signature                   Title                       Date
         ---------                   -----                       ----

   RICHARD J. SULLIVAN*      Chairman of the Board of
- ---------------------------    Directors, Chief Executive        June 21, 1999
  (Richard J. Sullivan)        Officer and Secretary
                               (Principal Executive Officer)

   GARRETT A. SULLIVAN*      President and Director (Principal   June 21, 1999
- ---------------------------    Operating Officer)
  (Garrett A. Sullivan)

   /S/ DAVID A. LOPPERT      Vice President, Treasurer and
- ---------------------------    Chief Financial Officer           June 21, 1999
    (David A. Loppert)         (Principal Accounting Officer)
                                                                 June 21, 1999
   ANGELA M. SULLIVAN*       Director
- ---------------------------
   (Angela M. Sullivan)

     DANIEL E. PENNI*        Director                            June 21, 1999
- ---------------------------
    (Daniel E. Penni.)

   ARTHUR F. NOTERMAN*       Director                            June 21, 1999
- ---------------------------
   (Arthur F. Noterman)

   CONSTANCE K. WEAVER*      Director                            June 21, 1999
- ---------------------------
  (Constance K. Weaver)



                                 *By:  /S/ DAVID A. LOPPERT
                                       ---------------------
                                         David A. Loppert
                                         Attorney-in-Fact





                                      II-8
<PAGE>

<TABLE>
                                                                                                                      SCHEDULE II

                                                   APPLIED CELLULAR TECHNOLOGY, INC.

                                                   VALUATION AND QUALIFYING ACCOUNTS
                                                            (In Thousands)

<CAPTION>



                                                                                   Additions
                                                                          --------------------------
                                                            Balance At     Charged To     Valuation                   Balance At
                                                            Beginning       Cost And      Accounts                      End Of
                   Description                              Of Period       Expenses      Acquired     Deductions       Period
- ------------------------------------------------------------------------- -------------- ----------- ---------------  -----------
<S>                                                         <C>            <C>            <C>          <C>            <C>

Valuation reserve deducted in the balance sheet from the
  asset to which it applies:
      Accounts Receivable:
         1998 Allowance for doubtful accounts                $ 675         $ 1,031        $ 262         $ 978            $ 990
         1997 Allowance for doubtful accounts                  101             328          270            24              675
         1996 Allowance for doubtful accounts                  ---              43          100            42              101
      Inventory:
         1998 Allowance for excess and obsolescence            896             468           11           ---            1,375
         1997 Allowance for excess and obsolescence            ---             ---        1,108           212              896
         1996 Allowance for excess and obsolescence            ---             ---          ---           ---              ---



</TABLE>


                                      II-9
<PAGE>

                                  EXHIBIT INDEX
Exhibit
Number                              Description
- ------                              -----------

4.1  Second Amended and Restated Articles of Incorporation of the Registrant

4.2  Resolution  of the Board of Directors of the  Registrant  setting forth the
     terms of the Special Voting Preferred Stock*

4.3  Amended  and  Restated  Bylaws  of the  Registrant  dated  March  31,  1998
     (incorporated  herein  by  reference  to  Exhibit  4.1 to the  Registrant's
     Registration  Statement  on Form S-3 (File No.  333-51067)  filed  with the
     Commission  on April 27, 1998)

5.1  Opinion of Bryan Cave LLP regarding the validity of the Common Stock *

8.1  Opinion of Cassels Brock & Blackwell regarding tax matters*

8.2  Opinion of Bryan Cave LLP regarding tax matters*

10.1 1996 Non-Qualified Stock Option Plan of Applied Cellular Technology,  Inc.,
     as amended  through  June 13, 1998  (incorporated  herein by  reference  to
     Exhibit 10.1 to the Registrant's  Annual Report on Form 10-K filed with the
     Commission on March 31, 1999 (Commission File Number 000-26020))

10.2 1999 Employees Stock Purchase Plan of the Registrant

10.3 1999 Flexible Stock Plan of the Registrant

10.4 Richard J. Sullivan Employment Agreement  (incorporated herein by reference
     to Exhibit 10.4 to the  Registrant's  Annual Report on Form 10-K filed with
     the Commission on March 31, 1999 (Commission File Number 000-26020))

10.5 Garrett A. Sullivan Employment Agreement  (incorporated herein by reference
     to Exhibit 10.5 to the  Registrant's  Annual Report on Form 10-K filed with
     the Commission on March 31, 1999 (Commission File Number 000-26020))

10.6 David A. Loppert Employment Agreement  (incorporated herein by reference to
     Exhibit 10.6 to the Registrant's  Annual Report on Form 10-K filed with the
     Commission on March 31, 1999 (Commission File Number 000-26020))

10.7 Scott R. Silverman Employment  Agreement  (incorporated herein by reference
     to Exhibit 10.7 to the  Registrant's  Annual Report on Form 10-K filed with
     the Commission on March 31, 1999 (Commission File Number 000-26020))

10.8 Andrew J. Hidalgo Employment Agreement (incorporated herein by reference to
     Exhibit 10.8 to the Registrant's  Annual Report on Form 10-K filed with the
     Commission on March 31, 1999 (Commission File Number 000-26020))

10.9 Gary A. Gray  Employment  Agreement  (incorporated  herein by  reference to
     Exhibit 10.9 to the Registrant's  Annual Report on Form 10-K filed with the
     Commission on March 31, 1999 (Commission File Number 000-26020))

10.10Jerome C. Artigliere Employment Agreement (incorporated herein by reference
     to Exhibit 10.10 to the Registrant's  Annual Report on Form 10-K filed with
     the Commission on March 31, 1999 (Commission File Number 000-26020))

10.11Tabitha  Zane  Employment  Agreement  (incorporated  herein by reference to
     Exhibit 10.11 to the Registrant's Annual Report on Form 10-K filed with the
     Commission on March 31, 1999 (Commission File Number 000-26020))



                                     II-10
<PAGE>

10.12Marc  Sherman  Employment  Agreement  (incorporated  herein by reference to
     Exhibit 10.12 to the Registrant's Annual Report on Form 10-K filed with the
     Commission on March 31, 1999 (Commission File Number 000-26020))

10.13John  Reap  Employment  Agreement  (incorporated  herein  by  reference  to
     Exhibit 10.13 to the  Registrant's  Post-Effective  Amendment No. 1 on Form
     S-1  to  Registration  Statements  Nos.  333-25431,  333-37713,  333-45139,
     333-51067 and 333-64755 filed with the Commission on May 14, 1999)

10.14Term and  Revolving  Credit  Agreement,  dated May 25,  1999,  between  the
     Registrant  and IBM Credit  Corporation  (incorporated  by reference to the
     Registrant's  Current  Report on Form 8-K filed with the Commission on June
     2, 1999 (Commission File Number 000-26020))

10.15Agreement  of Purchase  and Sale dated as of June 4, 1999,  as amended,  by
     and among  Intellesale.com,  Inc., Applied Cellular Technology,  Inc. David
     Romano  and Eric  Limont,  relating  to the  acquisition  of the  shares of
     Bostek, Inc. and Micro Components International, Incorporated (incorporated
     by reference to the Registrant's  Current Report on Form 8-K filed with the
     Commission on June 11, 1999 (Commission File Number 000-26020)).

16.1 Letter from Rubin, Brown,  Gornstein & Co., LLP ("RBG") concurring with the
     statements made by the Registrant in the Form 8-K report  concerning  RBG's
     resignations as the Registrant's principal accountant  (incorporated herein
     by reference to Exhibit 16 to the  Registrant's  Current Report on Form 8-K
     filed with the  Commission  on  November  4, 1998  (Commission  File Number
     000-26020)

21.1 List of subsidiaries of Applied  Cellular  Technology,  Inc.  (incorporated
     herein by reference to Exhibit 21.1 to the  Registrant's  Annual  Report on
     Form 10-K filed with the  Commission  on March 31,  1999  (Commission  File
     Number 000-26020))

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of Rubin, Brown, Gornstein & Co., LLP

23.3 Consent of Ernst & Young

23.4 Consent of Bryan Cave LLP (included in Exhibit 5.1) *

24.1 Power of Attorney *




                                     II-11

<PAGE>

99.1 Form of Exchangeable Share Provisions*

99.2 Form of Reorganization  Agreement among Applied Cellular Technology,  Inc.,
     ACT-GFX Canada,  Inc.,  Drummer  Enterprises  Ltd.,  Morstar Holdings Ltd.,
     Scozul Enterprises Ltd., James D. Scott and Ground Effects Ltd.*

99.3 Form  of  Voting  and  Exchange  Trust  Agreement  among  Applied  Cellular
     Technology,  Inc., ACT-GFX Canada,  Inc., Drummer Enterprises Ltd., Morstar
     Holdings  Ltd.,  Scozul  Enterprises  Ltd.  and Montreal  Trust  Company of
     Canada*

99.4 Form of Support  Agreement  between Applied Cellular  Technology,  Inc. and
     Act-GFX Canada, Inc.*

99.5 Form of Call Agreement among Applied  Cellular  Technology,  Inc.,  ACT-GFX
     Canada,  Inc.,  Drummer  Enterprises  Ltd.,  Morstar Holdings Ltd.,  Scozul
     Enterprises Ltd. and James D. Scott*

99.6 Form of Shareholders  Agreement among Applied  Cellular  Technology,  Inc.,
     ACT-GFX Canada,  Inc.,  Scozul  Enterprises Ltd., James D. Scott and Ground
     Effects Ltd.*

     -------------
* previously filed











                                     II-12




                                 SECOND RESTATED
                            ARTICLES OF INCORPORATION
                                       OF
                         APPLIED DIGITAL SOLUTIONS, INC.


                                   ARTICLE ONE

         The name of the Corporation is Applied Digital Solutions, Inc. The name
under which it was originally organized was Great Bay Acquisition Company.

                                   ARTICLE TWO

         The address of the  Corporation's  registered office in this state is 1
Metropolitan Square,  Suite 3600, St. Louis,  Missouri 63102 and the name of its
agent is Llewellyn Sale III.

                                  ARTICLE THREE

         The  aggregate  number  of  shares of all  classes  of stock  which the
Corporation  shall have authority to issue is Eighty-Five  Million  (85,000,000)
shares,  of which Five  Million  (5,000,000)  shares  shall be  preferred  stock
("Preferred  Stock")  having a par value of $10.00 per share and Eighty  Million
(80,000,000) shares shall be common stock ("Common Stock") having a par value of
$.001 per share. A statement of the  preferences,  qualifications,  limitations,
restrictions,  and the special or relative rights, including convertible rights,
in respect of the shares of each class is as follows:

         A.       Preferred Stock.

         Subject  to the  requirements  of the laws of the  State  of  Missouri,
authority is hereby vested in the Board of Directors  from time to time to issue
5,000,000  shares of Preferred  Stock in one or more series and by resolution or
resolutions as to each series:

          (a) to fix the  distinctive  serial  designation of the shares of such
     series;

          (b) to fix the rate per annum at which the  holders  of the  shares of
     such series shall be entitled to receive dividends, the dates on which said
     dividends  shall be  payable,  and,  if the  directors  determine  that the
     dividends  with  respect to said series  shall be  cumulative,  the date or
     dates from which such dividends shall be cumulative;

          (c) to  determine  whether the shares of such series shall have voting
     power, and, if so, the extent and definition of such voting power;

          (d) to fix the price or prices at which the shares of such  series may
     be  redeemed,  and to  determine  whether  the shares of such series may be
     redeemed in whole or in part or only as a whole;

          (e) to fix the  amounts  payable on the  shares of such  series in the
     event of liquidation, dissolution, or winding up of the Corporation;

          (f) to determine whether or not the shares of any such series shall be
     made  convertible  into or  exchangeable  for shares of any other  class or
     classes of stock of the  Corporation  or of any other  series of  Preferred
     Stock and the conversion price or prices,  or the rate or rates of exchange
     at which such conversion or exchange may be made;



                                       1
<PAGE>

          (g) to determine the amount of the sinking fund, purchase fund, or any
     analogous  fund,  if any, to be provided  with respect to each such series;
     and

          (h) to fix preferences and relative, participating, optional, or other
     special rights, and  qualifications,  limitations or restrictions  thereof,
     applicable to each such series.

         B.       Common Stock.

         Each share of Common Stock shall be identical  with each other share of
Common Stock,  except as the holders thereof shall otherwise  expressly agree in
writing.  Subject to the prior rights of the  Preferred  Stock from time to time
issued and  outstanding,  as hereinbefore set forth, the holders of Common Stock
shall be entitled to receive such sums as the Board of  Directors  may from time
to time declare as dividends thereon, or authorize as distributions thereon, out
of any sums  available to be distributed as dividends and to receive any balance
remaining  in  case  of  the  dissolution,  liquidation  or  winding  up of  the
Corporation  after satisfying the prior rights of the Preferred Stock, if any be
then  outstanding.  Each  share  of  Common  Stock  shall  have one vote for all
corporate purposes.

                                  ARTICLE FOUR

         No holder of shares of any class of stock of this  corporation,  either
now or hereafter  authorized or issued,  shall have a preemptive or preferential
right to  subscribe  for or  purchase  any  shares of any class of stock of this
corporation,  either  now or  hereafter  authorized  whether  issued  for  cash,
property or services, or to subscribe for or purchase obligations, bonds, notes,
debentures,  other  securities or stock  convertible  into stock of any class of
this corporation other than such right, if any, as the Board of Directors in its
discretion may from time to time  determine,  and at such prices as the Board of
Directors may from time to time fix.

                                  ARTICLE FIVE

         The name and place of residence of the incorporator is as follows:

                                            Mr. William E. Evans
                                            3254 South Glenhaven
                                            Springfield, MO 65804

                                   ARTICLE SIX

         The number of  directors  to  constitute  the Board of Directors is six
(6).  Hereafter,  the  number of  directors  shall be fixed by, or in the manner
provided  in, the  By-Laws.  Any  changes in the number  will be reported to the
Secretary of State within thirty (30) calendar days of such change.

                                  ARTICLE SEVEN

         The duration of the Corporation is perpetual.



                                       2
<PAGE>

                                  ARTICLE EIGHT

         The Corporation is formed for the following purposes:  To engage in any
lawful  business  permitted  under The General and Business  Corporation  Law of
Missouri.

                                  ARTICLE NINE

         The Board of Directors is authorized to make, amend,  alter and rescind
the By-Laws of the Corporation.











                                       3







                        APPLIED CELLULAR TECHNOLOGY, INC.

                       1999 EMPLOYEES STOCK PURCHASE PLAN















<PAGE>

                        APPLIED CELLULAR TECHNOLOGY, INC.
                       1999 EMPLOYEES STOCK PURCHASE PLAN


                                Table of Contents


                                                                            Page
1. NAME AND PURPOSE............................................................1
         1.1. Name.............................................................1
         1.2. Purpose and Construction.........................................1
2. DEFINITION OF TERMS.........................................................1
         2.1. General Definitions..............................................1
                  2.1.1. Board.................................................1
                  2.1.2. Code..................................................1
                  2.1.3. Company...............................................1
                  2.1.4. Committee.............................................1
                  2.1.5. Common Stock..........................................1
                  2.1.6. Compensation..........................................1
                  2.1.7. Effective Date........................................1
                  2.1.8. Employee..............................................2
                  2.1.9. Eligible Employee.....................................2
                  2.1.10. Employer.............................................2
                  2.1.11. Entry Date...........................................2
                  2.1.12. Exercise Date........................................2
                  2.1.13. Fair Market Value....................................2
                  2.1.14. Offering.............................................2
                  2.1.15. Offering Date........................................2
                  2.1.16. Offering Period......................................2
                  2.1.17. Option...............................................2
                  2.1.18. Parent...............................................3
                  2.1.19. Participant..........................................3
                  2.1.20. Plan.................................................3
                  2.1.21. Share................................................3
                  2.1.22. Subsidiary...........................................3
                  2.1.23. Termination Date.....................................3
         2.2. Other Definitions................................................3

3. SHARES TO BE OFFERED........................................................3
         3.1. Number of Shares.................................................3
         3.2. Reusage..........................................................3
         3.3. Adjustments......................................................4

                                       i
<PAGE>

4. ADMINISTRATION..............................................................4
         4.1. Committee........................................................4
         4.2. Authority........................................................4
         4.3. Determination....................................................4
         4.4. Delegation.......................................................4
5. AMENDMENT AND TERMINATION...................................................5
         5.1. Power of Board...................................................5
         5.2. Limitation.......................................................5
         5.3. Term.............................................................5
         5.4. Termination......................................................5
         5.5. Effect...........................................................5
6. OFFERINGS...................................................................5
         6.1. Offerings........................................................5
         6.2. Terms of Offering................................................5
7. GRANTS, PARTICIPATION AND WITHDRAWAL........................................6
         7.1. Grant of Options.................................................6
         7.2. Options Not Transferable.........................................6
         7.3. Election to Participate..........................................7
         7.4. Method of Payment and Stock Purchase Accounts....................7
         7.5. Withdrawal from the Plan.........................................7
8. PURCHASE OF STOCK...........................................................7
         8.1. Exercise of Option...............................................7
         8.2. Allotment of Shares..............................................7
         8.3. Rights on Retirement, Death or Termination of Employment.........8
         8.4. Delivery of Stock................................................8
9. MISCELLANEOUS PROVISIONS....................................................8
         9.1. Underscored References...........................................8
         9.2. Number and Gender................................................8
         9.3. Governing Law....................................................8
         9.4. Purchase for Investment..........................................8
         9.5. Restricted Shares................................................9
         9.6. No Employment Contract...........................................9
         9.7. Offset...........................................................9
         9.8. No Effect on Other Benefits......................................9


                                       ii
<PAGE>



                        APPLIED CELLULAR TECHNOLOGY, INC.
                       1999 EMPLOYEES STOCK PURCHASE PLAN



1. NAME AND PURPOSE.

     1.1. Name.

          The name of this Plan is the "Applied Cellular  Technology,  Inc. 1999
     Employees Stock Purchase Plan".

     1.2. Purpose and Construction.

          The Company has established  this Plan to encourage and facilitate the
     purchase of its Common Stock by Eligible  Employees.  This Plan is intended
     to qualify as an "Employee  Stock  Purchase  Plan" under Section 423 of the
     Code.  Consequently,  the  provisions  of this Plan shall be construed in a
     manner  consistent  with the  requirements  of Section 423 of the Code. Any
     term or provision of this Plan which is inconsistent  with the requirements
     of Section 423 of the Code shall be inapplicable.

2. DEFINITION OF TERMS.

     2.1. General Definitions.

          The  following  words  and  phrases,  when  used in the  Plan,  unless
     otherwise  specifically  defined or unless the  context  clearly  otherwise
     requires, shall have the following respective meanings:

               2.1.1. Board.

                    The Board of Directors of the Company.

               2.1.2. Code.

                    The internal Revenue Code of 1986, as amended. Any reference
               to the Code includes the regulations  promulgated pursuant to the
               Code.

               2.1.3. Company.

                    Applied Cellular Technology, Inc.

               2.1.4. Committee.

                    The Committee described in Section 4.1.


               2.1.5. Common Stock.

                    The Company's $.001 par value common stock.

               2.1.6. Compensation.

                    The  gross  salary  and  wages  earned  by an  Employee  for
               services  rendered to an Employer plus any other  remuneration so
               earned as the Committee shall determine.

               2.1.7. Effective Date.

                    The date the Plan is  approved  by the  shareholders  of the
               Company which must occur within one year before or after approval
               by the Board.  Any  Offerings  made prior to the  approval by the

                                      1
<PAGE>

               shareholders  of the  Company  and  Options  granted  under  such
               Offerings shall be void if such approval is not obtained.

               2.1.8. Employee.

                    A person employed by the Employer.

               2.1.9. Eligible Employee.

                    With respect to each  Offering,  an Employee who is eligible
               to be  granted  an  Option  under  the  terms  of such  Offering.
               Notwithstanding the foregoing,  with respect to any Offering, all
               Employees must be Eligible  Employees except Employees who may be
               excluded under Section  423(b)(4) of the Code. The  determination
               of whether an Employee is an Eligible  Employee  shall be made as
               of each Entry Date.  For purposes of  determining  an  Employee's
               eligibility under the Plan, the Committee shall have the right to
               determine  that  employment for an entity which is acquired by an
               Employer  or  whose   assets  are  acquired  by  an  Employer  is
               employment by the Employer.

               2.1.10. Employer.

                    With  respect to each  Offering,  the Company and all of its
               Parents  and  Subsidiaries  whose  Employees  are  eligible to be
               granted Options to purchase Common Stock in such Offering.

               2.1.11. Entry Date.

                    Each date that an Eligible Employee may become a Participant
               in the Plan.

               2.1.12. Exercise Date.

                    Each date on which an Option is exercised.

               2.1.13. Fair Market Value.

                    The closing price of Shares on the NASDAQ on a given date or
               in the absence of sales on a given date, the closing price on the
               NASDAQ  on the last day on  which a sale  occurred  prior to such
               date.

               2.1.14. Offering.

                    An  offering  consisting  of grants of Options  to  purchase
               Shares under the Plan.

               2.1.15. Offering Date.

                    Each date selected by the Committee for the initial granting
               of Options to purchase Shares in an Offering.

               2.1.16. Offering Period.

                    With respect to each Offering,  the period  beginning on the
               Offering Date and ending on the Termination Date.

               2.1.17. Option.

                    An option granted under the Plan to purchase Shares.

                                      2
<PAGE>
               2.1.18. Parent.

                    Any corporation  (other than the Company or a Subsidiary) in
               an unbroken chain of corporations ending with the Company, if, at
               the time of the  grant  of an  Option,  each of the  corporations
               (other than the Company) owns stock possessing 50% or more of the
               total combined voting power of all classes of stock in one of the
               other corporations in such chain.

               2.1.19. Participant.

                    An Eligible  Employee who has elected to  participate in the
               Plan.

               2.1.20. Plan.

                    The Applied  Cellular  Technology,  Inc. 1999 Employee Stock
               Purchase Plan and all amendments and supplements to it.

               2.1.21. Share.

                    A share of Common Stock.

               2.1.22. Subsidiary.

                    Any  corporation,  other than the  Company,  in an  unbroken
               chain of corporations  beginning with the Company if, at the time
               of grant of an Option,  each of the corporations,  other than the
               last corporation in the unbroken chain, owns stock possessing 50%
               or more of the total  combined  voting  power of all  classes  of
               stock in one of the other corporations in such chain.

               2.1.23. Termination Date.

                    The date on which an Offering expires.

     2.2. Other Definitions.

          In addition to the above  definitions,  certain words and phrases used
     in the Plan and in any  Offering  may be defined in other  portions  of the
     Plan or in such Offering.

3. SHARES TO BE OFFERED.

     3.1. Number of Shares.

          The number of Shares for which  Options may be granted  under the Plan
     shall be 1,500,000, plus an annual increase,  effective as of the first day
     of each calendar year,  commencing with 2000,  equal to 5% of the number of
     outstanding  Shares as of the first day of such  calendar  year,  but in no
     event  more than  3,000,000  Shares in the  aggregate.  Such  Shares may be
     authorized but unissued Shares, Shares held in the treasury, or both.

     3.2. Reusage.

          If an Option expires or is terminated, surrendered or canceled without
     having been fully  exercised,  the Shares covered by such Option which were
     not purchased shall again be available for use under the Plan.

                                      3
<PAGE>
     3.3. Adjustments.

          If there is any change in the Common Stock of the Company by reason of
     any stock dividend, spin-off, split-up, spin-out, recapitalization, merger,
     consolidation,  reorganization,  combination  or  exchange  of  shares,  or
     otherwise,  the class of stock and number of shares of such class available
     for Options,  the class of stock and maximum number of shares of such class
     that may be purchased  in the current  Offering  Period,  and the price per
     share, as applicable, shall be appropriately adjusted by the Committee.

4. ADMINISTRATION.

     4.1. Committee.

          The Plan shall be administered  by the Committee.  The Committee shall
     consist of the Board,  unless the Board appoints a Committee of two or more
     but less than all of the  Board.  If the  Committee  does not  include  the
     entire Board,  it shall serve at the pleasure of the Board,  which may from
     time to  time  appoint  members  in  substitution  for  members  previously
     appointed  and  fill  vacancies,  however  caused,  in the  Committee.  The
     Committee  may select one of its members as its Chairman and shall hold its
     meetings  at such times and places as it may  determine.  A majority of its
     members shall constitute a quorum. All determinations of the Committee made
     at a meeting  at which a quorum is present  shall be made by a majority  of
     its members present at the meeting.  Any decision or determination  reduced
     to  writing  and  signed by a  majority  of the  members  shall be fully as
     effective  as if it had been  made by a  majority  vote at a  meeting  duly
     called and held.

     4.2. Authority.

          Subject to the terms of the Plan,  the  Committee  shall have complete
     authority to:

               (a) determine the terms and  conditions of, and the Employers and
          the  Eligible  Employees   under,   each   Offering,  as  described in
          Section 6;

               (b) interpret and construe the Plan;

               (c) prescribe,  amend and rescind rules and regulations  relating
          to the Plan;

               (d) maintain accounts, records and ledgers relating to Options;

               (e) maintain  records  concerning its decisions and  proceedings;

               (f) determine all questions relating to Options under the Plan;

               (g) employ  agents,  attorneys,  accountants or other persons for
          such purposes as the Committee considers necessary or desirable; and

               (h) do and  perform  all  acts  which it may  deem  necessary  or
          appropriate  for the  administration  of the  Plan and  carry  out the
          purposes of the Plan.

     4.3. Determination.

          All determinations of the Committee shall be final.

     4.4. Delegation.

          The Committee may delegate all or any part of its authority  under the
     Plan to any Employee, Employees or committee.


                                       4
<PAGE>


5. AMENDMENT AND TERMINATION.

     5.1. Power of Board.

          Except as  hereinafter  provided,  the Board shall have the sole right
     and power to amend the Plan at any time and from time to time.

     5.2. Limitation.

          The Board may not amend the Plan, without approval of the shareholders
     of the Company:

               (a) in a manner  which  would  cause the Plan to fail to meet the
          requirements of Section 423 of the Code; or

               (b)  in  a  manner  which  would   violate   applicable   law  or
          administrative regulation or rule.

     5.3. Term.

          The Plan shall commence as of the Effective  Date and,  subject to the
     terms of the Plan including those requiring approval by the shareholders of
     the Company, shall continue in full force and effect until terminated.

     5.4. Termination.

          The Plan may be  terminated  at any time by the Board.  The Plan shall
     automatically terminate when all of the Shares available for purchase under
     the Plan have been sold. Upon  termination of the Plan, and the exercise or
     lapse  of  all  outstanding   Options,   any  balances  remaining  in  each
     Participant's stock purchase account shall be refunded to him.

     5.5. Effect.

          The amendment or  termination  of the Plan shall not adversely  affect
     any Options granted prior to such amendment or termination.

6. OFFERINGS.

     6.1. Offerings.

          There may be one or more Offerings  under the Plan,  which shall occur
     at such time or times, if any, as the Committee shall determine.  Offerings
     may run concurrently and/or consecutively.  Except as otherwise provided in
     an Offering, all capitalized terms used in the Offering shall have the same
     meaning  as in the Plan,  and the  Offering  shall be subject to all of the
     terms and conditions of the Plan.

     6.2. Terms of Offering.

          At the time each Offering is made, the Committee will determine all of
     the terms and conditions of the Offering,  which terms and conditions shall
     include, but not be limited to, the following:

               (a) The number of Shares to be  offered,  which in no event shall
          exceed  the  maximum  number  of  Shares  then  available   under  the
          provisions of Section 3.

               (b) The  Offering  Period,  which in no event  shall  exceed  the
          maximum period permitted under Section 423 of the Code.



                                      5

<PAGE>
               (c) The price per Share for which  Common  Stock  will be sold to
          Participants who exercise Options,  which price shall not be less than
          the lower of the following:

                    (i) 85% of the Fair Market  Value on the date upon which the
               Option was granted; or

                    (ii) 85% of the Fair Market Value on the Exercise  Date upon
               which the Option is exercised.

               Notwithstanding  the  foregoing,  in no event shall the price per
          Share be less than the par value.

               (d) The  Employers  and  Eligible  Employees  with respect to the
          Offering.  All  Eligible  Employees on an Entry Date shall be eligible
          with respect to the Options to be granted on such Entry Date. However,
          no Employee shall be granted an Option:

                    (i) if, immediately after the grant, such Employee would own
               (within  the  meaning of  Section  423(b)(3)  of the Code)  stock
               possessing 5% or more of the total combined voting power or value
               of all  classes  of  stock of the  Company  or of any  Parent  or
               Subsidiary; or

                    (ii) which  permits his rights to  purchase  stock under all
               employees  stock  purchase plans (as defined in Section 423(b) of
               the Code) of the  Company and its  Parents  and  Subsidiaries  to
               accrue at a rate which  exceeds  $25,000 of fair market  value of
               such stock, determined as of the time such Option is granted, for
               each  calendar  year in  which  such  Option  is  outstanding  at
               anytime.

               (e) The number of Entry Dates and the date of each Entry Date.

               (f) The number of  Exercise  Dates and the date of each  Exercise
          Date.

               (g) The maximum  number of Shares,  if any, that may be purchased
          in the Offering Period by a Participant.

               (h) The maximum number of Shares,  if any, which may be purchased
          in an
         Offering Period by a Participant as a percentage of his Compensation.

               (i)  Whether  or  not  interest  will  be  paid  on  balances  in
          Participant's stock purchase accounts, and, if interest is to be paid,
          the rate of interest or method of  determining  the rate of  interest,
          and whether  interest is to be used to purchase  Shares or paid to the
          Participant.

7. GRANTS, PARTICIPATION AND WITHDRAWAL.

     7.1. Grant of Options.

               On  an  Entry  Date,  each  Eligible  Employee,  who  shall  have
          indicated his desire to participate in the Plan  commencing  with such
          Entry Date by executing and  delivering to the Company an agreement in
          the form  approved by the  Committee  ("Participation  Agreement")  in
          accordance  with the  provisions of the Offering,  shall be granted an
          Option to purchase Shares under the Plan.

     7.2. Options Not Transferable.

          Each option  shall not be  transferable  by the grantee  other than by
     will  or  under  the  laws  of  descent  and   distribution  and  shall  be
     exercisable, during his lifetime, only by him.

                                       6

<PAGE>

     7.3. Election to Participate.

          An Eligible  Employee who wishes to  participate  in the Plan as of an
     Entry Date must deliver his executed Participation Agreement to the Company
     no later than required by the Committee.

     7.4. Method of Payment and Stock Purchase Accounts.

          Payment for Shares shall be made through  payroll  deductions from the
     Participant's   Compensation,   such  deductions  to  be  authorized  by  a
     Participant in the Participation Agreement, by separate cash payments which
     may be  made by a  Participant  from  time to  time,  if  permitted  by the
     Committee,  and if permitted,  in accordance with rules and limitations set
     by the  Committee,  and, with the consent of the  Committee,  and upon such
     terms as it shall  require,  in Shares which shall be valued at Fair Market
     Value on the Exercise Date. A stock purchase account shall be set up on the
     books of the  Company  in the name of each  Participant.  The amount of all
     payroll deductions,  separate cash payments,  and tender of Shares shall be
     credited to the respective  stock purchase  accounts of the Participants on
     the Company's books. The funds deducted and withheld by the Company through
     payroll  deductions,  the funds  received by the Company from separate cash
     payments,  and the  tendered  Shares  may be used  by the  Company  for any
     corporate purposes as the Board shall determine,  and the Company shall not
     be obligated to segregate said funds or Shares in any way.

     7.5. Withdrawal from the Plan.

          A Participant  may not withdraw from the Plan unless  permitted by the
     Committee and, if so permitted, only at such times and upon such conditions
     as the Committee shall determine.

8. PURCHASE OF STOCK.

     8.1. Exercise of Option.

          Unless a Participant shall have withdrawn from the Plan as provided in
     Section 7.5, is Option to purchase Shares will be  automatically  exercised
     for him on each  Exercise  Date for the  number  of full  Shares  which the
     accumulated  payroll  deductions,  separate  cash  payments  (plus,  if  so
     permitted  by the  Committee  pursuant  to  paragraph  (i) of Section  6.2,
     interest on such cash  deductions  and payments) and tendered  Shares as of
     the Exercise Date will purchase at the applicable Option price,  subject to
     the  limitations  set forth in the Plan and the  Offering  and  subject  to
     allotment  in  accordance  with  Section  8.2.  Any balance  remaining in a
     Participant's  stock purchase  account after the exercise of an Option will
     remain in such account  unless the Offering is over, in which event it will
     be refunded to such Participant.

     8.2. Allotment of Shares.

          In the event that,  on any  Exercise  Date,  the  aggregate  funds and
     Shares available for the purchase of Shares,  pursuant to the provisions of
     Section 8.1,  would  purchase a greater number of Shares than the number of
     Shares then  available for purchase  under the Plan on such Exercise  Date,
     the Company  shall  issue to each  Participant,  on a pro rata basis,  such
     number of Shares as,  when  taken  together  with the Shares  issued to all
     other Participants,  will result in the issuance of Shares totaling no more
     than the number of Shares then  remaining  available for issuance under the
     Plan on such Exercise  Date.  If, after such  allotment,  all of the Shares
     under  an  Offering  have  been  purchased,  any  balance  remaining  in  a
     Participant's stock purchase account shall be refunded to such Participant.


                                      7
<PAGE>

     8.3. Rights on Retirement, Death or Termination of Employment.

          In the event of a  Participant's  retirement,  death or termination of
     employment,  no payroll  deduction shall be taken from any Compensation due
     and owing to him at such time,  and the amount in the  Participant's  stock
     purchase  account  shall be  applied  as of the next  Exercise  Date in the
     manner set forth in Section 8.1, as if the retirement, death or termination
     of employment had not occurred, unless the former Employee or, in the event
     of his death,  the person or persons to whom his rights pass by will or the
     laws of the  descent  and  distribution  (including  his estate  during the
     period of  administration)  requests in writing  prior to the Exercise Date
     that such amount be refunded;  provided, however, if the retirement,  death
     or  termination  of  employment  occurs more than three months prior to the
     next  Exercise  Date,  such amount  shall  automatically  be  refunded.  An
     Employee of a Subsidiary  or a Parent which ceases to be a Subsidiary  or a
     Parent shall be deemed to have  terminated  his  employment for purposes of
     this Section 8.3 as of the date such corporation  ceases to be a Subsidiary
     or a Parent,  as the case may be,  unless,  as of such date,  the  Employee
     shall become an Employee of the Company or any Subsidiary or Parent.

     8.4. Delivery of Stock.

          Certificates for Shares purchased will be issued and delivered as soon
     as practicable,  which certificates shall be registered only in the name of
     the Participant,  or, if he so indicates on his Participation  Agreement in
     his name and that of his spouse as tenants  by the  entirety  with right of
     survivorship  or in his name and that of  another  person as joint  tenants
     with  right  of  survivorship.  None  of  the  rights  or  privileges  of a
     shareholder  of the Company  shall exist with  respect to Shares  purchased
     under the Plan until the certificates representing such Shares as issued.

9. MISCELLANEOUS PROVISIONS.

     9.1. Underscored References.

          The underscored references contained in the Plan are included only for
     convenience,  and they shall not be  construed  as a part of the Plan or in
     any respect affecting or modifying its provisions.

     9.2. Number  and  Gender.  The  masculine  and neuter, wherever used in the
     Plan, shall refer to either the masculine,  neuter or feminine; and, unless
     the context otherwise  requires,  the singular shall include the plural and
     the plural the singular.

     9.3. Governing Law.

          This Plan shall be construed and  administered  in accordance with the
     laws of the State of Missouri.

     9.4. Purchase for Investment.

          The Committee may require each person purchasing Shares pursuant to an
     Option to  represent  to and agree with the  Company  in writing  that such
     person  is  acquiring  the  Shares  for  investment  and  without a view to
     distribution or resale.  The  certificates  for such shares may include any
     legend which the Committee deems appropriate to reflect any restrictions on
     transfer.  All  certificates  for Shares  delivered under the Plan shall be
     subject  to such  stock  transfer  orders  and  other  restrictions  as the

                                       8
<PAGE>

     Committee  may  deem  advisable  under  all  applicable  laws,  rules,  and
     regulations,  and the  Committee may cause a legend or legends to be put on
     any such certificates to make appropriate references to such restrictions.

     9.5. Restricted Shares.

          Shares  purchased  under  the  Plan  may  be  subject  to  restrictive
     agreements  between  an  Employer  and a  Participant.  In such  case,  the
     Employer  shall  have the  right to  include a legend  reflecting  any such
     restriction on any certificate for such Shares.

     9.6. No Employment Contract.

          The  adoption of the Plan shall not confer upon any Employee any right
     to continued employment nor shall it interfere in any way with the right of
     the Company,  a Parent or Subsidiary to terminate the  employment of any of
     its employees at any time.

     9.7. Offset.

          In the event that any  Participant  wrongfully  appropriates  funds or
     other  property  of an  Employer  and  thereby  becomes  indebted  to  such
     Employer,  any funds or Shares in his stock purchase account may be applied
     against and used to satisfy such indebtedness.

     9.8. No Effect on Other Benefits.

          The  grant of  Options  under  the Plan  shall  have no  effect on any
     benefits to which a Participant  may be entitled  from the Employer,  under
     another plan or  otherwise,  or preclude a Participant  from  receiving any
     such benefits.













                                       9




                        APPLIED CELLULAR TECHNOLOGY, INC.



                            1999 FLEXIBLE STOCK PLAN



<PAGE>
                        APPLIED CELLULAR TECHNOLOGY, INC.

                            1999 FLEXIBLE STOCK PLAN

                                TABLE OF CONTENTS

                                                                            Page


1. NAME AND PURPOSE                                                            1
         1.1. Name.............................................................1
         1.2. Purpose..........................................................1

2. DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION                              1
         2.1. General Definitions..............................................1
                  2.1.1. Affiliate.............................................1
                  2.1.2. Agreement.............................................1
                  2.1.3. Benefit...............................................1
                  2.1.4. Board.................................................1
                  2.1.5. Cash Award............................................1
                  2.1.6. Change of Control.....................................1
                  2.1.7. Code..................................................2
                  2.1.8. Company...............................................2
                  2.1.9. Committee.............................................2
                  2.1.10. Common Stock.........................................2
                  2.1.11. Effective Date.......................................2
                  2.1.12. Employee.............................................2
                  2.1.13. Employer.............................................2
                  2.1.14. Exchange Act.........................................2
                  2.1.15. Fair Market Value....................................2
                  2.1.16. Fiscal Year..........................................2
                  2.1.17. ISO..................................................2
                  2.1.18. NQSO.................................................2
                  2.1.19. Option...............................................3
                  2.1.20. Other Stock Based Award..............................3
                  2.1.21. Parent...............................................3
                  2.1.22. Participant..........................................3
                  2.1.23. Performance Based Compensation.......................3
                  2.1.24. Performance Share....................................3
                  2.1.25. Plan.................................................3
                  2.1.26. Reload Option........................................3
                  2.1.27. Restricted Stock.....................................3
                  2.1.28. Rule 16b-3...........................................3
                  2.1.29. SEC..................................................3
                  2.1.30. Share................................................4
                  2.1.31. SAR..................................................4
                  2.1.32. Subsidiary...........................................4
         2.2. Other Definitions................................................4
         2.3. Conflicts........................................................4


                                       i
<PAGE>

3. COMMON STOCK                                                                4
         3.1. Number of Shares.................................................4
         3.2. Reusage..........................................................4
         3.3. Adjustments......................................................4

4. ELIGIBILITY                                                                 5
         4.1. Determined By Committee..........................................5

5. ADMINISTRATION                                                              5
         5.1. Committee........................................................5
         5.2. Authority........................................................5
         5.3. Delegation.......................................................6
         5.4. Determination....................................................6

6. AMENDMENT                                                                   6
         6.1. Power of Board...................................................6
         6.2. Limitation.......................................................6

7. TERM AND TERMINATION                                                        6
         7.1. Term.............................................................6
         7.2. Termination......................................................6

8. MODIFICATION OR TERMINATION OF BENEFITS                                     6
         8.1. General..........................................................6
         8.2. Committee's Right................................................7

9. CHANGE OF CONTROL                                                           7
         9.1. Right of Committee...............................................7

10. AGREEMENTS AND CERTAIN BENEFITS                                            7
         10.1. Grant Evidenced by Agreement....................................7
         10.2. Provisions of Agreement.........................................7
         10.3. Transferability.................................................8

11. REPLACEMENT AND TANDEM AWARDS                                              8
         11.1. Replacement.....................................................8
         11.2. Tandem Awards...................................................8

12. PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING                               8
         12.1. Payment.........................................................8
         12.2. Dividend Equivalents............................................8
         12.3. Deferral........................................................8
         12.4. Withholding.....................................................8

13. OPTIONS                                                                    9
         13.1. Types of Options................................................9
         13.2. Grant of ISOs and Option Price..................................9
         13.3. Other Requirements for ISOs.....................................9
         13.4. NQSOs...........................................................9
         13.5. Determination by Committee......................................9


                                       ii
<PAGE>

14. SARS                                                                       9
         14.1. Grant and Payment...............................................9
         14.2. Grant of Tandem Award...........................................9
         14.3. ISO Tandem Award................................................9
         14.4. Payment of Award................................................9

15. ANNUAL LIMITATIONS                                                        10
         15.1. Limitation on Options and SARs.................................10
         15.2. Computations...................................................10

16. RESTRICTED STOCK AND PERFORMANCE SHARES                                   10
         16.1. Restricted Stock...............................................10
         16.2. Cost of Restricted Stock.......................................10
         16.3. Non-Transferability............................................10
         16.4. Performance Shares.............................................10
         16.5. Grant..........................................................10

17. CASH AWARDS                                                               11
         17.1. Grant..........................................................11
         17.2. Rule 16b-3.....................................................11
         17.3. Restrictions...................................................11

18. OTHER STOCK BASED AWARDS AND OTHER BENEFITS                               11
         18.1. Other Stock Based Awards.......................................11
         18.2. Other Benefits.................................................11

19. MISCELLANEOUS PROVISIONS                                                  11
         19.1. Underscored References.........................................11
         19.2. Number and Gender..............................................11
         19.3. Unfunded Status of Plan........................................11
         19.4. Termination of Employment......................................12
         19.5. Designation of Beneficiary.....................................12
         19.6. Governing Law..................................................12
         19.7. Purchase for Investment........................................12
         19.8. No Employment Contract.........................................12
         19.9. No Effect on Other Benefits....................................12


                                      iii
<PAGE>
                        APPLIED CELLULAR TECHNOLOGY, INC.

                            1999 FLEXIBLE STOCK PLAN


1. NAME AND PURPOSE

     1.1. Name.

          The name of this Plan is the "Applied Cellular  Technology,  Inc. 1999
     Flexible Stock Plan."

     1.2. Purpose.

          The Company has established this Plan to attract, retain, motivate and
     reward  Employees  and other  individuals,  to  encourage  ownership of the
     Company's Common Stock by Employees and other  individuals,  and to promote
     and further the best  interests  of the Company by granting  cash and other
     awards.

2. DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION

     2.1. General Definitions.

          The  following  words  and  phrases,  when  used in the  Plan,  unless
     otherwise  specifically  defined or unless the  context  clearly  otherwise
     requires, shall have the following respective meanings:

          2.1.1. Affiliate.

               "Affiliate"  means a Parent or Subsidiary of the Company.

          2.1.2. Agreement.

               "Agreement"  means the document which  evidences the grant of any
          Benefit under the Plan and which sets forth the Benefit and the terms,
          conditions  and  provisions  of, and  restrictions  relating  to, such
          Benefit.

          2.1.3. Benefit.

               "Benefit"  means any benefit  granted to a Participant  under the
          Plan.

          2.1.4. Board.

               "Board" means the Board of Directors of the Company.

          2.1.5. Cash Award.

               "Cash Award" means a Benefit payable in the form of cash.

          2.1.6. Change of Control.

               "Change of Control" means the  acquisition,  without the approval
          of the Board,  by any  "person"  or  "group"  (as that term is used in
          Section  13(d) and  14(d)(2)  of the  Exchange  Act),  other  than the
          Company or a Related  Entity,  of beneficial  ownership (as defined in
          Rule 13d-3 under the Exchange Act) of outstanding voting securities of
          the Company carrying more than 20% of the combined voting power in the
          election  of  directors  through  a tender  offer,  exchange  offer or
          otherwise;  the liquidation or dissolution of the Company  following a
          sale or other disposition of all or substantially all of its assets; a
          merger or  consolidation  involving  the  Company as a result of which
          persons who were shareholders of the Company  immediately prior to the
          effective date of the merger or  consolidation  shall have  beneficial
          ownership  of  less  than  50% of the  combined  voting  power  in the

                                       1
<PAGE>
          election of  directors  of the  surviving  corporation  following  the
          effective date of such merger or consolidation; or any time during any
          two-year period in which  individuals who constituted the Board at the
          start of such  period  (or whose  election  was  approved  by at least
          two-thirds  of the then  members of the Board who were  members at the
          start of the two-year  period) do not  constitute  at least 50% of the
          Board for any reason.  A Related Entity is the Parent, a Subsidiary or
          any employee  benefit plan (including a trust forming a part of such a
          plan) maintained by the Parent, the Company or a Subsidiary.

          2.1.7. Code.

               "Code" means the Internal  Revenue Code of 1986, as amended.  Any
          reference to the Code includes the regulations promulgated pursuant to
          the Code.

          2.1.8. Company.

               "Company" means Applied Cellular Technology, Inc.

          2.1.9. Committee.

               "Committee" means the Committee described in Section 5.1.

          2.1.10. Common Stock..

               "Common Stock" means the Company's  common stock which  presently
          has a par value of $.001 per Share.

          2.1.11. Effective Date.

               "Effective  Date" means the date that the Plan is approved by the
          shareholders of the Company which must occur within one year before or
          after  approval  by the  Board.  Any grants of  Benefits  prior to the
          approval  by the  shareholders  of the  Company  shall be void if such
          approval is not obtained.

          2.1.12. Employee.

               "Employee" means any person employed by the Employer.

          2.1.13. Employer.

               "Employer" means the Company and all Affiliates.

          2.1.14. Exchange Act.

               "Exchange  Act" means The  Securities  Exchange  Act of 1934,  as
          amended.

          2.1.15. Fair Market Value.

               "Fair  Market  Value"  means the  closing  price of Shares on the
          Nasdaq National Market on a given date, or, in the absence of sales on
          a given date, the closing price on the Nasdaq  National  Market on the
          last day on which a sale occurred prior to such date.

          2.1.16. Fiscal Year.

               "Fiscal  Year" means the taxable year of the Company which is the
          calendar year.

          2.1.17. ISO.

               "ISO" means an  Incentive  Stock Option as defined in Section 422
          of the Code.

                                      2
<PAGE>

          2.1.18. NQSO.

               "NQSO" means a  non-qualified  stock  Option,  which is an Option
          that does not qualify as an ISO.

          2.1.19. Option.

               "Option"  means an option to purchase  Shares  granted  under the
          Plan.

          2.1.20. Other Stock Based Award.

               An award  under  Section  8 that is valued in whole or in part by
          reference to, or is otherwise based on, Common Stock.

          2.1.21. Parent.

               Any  corporation  (other than the Company or a Subsidiary)  in an
          unbroken  chain of  corporations  ending with the Company,  if, at the
          time  of  the  grant  of an  Option  or  other  Benefit,  each  of the
          corporations  (other than the Company)  owns stock  possessing  50% or
          more of the total combined voting power of all classes of stock in one
          of the other corporations in such chain.

          2.1.22. Participant.

               An individual  who is granted a Benefit under the Plan.  Benefits
          may be granted only to Employees,  members of the Board, employees and
          owners of entities which are not Affiliates but which have a direct or
          indirect ownership interest in an Employer or in which an Employer has
          a  direct  or  indirect  ownership  interest,   individuals  who,  and
          employees and owners of entities which, are customers and suppliers of
          an Employer,  individuals  who, and  employees  and owners of entities
          which,  render  services to an  Employer,  and  individuals  who,  and
          employees  and owners of  entities,  which have  ownership or business
          affiliations with any individual or entity previously described.

          2.1.23. Performance Based Compensation.

               Compensation which meets the requirements of Section 162(m)(4)(C)
          of the Code.

          2.1.24. Performance Share.

               A Share awarded to a Participant under Section 16 of the Plan.

          2.1.25. Plan.

               The Applied  Cellular  Technology,  Inc. 1999 Flexible Stock Plan
          and all amendments and supplements to it.

          2.1.26. Reload Option.

               An Option to purchase the number of Shares used by a  Participant
          to  exercise  an Option and to  satisfy  any  withholding  requirement
          incident to the exercise of such Option.

          2.1.27. Restricted Stock.

               Shares issued under Section 15 of the Plan.

          2.1.28. Rule 16b-3.

               Rule 16b-3  promulgated by the SEC, as amended,  or any successor
          rule in effect from time to time.

          2.1.29. SEC.

               The Securities and Exchange Commission.


                                       3
<PAGE>

          2.1.30. Share.

               A share of Common Stock.

          2.1.31. SAR.

               A stock  appreciation  right,  which is the right to  receive  an
          amount equal to the appreciation,  if any, in the Fair Market Value of
          a Share  from  the date of the  grant of the  right to the date of its
          payment.

          2.1.32. Subsidiary.

               Any corporation,  other than the Company, in an unbroken chain of
          corporations beginning with the Company if, at the time of grant of an
          Option or other Benefit, each of the corporations, other than the last
          corporation in the unbroken chain,  owns stock  possessing 50% or more
          of the total  combined  voting power of all classes of stock in one of
          the other corporations in such chain.

     2.2. Other Definitions.

          In addition to the above  definitions,  certain words and phrases used
     in the Plan and any Agreement may be defined in other  portions of the Plan
     or in such Agreement. 2.3. Conflicts.

          In the case of any  conflict  in the terms of the Plan  relating  to a
     Benefit,  the  provisions  in the  section of the Plan  which  specifically
     grants such Benefit shall control those in a different section. In the case
     of any conflict between the terms of the Plan relating to a Benefit and the
     terms of an  Agreement  relating to a Benefit,  the terms of the Plan shall
     control.

3. COMMON STOCK

     3.1. Number of Shares.

          The number of Shares which may be issued or sold or for which Options,
     SARs or Performance Shares may be granted under the Plan shall be 5,000,000
     Shares,  plus an  annual  increase,  effective  as of the first day of each
     calendar  year,  commencing  with  2000,  equal  to 5%  of  the  number  of
     outstanding  Shares as of the first day of such  calendar  year,  but in no
     event more than  15,000,000  Shares in the  aggregate.  Such  Shares may be
     authorized but unissued Shares,  Shares held in the treasury,  or both. The
     full number of Shares available may be used for any type of Option or other
     Benefit.

     3.2. Reusage.

          If an Option or SAR expires or is terminated, surrendered, or canceled
     without having been fully  exercised,  if Restricted  Shares or Performance
     Shares are forfeited, or if any other grant results in any Shares not being
     issued,  the Shares  covered  by such  Option or SAR,  grant of  Restricted
     Shares,  Performance Shares or other grant, as the case may be, shall again
     be available  for use under the Plan.  Any Shares which are used as full or
     partial  payment to the Company upon exercise of an Option or for any other
     Benefit  that  requires a payment to the  Company  shall be  available  for
     purposes of the Plan.

     3.3. Adjustments.

          If there is any change in the Common Stock of the Company by reason of
     any stock dividend, spin-off, split-up, spin-out, recapitalization, merger,
     consolidation,  reorganization,  combination  or  exchange  of  shares,  or
     otherwise,  the number of SARs and number and class of shares available for
     Options and grants of Restricted Stock,  Performance Shares and Other Stock
     Based Awards and the number of Shares subject to outstanding Options, SARs,


                                    4
<PAGE>
     grants of  Restricted  Stock  which are not vested,  grants of  Performance
     Shares which are not vested,  and Other Stock Based  Awards,  and the price
     thereof, as applicable, shall be appropriately adjusted by the Committee.

4. ELIGIBILITY

     4.1. Determined By Committee.

          The Participants and the Benefits they receive under the Plan shall be
     determined  solely by the  Committee.  In making  its  determinations,  the
     Committee shall consider past, present and expected future contributions of
     Participants and potential Participants to the Employer, including, without
     limitation,  the performance of, or the refraining from the performance of,
     services. Unless specifically provided otherwise herein, all determinations
     of the Committee in connection  with the Plan or an Agreement shall be made
     in its sole discretion.

5. ADMINISTRATION

     5.1. Committee.

          The Plan shall be administered  by the Committee.  The Committee shall
     consist of the Board,  unless the Board appoints a Committee of two or more
     but less than all of the  Board.  If the  Committee  does not  include  the
     entire Board,  it shall serve at the pleasure of the Board,  which may from
     time to  time  appoint  members  in  substitution  for  members  previously
     appointed  and  fill  vacancies,  however  caused,  in the  Committee.  The
     Committee  may select one of its members as its Chairman and shall hold its
     meetings  at such times and places as it may  determine.  A majority of its
     members shall constitute a quorum. All determinations of the Committee made
     at a meeting  at which a quorum is present  shall be made by a majority  of
     its members present at the meeting.  Any decision or determination  reduced
     to  writing  and  signed by a  majority  of the  members  shall be fully as
     effective  as if it had been  made by a  majority  vote at a  meeting  duly
     called and held.

     5.2. Authority.

          Subject  to  the  terms  of  the  Plan,   the  Committee   shall  have
     discretionary authority to:

               (a) determine the  individuals to whom Benefits are granted,  the
          type and  amounts of  Benefits  to be granted and the date of issuance
          and duration of all such grants;

               (b)  determine  the  terms,  conditions  and  provisions  of, and
          restrictions relating to, each Benefit granted;

               (c) interpret and construe the Plan and all Agreements;

               (d) prescribe,  amend and rescind rules and regulations  relating
          to the Plan;

               (e) determine the content and form of all Agreements;

               (f) determine all questions relating to Benefits under the Plan;

               (g) maintain accounts, records and ledgers relating to Benefits;

               (h) maintain records concerning its decisions and proceedings;

               (i) employ  agents,  attorneys,  accountants or other persons for
          such purposes as the Committee considers necessary or desirable;

               (j) take,  at any time,  any  action  permitted  by  Section  9.1
          irrespective  of  whether  any Change of Control  has  occurred  or is
          imminent;

                                    5
<PAGE>
               (k)  determine,  except to the extent  otherwise  provided in the
          Plan,  whether and the extent to which Benefits under the Plan will be
          structured   to   conform   to   the   requirements    applicable   to
          Performance-Based  Compensation,  and to take such  action,  establish
          such  procedures,  and  impose  such  restrictions  at the  time  such
          Benefits are granted as the  Committee  determines  to be necessary or
          appropriate to conform to such requirements; and

               (l) do and  perform  all  acts  which it may  deem  necessary  or
          appropriate for
         the administration of the Plan and carry out the purposes of the Plan.

     5.3. Delegation.

          Except as  required  by Rule 16b-3 with  respect to grants of Options,
     Stock Appreciation Awards, Performance Shares, Other Stock Based Awards, or
     other Benefits to individuals who are subject to Section 16 of the Exchange
     Act or as  otherwise  required  for  compliance  with  Rule  16b-3 or other
     applicable law, the Committee may delegate all or any part of its authority
     under the Plan to any Employee, Employees or committee.

     5.4. Determination.

          All determinations of the Committee shall be final.

6. AMENDMENT

     6.1. Power of Board.

          Except as  hereinafter  provided,  the Board shall have the sole right
     and power to amend the Plan at any time and from time to time.

     6.2. Limitation.

          The Board may not amend the Plan, without approval of the shareholders
     of the Company:

               (a) in a manner which would cause  Options  which are intended to
          qualify as ISOs to fail to qualify;

               (b) in a manner  which  would  cause the Plan to fail to meet the
          requirements of Rule 16b-3; or

               (c) in a manner which would violate applicable law.

7. TERM AND TERMINATION

     7.1. Term.

          The Plan shall commence as of the Effective  Date and,  subject to the
     terms of the Plan,  including those requiring  approval by the shareholders
     of the Company and those  limiting  the period over which ISOs or any other
     Benefits  may be granted,  shall  continue  in full force and effect  until
     terminated.

     7.2. Termination.

          The Plan may be terminated at any time by the Board.

8. MODIFICATION OR TERMINATION OF BENEFITS

     8.1. General.

          Subject to the provisions of Section 8.2, the amendment or termination
     of the Plan shall not adversely affect a Participant's right to any Benefit
     granted prior to such amendment or termination.

                                    6
<PAGE>
     8.2. Committee's Right.

          Any Benefit granted may be converted, modified, forfeited or canceled,
     in whole or in part, by the Committee if and to the extent permitted in the
     Plan or applicable Agreement or with the consent of the Participant to whom
     such Benefit was granted. Except as may be provided in an Agreement, the
     Committee  may,  in its sole  discretion,  in whole or in part,  waive  any
     restrictions or conditions applicable to, or accelerate the vesting of, any
     Benefit.

9. CHANGE OF CONTROL

     9.1. Right of Committee.

          In order to maintain a  Participant's  rights in the event of a Change
     of Control,  the Committee,  in its sole discretion,  may, in any Agreement
     evidencing a Benefit,  or at any time prior to, or  simultaneously  with or
     after  a  Change  of  Control,  provide  such  protection  as it  may  deem
     necessary.  Without,  in any way,  limiting the generality of the foregoing
     sentence or requiring any specific  protection,  the Committee may, without
     the approval or consent of the Participant:

               (a) provide for the  acceleration of any time periods relating to
          the exercise or  realization  of such Benefit so that such Benefit may
          be  exercised  or  realized  in full on or before a date  fixed by the
          Committee;

               (b)  provide  for  the  purchase  of  such   Benefit,   upon  the
          Participant's request, for an amount of cash equal to the amount which
          could have been  attained  upon the  exercise or  realization  of such
          Benefit had such Benefit been currently exercisable or payable;

               (c) make such adjustment to the Benefits then  outstanding as the
          Committee  deems  appropriate  to reflect such  transaction or change;
          and/or

               (d) cause the Benefits  then  outstanding  to be assumed,  or new
          Benefits substituted  therefor,  by the surviving  corporation in such
          change.

10. AGREEMENTS AND CERTAIN BENEFITS

     10.1. Grant Evidenced by Agreement.

          The  grant  of any  Benefit  under  the Plan  may be  evidenced  by an
     Agreement  which shall describe the specific  Benefit granted and the terms
     and conditions of the Benefit. The granting of any Benefit shall be subject
     to, and  conditioned  upon,  the  recipient's  execution  of any  Agreement
     required by the  Committee.  Except as otherwise  provided in an Agreement,
     all capitalized  terms used in the Agreement shall have the same meaning as
     in the Plan, and the Agreement  shall be subject to all of the terms of the
     Plan.

                                    7
<PAGE>
     10.2. Provisions of Agreement.

          Each Agreement  shall contain such provisions that the Committee shall
     determine  to be  necessary,  desirable  and  appropriate  for the  Benefit
     granted which may include, but not necessarily be limited to, the following
     with  respect  to any  Benefit:  description  of the type of  Benefit;  the
     Benefit's duration; its transferability;  if an Option, the exercise price,
     the exercise  period and the person or persons who may exercise the Option;
     the  effect  upon such  Benefit  of the  Participant's  death,  disability,
     changes of duties or termination of employment;  the Benefit's  conditions;
     when,  if, and how any Benefit may be  forfeited,  converted  into  another
     Benefit,  modified,  exchanged for another  Benefit,  or replaced;  and the
     restrictions on any Shares purchased or granted under the Plan.

     10.3. Transferability.

          Unless  otherwise  specified  in an  Agreement  or  permitted  by  the
     Committee,  each Benefit  granted shall be not  transferable  other than by
     will or the laws of  descent  and  distribution  and  shall be  exercisable
     during a Participant's lifetime only by him.

11. REPLACEMENT AND TANDEM AWARDS

     11.1. Replacement.

          The Committee may permit a Participant to elect to surrender a Benefit
     in exchange for a new Benefit.

     11.2. Tandem Awards.

          Awards may be granted by the Committee in tandem.  However, no Benefit
     may be granted in tandem with an ISO except SARs.

12. PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING

     12.1. Payment.

          Upon the  exercise  of an Option  or in the case of any other  Benefit
     that requires a payment by a Participant to the Company, the amount due the
     Company is to be paid:

               (a)  in  cash,  including  by  means  of  a  so-called  "cashless
          exercise" of an Option;

               (b) by the surrender of all or part of a Benefit  (including  the
          Benefit being exercised);

               (c) by the tender to the Company of Shares  owned by the optionee
          and
         registered  in his name having a Fair Market  Value equal to the amount
         due to the Company;

               (d) in other  property,  rights and credits deemed  acceptable by
          the
         Committee, including the Participant's promissory note;

               (e) by any combination of the payment  methods  specified in (a),
          (b), (c) and (d) above.

          Notwithstanding,  the foregoing,  any method of payment other than (a)
     may be used only with the consent of the  Committee or if and to the extent
     so provided in an Agreement.  The proceeds of the sale of Shares  purchased
     pursuant to an Option and any  payment to the  Company  for other  Benefits
     shall be added to the general funds of the Company or to the Shares held in
     treasury,  as the case may be, and used for the  corporate  purposes of the
     Company as the Board shall determine.

     12.2. Dividend Equivalents.

          Grants of Benefits in Shares or Share equivalents may include dividend
     equivalent payments or dividend credit rights.

     12.3. Deferral.

          The right to receive any Benefit under the Plan may, at the request of
     the  Participant,  be  deferred  for such period and upon such terms as the
     Committee  shall  determine,  which may  include  crediting  of interest on
     deferrals of cash and  crediting of dividends on deferrals  denominated  in
     Shares.

     12.4. Withholding.

          The Company may, at the time any  distribution is made under the Plan,
     whether  in cash or in  Shares,  or at the time any  Option  is  exercised,
     withhold from such  distribution or Shares issuable upon the exercise of an
     Option,  any amount  necessary to satisfy  federal,  state and local income

                                    8
<PAGE>

     and/or other tax withholding requirements with respect to such distribution
     or exercise of such  Options.  The  Committee  or the Company may require a
     participant  to tender to the  Company  cash  and/or  Shares in the  amount
     necessary to comply with any such withholding requirements.

13. OPTIONS

     13.1. Types of Options.

          It is intended that both ISOs and NQSOs,  which may be Reload Options,
     may be granted by the Committee under the Plan.

     13.2. Grant of ISOs and Option Price.

          Each ISO must be granted to an Employee  and granted  within ten years
     from the  earlier  of the date of  adoption  by the Board or the  Effective
     Date. The purchase price for Shares under any ISO shall be no less than the
     Fair Market Value of the Shares at the time the Option is granted.

     13.3. Other Requirements for ISOs.

          The terms of each Option  which is intended to qualify as an ISO shall
     meet all requirements of Section 422 of the Code.

     13.4. NQSOs.

          The terms of each NQSO  shall  provide  that such  Option  will not be
     treated as an ISO. The purchase price for Shares under any NQSO shall be no
     less than 85% of the Fair Market Value of the Shares at the time the Option
     is granted.

     13.5. Determination by Committee.

          Except as otherwise provided in Section 13.2 through Section 13.4, the
     terms of all Options shall be determined by the Committee.

14. SARS

     14.1. Grant and Payment.

          The  Committee may grant SARs.  Upon electing to receive  payment of a
     SAR, a  Participant  shall receive  payment in cash,  in Shares,  or in any
     combination of cash and Shares, as the Committee shall determine.

     14.2. Grant of Tandem Award.

          The Committee may grant SARs in tandem with an Option,  in which case:
     the  exercise of the Option  shall cause a  correlative  reduction  in SARs
     standing to a  Participant's  credit  which were granted in tandem with the
     Option; and the payment of SARs shall cause a correlative  reduction of the
     Shares under such Option.

     14.3. ISO Tandem Award.

          When SARs are granted in tandem with an ISO,  the SARs shall have such
     terms and conditions as shall be required for the ISO to qualify as an ISO.

     14.4. Payment of Award.

          SARs  shall be paid by the  Company  to a  Participant,  to the extent
     payment is elected by the  Participant  (and is otherwise due and payable),
     as soon as practicable after the date on which such election is made.


                                    9
<PAGE>
15. ANNUAL LIMITATIONS

     15.1. Limitation on Options and SARs.

          The number of (a) Shares  covered by Options where the purchase  price
     is no less than the Fair  Market  Value of the  Shares on the date of grant
     plus (b) SARs which may be granted to any  Participant  in any Fiscal  Year
     shall not exceed 500,000.

     15.2. Computations.

          For  purposes  of Section  15.1:  Shares  covered by an Option that is
     canceled shall count against the maximum,  and, if the exercise price under
     an Option is reduced, the transaction shall be treated as a cancellation of
     the Option and a grant of a new Option; and SARs covered by a grant of SARs
     that is canceled  shall count against the maximum,  and, if the Fair Market
     Value of a Share on which  the  appreciation  under a grant of SARs will be
     calculated is reduced, the transaction will be treated as a cancellation of
     the SARs and the grant of a new grant of SARs.


16. RESTRICTED STOCK AND PERFORMANCE SHARES

     16.1. Restricted Stock.

          The Committee may grant Benefits in Shares  available  under Section 3
     of the Plan as Restricted Stock. Shares of Restricted Stock shall be issued
     and  delivered at the time of the grant or as otherwise  determined  by the
     Committee,  but shall be subject to forfeiture until provided  otherwise in
     the applicable Agreement or the Plan. Each certificate  representing Shares
     of Restricted  Stock shall bear a legend referring to the Plan and the risk
     of   forfeiture   of  the  Shares  and   stating   that  such   Shares  are
     nontransferable  until all restrictions  have been satisfied and the legend
     has been removed.  At the discretion of the  Committee,  the grantee may or
     may not be entitled to full voting and dividend  rights with respect to all
     shares of Restricted Stock from the date of grant.

     16.2. Cost of Restricted Stock.

          Unless  otherwise  determined  by the  Committee,  grants of Shares of
     Restricted Stock shall be made at a per Share cost to the Participant equal
     to par value.

     16.3. Non-Transferability.

          Shares of Restricted  Stock shall not be transferable  until after the
     removal of the legend with respect to such Shares.

     16.4. Performance Shares.

          Performance  Shares are the right of an  individual to whom a grant of
     such  Shares is made to  receive  Shares or cash  equal to the Fair  Market
     Value of such  Shares  at a future  date in  accordance  with the terms and
     conditions of such grant.  The terms and conditions  shall be determined by
     the  Committee,  in its sole  discretion,  but generally are expected to be
     based   substantially   upon  the  attainment  of  targeted  profit  and/or
     performance objectives.

     16.5. Grant.

          The Committee may grant an award of Performance  Shares. The number of
     Performance  Shares and the terms and  conditions of the grant shall be set
     forth in the applicable Agreement.


                                       10
<PAGE>

17. CASH AWARDS

     17.1. Grant.

          The  Committee  may grant Cash  Awards at such times and  (subject  to
     Section 17.2) in such amounts as it deems appropriate.

     17.2. Rule 16b-3.

          The amount of any Cash Award in any Fiscal Year to any Participant who
     is subject to Section 16 of the  Exchange  Act shall not exceed the greater
     of  $100,000  or 100% of his cash  compensation  (excluding  any Cash Award
     under this Section 17) for such Fiscal Year.

     17.3. Restrictions.

          Cash  Awards may be subject or not subject to  conditions  (such as an
     investment requirement),  restricted or nonrestricted, vested or subject to
     forfeiture and may be payable currently or in the future or both.


18. OTHER STOCK BASED AWARDS AND OTHER BENEFITS

     18.1. Other Stock Based Awards.

          The  Committee  shall have the right to grant Other Stock Based Awards
     which may include, without limitation, the grant of Shares based on certain
     conditions,  the  payment  of cash based on the  performance  of the Common
     Stock, and the grant of securities convertible into Shares.

     18.2. Other Benefits.

          The Committee  shall have the right to provide types of Benefits under
     the  Plan in  addition  to  those  specifically  listed,  if the  Committee
     believes that such  Benefits  would further the purposes for which the Plan
     was established.


19. MISCELLANEOUS PROVISIONS

     19.1. Underscored References.

          The underscored references contained in the Plan are included only for
     convenience,  and they shall not be  construed  as a part of the Plan or in
     any respect affecting or modifying its provisions.

     19.2. Number and Gender.

          The  masculine and neuter,  wherever used in the Plan,  shall refer to
     either the masculine, neuter or feminine; and, unless the context otherwise
     requires,  the  singular  shall  include  the  plural  and the  plural  the
     singular.

     19.3. Unfunded Status of Plan.

          The Plan is intended to constitute  an  "unfunded"  plan for incentive
     and deferred  compensation.  With respect to any payments or  deliveries of
     Shares not yet made to a  Participant  by the  Company,  nothing  contained
     herein  shall  give any  rights  that are  greater  than those of a general
     creditor of the Company. The Committee may authorize the creation of trusts
     or other  arrangements  to meet the  obligations  created under the Plan to
     deliver Shares or payments hereunder consistent with the foregoing.

                                    11
<PAGE>
     19.4. Termination of Employment.

          If the employment of a Participant  by the Company  terminates for any
     reason,  except as otherwise  provided in an  Agreement,  all  unexercised,
     deferred, and unpaid Benefits may be exercisable or paid only in accordance
     with rules  established by the Committee.  These rules may provide,  as the
     Committee   may  deem   appropriate,   for  the   expiration,   forfeiture,
     continuation,  or  acceleration  of  the  vesting  of all  or  part  of the
     Benefits.

     19.5. Designation of Beneficiary.

          A Participant  may file with the Committee a written  designation of a
     beneficiary or beneficiaries (subject to such limitations as to the classes
     and number of beneficiaries  and contingent  beneficiaries as the Committee
     may from time to time prescribe) to exercise,  in the event of the death of
     the Participant, an Option, or to receive, in such event, any Benefits. The
     Committee   reserves   the  right  to  review   and   approve   beneficiary
     designations. A Participant may from time to time revoke or change any such
     designation of  beneficiary  and any  designation of beneficiary  under the
     Plan  shall be  controlling  over any other  disposition,  testamentary  or
     otherwise; provided, however, that if the Committee shall be in doubt as to
     the right of any such  beneficiary to exercise any Option or to receive any
     Benefit,  the Committee may determine to recognize  only an exercise by the
     legal  representative  of the  recipient,  in which case the  Company,  the
     Committee and the members thereof shall not be under any further  liability
     to anyone.

     19.6. Governing Law.

          This Plan shall be construed and  administered  in accordance with the
     laws of the State of Missouri.

     19.7. Purchase for Investment.

          The Committee may require each person purchasing Shares pursuant to an
     Option or other  award  under the Plan to  represent  to and agree with the
     Company in writing that such person is acquiring the Shares for  investment
     and without a view to distribution  or resale.  The  certificates  for such
     Shares may include any legend  which the  Committee  deems  appropriate  to
     reflect any restrictions on transfer. All certificates for Shares delivered
     under the Plan  shall be subject  to such  stock-transfer  orders and other
     restrictions as the Committee may deem advisable under all applicable laws,
     rules and  regulations,  and the Committee may cause a legend or legends to
     be put on any such  certificates  to make  appropriate  references  to such
     restrictions.

     19.8. No Employment Contract.

          Neither the  adoption of the Plan nor any  Benefit  granted  hereunder
     shall confer upon any Employee any right to continued  employment nor shall
     the Plan or any Benefit interfere in any way with the right of the Employer
     to terminate the employment of any of its Employees at any time.

     19.9. No Effect on Other Benefits.

          The  receipt  of  Benefits  under the Plan shall have no effect on any
     benefits to which a Participant  may be entitled  from the Employer,  under
     another plan or  otherwise,  or preclude a Participant  from  receiving any
     such benefits.

                                    12




                                                                    Exhibit 23.1



                       CONSENT OF INDEPENDENT ACCOUNTANTS

     We hereby consent to the use in this Registration  Statement on Form S-1 of
our report dated  February 19, 1999  relating to the  financial  statements  and
financial statement schedule of Applied Cellular  Technology,  Inc. which appear
in such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.


/s/ PricewaterhouseCoopers LLP

St. Louis, Missouri
June 18, 1999



                                                                    Exhibit 23.2



                       CONSENT OF INDEPENDENT ACCOUNTANTS

     We hereby consent to the use in this Registration  Statement on Form S-1 of
our report dated  February 24, 1998  relating to the  financial  statements  and
financial statement schedule of Applied Cellular  Technology,  Inc. which appear
in such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.

                                           /s/ RUBIN, BROWN, GORNSTEIN & CO. LLP

Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
June 21, 1999




                                                                    Exhibit 23.3

                         CONSENT OF INDEPENDENT AUDITORS

     We consent to the reference to our firm under the caption  "Experts" and to
the use of our report  dated 6 August  1998,  except  for note 23 -  differences
between  United  Kingdom  and  United  States  Generally   Accepted   Accounting
Principles  as to which  the  date is 15  December  1998,  with  respect  to the
financial   statements  of  Signature   Industries   Limited   included  in  the
Post-Effective  Amendment No. 1 on Form S-1 to Registration Statement (Form S-3:
No. 333-64605) of Applied Cellular Technology, Inc.



London, England
24 June, 1999







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