<PAGE>
 

<PAGE>
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1996.
 
                                                     REGISTRATION NO. 333-
________________________________________________________________________________
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
                            ------------------------
 

<TABLE>
<S>                                         <C>                                         <C>
                 DELAWARE                                      4812                                     11-2962080
     (STATE OR OTHER JURISDICTION OF               (PRIMARY STANDARD INDUSTRIAL                      (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)               CLASSIFICATION CODE NUMBER)                     IDENTIFICATION NO.)
                                          2401 FOURTH AVENUE, SEATTLE, WASHINGTON 98121
                                                          (206) 443-6400
                                  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
                                     AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

 
                            ------------------------
 
        STEPHEN KATZ, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                 2401 FOURTH AVENUE, SEATTLE, WASHINGTON 98121
                                 (206) 443-6400
      (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
                        AREA CODE, OF AGENT FOR SERVICE)
                            ------------------------
 
                          COPIES OF COMMUNICATIONS TO:
 

<TABLE>
<S>                                                                <C>
                     EDWARD R. MANDELL, ESQ.                                           EMANUEL S. CHERNEY, ESQ.
               PARKER CHAPIN FLATTAU & KLIMPL, LLP                                      ANDREWS & KURTH L.L.P.
                   1211 AVENUE OF THE AMERICAS                                           425 LEXINGTON AVENUE
                  NEW YORK, NEW YORK 10036-8701                                        NEW YORK, NEW YORK 10017
                       TEL: (212) 704-6000                                                TEL: (212) 850-2811
                       FAX: (212) 704-6288                                                FAX: (212) 850-2929
</TABLE>

 
                            ------------------------
 
     APPROXIMATE  DATE OF  PROPOSED SALE TO  THE PUBLIC: As  soon as practicable
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, as amended (the 'Securities Act'), check the following box.  [ ]
 
     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 delivery of the prospectus is expected to be made pursuant to Rule  434,
please check the following box.  [ ]
                            ------------------------
 

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
                                                                                           PROPOSED          PROPOSED
                                                                                            MAXIMUM           MAXIMUM
                   TITLE OF EACH CLASS OF                            AMOUNT TO BE       OFFERING PRICE       AGGREGATE
                SECURITIES TO BE REGISTERED                           REGISTERED         PER SHARE(1)    OFFERING PRICE(1)
<S>                                                           <C>                       <C>              <C>
Shares of Common Stock, par value $.001 per share(3)........       1,984,900 Shares         $18.00          $35,728,200
 
<CAPTION>
                                                                 AMOUNT OF
                   TITLE OF EACH CLASS OF                      REGISTRATION
                SECURITIES TO BE REGISTERED                       FEE(2)
<S>                                                           <C>
Shares of Common Stock, par value $.001 per share(3)........    $12,320.07
</TABLE>

 
(1) Estimated solely for purposes of calculating the registration fee.
 
(2) Calculated pursuant to Rule 457(a) of the Securities Act.
 
(3) Includes  up to 258,900 shares of Common Stock subject to the over-allotment
    option granted to the Underwriters by the Company and certain of the Selling
    Shareholders of the Company. See 'Underwriting.'
                            ------------------------
 
     THE REGISTRANT HEREBY AMENDS  THIS REGISTRATION STATEMENT  ON SUCH DATE  OR
DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE  DATE  UNTIL  THE  REGISTRANT SHALL  FILE  A  FURTHER  AMENDMENT WHICH
SPECIFICALLY STATES  THAT THIS  REGISTRATION STATEMENT  SHALL THEREAFTER  BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL
THIS  REGISTRATION  STATEMENT  SHALL  BECOME  EFFECTIVE  ON  SUCH  DATE  AS  THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
 
________________________________________________________________________________


<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                             CROSS REFERENCE SHEET
                   PURSUANT TO ITEM 501(b) OF REGULATION S-K
           REFERENCING ITEMS IN PART I OF FORM S-1 TO THE PROSPECTUS
 

<TABLE>
<CAPTION>
                          ITEM NUMBER AND CAPTION                              PROSPECTUS CAPTION OF PAGE
      ---------------------------------------------------------------  ------------------------------------------
 
<C>   <S>                                                              <C>
  1.  Forepart of the registration Statement and Outside Front Cover
        Page of Prospectus...........................................  Facing Page of Registration Statement;
                                                                         Outside Front Cover Page of Prospectus
  2.  Inside Front and Outside Back Cover Pages of Prospectus........  Inside Front Cover Page of Prospectus;
                                                                         Outside Back Cover Page of Prospectus
  3.  Summary Information, Risk Factors and Ratio of Earnings to
        Fixed Charges................................................  Prospectus Summary; Risk Factors
  4.  Use of Proceeds................................................  Prospectus Summary; Use of Proceeds
  5.  Determination of Offering Price................................  Outside Front Cover Page of Prospectus;
                                                                         Risk Factors; Underwriting
  6.  Dilution.......................................................  Prospectus Summary; Risk Factors; Dilution
  7.  Selling Security Holders.......................................  Principal and Selling Shareholders
  8.  Plan of Distribution...........................................  Outside Front Cover Page of Prospectus;

                                                                         Underwriting
  9.  Description of Securities to be Registered.....................  Outside Front Cover Page of Prospectus;
                                                                         Prospectus Summary; Description of
                                                                         Capital Stock
 10.  Interests of Named Experts and Counsel.........................  Legal Matters; Experts
 11.  Information with respect to the Registrant.....................  Outside Front Cover Page of Prospectus;
                                                                         Inside Front Cover Page of Prospectus;
                                                                         Prospectus Summary; Risk Factors; Use of
                                                                         Proceeds; Dividend Policy;
                                                                         Capitalization; Selected Financial Data;

                                                                         Management's Discussion and Analysis of
                                                                         Financial Condition and Results of
                                                                         Operations; Business; Management;
                                                                         Principal Shareholder; Description of
                                                                         Capital Stock; Shares Eligible for
                                                                         Future Sale; Financial Statements
 12.  Disclosure of Commission Position on Indemnification for
        Securities Act Liabilities...................................  Part II
</TABLE>



<PAGE>
 

<PAGE>
                        SUBJECT TO COMPLETION -- DATED JULY 2, 1996
PROSPECTUS
 
                                1,726,000 SHARES
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                                  COMMON STOCK
 
     Of  the  1,726,000  shares of  common  stock (the  'Common  Stock') offered
hereby, 1,500,000 shares are being sold by Cellular Technical Services  Company,
Inc.,  a Delaware corporation (the 'Company'), and 226,000 shares are being sold
by the Selling Shareholders.  The Company will not  receive any of the  proceeds
from  the  sale  of the  shares  being  sold by  the  Selling  Shareholders. See
'Principal and Selling Shareholders.'
 
     The Common Stock is included in  The Nasdaq Stock Market's National  Market
(the  'Nasdaq National Market')  under the symbol  'CTSC.' On July  1, 1996, the
last reported sales price for the Common Stock on the Nasdaq National Market was
$18.25 per share. See 'Price Range of Common Stock.'
                            ------------------------
  SEE 'RISK FACTORS' BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN MATERIAL
   FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
                          COMMON STOCK OFFERED HEREBY.
                            ------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES  AND
   EXCHANGE  COMMISSION  OR ANY  STATE  SECURITIES COMMISSION  NOR  HAS THE
     SECURITIES  AND  EXCHANGE   COMMISSION  OR   ANY  STATE   SECURITIES
       COMMISSION   PASSED  UPON  THE  ACCURACY  OR  ADEQUACY  OF  THIS
              PROSPECTUS. ANY REPRESENTATION TO   THE  CONTRARY
                          IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
                                                              UNDERWRITING                         PROCEEDS TO
                                                PRICE TO      DISCOUNTS AND       PROCEEDS TO        SELLING
                                                 PUBLIC      COMMISSIONS(1)       COMPANY(2)       SHAREHOLDERS
<S>                                            <C>         <C>                  <C>              <C>
Per Share....................................  $               $                  $                 $
Total (3)....................................  $               $                  $                 $
</TABLE>

 
(1) The Company has agreed to indemnify the several Underwriters against certain
    liabilities,  including  liabilities under  the Securities  Act of  1933, as
    amended (the 'Securities Act'). See  'Underwriting.' The Company has  agreed
    to  reimburse the Selling Shareholders for a portion of the commission to be
    paid to  the Underwriters  in connection  with shares  sold by  the  Selling
    Shareholders hereunder.
 
(2) Before deducting expenses payable by the Company estimated to be $300,000.
 
(3) The  Company and  certain of  the Selling  Shareholders of  the Company have
    granted the several Underwriters a 45-day over-allotment option to purchase,
    in the aggregate,  up to 258,900  additional shares of  Common Stock on  the
    same  terms and conditions as set forth above. If all such additional shares
    are purchased  by  the Underwriters,  the  total  Price to  Public  will  be
    $              ,  the total  Underwriting Discounts and  Commissions will be
    $          , and the total Proceeds to Company will be $          .
                            ------------------------
     The shares of Common Stock offered hereby are offered by the  Underwriters,
subject  to  prior  sale, when,  as  and if  delivered  to and  accepted  by the
Underwriters, and subject to the right  of the Underwriters to reject any  order
in  whole or in part and certain  other conditions. It is expected that delivery
of certificates for the shares  of Common Stock will be  made at the offices  of
Bear,  Stearns Securities  Corp., 1 Metrotech  Center North,  Brooklyn, New York
11201 as agent for the Representative, on or about             , 1996.
 
                       GERARD KLAUER MATTISON & CO., LLC
                            ------------------------
               THE DATE OF THIS PROSPECTUS IS             , 1996

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

<PAGE>
 

<PAGE>
                               [Photo to follow]
 
     IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS  WHICH STABILIZE OR  MAINTAIN THE MARKET PRICE  OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT  WHICH MIGHT OTHERWISE PREVAIL IN THE  OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
 
     IN  CONNECTION  WITH  THIS  OFFERING, THE  UNDERWRITERS  AND  SELLING GROUP
MEMBERS (IF ANY)  OR THEIR RESPECTIVE  AFFILIATES MAY ENGAGE  IN PASSIVE  MARKET
MAKING  TRANSACTIONS  IN  THE COMMON  STOCK  ON  THE NASDAQ  NATIONAL  MARKET IN
ACCORDANCE WITH  RULE 10B-6A  UNDER THE  SECURITIES EXCHANGE  ACT OF  1934.  SEE
'UNDERWRITING.'
 
                                       2


<PAGE>
 

<PAGE>

                               PROSPECTUS SUMMARY
 
     The  following summary is qualified in its  entirety by, and should be read
in conjunction  with, the  more detailed  information and  financial  statements
(including  the notes  thereto) appearing  elsewhere in  this Prospectus. Unless
otherwise indicated, all information in  this Prospectus assumes no exercise  of
the   Underwriter's  over-allotment  option  and   has  been  adjusted  to  give
retroactive effect to a 2 for 1 split of the Company's common stock effected  in
June,  1996 in  the form  of a 100%  stock dividend.  Investors should carefully
consider the  information  set  forth  under the  caption  'Risk  Factors.'  The
'Company' refers to Cellular Technical Services Company, Inc.
 

                                  THE COMPANY
 
     The mission of Cellular Technical Services Company, Inc. (the 'Company') is
to be the premier developer and provider of real-time information processing and
information  management systems for the  wireless communications industry in the
United States  and  international markets.  The  Company designs  and  engineers
software  and hardware products for sale to the wireless communications industry
to provide user/device  authentication (for 'cloning'  fraud prevention) and  to
provide  service metering (for credit  management and prepaid billing). Although
the Company's products and services  currently are used exclusively by  cellular
telephone  system operators,  commonly known  as carriers,  the Company believes
they may be generally adaptable to other wireless communications systems.
 

     User/device authentication primarily involves  various forms of  'pre-call'
verification to ensure that the use of a wireless communications device (e.g., a
cellular  telephone) is legitimate before the device  is allowed to connect to a
wireless network.  The Company's  Blackbird'r' Platform  ('Blackbird  Platform')
provides  the underlying technology for pre-call application products. The first
application product  on  the  Blackbird Platform,  PreTect'tm'  ('PreTect'),  is
designed  to proactively prevent cloning  fraud. The Cellular Telecommunications
Industry Association has estimated  that in 1995 cloning  fraud has resulted  in
costs  and lost revenues to the cellular industry of an amount in excess of $650
million. The  Company believes  that in  1996 cloning  fraud will  result in  an
increased amount of such costs and lost revenues. Cloning fraud is the term used
by  the cellular industry to  describe the illegal activity  of using a cellular
telephone whose electronic serial number and telephone number have been  altered
to  match those  of a  legitimate subscriber's  telephone. See  'Business -- The
Blackbird Platform.'

 
     Service metering  primarily involves  the collection  of various  forms  of
'post-call'  information (within  minutes after the  end of the  call) to ensure
that a wireless communications carrier's subscriber has proper account status to
make additional calls. The Company's Hotwatch'r' Platform ('Hotwatch  Platform')
provides  the  underlying  technology  for  post-call  application  products and
services for credit  management and prepaid  billing ('Hotwatch Products').  See
'Business -- The Hotwatch Platform.'
 
     The   Blackbird  and  Hotwatch  Platforms,   each  based  on  open  systems
architecture, are  designed  to  allow  a broad  range  of  interconnection  and
data-sharing  possibilities  between  various geographic  markets  and different
wireless communications carriers.
 
     The Company's  primary  activities are  currently  focused on  the  further
development,  marketing and deployment of the Blackbird Platform and the PreTect
fraud prevention application  product and services  (the 'Blackbird  Products').
PreTect,   which  is  transparent  to   the  subscriber,  uses  patented  signal
processing, commonly  referred to  as  radio frequency  ('RF')  'fingerprinting'
technology   to  accurately  distinguish   between  legitimate  subscribers  and
counterfeit users before  the call  is connected.  PreTect captures  information
from  the  cellular  telephone call  at  the  cell site,  before  it  enters the
carrier's system, and compares  it to valid fingerprints  and data. If a  proper
match  is not  made, PreTect  can then  automatically prevent  connection of the
call. The Company also  provides a seamless  Real-Time Roaming Fraud  Prevention
ServiceSM  ('Real-Time Roaming Fraud Prevention  Service') between markets which
use the Blackbird Platform  and PreTect. During 1996,  the Company entered  into
agreements  with AirTouch Cellular  ('AirTouch') and Bell  Atlantic NYNEX Mobile
('BANM') for the provision of the Blackbird Products for use in over 1,000  cell
sites,   subject  to   the  Blackbird  Products'   compliance  with  contractual
requirements. The  Company  believes that  as  of the  end  of 1995  there  were
 
                                       3
 

<PAGE>
 

<PAGE>
approximately  23,000 domestic and 10,000 international  cell sites to which the
Company's Blackbird Products are adaptable. The Company also believes there  are
approximately  14,000 additional international cell sites to which the Company's
Blackbird Products may be adaptable.
 
     During the last ten years, wireless communications service has been one  of
the  fastest growing segments  of the telecommunications  industry. The Cellular
Telecommunications  Industry  Association  has  estimated  that  the  number  of
cellular  subscribers in the United  States increased from approximately 340,000
subscribers in December 1985 to approximately 34 million subscribers in December
1995. The  Company believes  the worldwide  wireless communications  market  may
exceed  100  million  subscribers  by  the  end  of  1996.  The  Company expects
significant growth in wireless communications  in the United States to  continue
in  the future, as a result of the increased demand for cellular service and the
emergence of personal communications services ('PCS') as a new form of  wireless
communications   service,  and  that  significant  growth  will  also  occur  in
international markets. The Company believes that the number of cellular and  PCS
subscribers  may  grow to  80 million  in the  United States  and more  than 300
million worldwide in the year 2001. The Company believes that the demand for its
products and  services may  increase  as the  Company  adapts its  products  and
creates new products to service an expanded wireless communications industry.
 
     The  Company was incorporated in Delaware in August 1988 under the name NCS
Ventures  Corp.  ('Ventures')  as  a  majority-owned  subsidiary  of  Nationwide
Cellular  Service Inc. ('Nationwide'),  a publicly traded  company. In September
1988, Ventures formed,  as equal  partners with NYNEX  Mobile Billing  Services,
Inc.   ('NYNEX'),   a   partnership,   Cellular   Technical   Services   Company
('Partnership'). In May 1991,  Ventures changed its  name to Cellular  Technical
Services  Company,  Inc.  In August  1991  the  Company exercised  an  option to
purchase the interest  in the  Partnership owned  by NYNEX  and consummated  the
initial  public offering of its securities.  In 1995, concurrent with the merger
of Nationwide  into  MCI Communications  Corp.,  Nationwide distributed  to  its
stockholders all of its shares of the Company's Common Stock.
 
     The Company's principal offices are located at 2401 Fourth Avenue, Seattle,
Washington, 98121 and its telephone number is (206) 443-6400.
 
                               BUSINESS STRATEGY
 
DEVELOPMENT OF BLACKBIRD
 
     The  Company's immediate strategy  is to achieve  commercial acceptance and
significant market penetration  of the Blackbird  Platform. To accomplish  this,
the  Company plans to expand its  domestic and international sales and marketing
efforts. After it has achieved an installed base of the Blackbird Platform,  the
Company  believes  that  it will  be  able  to leverage  its  relationships with
carriers and  its position  at  the carriers'  cell  sites to  offer  additional
products  and services. The Company plans to expand its research and development
efforts to  enhance  its existing  products  and  services and  to  develop  new
value-added  products for the Blackbird Platform which can be sold in connection
with PreTect or on a stand-alone basis.
 
LEVERAGE CORE COMPETENCIES
 

     Through the  development  and  deployment of  the  Blackbird  and  Hotwatch
Platforms,  the  Company has  developed several  core competencies.  The Company
believes that these core competencies may facilitate its development of products
and services which  complement its platforms  and add value  to its current  and
potential customer base.

 

          Ability  to  interface with  carriers'  cell sites  and  switches. The
          Company's proprietary  software  and  hardware  products  collect  and
          utilize information resident at the carrier's cell site and/or switch.
          This  expertise may facilitate the  development of future products and
          services in both an analog and digital environment.

 
                                       4
 

<PAGE>
 

<PAGE>
          Real-time database expertise. The Company has developed the ability to
          optimize  database  performance,  which   enables  systems  to   reach
          transaction  decisions in very short time frames. For example, PreTect
          can determine whether or not to connect a call within five seconds  of
          call origination.
 
          Real-time  rating expertise. The Company  has developed the ability to
          combine  streams  of  telephone  billing  information,  such  as  toll
          charges,  discounts  and  promotions,  surcharges,  etc.  to  mimic  a
          carrier's billing system  on a real-time  basis, within minutes  after
          the  end  of the  call, rather  than  in a  batch process  for monthly
          customer billing.  This  currently  allows the  Company  to  determine
          account authorization for future telephone calls. The Company believes
          this  expertise  may  be  applicable  to  other  systems  that involve
          real-time charges.
 
          Transaction  Control   Protocol   ('TCP')/Internet   Protocol   ('IP')
          expertise.  The Company  believes it can  apply the  experience it has
          gained in  its  existing  TCP/IP  networks  and  add  its  other  core
          competencies,   such  as  real-time   rating  and  real-time  database
          expertise to other TCP/IP networking infrastructures.
 
          Ability to interface with billing  systems. The Company has  developed
          the  ability to  interface with  the systems  infrastructures of major
          billing service companies in the wireless communications industry.  As
          these  companies expand their customer base beyond telephone carriers,
          the Company  believes  it  can  apply its  knowledge  to  provide  its
          value-added  service metering  technologies to  this expanded customer
          base.
 
                                       5
 

<PAGE>
 

<PAGE>
 

<TABLE>
<S>                                            <C>
                                                 THE OFFERING
 
Common Stock Offered by the Company(1).......  1,500,000 shares
Common Stock Offered by the Selling
  Shareholders(1)(2).........................  226,000 shares
Common Stock Outstanding prior to the
  Offering...................................  21,706,468 shares
Common Stock Outstanding after the
  Offering(1)(3).............................  23,432,468 shares
Use of Proceeds..............................  To  finance  (i)  research  and  development  to  enhance   the
                                               Company's  existing technologies and  develop new technologies;
                                               (ii) expansion of sales and marketing activities including  the
                                               establishment    of   international    marketing,   sales   and
                                               distribution operations;  (iii) expansion  of customer  support
                                               capabilities;  (iv) enhancement and  expansion of the Company's
                                               manufacturing activities; (v) provision  of lease financing  to
                                               certain  of the Company's customers; (vi) possible acquisitions
                                               of  complementary  technologies   and  businesses;  and   (vii)
                                               expansion  of working  capital and  general corporate purposes.
                                               See 'Use of Proceeds.'
Nasdaq National Market Symbol................  'CTSC'
</TABLE>

 
- ------------
 
(1) Does not include shares  of Common Stock issuable  upon the exercise of  the
    over-allotment option.
 
(2) Such  shares will be issued to  the Selling Shareholders upon their exercise
    of stock options.
 
(3) Based on the number of shares of Common Stock outstanding at March 31, 1996.
    Includes 226,000  shares  of Common  Stock  issuable upon  the  exercise  of
    options  by the  Selling Shareholders.  Excludes 2,713,040  shares of Common
    Stock issuable upon the exercise of other stock options outstanding at March
    31, 1996,  of which  237,280 shares  of Common  Stock were  issued upon  the
    exercise  of stock  options since  March 31, 1996  through the  date of this
    Prospectus. Also excludes 160,000 shares  of Common Stock issuable upon  the
    exercise of options granted since March 31, 1996.
 
                                       6
 

<PAGE>
 

<PAGE>
                             SUMMARY FINANCIAL DATA
 

<TABLE>
<CAPTION>
                                                                                                 THREE MONTHS ENDED
                                                          YEAR ENDED DECEMBER 31,                    MARCH 31,
                                                 -----------------------------------------    --------------------------
                                                    1993           1994           1995           1995           1996
                                                 -----------    -----------    -----------    -----------    -----------
                                                             (IN DOLLARS EXCEPT WEIGHTED SHARES OUTSTANDING)
 
<S>                                              <C>            <C>            <C>            <C>            <C>
Statement of Operations Data:
REVENUES
    License and service fees..................   $ 3,875,353    $ 8,691,036    $10,944,788    $ 2,736,768    $   645,622
    Equipment sales...........................     1,215,738      1,040,863      1,164,536        612,812         89,164
    Interest income...........................       176,594        280,181        475,512        118,984        107,493
                                                 -----------    -----------    -----------    -----------    -----------
Total revenues................................     5,267,685     10,012,080     12,584,836      3,468,564        842,279
COSTS AND EXPENSES
    Cost of license and service fees..........     1,574,521      2,619,435      3,330,801        922,539        785,200
    Cost of equipment sales...................     1,329,276      1,112,254      1,485,952        611,731        278,405
    Sales and marketing.......................       738,068        789,578      2,141,853        507,607        822,873
    General and administrative................     1,563,794      2,269,170      2,115,991        601,783        510,611
    Research and development..................     1,268,361      1,661,772      3,445,052        576,777        945,749
                                                 -----------    -----------    -----------    -----------    -----------
Total costs and expenses......................     6,474,020      8,452,209     12,519,649      3,220,437      3,342,838
                                                 -----------    -----------    -----------    -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES.............    (1,206,335)     1,559,871         65,187        248,127     (2,500,559)
PROVISION FOR INCOME TAXES....................             0         10,000          2,000          5,000              0
                                                 -----------    -----------    -----------    -----------    -----------
NET INCOME (LOSS).............................   $(1,206,335)   $ 1,549,871    $    63,187    $   243,127    $(2,500,559)
                                                 -----------    -----------    -----------    -----------    -----------
                                                 -----------    -----------    -----------    -----------    -----------
NET INCOME (LOSS) PER SHARE...................        $(0.07)         $0.08          $0.00          $0.01         $(0.12)
                                                 -----------    -----------    -----------    -----------    -----------
                                                 -----------    -----------    -----------    -----------    -----------
WEIGHTED AVERAGE SHARES OUTSTANDING...........    17,363,680     20,297,326     22,026,150     22,158,686     21,608,900
                                                 -----------    -----------    -----------    -----------    -----------
                                                 -----------    -----------    -----------    -----------    -----------
</TABLE>

 

<TABLE>
<CAPTION>
                                                                                               MARCH 31, 1996
                                                                                        -----------------------------
                                                                                          ACTUAL       AS ADJUSTED(1)
                                                                                        -----------    --------------
 
<S>                                                                                     <C>            <C>
Balance Sheet Data:
    Total assets.....................................................................   $16,031,129     $ 42,232,129
    Working capital..................................................................     8,839,554       35,040,554
    Total Stockholders' equity.......................................................    14,597,368       40,798,368
</TABLE>

 
- ------------
 
(1) Adjusted  to reflect  (i) the sale  by the  Company of the  shares of Common
    Stock offered hereby  (based upon an  assumed offering price  of $18.00  per
    share)  and  the application  of  the net  proceeds  therefrom and  (ii) the
    Company's  receipt  of  the  proceeds  from  the  exercise  by  the  Selling
    Shareholders  of  options to  acquire 226,000  shares  of Common  Stock. See
    'Capitalization.'
 
                                       7


<PAGE>
 

<PAGE>

                                  RISK FACTORS
 
     An  investment in the shares of Common Stock offered hereby involves a high
degree of risk.  Prospective investors should  carefully consider the  following
risk factors, in addition to the other information set forth in this Prospectus,
in connection with an investment in the shares of Common Stock offered hereby.
 

     Dependence  on  Cellular Market;  Rapid  Industry Change  and Technological
Obsolescence. The  Company's future  success will  depend on  the continued  and
expanded  use of its existing products and  services, and its ability to develop
new products and services or adapt  existing products and services to keep  pace
with  changes in the wireless  communications industry. The Company historically
has provided  its products  and services  exclusively to  cellular carriers.  In
addition,  the  Company's  user/device  authentication  products  currently  are
designed to provide  security exclusively  for analog  cellular telephones.  The
Company  believes  that  over 95%  of  cellular telephone  service  currently is
provided in the analog  mode, but that  the industry is  undertaking a shift  to
digital mode in the major markets due to certain advantages of the digital mode,
including   expanded   capacity,   greater   privacy   and   enhanced  security.
Technological  changes  or  developments  in  the  cellular  industry,  such  as
encryption   technology   for  enhanced   privacy,   'Authentication'  ('A-Key')
technology for  enhanced  security  against cloning  fraud,  improved  switching
technologies,  or  further  industry consolidation,  could  reduce  or eliminate
demand for the Company's user/device authentication products. A rapid shift away
from the  use  of  analog  cellular telephones  in  favor  of  digital  cellular
telephones  utilizing A-Key  or to other  wireless services, such  as PCS, could
affect demand for  the Company's user/device  authentication products and  could
require   the   Company   to  develop   modified   or   alternative  user/device
authentication products addressing the particular needs of providers of such new
services. There  can be  no assurance  that the  Company will  be successful  in
modifying  or  developing  its  existing  or  future  user/device authentication
products in  a timely  manner, or  at  all. If  the Company  is unable,  due  to
resource,  technological  or  other  constraints,  to  adequately  anticipate or
respond  to  changing  market,  customer  or  technological  requirements,   the
Company's  business,  financial  condition  and results  of  operations  will be
materially adversely affected. Further, there can be no assurance that  products
or  services  developed by  others will  not render  the Company's  products and
services non-competitive or  obsolete. See  'Business --  Operation of  Wireless
Communications Systems and  -- Competition.'

 
     Limited  Product  Line;  Uncertainty of  Market  Acceptance.  The Company's
revenues have been and can be expected to continue to be derived from a  limited
number  of products and services. The Company recently expanded its product line
with the introduction of the  Blackbird Products. Although the Company  believes
that  the Blackbird  Products present  significant growth  opportunities for its
business, there can  be no assurance  that the Company  will derive  significant
revenues from the commercialization of such technology or any other products. By
virtue  of the recent  signing of certain  contracts and letters  of intent, the
Company commenced  the  commercial installation  of  the Blackbird  Products  in
several major cellular markets during the second quarter of 1996 and expects the
Blackbird  Products to be  commercially operational in the  second half of 1996.
Achieving market acceptance and  penetration of the  Blackbird Products and  the
Company's other products and services will require, in addition to enhancing and
improving   those  products   and  services,  increased   marketing  efforts  to
effectively compete and  increase customer awareness  of the Company's  products
and  services. There can  be no assurance, however,  that the Company's expanded
marketing and sales efforts and increased expenditures will result in successful
commercialization and increased market penetration of the Company's products and
services. See 'Use of Proceeds' and 'Business -- Marketing.'
 
     Technological  Factors;  Uncertainty   of  Product  Development;   Unproven
Technology.  The Company's  products are currently  being utilized  by a limited
number of customers and  there can be  no assurance that they  will prove to  be
sufficiently  reliable in widespread  commercial use. It  is common for hardware
and software as complex and sophisticated as that incorporated in the  Company's
products  to experience errors or 'bugs'  both during development and subsequent
to commercial introduction.  In particular, the  Company has identified  certain
software  and hardware  errors in its  Blackbird Products and  to date corrected
some, but not all, of such errors. There can be no assurance that any errors  in
the Company's existing or future products will be identified, and if identified,
corrected.  Any such errors could delay  commercial introduction of new products
and require modifications in products that have
 
                                       8
 

<PAGE>
 

<PAGE>
already been installed. Remedying  such errors has been  and may continue to  be
costly  and time consuming. Delays in remedying any such errors could materially
adversely affect the Company's competitive position with respect to existing  or
new  technologies and products offered by its competitors. In particular, delays
in remedying existing or future errors in the Company's Blackbird Products could
materially adversely affect the Company's ability to achieve significant  market
penetration prior to the possible widespread use of A-Key. In addition, software
and  hardware  warranties  are  generally  included  as  part  of  the Company's
obligations under its agreements with its  customers. To date, the costs to  the
Company  of meeting the Company's warranty  obligations relating to its Hotwatch
Products  have  not  been  substantial.  Warranty  obligations  related  to  the
Blackbird  Products  will  begin  upon  customer  acceptance  of  such products.
However, to the extent that the software and hardware maintenance fees from  its
products   are  not  adequate  to  cover  the  costs  of  making  any  necessary
modifications or meeting the Company's  warranty obligations, the Company  could
be  required to  make significant  additional expenditures,  which could  have a
material adverse effect on  the Company. The Company  is continually seeking  to
enhance  and  improve its  existing  products and  services  and to  develop new
products and  services,  including  other  application  products  utilizing  the
Blackbird  and Hotwatch Platforms.  Accordingly, the Company  remains subject to
all of the risks  inherent in new  product development, including  unanticipated
technical or other development problems which could result in material delays in
product  commercialization  or significantly  increased costs.  There can  be no
assurance that  the Company  will be  able to  successfully enhance  or  improve
existing  products  or  develop  new products.  See  'Business  --  Research and
Development.'
 
     Risk of  New Hardware  Manufacturing  Activities. For  the most  part,  the
Company's  engineering resources are devoted to software design and development.
As a result, only a limited number of such resources are used in the design  and
prototype  production of  the Company's proprietary  hardware. Consequently, the
Company utilizes subcontractors for hardware design, engineering,  manufacturing
and  integration of certain proprietary  printed circuit boards, radio equipment
and  other  subassemblies  which  are  components  of  the  Company's  Blackbird
Products.  The Company's future  success will depend  on enhancing and expanding
its manufacturing  activities with  respect  to the  design and  engineering  of
hardware, improving its inventory control systems, maintaining effective quality
control,  procuring component parts and maintaining subcontractor relationships.
Failure to achieve any of these factors could have a material adverse effect  on
the Company's business, financial condition and results of operations.
 
     Ability  to Manage Growth. The Company has expanded its operations rapidly,
which  has  created  significant   demands  on  the  Company's   administrative,
operational, development and financial personnel and other resources. Additional
expansion  by the Company may further strain the Company's management, financial
and other  resources. There  can be  no assurance  that the  Company's  systems,
procedures, controls and existing space will be adequate to support expansion of
the  Company's operations. The  Company's future operating  results will depend,
among other things, on its ability to manage changing business conditions and to
continue to improve its operational and financial control and reporting systems.
If the  Company's  management  is  unable  to  manage  growth  effectively,  its
business,  financial  condition and  results of  operations could  be materially
adversely affected. See 'Business -- Employees' and 'Management.' The  Company's
ability  to manage growth depends in part upon the Company's ability to attract,
train and  retain a  sufficient  number of  qualified personnel  or  independent
contractors commensurate with the expanding needs of the Company. An increase in
the  turnover rate  among the Company's  employees would  increase the Company's
recruiting and training  costs, and if  the Company were  unable to recruit  and
retain  a sufficient number of employees or independent contractors, it could be
forced to limit its growth or possibly  curtail its operations. There can be  no
assurance  that  the  Company will  be  successful in  attracting,  training and
retaining the required number of qualified employees or independent  contractors
to support the Company's business in the future. See 'Business -- Employees.'
 
     Dependence  on Key Personnel. The Company's future success depends in large
part on  the  continued services  of  its key  management,  sales,  engineering,
research  and  development  and  operational personnel  and  on  its  ability to
continue  to  attract,  motivate  and  retain  highly  qualified  employees  and
independent  contractors  in  those  areas. Competition  for  such  personnel is
intense and there can  be no assurance  that the Company  will be successful  in
attracting, motivating and retaining
 
                                       9
 

<PAGE>
 

<PAGE>
key  personnel. The inability to hire and retain qualified personnel or the loss
of the services of key personnel could  have a material adverse effect upon  the
Company's  business, financial condition and  results of operations. The Company
has entered into  employment agreements  with, among others,  its President  and
Chief  Financial Officer  which both  expire in December  1996. There  can be no
assurance that any  of these  contracts will be  renewed. The  Company does  not
maintain  any  key-man life  insurance  policies on  any  of its  employees. See
'Business -- Employees' and 'Management.'
 
     Limited Customer  Base; Reliance  on Significant  Customers. The  Company's
potential   customer  base  is   relatively  limited  due   to  the  significant
concentration of ownership and/or operational control of wireless  communication
markets.  Currently,  the  Company markets  its  services and  products  only to
cellular carriers, of which there are 27 in the United States and  approximately
150  in international  markets. There  can be  no assurance  that any customers,
current or future, will  maintain business relationships  with the Company.  See
'  --  International Operations.'  Revenues attributable  to a  relatively small
number of  customers  have  historically  represented and  are  likely  for  the
foreseeable  future to  continue to represent  a significant  percentage, in any
given period, of its total revenues. Sales to customers aggregating 10% or more,
either individually  or combined  as affiliates  due to  common ownership,  were
concentrated  as follows:  four customers  with sales of  39%, 17%,  16% and 11%
during the quarterly period ended March 31, 1996, three customers with sales  of
59%, 15% and 12% in 1995, three customers with sales of 54%, 22% and 11% in 1994
and  two customers  with sales of  56% and 24%  in 1993. The  aggregate sales to
these customers (only one of  which has accounted for  more than 10% during  all
periods  presented) represented  83%, 86%,  87% and  80% of  the Company's total
product and service revenues during the  three months ended March 31, 1996,  and
the three years ended December 31, 1995, respectively. There can be no assurance
that  such customers will  continue to maintain  business relationships with the
Company. The Company has recently signed contracts with new customers which,  if
successfully  implemented  and  performed, would  generate  significant revenue.
However, the loss of one or more  major customers could have a material  adverse
effect on the Company's business, financial condition and results of operations.
 
     Competition.  The market for the Company's  products and services is highly
competitive and subject to rapid change.  A number of companies currently  offer
one  or more similar products and services  offered by the Company. In addition,
many wireless communications  carriers are providing  or can provide,  in-house,
certain of the Hotwatch Products that the Company offers. Trends in the wireless
communications  industry, including  greater consolidation  and technological or
other developments  that make  it simpler  or more  cost-effective for  wireless
communications  carriers to  provide certain  services themselves,  could affect
demand for the Company's products and services and could make it more  difficult
for   the  Company  to   offer  a  cost-effective   alternative  to  a  wireless
communications carrier's  own capabilities.  Current and  potential  competitors
have  established  or may  in the  future establish  collaborative relationships
among themselves or with  third parties, including third  parties with whom  the
Company  has a  relationship, to  increase the  visibility and  utility of their
products and  services. Accordingly,  it  is possible  that new  competitors  or
alliances  may emerge and rapidly acquire significant market share. In addition,
the Company anticipates continued growth in the wireless communications industry
and, consequently, the entrance of new competitors in the future. An increase in
competition could result in price reductions and loss of market share and  could
have  a material adverse  effect on the  Company's business, financial condition
and results of operations.
 
     The Company  believes that  the principal  competitive factors  facing  the
Company  in the wireless communications industry include the ability to identify
and respond to customer needs, the quality and breadth of products and services,
technical expertise and price. To remain  competitive, the Company will need  to
continue  to invest in  research and development,  sales and marketing, customer
service, manufacturing activities  and administrative systems.  There can be  no
assurance  that  the  Company  will  have  sufficient  resources  to  make  such
investments or that the Company will be able to make the technological  advances
necessary  to remain  competitive. Many of  the Company's  current and potential
competitors have significantly greater financial, marketing, technical and other
competitive resources, as well as greater name recognition, than the Company. As
a result, the Company's competitors may be able to adapt more quickly to new  or
emerging  technologies and  changes in customer  requirements or may  be able to
devote greater  resources  to the  promotion  and  sale of  their  products  and
services.  There can be  no assurance that  the Company will  be able to compete
successfully with its existing competitors
 
                                       10
 

<PAGE>
 

<PAGE>

or with  new competitors.  The Company's  principal competitors  in the  service
metering  field include IBM, I-NET, Inc., GTE Telecommunications Services, Inc.,
Boston Communications Group, EDS Personal Communications Corporation, Cincinnati
Bell Information Systems, Inc.,  Lightbridge, Inc., Subscriber Computing,  Inc.,
CSC   Intellicom,   and  Systems/Link   Corporation.  The   Company's  principal
competitors  in   the   user/device   authentication   field   include   Corsair
Communications,  Inc., Coral Systems,  Inc. (in connection  with a joint venture
with  Applied   Signal   Technology),   Authentix   Network,   Inc.,   and   GTE
Telecommunications   Services,   Inc.   Two   of   these   competitors,  Corsair
Communications, Inc. and Coral Systems, Inc. compete directly with the Company's
RF-based fingerprinting  fraud protection  products. The  Company believes  that
Corsair   Communications,  Inc.   has  agreements  pursuant   to  which  Corsair
Communications, Inc. has installed or  will install its RF-based  fingerprinting
fraud  protection product in four major markets. The Company has no knowledge of
any such agreements or installations by  Coral Systems, Inc. In addition,  there
are numerous companies, including wireless communications carriers, hardware and
software  development  companies  and  others, which  have  or  may  develop the
expertise which would encourage them to  attempt to develop and market  products
(such  as  A-Key) which  could render  the Company's  products obsolete  or less
marketable. See 'Business -- Competition.'

 
     History of Net Losses;  Accumulated Deficit. Although  the Company had  net
income  of  $63,187 for  the  year ended  December 31,  1995  and net  income of
$1,549,871 for the  year ended December  31, 1994, the  Company sustained a  net
loss  in each  of the  preceding years,  had a  net loss  of $2,500,559  for the
quarter ended March 31, 1996, and, at March 31, 1996, had an accumulated deficit
of $6,126,823. Further, the  Company expects to  record a loss  in the range  of
$1,250,000  to $1,750,000 for the quarter ending  June 30, 1996. In addition, in
the event that  the Company is  not successful in  generating sufficient  future
product  revenues, the carrying value of capitalized software development costs,
inventories and other assets  could be significantly impaired.  There can be  no
assurance  that the Company's  operations will be profitable  in the future. See
'Management's Discussion  and Analysis  of Financial  Condition and  Results  of
Operations.'
 
     International  Operations. The Company is in  the early stages of marketing
its  products  and   services  in  international   markets.  In  pursuing   such
opportunities,  the Company is and will remain subject to all the risks inherent
in international transactions,  such as  changes in export,  import, tariff  and
other  trade regulations, currency  exchange rates, foreign  tax laws, and other
legal, economic,  and  political conditions.  There  can be  no  assurance  that
changes  in any of the foregoing will not  have a material adverse effect on the
Company's business, financial condition and results of operations. Further,  the
laws  of certain  foreign countries  do not  protect the  Company's intellectual
property  to  the  same   extent  as  the  laws   of  the  United  States.   See
'  --  Proprietary  Rights' and  'Business  -- Proprietary  Rights.'  In certain
international markets, the Company will need  to modify its products or  develop
new  or additional products  to adapt to the  different wireless technologies or
network standards utilized  by the  carriers in such  markets. There  can be  no
assurance  that the  Company's marketing efforts  and technological enhancements
will result in successful commercialization or market acceptance or  penetration
in such international markets. If the Company is unable to adequately anticipate
and  respond  to marketing  or technological  requirements in  the international
marketplace,  the  Company's  business,  financial  condition  and  results   of
operation could be materially adversely affected. See 'Business.'
 
     Potential   Fluctuations   in  Quarterly   Performance.  The   Company  has
experienced fluctuations in its quarterly operating results and anticipates that
such fluctuations will  continue and  could intensify.  The Company's  quarterly
operating  results  may vary  significantly depending  on  a number  of factors,
including the  timing of  the introduction  or acceptance  of new  products  and
services  offered by the  Company, changes in  the mix of  products and services
provided by the Company, long sales cycles, changes in regulations affecting the
wireless industry, changes in the  Company's operating expenses, uneven  revenue
streams,  and general economic conditions. Revenue recognition for the Company's
products is based upon various performance criteria and varies from customer  to
customer  and product  to product. Hardware  and software  delivery and customer
acceptance  in  accordance  with  contractual  definitions  are  generally   the
significant  factors used  in determining revenue  recognition. There  can be no
assurance that the Company's levels of profitability will not vary significantly
among quarterly  periods  or that  in  future quarterly  periods  the  Company's
results of operations will not be below prior
 
                                       11
 

<PAGE>
 

<PAGE>
results  or the  expectations of public  market analysts and  investors. In such
event, the price  of the Company's  Common Stock could  be materially  adversely
affected. See 'Business -- Revenue Generation.'
 
     Dependence  on Third-Party Vendors. The Company  has been and will continue
to be dependent on third-party vendors for computer equipment, network services,
component parts, manufacturing, systems integration and certain software all  of
which  are  incorporated  in its  products  and services.  While  available from
multiple sources, the  Company currently obtains  or licenses certain  equipment
and  software from  a limited number  of sources. Although  the Company believes
that there are currently available substitute sources for all such equipment and
software, the  Company  could  be  required to  redesign  affected  products  to
accommodate  substitutes therefor. In an  attempt to ensure satisfactory sources
of  supply,  the  Company  currently  maintains  supply  and  software   license
arrangements  with various suppliers.  There can be  no assurance, however, that
the Company  will be  able to  procure  necessary equipment  and software  on  a
satisfactory  and timely  basis. For example,  from time to  time the electronic
computer component parts industry has experienced parts allocation restrictions.
Any failure  or  delay in  obtaining  necessary equipment,  component  parts  or
software,  or if  necessary, establishing  alternative procurement arrangements,
could cause  delays  in  product commercialization  and  could  require  product
redesign  or  modification. There  can be  no assurance  that the  Company could
complete any necessary  modifications in  a timely  manner or  that modified  or
redesigned products would maintain current functionality or performance features
or  could be successfully commercialized. Any inability or delay in establishing
necessary procurement arrangements or successfully modifying products could have
a material adverse  effect on  the Company's business,  financial condition  and
results of operations. See 'Business -- Suppliers.'
 
     Possible  Need  for Additional  Financing.  In the  event  of unanticipated
technical or other problems, or if the proceeds of this offering otherwise prove
to be  insufficient to  fund operations,  the Company  may be  required to  seek
additional  financing sooner  than currently anticipated  or may  be required to
curtail its activities. There can be no assurance that additional financing will
be available  on  acceptable  terms,  or  at all.  See  'Use  of  Proceeds'  and
'Management's  Discussion  and Analysis  of Financial  Condition and  Results of
Operations.'
 
     Proprietary Rights.  The  Company's success  will  depend in  part  on  its
ability   to  protect  its  technology,   processes,  trade  secrets  and  other
proprietary rights from unauthorized disclosure  and use and to operate  without
infringing the proprietary rights of third parties. The Company's strategy is to
protect its technology and other proprietary rights through patents, copyrights,
trademarks,  nondisclosure agreements,  license agreements,  and other  forms of
protection. The  Company  has been  active  in pursuing  patent  protection  for
technology  and processes involving its Hotwatch Products and Blackbird Products
that it  believes to  be  proprietary and  that  offer a  potential  competitive
advantage for the Company's products and services. To date, the Company has been
granted  patents on  certain features of  the Hotwatch Products  and has patents
pending for certain features of the Hotwatch Products and Blackbird Products. In
addition, the Company has also licensed patents from third parties in an  effort
to  maintain flexibility in the development and use of its technology, including
exclusive and  non-exclusive  rights  to  use patents  in  connection  with  the
Blackbird  Products. There  can be  no assurance,  however, that  any pending or
future patent  application  of the  Company  or  its licensors  will  result  in
issuance  of a patent, that the scope of protection of any patent of the Company
or its licensors will  be held valid if  subsequently challenged, or that  third
parties  will  not  claim rights  in  or  ownership of  the  products  and other
proprietary rights held by the Company  or its licensors. In addition, the  laws
of  certain foreign countries do not protect the Company's intellectual property
rights to the same extent as the laws of the United States.
 
     Litigation or  regulatory proceedings,  which could  result in  substantial
cost  and uncertainty to the Company, may also be necessary to enforce patent or
other proprietary rights of the Company  or to determine the scope and  validity
of  a third party's  proprietary rights. Although the  Company believes that its
technology has  been  independently  developed  and that  its  products  do  not
infringe  patents known to be valid or violate other proprietary rights of third
parties, it is possible that such infringement of existing or future patents  or
violation  of proprietary rights may occur. There can be no assurance that third
parties will not assert  infringement claims in the  future with respect to  the
 
                                       12
 

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<PAGE>
Company's  current or future products or that any such claims will not result in
litigation or  regulatory  proceedings or  require  the Company  to  modify  its
products  or enter into licensing arrangements, regardless of the merits of such
claims. No assurance can be given that any necessary licenses can be obtained in
a timely manner, upon commercially reasonable terms, or at all, and no assurance
can be given that third parties will not assert infringement claims with respect
to any current  licensing arrangements.  The Company's  failure to  successfully
enforce  its proprietary rights or defend against infringement claims brought by
third parties  could  have  a  material adverse  effect  upon  the  Company.  In
addition,  there can be  no assurance that  the Company will  have the resources
necessary to successfully defend an infringement claim brought by a third party.
 
     In addition to  the foregoing  methods of protection,  the Company  employs
various  physical  security  measures  to  protect  its  software  source codes,
technology and other proprietary rights.  However, such measures may not  afford
complete  protection  and  there  can  be  no  assurance  that  others  will not
independently develop  similar source  codes,  technology or  other  proprietary
rights  or obtain access  to the Company's software  codes, technology, or other
proprietary rights.  Furthermore,  although  the  Company  has  and  expects  to
continue  to  have  internal  nondisclosure agreements  with  its  employees and
consultants, and license agreements  with customers, which contain  restrictions
on  disclosure, use  and transfer  of proprietary  information, there  can be no
assurance  that  such  arrangements   will  adequately  protect  the   Company's
proprietary  rights or  that the  Company's proprietary  rights will  not become
known to  third parties  in such  a manner  that the  Company has  no  practical
recourse. See 'Business -- Proprietary Rights.'
 
     Risk  of System Failure  or Inadequacy. The  Company operates and maintains
internal computers  and telecommunication  equipment  for, among  other  things,
monitoring and supporting its products and services, and operating its Real-Time
Roaming  Fraud Prevention Service.  The Company's operations  are dependent upon
its ability to maintain  such equipment and systems  in effective working  order
and  to protect  them against  damage from  fire, natural  disaster, power loss,
telecommunications failure  or similar  events.  Although the  Company  provides
back-up  for substantially all of its systems, these measures will not eliminate
the risk to the Company's operations from  a system failure. In addition to  its
own  systems, the Company relies on certain equipment, systems and services from
third parties that are also subject to risks, including risks of system failure.
There can be no assurance that the Company's property and business  interruption
insurance  will be adequate  to compensate the  Company for any  losses that may
occur in the event of a system failure. Any damage, failure or delay that causes
interruptions in the Company's operations  could have a material adverse  effect
on  the Company's business,  financial condition and  results of operations. See
' -- Dependence on Third Party Vendors.'
 
     Radio Frequency  Emission  Concerns;  Medical  Device  Interference.  Media
reports  have  suggested  that  certain  RF  emissions  from  portable  cellular
telephones might  be  linked  to  various  health  concerns,  including  cancer.
Concerns  over  RF emissions  may have  the  effect of  discouraging the  use of
cellular and other wireless  communications services, such  as PCS, which  could
have  an adverse effect upon the  Company's business. The Federal Communications
Commissions ('FCC') has a rulemaking proceeding pending to update the guidelines
and methods it uses for evaluating RF emissions from radio equipment,  including
cellular  telephones, and  the 1996 Telecommunications  Act requires  the FCC to
complete this rulemaking by August 1996. Although PCS handsets operate at  lower
power  than cellular handsets  and are therefore likely  to comply with proposed
new standards, the same  concerns about RF emissions  could be present with  PCS
handsets.
 
     Certain interest groups have requested that the FCC investigate claims that
certain  wireless technology poses health  concerns and causes interference with
hearing aids, pacemakers and  other medical devices.  In addition, the  Personal
Communications   Industry  Association  announced  in  July  1995  that  it  was
undertaking an  industry-wide  study  to  gather  information  on  possible  PCS
interference  with  medical  devices for  all  PCS  protocols. There  can  be no
assurance that the  findings of such  studies will not  have a material  adverse
effect  on the Company's business, financial condition and results of operations
or that such findings will  not lead to government  regulation that will have  a
material  adverse  effect on  the  Company's business,  financial  condition and
results of operations.
 
     Government Regulation and  Legal Uncertainties. While,  for the most  part,
the  Company's operations are not directly regulated, the wireless carriers that
constitute the Company's customers are
 
                                       13
 

<PAGE>
 

<PAGE>
heavily regulated at  both the  federal and  state levels.  Such regulation  may
inhibit the growth of the wireless telecommunications industry, limit the number
of  potential  customers for  the Company's  services  and impede  the Company's
ability to offer competitive services  to the wireless communications market  or
otherwise  have a material  adverse effect on  the Company's business, financial
condition and results of operations. At the same time, recently enacted  federal
legislation  deregulating the  telecommunications industry may  cause changes in
the industry, including entrance of  new competitors or industry  consolidation,
which could in turn subject the Company to increased pricing pressures, decrease
the  demand for  the Company's  services, increase  the Company's  cost of doing
business or otherwise have a material adverse effect on the Company's  business,
financial condition and results of operations.
 
     No Dividends. To date, the Company has not paid any dividends on the Common
Stock  and does not expect to declare or  pay any dividends on such Common Stock
in the foreseeable future. See 'Dividend Policy.'
 
     Dilution. This offering involves an immediate dilution of $16.41 per  share
between  the pro forma as  adjusted net tangible book  value per share after the
offering and  the  assumed  public  offering price  of  $18.00  per  share.  See
'Dilution.'
 
     Outstanding  Options. As  of March 31,  1996, there  were outstanding stock
options to  purchase an  aggregate of  2,713,040  shares of  Common Stock  at  a
weighted  average exercise price of $5.95 per  share (after giving effect to the
exercise by the  Selling Shareholders of  options to acquire  226,000 shares  of
Common Stock). To the extent that these outstanding stock options are exercised,
dilution  to the Company's  stockholders may occur  if the market  price or book
value of the Common Stock of the Company at the time of exercise is greater than
the exercise price of  the options. Moreover, the  terms upon which the  Company
will be able to obtain additional equity capital may be adversely affected since
the holders of such outstanding securities can be expected to exercise them at a
time  when the Company  would, in all  likelihood, be able  to obtain any needed
capital on  terms more  favorable to  the  Company than  those provided  in  the
outstanding options. See 'Management -- Stock Option Plans.'
 
     Shares  Eligible for  Future Sale.  Upon completion  of this  offering, the
Company will  have  outstanding 23,669,748  shares  of Common  Stock  (including
237,280  shares issued for option  exercises, from April 1,  1996 to the date of
this Prospectus), of which the 1,726,000 shares sold in this offering (1,984,900
shares if the Underwriters' over-allotment option is exercised in full) and  the
4,600,000  shares sold in  the Company's initial public  offering in August 1991
and all other  shares will be  freely tradeable without  restriction or  further
registration  under  the  Securities  Act,  except  for  those  shares  held  by
'affiliates' (as defined  in the Securities  Act) of the  Company. There are  no
restricted  shares  currently outstanding.  Affiliates are  able to  sell shares
pursuant to  Rule  144  ('Rule  144')  under  the  Securities  Act,  subject  to
compliance  with  certain  requirements  set forth  in  Rule  144.  In addition,
5,400,000 shares  of  Common  Stock  are authorized  under  the  Company's  1991
Qualified  Stock Option Plan, 1991 Non-Qualified  Stock Option Plan, as amended,
1993 Non-Employee Directors  Stock Option Plan  and 1996 Stock  Option Plan.  Of
these  shares, 2,176,160  shares are issuable  upon the  exercise of outstanding
stock options  granted by  the Company,  of which  options to  purchase  513,100
shares  are  currently exercisable  (assuming  the exercise  by  certain Selling
Stockholders of options to purchase 76,000 shares of Common Stock). Registration
statements on  Form  S-8  have  been filed  with  the  Securities  and  Exchange
Commission (the 'Commission') registering all of the shares of Common Stock that
may  be issued  under these plans,  other than  the 1996 Stock  Option Plan, and
registering 600,000 shares of Common Stock issued to Robert Dahut which were not
issued in connection with any stock option plan of the Company. Of these shares,
390,000 are issuable  upon exercise  of certain  options to  purchase shares  of
Common  Stock (which  are in addition  to the  150,000 shares being  sold by Mr.
Dahut in  connection  with this  Prospectus  and which  include  30,000  options
currently  exercisable  by Mr.  Dahut.  The Company  and  each of  its executive
officers and directors  have agreed  with the Underwriters,  subject to  limited
exceptions, not to offer, sell, pledge, contract to sell, grant any other option
to purchase or otherwise dispose of any shares of Common Stock or any securities
convertible  into or  exchangeable or  exercisable for,  or warrants,  rights or
options to acquire shares  of Common Stock,  for a period of  180 days from  the
date of this Prospectus without the prior written consent of the Representative.
The  Company  estimates  that 540,434  shares  of outstanding  Common  Stock and
838,820 shares of Common
 
                                       14
 

<PAGE>
 

<PAGE>
Stock that are issuable upon the exercise of outstanding options will be subject
to such agreements. No  new options will be  granted under either the  Company's
1991  Non-Qualified Stock  Option Plan,  or under  the Company's  1991 Qualified
Stock Option Plan. Sales of substantial amounts of shares of Common Stock in the
public market,  or  the availability  of  such  shares for  future  sale,  could
adversely  affect the  market price  of the  Common Stock  and could  impair the
Company's future ability to raise additional capital through an offering of  its
equity securities. See 'Shares Eligible for Future Sale' and 'Underwriting.'
 
     Possible  Volatility of Stock  Price. The market price  of the Common Stock
could be  subject  to significant  fluctuations  in response  to  variations  in
financial  results or  announcements of  material events  by the  Company or its
competitors. Regulatory  changes or  changes  in the  general condition  of  the
economy or the financial markets could also adversely affect the market price of
the Common Stock. See 'Price Range of Common Stock.'
 
     Anti-Takeover  Provisions. The Certificate of  Incorporation and By-laws of
the  Company  contain  various   provisions  which  may   have  the  effect   of
discouraging,  delaying  or preventing  future  changes of  control  or takeover
attempts, which  the  Company's  stockholders  may deem  to  be  in  their  best
interests,  and  perpetuating  the Company's  existing  management.  Among other
things,  such  provisions:  (i)  provide  the  Board  of  Directors  with  broad
discretion  to issue serial  preferred stock; (ii)  provide for three-year terms
for the  directors of  the  Company and  the election  of  such directors  on  a
staggered  basis; (iii) prohibit  repurchases by the  Company from a stockholder
owning 5%  or  more  or  the  Company's  voting  securities  (other  than  those
stockholders  meeting such description as  of May 30, 1991)  who have held their
securities for  less  than two  years,  unless approved  by  a majority  of  the
disinterested  stockholders; and (iv) require the  approval of two-thirds of all
shares eligible  to  vote for  any  proposed  amendment to  the  Certificate  of
Incorporation   or  By-laws  that  seeks  to  modify  or  remove  the  foregoing
provisions. In addition,  in certain  circumstances, Delaware  law requires  the
approval  of  two-thirds of  all shares  eligible to  vote for  certain business
combinations involving a stockholder owning 15% or more of the Company's  voting
securities   (other  than  stockholders  currently  meeting  such  description),
excluding the voting power held by such stockholder. The existence of all of the
above provisions may have the effect  of discouraging, delaying or preventing  a
future change of control or takeover attempt of the Company, which could have an
adverse  effect on  the market  price of the  Common Stock.  See 'Description of
Capital Stock -- Anti-Takeover Provisions.'
 
                                       15
 

<PAGE>
 

<PAGE>

                                USE OF PROCEEDS
 
     The net proceeds to be received by  the Company from the sale of  1,500,000
shares offered hereby by the Company (after deducting underwriting discounts and
commissions  and estimated expenses payable by the Company), are estimated to be
approximately $25,080,000  (or approximately  $28,887,000 if  the  Underwriter's
over-allotment  option is exercised in full pro rata between the Company and the
Selling Shareholders).
 
     The Company intends to use the net proceeds of the offering to finance  (i)
research  and  development to  enhance the  Company's existing  technologies and
develop new  technologies;  (ii) expansion  of  sales and  marketing  activities
including  the establishment of international  marketing, sales and distribution
operations; (iii) expansion of  customer support capabilities; (iv)  enhancement
and  expansion of the Company's manufacturing activities; (v) provision of lease
financing to certain of the  Company's customers; (vi) possible acquisitions  of
complementary  technologies  and  businesses;  and  (vii)  expansion  of working
capital and general  corporate purposes.  While from  time to  time the  Company
evaluates  potential acquisitions  of businesses, products  or technologies, and
anticipates continuing  to make  such evaluations,  the Company  has no  present
understandings,  commitments or  agreements with  respect to  any acquisition of
other technologies or businesses. Pending such uses of funds, the proceeds  will
be  invested in short-term, investment grade, interest-bearing securities. Since
a significant portion  of the net  proceeds will be  used for general  corporate
purposes,  the  Board  of Directors  and  management  of the  Company  will have
significant flexibility in applying the net proceeds of this offering.
 
     The Company will not receive any proceeds from the sale of Common Stock  by
the Selling Stockholders.
 
                                    DILUTION
 
     At  March  31,  1996,  the  Company  had  a  net  tangible  book  value  of
approximately $.51  per share  of Common  Stock based  on 21,706,468  shares  of
Common  Stock outstanding.  Net tangible  book value  per share  of Common Stock
represents the total  amount of tangible  assets of the  Company less the  total
amount  of its liabilities, divided by  the number of Common Shares outstanding.
Tangible assets are defined  as the assets of  the Company excluding  intangible
assets  (consisting  of capitalized  software  development costs).  Dilution per
share represents the difference between the  price per share of Common Stock  to
be  paid by investors in the offering and  the pro forma net tangible book value
per share of Common Stock immediately after the offering. After giving effect to
(i) the sale of 1,500,000 shares of  Common Stock offered by the Company  hereby
and  the application of the net proceeds therefrom, which are estimated to be in
the aggregate approximately $25,080,000 (after deducting underwriting  discounts
and commissions and estimated offering expenses payable by the Company) and (ii)
the  exercise of options by the  Selling Shareholders to purchase 226,000 shares
of Common Stock and the application of the proceeds in the amount of  $1,121,000
from  the exercise  of such stock  options, the  net tangible book  value of the
Company at March 31, 1996 would have  been $37,297,763 or $1.59 per share.  This
represents  an immediate increase  in the net  tangible book value  of $1.03 per
share to existing shareholders and an immediate dilution of $16.41 per share  to
new  investors. The following table illustrates this per share dilution at March
31, 1996:
 

<TABLE>
<S>                                                                                      <C>      <C>
Assumed public offering price(1)......................................................            $18.00
                                                                                                  ------
     Net tangible book value per share of Common Stock at March 31, 1996..............   $ .51
                                                                                         -----
     Increase per share of Common Stock attributable to new investors.................    1.08
                                                                                         -----
Pro forma net tangible book value per share after the offering(2)(3)(4)...............              1.59
                                                                                                  ------
Dilution per share of Common Stock to new investors(3)................................            $16.41
                                                                                                  ------
                                                                                                  ------
</TABLE>

 ------------
 
(1) Before  deducting  underwriting  discounts  and  commissions  and   offering
    expenses payable by the Company.
 
                                              (footnotes continued on next page)
 
                                       16
 

<PAGE>
 

<PAGE>
(footnotes continued from previous page)
 
(2) Based  on the number of shares of Common Stock outstanding at March 31, 1996
    giving effect to  the issuance of  226,000 shares of  Common Stock upon  the
    exercise  of options by the  Selling Shareholders. Excludes 2,713,040 shares
    of  Common  Stock  issuable  upon  the  exercise  of  other  stock   options
    outstanding  at March 31, 1996, of which 237,280 shares of Common Stock were
    issued upon the exercise of stock  options since March 31, 1996 through  the
    date  of  this  Prospectus. Also  excludes  160,000 shares  of  Common Stock
    issuable upon exercise of  options granted since March  31, 1996. See  'Risk
    Factors  -- Dilution,'  'Management's Discussion  and Analysis  of Financial
    Condition and Results  of Operations  -- Liquidity  and Capital  Resources,'
    'Management -- Stock Option Plans,' and 'Underwriting.'
 
(3) Assuming all outstanding options were exercised, the net tangible book value
    at  March 31, 1996 would have been  $55,073,763 or $2.11 per share of Common
    Stock and the dilution per share of  Common Stock to new investors would  be
    $15.89 per share of Common Stock.
 
(4) After  deducting  underwriting  discounts and  commissions  of approximately
    $1,620,000 and offering  expenses of approximately  $300,000 payable by  the
    Company.
 

                          PRICE RANGE OF COMMON STOCK
 
     The  Company's Common Stock has been included in the Nasdaq National Market
since February 3, 1994  and prior thereto on  the Nasdaq Small-Cap Market  under
the  symbol 'CTSC' The following table sets  forth for the periods indicated the
high and  low sales  prices  for the  Common Stock  as  reported by  the  Nasdaq
National  Market and has been  adjusted to give retroactive effect  to a 2 for 1
split of the  Company's Common Stock  effected in February  1994 and a  2 for  1
split effected in June 1996:
 

<TABLE>
<CAPTION>
                                                                                         HIGH      LOW
                                                                                        ------    ------
 
<S>                                                                                     <C>       <C>
Fiscal 1994
     First Quarter...................................................................   $12.38    $ 6.06
     Second Quarter..................................................................     9.25      4.13
     Third Quarter...................................................................     7.25      5.00
     Fourth Quarter..................................................................     8.38      5.50
Fiscal 1995
     First Quarter...................................................................     9.25      6.50
     Second Quarter..................................................................    15.38      7.75
     Third Quarter...................................................................    15.50      9.63
     Fourth Quarter..................................................................    12.25      7.50
Fiscal 1996
     First Quarter...................................................................    15.25     10.56
     Second Quarter..................................................................    20.13     13.50
</TABLE>

 
     On  July 1, 1996, the last reported sales  price of the Common Stock on the
Nasdaq National Market was $18.25 per share. As of June 14, 1996, there were 177
holders of record  and the  Company believes  its Common  Stock is  beneficially
owned by in excess of 5,000 holders.
 

                                DIVIDEND POLICY
 
     The  Company has not declared  or paid dividends on  the Common Stock since
its inception  and does  not  intend to  declare or  pay  any dividends  to  its
shareholders in the foreseeable future.
 
     The  Company  currently  intends  to  reinvest  earnings,  if  any,  in the
development and expansion of its business.  The declaration of dividends in  the
future  will be at the  election of the Board of  Directors and will depend upon
the earnings,  capital  requirements  and financial  position  of  the  Company,
general economic conditions and other relevant factors.
 
                                       17


<PAGE>
 

<PAGE>

                                 CAPITALIZATION
 
     The  following table sets forth the  capitalization of the Company at March
31, 1996, and its capitalization at March  31, 1996, as adjusted to give  effect
to  (i) the  sale of  1,500,000 shares  of Common  Stock offered  by the Company
hereby and the application of the net proceeds therefrom, which are estimated to
be in  the aggregate  approximately  $25,080,000 (after  deducting  underwriting
discounts  and  commissions  and  estimated  offering  expenses  payable  by the
Company) and  (ii)  the exercise  of  options  by the  Selling  Shareholders  to
purchase  226,000 shares of Common Stock and  the application of the proceeds in
the amount of $1,121,000 from  the exercise of such  stock options. See 'Use  of
Proceeds,'  'Management's  Discussion and  Analysis  of Financial  Condition and
Results of Operations' and the  Financial Statements and Notes thereto  included
elsewhere in this Prospectus.
 

<TABLE>
<CAPTION>
                                                                                              MARCH 31, 1996
                                                                                         -------------------------
                                                                                         ACTUAL     AS ADJUSTED(2)
                                                                                         -------    --------------
                                                                                              (IN THOUSANDS)
 
<S>                                                                                      <C>        <C>
Stockholder's equity:
     Preferred stock -- $.01 par value, authorized -- 5,000,000 shares, none issued...   $     0       $      0
     Common Stock -- $.001 par value, authorized -- 30,000,000 shares, issued and
      outstanding -- 21,706,468 shares; as adjusted -- 23,432,468 shares(1)...........        22             23
     Additional paid-in capital.......................................................    20,702         46,902
     Retained deficit.................................................................    (6,127)        (6,127)
                                                                                         -------    --------------
       Total Stockholders' equity.....................................................    14,597         40,798
                                                                                         -------    --------------
          Total capitalization........................................................   $14,597       $ 40,798
                                                                                         -------    --------------
                                                                                         -------    --------------
</TABLE>

 
- ------------
 
(1) Based on the number of shares of Common Stock outstanding at March 31, 1996.
    Includes  226,000  shares  of Common  Stock  issuable upon  the  exercise of
    options by the  Selling Shareholders.  Excludes 2,713,040  shares of  Common
    Stock issuable upon the exercise of other stock options outstanding at March
    31,  1996, of  which 237,280  shares of  Common Stock  were issued  upon the
    exercise of stock  options since  March 31, 1996  through the  date of  this
    Prospectus.  Also  excludes 160,000  shares  of Common  Stock  issuable upon
    exercise  of  options   granted  since  March   31,  1996.  See   'Principal
    Shareholders.'
 
(2) Based upon an assumed offering price of $18.00 per share of Common Stock.
 
                                       18
 

<PAGE>
 

<PAGE>
                            SELECTED FINANCIAL DATA
 
     The following selected financial data for the five years ended December 31,
1995,  are derived from the financial statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors. The financial statements  of
the  Company for the three years ended  December 31, 1995 are included elsewhere
herein. The financial data for the three month periods ended March 31, 1995  and
1996 are derived from unaudited financial statements, included elsewhere herein.
The unaudited financial statements include all adjustments, consisting of normal
recurring   accruals,  which  the   Company  considers  necessary   for  a  fair
presentation of  the financial  position  and the  operating results  for  these
periods.  Operating results for  the three months  ended March 31,  1996 are not
necessarily indicative of the results that  may be expected for the entire  year
ending  December  31, 1996.  The data  should  be read  in conjunction  with the
financial statements, related  notes, and other  financial information  included
herein.
 

<TABLE>
<CAPTION>
                                                                                                         THREE MONTHS ENDED
                                                   YEAR ENDED DECEMBER 31,                                   MARCH 31,
                             --------------------------------------------------------------------    --------------------------
                              1991(3)         1992          1993          1994           1995           1995           1996
                             ----------    ----------    ----------    -----------    -----------    -----------    -----------
                                       (IN DOLLARS EXCEPT WEIGHTED SHARES OUTSTANDING)
<S>                          <C>           <C>           <C>           <C>            <C>            <C>            <C>
Statement of Operations
  Data:
Revenues..................   $2,417,536    $4,978,050    $5,267,685    $10,012,080    $12,584,836    $ 3,468,564    $   842,279
Gross Research &
  Development
  Expenditures(1).........    1,407,000     2,183,000     2,019,000      4,021,000      5,724,000      1,215,000      1,397,000
Net Income (Loss).........     (986,876)   (1,542,424)   (1,206,335)     1,549,871         63,187        243,127     (2,500,559)
Net Income (Loss) Per
  Share(2)................        (0.13)        (0.10)        (0.07)          0.08           0.00           0.01          (0.12)
Cash Dividends Declared...            0             0             0              0              0              0              0
Weighted Average Shares
  Outstanding.............    7,322,192    15,687,280    17,363,680     20,297,326     22,026,150     22,158,686     21,608,900
</TABLE>

 

<TABLE>
<CAPTION>
                                                                                                           MARCH 31, 1996
                                                         DECEMBER 31,                                --------------------------
                             --------------------------------------------------------------------                       AS
                                1991          1992          1993          1994           1995          ACTUAL       ADJUSTED(4)
                             ----------    ----------    ----------    -----------    -----------    -----------    -----------
<S>                          <C>           <C>           <C>           <C>            <C>            <C>            <C>
Balance Sheet Data:
Working Capital...........   $3,865,235    $7,182,375    $6,577,988    $ 9,783,021    $11,093,831    $ 8,839,554    $35,040,554
Cash......................    3,626,211     6,445,271     5,157,541      9,041,985      9,448,255      5,720,399     31,921,399
Capitalized Software
  Development Costs.......      945,322     1,238,035     1,431,370      2,605,835      3,346,748      3,500,605      3,500,605
Total Assets..............    6,648,443    10,056,343     9,863,431     15,476,720     18,370,645     16,031,129     42,232,129
Long Term Obligations.....            0             0             0              0              0              0              0
Total Stockholders'
  Equity..................    5,641,293     9,456,920     9,052,301     13,725,771     16,733,211     14,597,368     40,798,368
</TABLE>

 
- ------------
 
(1) Gross  research and development  expenditures presented in  the Statement of
    Operations Data are higher than research and development costs and  expenses
    disclosed  in the Statements of Operations for the respective periods due to
    the inclusion  of  capitalized software  development  costs and  design  and
    development  services costs which  are disclosed elsewhere  in the financial
    statements. See Management's Discussion and Analysis of Financial  Condition
    and Results of Operations.
 
(2) Per  common share amounts and weighted  average shares outstanding have been
    retroactively adjusted to  give effect  to the two  for one  stock split  in
    February  1994 and the two for one stock split in June 1996. See Notes I and
    J of Notes to Financial Statements.
 
(3) The Company  was incorporated  in Delaware  in August  1988 under  the  name
    Ventures  as a majority-owned  subsidiary of Nationwide.  In September 1988,
    Ventures formed the Partnership as equal  partners with NYNEX. In May  1991,
    Ventures  changed its name  to Cellular Technical  Services Company, Inc. In
    August 1991 the Company exercised an option to purchase the interest in  the
    Partnership  owned by NYNEX  and consummated the  initial public offering of
    its securities. The Statement of Operations Data for the year ended December
    31, 1991 combines the results of operations of the Partnership with those of
    the Company in  order to provide  a more meaningful  comparison between  the
    periods presented. The net loss for the period has been reduced by $254,000,
    representing  the  partner's  interest  in  the  net  loss  for  the  period
    commencing January 1, 1991 and ending August 12, 1991.
 
(4) Adjusted to reflect  (i) the sale  by the  Company of the  shares of  Common
    Stock  offered  hereby (based  on an  assumed offering  price of  $18.00 per
    share) and  the application  of  the net  proceeds  therefrom and  (ii)  the
    Company's  receipt  of  the  proceeds  from  the  exercise  by  the  Selling
    Shareholders of  options to  acquire  226,000 shares  of Common  Stock.  See
    'Capitalization.'
 
                                       19
 

<PAGE>
 

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
     The  Company's  revenues  to  date have  been  primarily  derived  from the
Company's Hotwatch Products and phone rental  products (the latter of which  are
no longer being marketed by the Company). To address the wireless communications
industry's  increasing need  for a  product to  more effectively  combat cloning
fraud, which has become a major industry problem, the Company has developed  the
Blackbird  Products. The Company engineered the  Blackbird Platform with an open
architecture design  to allow  the  Company and  others to  develop  application
products which could run on or exchange information with the Blackbird Platform.
 
     In 1995, the Company began conducting trials for the purpose of testing and
evaluating its Blackbird Products. These trials recently resulted in the signing
of  contracts with AirTouch and BANM, for installation of the Blackbird Products
in over 1,000  cell sites,  subject to  the Blackbird  Products compliance  with
contractual performance requirements.
 
     The  Company sustained a  loss of $2,550,559 during  the three months ended
March 31, 1996,  and expects  to record  a loss in  the range  of $1,250,000  to
$1,750,000   for  the  quarter  ending  June  30,  1996.  Although  the  Company
anticipates that it will begin to recognize revenues from AirTouch and BANM  for
the  Blackbird Products during  the second half  of 1996, it  cannot predict the
actual timing  or  amount  of  such  revenues.  Moreover,  the  Company  expects
increases  in its costs and expenses during such period and in the future due to
increased research and development, sales and marketing activities and expansion
of customer support capabilities.
 
     As the Company  expands its domestic  and international marketing  efforts,
and as the wireless communications industry expands beyond cellular telephony to
include other wireless communication services, the Company believes that it will
be  able to diversify  its revenue and  customer base. The  Company's success in
exploiting these expanded  markets and in  achieving profitability will  depend,
among  other things, on its  ability to make its  existing and future technology
commercially acceptable, deal  successfully with rapid  changes in the  wireless
communications  industry (including the anticipated  growth of digital services)
and enhance  and expand  its manufacturing  activities. See  'Risk Factors'  and
'Business.'
 
     The  following discussion and  analysis should be  read in conjunction with
the Company's  financial  statements  and  notes  thereto  and  other  financial
information included elsewhere in this Prospectus.
 
     The  following table presents the Company's Statement of Operations for the
three years ended December 31, 1993, 1994  and 1995, and for the quarters  ended
March 31, 1995 and 1996.
 

<TABLE>
<CAPTION>
                                                                                                     THREE MONTHS ENDED
                                                             YEAR ENDED DECEMBER 31,                     MARCH 31,
                                                    -----------------------------------------    --------------------------
                                                       1993           1994           1995           1995           1996
                                                    -----------    -----------    -----------    -----------    -----------
<S>                                                 <C>            <C>            <C>            <C>            <C>
REVENUES
    License and service fees.....................   $ 3,875,353    $ 8,691,036    $10,944,788    $ 2,736,768    $   645,622
    Equipment sales..............................     1,215,738      1,040,863      1,164,536        612,812         89,164
    Interest income..............................       176,594        280,181        475,512        118,984        107,493
                                                    -----------    -----------    -----------    -----------    -----------
    Total revenues...............................     5,267,685     10,012,080     12,584,836      3,468,564        842,279
COSTS AND EXPENSES
    Cost of license and service fees.............     1,574,521      2,619,435      3,330,801        922,539        785,200
    Cost of equipment sales......................     1,329,276      1,112,254      1,485,952        611,731        278,405
    Sales and marketing..........................       738,068        789,578      2,141,853        507,607        822,873
    General and administrative...................     1,563,794      2,269,170      2,115,991        601,783        510,611
    Research and development.....................     1,268,361      1,661,772      3,445,052        576,777        945,749
                                                    -----------    -----------    -----------    -----------    -----------
Total costs and expenses.........................     6,474,020      8,452,209     12,519,649      3,220,437      3,342,838
                                                    -----------    -----------    -----------    -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES................    (1,206,335)     1,559,871         65,187        248,127     (2,500,559)
PROVISION FOR INCOME TAXES.......................             0         10,000          2,000          5,000              0
                                                    -----------    -----------    -----------    -----------    -----------
NET INCOME (LOSS)................................   $(1,206,335)   $ 1,549,871    $    63,187    $   243,127    $(2,500,559)
                                                    -----------    -----------    -----------    -----------    -----------
                                                    -----------    -----------    -----------    -----------    -----------
NET INCOME (LOSS) PER SHARE......................        $(0.07)         $0.08          $0.00          $0.01         $(0.12)
                                                    -----------    -----------    -----------    -----------    -----------
                                                    -----------    -----------    -----------    -----------    -----------
WEIGHTED AVERAGE SHARES OUTSTANDING..............    17,363,680     20,297,326     22,026,150     22,158,686     21,608,900
                                                    -----------    -----------    -----------    -----------    -----------
                                                    -----------    -----------    -----------    -----------    -----------
</TABLE>

 
                                       20
 

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<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
 
     Total  revenues decreased 76% to $842,279  for the three months ended March
31, 1996, from $3,468,564  for the three  months ended March  31, 1995, and  the
Company  had a net loss of $2,500,559, or $.12 per share, compared to net income
of $243,127, or $.01 per share, for the three months ended March 31, 1995.  This
decline  in  operating results  was primarily  attributable  to: (i)  long sales
cycles, (ii)  uneven contract  revenue streams  from the  Hotwatch Platform  and
related  application products ('Hotwatch Products'), and (iii) increased efforts
and expenditures in both sales and marketing and research and development of the
Blackbird Products.
 
     License and service fees were derived from the Company's Hotwatch  Products
and phone rental products. Such revenues decreased 76% to $645,622 for the three
months  ended March 31, 1996,  from $2,736,768 for the  three months ended March
31, 1995.
 
     License and service fees for  the Company's Hotwatch Products were  derived
principally  from agreements with  four customers. These  agreements are the AWS
Axys agreements and the AWS Hotwatch Products agreement (collectively, the  'AWS
Agreements')  between the  Company and AT&T  Wireless Services,  Inc. ('AWS'), a
license agreement ('LIN/ACC Agreement') between the Company and collectively LIN
Broadcasting Company  ('LIN')  and  American  Cellular  Communications  ('ACC'),
subsidiaries of AWS and BellSouth Cellular, respectively, and license agreements
with  360[d]Communications Company  (formerly Sprint  Cellular Company) ('360[d]
CC') and  Ameritech  Mobile  Communications,  Inc.  ('Ameritech').  License  and
service  fees from the Company's Hotwatch Products decreased 80% to $508,000 for
the three months  ended March  31, 1996, from  $2,511,000 for  the three  months
ended March 31, 1995. Such revenues under the AWS Agreements totaled $90,000 and
$1,820,000  for  the three  months ended  March  31, 1996,  and March  31, 1995,
respectively. This decrease was due primarily to completion of various phases of
these contracts during the three months ended March 31, 1995 that included large
non-recurring license, service and implementation fees. License and service fees
under the LIN/ACC Agreement continued  their expected decline as they  decreased
24% to $292,000 for the three months ended March 31, 1996, from $385,000 for the
three  months ended March 31, 1995. Recurring license and service fees from this
agreement are expected to be minimal once products under the AWS Agreements  are
deployed and as AWS installs its internally-developed fraud management system in
some  or all of the LIN/ACC markets  covered under the agreement. Other Hotwatch
license and service revenues decreased 59% to $126,000 from $306,000 principally
as a result of  non-recurring license fees during  the three months ended  March
31,  1995,  associated  with the  installation  of  software called  for  in the
Company's 1994 license agreement with 360[d] CC.
 
     License and service fees from the Company's phone rental products decreased
38% to $147,000 for the three months ended March 31, 1996, from $237,000 for the
three months ended  March 31, 1995.  Marketing and further  deployment of  these
products  ceased in early 1995 as a result of the Company's decision to exit the
phone rental market. This decision was  prompted by the Company's evaluation  of
the long term prospects of this market as anticipated growth had been lower than
previously  expected. Revenues during  the remainder of 1996  are expected to be
minimal and reflect the wind down of the phone rental operations.
 
     Equipment sales, which primarily  consist of the  sale of computer  systems
(which   are  generally  non-recurring)  and  various  peripheral  and  hardware
components, decreased 85% to $89,164 for the three months ended March 31,  1996,
from  $612,812 for the three months ended March 31, 1995. Revenues for the three
months ended  March  31,  1995,  were derived  primarily  from  equipment  sales
associated with the AWS, 360[d] CC and Ameritech agreements.
 
     Interest  income decreased 10% to $107,493 for the three months ended March
31, 1996 from  $118,984. The  decrease was  attributable to  lower average  cash
balances  invested at  lower average interest  rates for the  three months ended
March 31, 1996 as compared to the three months ended March 31, 1995.
 
     Cost of license  and service  fees includes  (i) the  customer service  and
engineering  support costs that are directly associated with supporting software
license and service fee revenues, (ii) the amortization of software  development
costs,  and (iii) the costs associated with the design and development of custom
 
                                       21
 

<PAGE>
 

<PAGE>
programming and related services. Cost of license and service fees decreased 15%
to $785,200 for the  three months ended  March 31, 1996,  from $922,539 for  the
three  months ended March 31, 1995. The decrease was principally attributable to
$250,000 of non-recurring design and  development costs associated with  service
revenues  under the AWS agreements recorded  during the three months ended March
31, 1995, which decrease was partially offset by (a) a 16% increase to  $279,972
for  the three months ended  March 31, 1996, from  $241,775 for the three months
ended March 31, 1995,  in amortization of  software development costs  primarily
attributable  to the 1995 release  of the first phase  of the Blackbird Products
for which no license revenues were received, and (b) a 34% increase to  $390,000
for  the three months ended  March 31, 1996, from  $291,000 for the three months
ended March  31, 1995,  for personnel  and overhead  related costs  incurred  in
supporting  anticipated growth  in new customers  and products  during the three
months ended March 31, 1996.
 
     Cost of equipment  sales decreased  54% to  $278,405 for  the three  months
ended  March 31, 1996, from $611,731 for  the three months ended March 31, 1995.
Cost  of  equipment   sales,  which  includes   purchased  hardware,   allocated
installation  costs,  and,  more  recently,  manufacturing  overhead  costs, has
historically  exceeded  the  related  revenues  from  equipment  sales.  Amounts
recorded  for  the three  months ended  March  31, 1995,  included the  costs of
purchased hardware associated with  the AWS, 360[d]  CC and Ameritech  equipment
sales.  The costs to  sales ratio increased  to 312% for  the three months ended
March 31, 1996 from 100% for the three months ended March 31, 1995. The negative
margins were primarily attributable to fixed engineering, installation overhead,
and manufacturing overhead costs that  were not recovered from equipment  sales,
and,  for the three months ended March 31, 1996, included overhead-related costs
associated with the Blackbird Products which are being deployed under both sales
contracts and trial agreements for testing and evaluation in several markets and
for which no revenues were recorded.
 
     Sales and marketing expenses increased 62% to $822,873 for the three months
ended March 31, 1996 from $507,607 for the three months ended March 31, 1995  as
a  result of increased  personnel and related costs  incurred in connection with
the Company's increased efforts to  generate demand for the Company's  products.
The   Company's  first   quarter  activities  generally   included  its  largest
expenditures for trade shows and related events.
 
     General and administrative expenses decreased 15% to $510,611 for the three
months ended March 31, 1996, from $601,783 for the three months ended March  31,
1995.  This decrease was primarily the result of reduced management fees paid to
Nationwide under the four-year management services agreement between the Company
and Nationwide that expired in August 1995.
 
     Research and  development costs  increased 64%  to $945,749  for the  three
months  ended March 31, 1996 from $576,777  for the three months ended March 31,
1995 primarily due  to the continued  and expanded investment  in the  Blackbird
Products.  Software development costs of  $433,829 and $413,857 were capitalized
during the three months ended  March 31, 1996 and  the three months ended  March
31,  1995,  respectively,  and  related  primarily  to  the  development  of the
Blackbird Products. In addition, expenditures  of $224,000 related primarily  to
billable  design and development services under the AWS Agreements were expensed
as costs of services for  the three months ended  March 31, 1995. Such  expenses
for  the three months ended March  31, 1996, were minimal. Including capitalized
software development  and contract  design and  development costs,  the  Company
incurred gross research and development expenditures of $1,397,000 for the three
months  ended March 31,  1996, which represented  a 15% increase  over the three
months ended March 31, 1995. This increase is primarily the result of additional
expenditures for  personnel  related  costs for  development  of  the  Blackbird
Products,  and for  legal fees  expended to  protect the  Company's intellectual
property.
 
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
 
     Total revenues increased  26% to  $12,584,836 in 1995  from $10,012,080  in
1994  and the Company had net income  of $63,187 compared to $1,549,871 in 1994.
The decrease in net income for 1995 was primarily due to acceleration of efforts
and expenses associated with  both research and  development, and marketing  and
sales of the Blackbird Products.
 
                                       22
 

<PAGE>
 

<PAGE>
     License and service fees were derived primarily from the Company's Hotwatch
and  phone rental products. In addition, the Company derived limited service fee
revenues from  a trial  related  to its  Blackbird  Products. Such  license  and
service  fees  increased 26%  to $10,944,788  in 1995  from $8,691,036  in 1994.
License and service revenues for  the Hotwatch Products are principally  derived
from agreements with the four customers described above.
 
     License  and  service  fees from  the  Hotwatch Products  increased  20% to
$9,490,000 in 1995 from $7,920,000 in  1994. License and service fees under  the
AWS  Agreements totaled $6,666,000  in 1995 and $5,066,000  in 1994. License and
service fees under  the LIN/ACC  Agreement continued their  expected decline  as
they decreased 24% to $1,473,000 in 1995 from $1,947,000 in 1994. Other Hotwatch
license  and  service fees  increased 49%  to $1,351,000  from $907,000  in 1994
principally as a  result of 1995  license and service  fees associated with  the
Company's agreements with 360[d] CC.
 
     License and service fees from the Company's phone rental products increased
11%  to $1,017,000 in 1995 from $917,000 in 1994. The increased revenues in 1995
resulted principally from fees received for a source code license and for  early
termination  of the  Company's agreement with  its largest  phone rental product
customer.
 
     Equipment sales, which primarily  consist of the  sale of computer  systems
(which   are  generally  non-recurring)  and  various  peripheral  and  hardware
components, increased 12% to $1,164,536 from $1,040,863 in 1994. Revenues during
1995 were primarily derived from equipment sales associated with the AWS, 360[d]
CC and Ameritech agreements.
 
     Interest income increased 70%  to $475,512 in 1995  from $280,181 in  1994,
and  is attributable to higher average  cash balances invested at higher average
interest rates during 1995 as compared to 1994.
 
     Cost of license  and service  fees included  (i) the  customer service  and
engineering  support costs that are directly associated with supporting software
license and service fee revenues, (ii) the amortization of software  development
costs,  and (iii) the costs associated with the design and development of custom
programming and related services. Cost of license and service fees increased 27%
to $3,330,801 in  1995 from  $2,619,435 in  1994. The  increase was  principally
attributable  to (i) a 79% increase to $984,977 in 1995 from $550,257 in 1994 in
amortization of  software development  costs substantially  attributable to  the
release  of the first  phase of the  Blackbird Products in  1995 for which there
were no license revenues received, and (ii) a 25% increase to $1,793,000 in 1995
from $1,434,000 in  1994 for personnel  and overhead related  costs incurred  in
supporting new customers and installed products. A 13% decrease to $553,000 from
$635,000  of  design and  development costs  related primarily  to the  AWS Axys
service revenues partially offset these increases.
 
     Cost of equipment sales increased 34% to $1,485,952 in 1995 from $1,112,254
in 1994.  Cost  of  equipment  sales,  which  includes  purchased  hardware  and
allocated  engineering  and installation  costs,  has historically  exceeded the
related revenues from equipment sales. The cost to sales ratio increased to 128%
in 1995 from 107% in 1994.  The negative margins were primarily attributable  to
fixed  engineering and installation overhead costs  that were not recovered from
equipment sales, and, in 1995, include costs associated with installing hardware
components of the  Blackbird Products which  had been deployed  for testing  and
evaluation in several markets and for which no revenues were recorded.
 
     Sales  and marketing  expenses increased  171% to  $2,141,853 in  1995 from
$789,578 in 1994 as a result  of increased personnel and related costs  incurred
in  connection with the  Company's expansion efforts to  generate demand for the
Company's products  and,  to  a  lesser  extent,  sales  incentive  compensation
attributable to certain contracts.
 
     General and administrative expenses decreased 7% to $2,115,991 in 1995 from
$2,269,170  in 1994. This decrease was primarily the result of 1994 expenditures
associated  with  hiring  and  relocation  of  the  Company's  President,   1994
management  incentive bonuses that  were non-recurring during  1995, and reduced
management fees  paid  to Nationwide  under  the four-year  management  services
agreement between the Company and Nationwide that expired in August 1995.
 
     Research  and development costs  increased 107% to  $3,445,052 in 1995 from
$1,661,772 in 1994. Software development costs of $1,725,890 and $1,724,722 were
capitalized during 1995  and 1994,  respectively, and related  primarily to  the
development  of the Blackbird Products in both  years and to development in 1994
of the Accountlink'tm' product ('Accountlink')  which provides a pre-paid  based
 
                                       23
 

<PAGE>
 

<PAGE>
solution  for real-time credit limit monitoring.  In addition, costs of $553,000
and $635,000 related primarily to design and development services under the  AWS
Agreements  were expensed in 1995 and  1994, respectively, as costs of services.
Including the  $1,725,890  of capitalized  software  development costs  and  the
$553,000 of contract design and development services costs, the Company incurred
gross  research  and  development  expenditures  of  $5,724,000  in  1995  which
represents a 42% increase over 1994.  This increase was primarily the result  of
additional expenditures for personnel related costs, outside consulting services
and prototype hardware expenditures for development of the Blackbird Products.
 
     The $2,000 provision for income taxes in 1995 reflected partial utilization
of  the  Company's net  operating  loss carry  forward  while providing  for the
Company's estimate of alternative minimum taxes.
 
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
 
     Total revenues increased 90% to $10,012,080 in 1994 from $5,267,685 in 1993
and the  Company  had net  income  of $1,549,871,  compared  to a  net  loss  of
$1,206,335  in 1993. The  signing of the  AWS Agreements, and  the 360[d] CC and
Ameritech agreements during 1994 contributed  greatly to the improved  financial
performance.
 
     License and service fees were derived primarily from the Hotwatch Products.
Such  license  and  service  fees  increased 152%  to  $7,920,000  in  1994 from
$3,142,000 in 1993. License  and service fees under  the AWS Agreements  totaled
$5,066,000  in  1994.  License  and service  fees  under  the  LIN/ACC Agreement
decreased 31% to $1,947,000 in 1994 from  $2,842,000 in 1993 as a result of  the
renegotiation  of the contract in 1993 and  1994 and cancellation of licenses in
the LIN New  York market  effective July 31,  1994. Other  Hotwatch license  and
service fees increased to $907,000 from $300,000 in 1993 principally as a result
of  1994 license and  service fees associated  with the Ameritech  and 360[d] CC
contracts.
 
     License and service fees from the Company's phone rental products increased
21% to $917,000 in  1994 from $758,000  in 1993 primarily  due to the  continued
deployment  of the  Company's in-car  rental products  to the  rental car agency
market.
 
     Equipment sales  decreased 14%  to $1,040,863  in 1994  from $1,215,738  in
1993.  The  decrease was  primarily due  to reduced  shipments of  the Company's
in-car credit card  phone modules that  were deployed in  the rental car  agency
market.
 
     Interest  income increased 59%  to $280,181 in 1994  from $176,594 in 1993,
and was attributable to higher average cash balances invested at higher  average
interest rates during 1994 as compared to 1993.
 
     Cost  of license and service fees increased  66% to $2,619,435 in 1994 from
$1,574,521 in  1993. The  increase  was principally  attributed  to; (i)  a  41%
increase  to  $1,434,000  in 1994  from  $1,018,000  in 1993  for  personnel and
overhead related costs  incurred in  supporting new customers  and products  and
(ii)  $635,000 of 1994 design and development costs associated with the AWS Axys
service revenues.
 
     Cost of equipment sales decreased 16% to $1,112,254 in 1994 from $1,329,276
in 1993 commensurate with the  equipment sales decline. The cost-to-sales  ratio
decreased to 107% in 1994 from 109% in 1993. The improvement was attributable to
improved  pricing  practices  and  balancing of  the  Company's  engineering and
installation resources.
 
     Sales and marketing expenses increased 7% to $789,578 in 1994 from $738,068
in 1993.  The  increase was  attributed  to  variable expenses  related  to  the
increased  sales in 1994 and to the  Company's expansion efforts to generate and
meet market demand for the purchase and licensing of the Company's products.
 
     General and administrative  expenses increased  45% to  $2,269,170 in  1994
from  $1,563,794  in  1993. This  increase  was  primarily the  result  of costs
associated with the  hiring, relocation  and compensation of  the Company's  new
President,  management  incentive  bonuses and  to  a lesser  degree,  legal and
accounting costs associated  with purchase and  license agreements with  several
cellular carriers.
 
     Research  and development  costs increased 31%  to $1,661,772  in 1994 from
$1,268,361 in 1993. Software development  costs of $1,724,722 and $750,277  were
capitalized  during 1994  and 1993,  respectively, and  relate primarily  to the
development of the Blackbird Platform, PreTect and
 
                                       24
 

<PAGE>
 

<PAGE>
Accountlink products  in 1994  and the  enhancement of  its Hotwatch  and  phone
rental  products in 1993. In  addition, costs of $635,000  related to design and
development services under the AWS Billing  Agreements were expensed in 1994  as
costs  of services. Including the $1,724,722 of capitalized software development
costs and the $635,000  of contract services costs,  the Company incurred  gross
research  and development expenditures of $4,021,000  in 1994 which represents a
99% increase over 1993. This increase is principally attributable to  additional
expenditures  for personnel  related costs  and outside  consulting services for
development of the Blackbird  and Accountlink products  and the recurring  costs
associated with the AWS Axys project.
 
     The   $10,000  provision  for  income   taxes  in  1994  reflected  partial
utilization of the Company's net operating loss carryforward while providing for
the Company's estimate of alternative minimum taxes.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's capital  requirements have consisted  primarily of  financing
software  development, property and equipment  requirements, working capital and
funding the  Company's operating  losses. The  Company has  historically  funded
these  capital  requirements through  the  issuance of  Common  Stock (including
proceeds from the exercise of warrants  and options) and from operating  profits
generated  in certain periods. On March 31, 1996, the Company's cash balance was
$5,720,399 as compared  to $9,448,255 on  December 31, 1995,  and $9,041,985  at
December  31, 1994.  The Company's  working capital  decreased to  $8,839,554 at
March 31, 1996,  from $11,093,831  at December  31, 1995,  which represented  an
increase from $9,783,021 at December 31, 1994.
 
     Cash  used by  operating activities  amounted to  $3,513,515 for  the three
months ended March 31, 1996, as compared to $1,010,710 during the same period in
1995. This increased utilization of cash reflects the loss for the three  months
ended  March 31, 1996, as compared to a profit in the corresponding 1995 period,
with the  1996 results  being  partially offset  by increased  depreciation  and
amortization   and  the  changes  in  the   balances  of  operating  assets  and
liabilities. Cash  provided by  operating activities  amounted to  $753,379  and
$3,213,257 in 1995 and 1994, respectively, as compared to cash used by operating
activities  in the amount of $866,674 during 1993. The improved cash flow during
the 1995  and  1994  periods  was  primarily  attributable  to  having  achieved
profitability,  as compared to  a net loss  during 1993, the  positive impact of
depreciation and  amortization, and  to  changes in  the balances  of  operating
assets  and  liabilities.  The  Company continues  to  increase  its proprietary
Blackbird hardware  inventory to  meet anticipated  sales demand  for  Blackbird
Products  during  1996. Additional  inventory at  March 31,  1996, in  an amount
exceeding $2,000,000, was  on order and  was expected to  be funded by  customer
payments  under  existing and  future contracts,  cash generated  from operating
activities and/or from cash balances. At March 31, 1996, approximately  $600,000
in  deposits was prepaid to  vendors by the Company  for these inventory orders.
The Company  does  not currently  expect  its operating  activities  to  provide
consistent positive cash flow on a quarter-to-quarter basis as long sales cycles
and staggered sales contract payments cause uneven cash flow streams.
 
     Cash  utilized  by  investing activities  totaled  $579,057  and $1,011,061
during the three months ended March 31, 1996, and March 31, 1995,  respectively.
Investing  activities utilized $3,291,362, $2,452,412  and $1,189,772 during the
years ended  December  31, 1995,  1994  and 1993,  respectively.  The  Company's
capital   requirements  during  such  periods  were  (i)  software  development,
particularly with  respect  to the  Blackbird  Products and  (ii)  property  and
equipment,  primarily for  furniture, leaseholds, and  equipment associated with
expanding the  Company's  business. These  expenditure  levels are  expected  to
continue  in 1996 at or above the levels of 1995. At March 31, 1996, the Company
had no significant commitments for capital expenditures. The Company, as part of
its growth  strategy, would  consider the  cost/benefit of  purchasing  software
technology in the event that an attractive opportunity arises.
 
     During  the three months  ended March 31,  1996 and 1995,  cash provided by
financing activities was generated from the exercise of stock options issued  to
the  Company's directors, officers and employees. Proceeds from these activities
totaled $364,716 and  $268,399 for  the three months  ended March  31, 1996  and
1995, respectively. Cash provided by financing activities was generated from the
exercise  of stock options by Nationwide in 1995 and by the Company's directors,
officers and employees in  the three years ended  December 31, 1995, and  during
1994 and 1993, from the exercise of Common Stock
 
                                       25
 

<PAGE>
 

<PAGE>
Warrants  issued in  connection with  the Company's  initial public  offering in
1991. Proceeds from these activities totaled $2,944,253, $3,123,599 and $768,716
during 1995, 1994 and 1993, respectively.
 
     Prior to  September 14,  1995,  Nationwide owned  6,680,000 shares  of  the
Company's Common Stock and was the holder of an option to purchase an additional
1,280,000  shares. On September 14, 1995, in connection with its merger with MCI
Communications Corp.,  Nationwide  exercised  its  option  and  distributed  the
combined  total of  7,960,000 shares  to its  stockholders. As  a result  of the
exercise of the  option, the  Company received $1,600,000  and issued  1,280,000
shares  of  Common  Stock.  The  majority  of  the  cash  provided  by financing
activities in 1994 resulted from the exercise  in March 1994 of 287,437 Class  A
Warrants  from  which  the  Company received  $2,122,611,  net  of  expenses, in
exchange for 1,149,748 shares of Common Stock. All of the Company's warrants had
been exercised or had expired by the end of 1994.
 
     The Company expects to continue to incur substantial expenses in support of
research  and  development  activities,  growth  of  its  sales  and   marketing
organization,  support for  new products  and the  anticipated expanded customer
base,  enhancing   the  hardware   design   and  manufacturing   processes   and
administrative  activities. Although the Company believes that the proceeds from
this offering  together  with existing  cash  will  be sufficient  to  fund  its
operations  for at least the next 12 months,  there can be no assurance that the
Company will not require additional financing within such period. The  Company's
capital  requirements may vary materially from  those planned because of results
of research and  development, changes in  focus and direction  of the  Company's
research  and  development  programs,  competitive  and  technological advances,
changes in the Company's marketing and distribution strategy, and other factors.
There can  be no  assurance  that additional  financing,  if required,  will  be
available on satisfactory terms, if at all.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
     A  number of  statements contained  in this  Prospectus are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve  risks and uncertainties  that could cause  actual results  to
differ  materially from those expressed or implied in the applicable statements.
These risks and  uncertainties include  but are  not limited  to: the  Company's
dependence  on the  cellular communications  market; its  vulnerability to rapid
industry change  and  technological  obsolescence; the  limited  nature  of  its
product  life, and  the uncertainty  of market  acceptance of  its products; the
unproven status  of its  products in  widespread commercial  use, including  the
risks  that its  current and  future products may  contain errors  that would be
difficult and costly to detect  and correct and that technological  difficulties
may  in general  hinder or prevent  commercialization of its  present and future
products;  potential  manufacturing  difficulties;  potential  difficulties   in
managing  growth; dependence  on key  personnel; the  Company's limited customer
base and reliance on a relatively small number of customers; the possible impact
of competitive products and pricing; the uncertain level of actual purchases  of
its  products by  current and  prospective customers  under existing  and future
agreements; uncertainties in the Company's ability to implement these agreements
sufficiently to permit  it to  recognize revenue under  its accounting  policies
(including  its ability to  meet product performance  criteria contained in such
contracts); uncertainties  with  respect  to the  Company's  business  strategy;
general  economic conditions; and other risks  described in this Prospectus. See
'Risk Factors.'
 
                                       26


<PAGE>
 

<PAGE>

 
                                   BUSINESS
 
     The  Company's  mission is  to  be the  premier  developer and  provider of
real-time information  processing and  information  management systems  for  the
wireless  communications  industry in  the  United States  and  in international
markets. The Company designs  and engineers software  and hardware products  for
sale  to wireless communications industry  to provide user/device authentication
(for cloning  fraud prevention)  and  to provide  service metering  (for  credit
management  and prepaid billing).  Although the Company's  products and services
currently are used exclusively by  cellular carriers, the Company believes  they
may be generally adaptable to other wireless communications systems.
 
     User/device  authentication primarily involves  various forms of 'pre-call'
verification to ensure that the use of a wireless communications device (e.g., a
cellular telephone) is legitimate before the  device is allowed to connect to  a
wireless  network.  The  Company's Blackbird  Platform  provides  the underlying
technology for pre-call application products.  The first application product  on
the  Blackbird  Platform, PreTect,  is designed  to proactively  prevent cloning
fraud. The Cellular Telecommunications  Industry Association has estimated  that
in  1995 cloning fraud has  resulted in costs and  lost revenues to the cellular
industry of an amount in  excess of $650 million.  The Company believes that  in
1996  cloning fraud will  result in an  increased amount of  such costs and lost
revenues.
 
     Service metering  primarily involves  the collection  of various  forms  of
'post-call'  information (within  minutes after the  end of the  call) to ensure
that a wireless communications carriers' subscriber has proper account status to
make additional calls. The Company's  Hotwatch Platform provides the  underlying
technology for Hotwatch Products. See ' -- The Hotwatch Platform.'
 
     The   Blackbird  and  Hotwatch  Platforms,   each  based  on  open  systems
architecture, are  designed  to  allow  a broad  range  of  interconnection  and
data-sharing  possibilities  between  various geographic  markets  and different
wireless communications carriers.
 
     The Company's  primary  activities are  currently  focused on  the  further
development,  marketing and deployment of the Blackbird Platform and the PreTect
fraud prevention application product and services. PreTect, which is transparent
to the subscriber, uses  patented signal processing commonly  referred to as  RF
'fingerprinting'   technology  to  accurately   distinguish  between  legitimate
subscribers and counterfeit users before the call is connected. PreTect captures
information from the cellular telephone call at the cell site, before it  enters
the  carrier's system,  and compares  it to  valid fingerprints  and data.  If a
proper match is not made, PreTect  can then automatically prevent connection  of
the  call. The  Company also  provides a  seamless Real-Time  Roaming Protection
Service between markets  which use  the Blackbird Platform  and PreTect.  During
1996,  the  Company  entered into  agreements  with  AirTouch and  BANM  for the
provision of the Blackbird Products for use in over 1,000 cell sites subject  to
the products' compliance with certain requirements. The Company believes that as
of  the  end  of  1995  there  were  approximately  23,000  domestic  and 10,000
international  cell  sites  to  which  the  Company's  Blackbird  Products   are
adaptable.  The  Company  also  believes  that  there  are  approximately 14,000
additional international cell  sites to which  the Company's Blackbird  Products
may be adaptable.
 
     During  the last ten years, wireless communications service has been one of
the fastest growing  segments of the  telecommunications industry. The  Cellular
Telecommunications  Industry  Association  has  estimated  that  the  number  of
cellular subscribers in the United  States increased from approximately  340,000
subscribers in December 1985 to approximately 34 million subscribers in December
1995.  The  Company believes  the worldwide  wireless communications  market may
exceed 100 million subscribers in  1996. The Company expects significant  growth
in  wireless communications in the United States  to continue as a result of the
increased demand for cellular service and the emergence of PCS as a new form  of
wireless  communications service and that significant  growth will also occur in
international markets. The  Company believes that  significant growth will  also
occur  in  international markets.  In addition,  the  Company believes  that the
number of Cellular  and PCS subscribers  may grow  to 80 million  in the  United
States  and  more than  300  million worldwide  in  the year  2001.  The Company
believes that  the demand  for its  products and  services may  increase as  the
Company  adapts its  products and  creates new  products to  service an expanded
wireless communications industry.
 
                                       27
 

<PAGE>
 

<PAGE>
BUSINESS STRATEGY
 
DEPLOYMENT OF BLACKBIRD
 
     The Company's immediate  strategy is to  achieve commercial acceptance  and
significant  market penetration of  the Blackbird Platform.  To accomplish this,
the Company plans to expand its  domestic and international sales and  marketing
efforts.  After it has achieved an installed base of the Blackbird Platform, the
Company believes  that  it will  be  able  to leverage  its  relationships  with
carriers  and  its position  at  the carriers'  cell  sites to  offer additional
products and services. The Company plans to expand its research and  development
efforts  to  enhance  its existing  products  and  services and  to  develop new
value-added products for the Blackbird Platform which can be sold in  connection
with PreTect or on a stand-alone basis.
 
LEVERAGE CORE COMPETENCIES
 

     Through  the  development  and  deployment of  the  Blackbird  and Hotwatch
Platforms, the  Company has  developed several  core competencies.  The  Company
believes that these core competencies may facilitate its development of products
and  services which complement  its platforms and  add value to  its current and
potential customer base.

 

          Ability to  interface  with carriers'  cell  sites and  switches.  The
          Company's  proprietary  software  and  hardware  products  collect and
          utilize information resident at the carrier's cell site and/or switch.
          This expertise may facilitate the  development of future products  and
          services in both an analog and digital environment.

 
          Real-time database expertise. The Company has developed the ability to
          optimize   database  performance   which  enables   systems  to  reach
          transaction decisions in very short time frames. For example,  PreTect
          can  determine whether or not to connect a call within five seconds of
          call origination.
 
          Real-time rating expertise. The Company  has developed the ability  to
          combine  streams  of  telephone  billing  information,  such  as  toll
          charges,  discounts  and  promotions,  surcharges,  etc.  to  mimic  a
          carrier's  billing system on  a real-time basis,  within minutes after
          the end  of the  call, rather  than  in a  batch process  for  monthly
          customer  billing.  This  currently allows  the  Company  to determine
          account authorization for future telephone calls. The Company believes
          this expertise  may  be  applicable  to  other  systems  that  involve
          real-time charges.
 
          Transaction   Control   Protocol   ('TCP')/Internet   Protocol  ('IP')
          expertise. The Company  believes it  can apply the  experience it  has
          gained  in  its  existing  TCP/IP  networks  and  add  its  other core
          competencies,  such  as  real-time   rating  and  real-time   database
          expertise to other TCP/IP networking infrastructures.
 
          Ability  to interface with billing  systems. The Company has developed
          the ability to  interface with  the systems  infrastructures of  major
          billing  service companies in the wireless communications industry. As
          these companies expand their  customer base beyond telephone  carriers
          the  Company  believes  it  can apply  its  knowledge  to  provide its
          value-added service metering  technologies to  this expanded  customer
          base.
 
GENERAL
 
     The FCC regulates the wireless communications industry in the United States
and  is  responsible  for granting  the  licenses required  to  operate wireless
communications systems. The FCC has divided  the United States into a number  of
service  (license)  areas.  Wireless  communications  services,  each  of  which
utilizes a different portion of the radio spectrum, are expected to be dominated
by cellular  services and  PCS and,  to a  lesser extent,  enhanced  specialized
mobile  radio ('ESMR'). The introduction of PCS  and digital ESMR is expected to
add new  service  providers  in  each  market  and  provide  added  competition,
increased  features and a greater number  of choices for wireless communications
subscribers.
 
     Currently, cellular service dominates  wireless communication services.  At
year  end 1995 there  were approximately 34 million  cellular subscribers in the
United States. The Company believes that over 95%
 
                                       28
 

<PAGE>
 

<PAGE>
of service currently  is provided in  an analog  mode but that  the industry  is
undertaking  a shift to digital mode in the major markets due to certain systems
advantages in the digital mode, including expanded capacity and greater privacy.
Cellular subscribers  are serviced  by  two carriers  in each  market  (commonly
referred  to as  'A Band'  and 'B  Band' carriers).  The markets  are defined as
Metropolitan Service Areas ('MSAs'), of which  there are 306, and Rural  Service
Areas  ('RSAs'), of  which there  are 428.  As a  result of  the current duopoly
structure, there are  612 MSAs  and 856 RSAs.  These cellular  systems serve  to
interconnect a cellular subscriber with standard land-line telephone service and
other  cellular subscribers. Service is available  on a nationwide basis and the
major providers, through adherence to industry standards, offer interoperability
to markets that they do not own. The 10 largest cellular carriers own or operate
180 of the largest 200 MSA markets.
 
     PCS systems are  digital-based wireless communications  systems which  will
initially   compete  directly  with  existing  cellular  telephone,  paging  and
specialized mobile radio services. The Company believes that PCS providers  will
be  the first direct wireless competitors to cellular providers and the first to
offer mass market all-digital mobile networks. In addition, PCS providers may be
the first to offer mass market wireless local loop applications, in  competition
with wired local communications services.
 
     To date, the FCC has completed three auctions of PCS licenses to the public
(Channel  block A, B and C). Service  resulting from these licenses will provide
the primary competition to cellular service. The service areas for PCS vary from
those of cellular. The PCS licenses  are based on Major Trading Areas  ('MTAs'),
of which there are 51, and Basic Trading Areas ('BTAs'), of which there are 493.
BTAs are a subset of MTAs and are wholly contained within the MTA boundaries. As
with   cellular,  ownership  of   the  PCS  licenses   is  concentrated.  Sprint
Telecommunications Venture, AT&T Wireless and  PCS PrimeCo (ultimately owned  by
AirTouch Communications, Inc., Bell Atlantic Corporation, NYNEX Corporation, and
US West, Inc.) account for 71 of the 102 Channel block A & B licenses.
 
     ESMR  service is  dominated by one  carrier, Nextel  Corporation, which the
Company believes  will be  focusing  its attention  on commercial,  rather  than
consumer, uses of wireless solutions.
 
OPERATION OF WIRELESS COMMUNICATIONS SYSTEMS
 
     Wireless  communications system service areas, whether cellular or PCS, are
divided into  multiple cells.  Due to  the frequencies  in which  they  operate,
cellular  cells generally cover  a wider transmission radius  than PCS cells. In
both cellular and PCS systems, each cell contains a transmitter, a receiver  and
signaling  equipment located at a  cell site which is  connected by microwave or
landline telephone lines to a Mobile Switching Center ('MSC'), that controls the
operation of the cellular communications system for the entire service area. The
MSC controls the transfer of calls from cell to cell as a subscriber's telephone
travels, coordinates calls  to and  from telephones, allocates  calls among  the
cells  within  the system  and connects  calls to  the local  landline telephone
system or to a long distance telephone carrier. Wireless communications carriers
establish  interconnection   agreements  with   local  exchange   carriers   and
interexchange  carriers,  thereby  integrating their  system  with  the existing
landline communications system.
 
     Because the signal strength of a transmission between a handset and a  cell
site  declines as the telephone  moves away from the cell  site, the MSC and the
cell site monitor  the signal  strength of calls  in progress.  When the  signal
strength of a call declines to a predetermined level, the MSC may 'hand off' the
call  to another cell site where the signal strength is stronger. If a telephone
leaves the service area of  a cellular or PCS  system, the call is  disconnected
unless there is a technical connection with the adjacent system.
 
     A  major  component  of any  wireless  system is  the  switching equipment,
commonly known as a 'Switch', located in the carrier's MSC. The Switch, which is
owned and/or operated  by the  carrier, manages  the provision  of service,  the
interconnection  of subscribers'  telephones with the  public telephone network,
and the  hand-off from  cell  site to  cell site  within  a system.  The  Switch
maintains  a database of the carrier's subscriber information, such as phone and
electronic serial  numbers, and  call  option features.  The Switch  tracks  the
progress  of calls made to or from  such subscribers and records call detail for
billing purposes.
 
                                       29
 

<PAGE>
 

<PAGE>
     Analog cellular handsets are functionally compatible with cellular  systems
in  the  United States,  Canada and  certain other  international markets.  As a
result, analog cellular handsets may be  used wherever a subscriber is  located,
as  long  as a  cellular  system is  operational  in the  area.  Cellular system
operators normally agree to provide  service to subscribers from other  cellular
markets  commonly known as  roamers who are temporarily  located in or traveling
through their service areas. Agreements among system operators provide that  the
carrier  that  normally provides  services to  the  roaming subscriber  pays the
serving carrier at rates prescribed by the serving carrier.
 
     While analog and digital cellular  systems and PCS digital systems  utilize
similar   conceptual  technologies  and  hardware,  they  operate  on  different
frequencies and use different technical and  network standards. As a result,  it
initially  will not be possible for users of  one type of digital system to roam
seamlessly across the United States as an analog cellular subscriber does today.
 
     PCS systems are expected  to operate under one  of three principal  digital
signal  transmission  technologies, or  standards,  that have  been  proposed by
various vendors for use in PCS  systems: Global System for Mobile ('GSM'),  Code
Division  Multiple Access  ('CDMA') or  Time Division  Multiple Access ('TDMA').
Digital cellular and PCS systems are  expected to operate under either the  TDMA
or  CDMA standards. GSM  and TDMA are both  'time division-based' standards that
are not currently  compatible with each  other and are  incompatible with  CDMA.
Therefore,  for example, a  subscriber of a system  that utilizes GSM technology
will be unable  to use a  GSM handset when  traveling in an  area not served  by
GSM-based  operators,  unless the  subscriber carries  a dual-mode  handset that
permits the subscriber to  default to the analog  cellular system in that  area.
Such  dual-mode handsets  are not yet  widely commercially available  and may be
larger and more expensive than  single-mode handsets. The Company believes  that
cellular  carriers will maintain an underlying analog network after they convert
their systems to a digital mode thereby allowing, for an unknown period of time,
a continued use of analog cellular telephones.
 
     GSM is the most  prevalent digital wireless technology  in the world,  with
approximately  120 systems  operating in  92 countries  serving over  13 million
subscribers. GSM-based systems  also offer features  and services not  currently
offered by cellular systems.
 
     The  TDMA-based  PCS standard  is a  higher frequency  version of  the time
division-based digital cellular  standard currently in  limited use by  cellular
operators in the United States.
 
     The  CDMA standard is expected to be the most widely adopted PCS technology
in the United States. CDMA-based systems are expected to require more cell sites
and offer greater capacity, call  quality and hand-off advantages than  cellular
systems.  CDMA-based  PCS  systems  are expected  initially  to  offer  the same
features and services offered by CDMA-based cellular systems.
 
SYSTEM DESIGN AND ARCHITECTURE
 
SYSTEM SOFTWARE
 
     The Company's products  incorporate a modular  software design and  utilize
the UNIX operating system, which provides customers with significant flexibility
in  their choice of computer equipment. The widely-used UNIX operating system is
especially suited  to multi-user  environments and  has essentially  become  the
standard  in  a number  of  important data  processing  environments, especially
telecommunications. In  addition, the  Company  utilizes database  and  advanced
language  technology  which  allows  for flexibility  in  platform  and database
portability, particularly as the underlying computer infrastructure continues to
evolve.
 
SYSTEM HARDWARE
 
     The Company's products  incorporate industry  standard hardware,  utilizing
the  UNIX operating  system, for the  central system  and application processing
functions for both the Hotwatch  and Blackbird Platforms. The Interactive  Voice
Response  hardware incorporated  in certain Hotwatch  products contains industry
standard components, which  the Company  integrates at  its Seattle  facilities.
While  the cell  site processors  deployed with  the Blackbird  Platform contain
industry  standard  computer  components,  the  Company  designs  and  contracts
manufacturing   for  certain  proprietary  printed   circuit  boards  and  other
subassemblies. The standard components and custom manufactured subassemblies are
then integrated  by the  Company  and its  subcontractors  for delivery  to  the
Company's customers.
 
                                       30
 

<PAGE>
 

<PAGE>
THE BLACKBIRD PLATFORM
 
     The  Blackbird Platform was designed  as a strong underlying infrastructure
from which to launch PreTect, as well as future applications and services  under
development.  The Blackbird Platform  provides technological solutions utilizing
various forms of  'pre-call' verification  data. PreTect  utilizes RF  signature
analysis  to detect and automatically interdict unauthorized devices before they
are able  to make  a  call on  the wireless  network.  This product  captures  a
cellular   telephone's   unique  electronic   signal  characteristics   (the  RF
fingerprint) and verifies this information against subscriber information stored
in its database. The Company is in the early stages of commercial deployment  of
the Blackbird Platform.
 
PRETECT
 
     The  Blackbird Platform, combined with  PreTect, is designed to proactively
prevent 'cloning' fraud  both within a  carrier's home market  and in a  roaming
situation  when  used  in  both  the  roaming  and  home  markets.  The Cellular
Telecommunications Industry Association has estimated that in 1995 cloning fraud
has resulted in costs and lost revenues to the cellular industry of an amount in
excess of $650  million. The Company  believes that in  1996 cloning fraud  will
result  in an increased amount of such costs and lost revenues. PreTect utilizes
the information captured  by the  Blackbird Platform,  in parallel  with a  call
being  connected to the carrier's switch, to determine if a call originates from
a  legitimate  subscriber's   telephone  or  from   a  telephone  whose   number
identification  has  been  cloned. If  PreTect  determines  that a  call  is not
legitimate, the system is capable of  terminating the call before connection  is
completed.  PreTect  enables  proactive pre-call  fraud  prevention  rather than
post-call fraud  detection.  The  Company  believes  that  such  pre-call  fraud
prevention  is a major technological step forward for the industry. In 1995, the
Blackbird Products were tested  in four domestic  markets and one  international
market.  In  March  1996, the  Company  consummated its  first  commercial sales
agreement with AirTouch and  an interim system  deployment agreement with  BANM.
Enhancement  of the Blackbird  Products is expected to  continue during 1996 and
beyond. Additionally,  the Company  is  actively developing  other  applications
utilizing the pre-call data that is collected by the Blackbird Platform.
 
REAL-TIME ROAMING FRAUD PREVENTION SERVICE
 
     The Company offers existing customers of the Blackbird Platform and PreTect
its Real-Time Roaming Fraud Prevention Service. The underlying technology of the
Blackbird  Platform  is utilized  to  effectively prevent  roaming-based cloning
fraud in  real-time  between  markets  using both  the  Blackbird  Platform  and
PreTect.  The  Company  believes  this  is  the  industry's  first  commercially
available real-time RF based roaming fraud prevention solution.
 
THE HOTWATCH PLATFORM
 
     The Hotwatch  Platform provides  technological solutions  primarily in  the
'service   metering'  area,   which  involves   various  forms   of  'post-call'
verification to  ensure that  a wireless  communications subscriber  has  proper
account  status  to make  additional calls.  The  applications that  the Company
currently offers in this  area are Accountlink,  which provides a  prepaid-based
solution   for   real-time   credit   limit   monitoring,   and   Accountvue'tm'
('Accountvue'), which provides  a solution for  real-time usage metering.  These
real-time 'post-call' products support call data acquisition and rating features
for  the purpose of 'service metering.'  Real-time 'rating' means the ability to
calculate, on  a real-time  basis,  local and  long  distance toll  charges  and
cellular air time charges for each call made on a cellular telephone system. The
Company's  real-time rating supports multiple  long distance rating and multiple
airtime price plans. The  Company believes that  real-time data acquisition  and
rating  on a call  by call basis  will enable carriers  and resellers to improve
cash flow,  more  effectively  manage  their  credit,  collection,  and  billing
functions,  and  increase  their subscriber  base  by allowing  them  to provide
service to certain subscribers who might otherwise be deemed unacceptable credit
risks.
 
     The Hotwatch Platform runs on a multi-tasking computer system, which,  when
connected   to  the  Company's  proprietary   switch  interfaces,  collects  all
subscriber (or call) data for each call made or received from the switch  within
minutes  of its recordation. As soon as  the call data is acquired, the Hotwatch
Platform rates the airtime and toll  component of the call and distributes  such
real-time  information  for  use to  the  Hotwatch Products.  In  addition, such
information is also stored for data
 
                                       31
 

<PAGE>
 

<PAGE>
retrieval purposes and can be used to distribute information to cellular carrier
or third party applications.
 
     In connection  with  the  Hotwatch  Platform,  the  Company  has  developed
real-time   interfaces  for  most  major   cellular  switches,  including  those
manufactured by  Lucent  Technologies,  Inc.  (formerly  a  division  of  AT&T),
Ericsson  Radio Systems,  Inc., Motorola, Inc.,  and Northern  Telecom, Inc. The
Company's software applications  employ a  distributed, high-speed,  intelligent
networking  approach  which serves  to enable  interconnection, on  a nationwide
basis,  of  all   Hotwatch  Platforms,  thereby   making  possible  the   direct
system-to-system  communication  utilized by  several  of the  Company's current
software application products.
 
MAJOR CUSTOMER AGREEMENTS
 
AIRTOUCH CELLULAR AGREEMENT
 
     In March 1996, the  Company signed an agreement  with AirTouch under  which
the  Company will be the exclusive provider of cellular fraud prevention systems
using RF technology to AirTouch and its affiliates. AirTouch's cellular licenses
include both 'A Band' and 'B Band' markets. The Company and AirTouch have  begun
installation  of the Company's Blackbird Products in AirTouch's Atlanta (A Band)
and Los Angeles (B Band) markets. In  addition, AirTouch's New Par and Bay  Area
Cellular  Telephone  Company  affiliates  have agreed  to  deploy  the Blackbird
Products in certain of their markets, including their Detroit and San  Francisco
A  Band markets, respectively. The exclusive five year contract, which calls for
the purchase of the Company's products  in at least 1,000 cell sites,  schedules
minimum  deployment in  the majority  of the  cell sites  during 1996  and 1997,
subject to  the Blackbird  Products' compliance  with contractual  requirements.
Concurrently, contracts were signed for support and maintenance services and the
Real-Time Roaming Fraud Prevention Service.
 
BANM AGREEMENT
 
     In  March 1996,  the Company signed  an interim agreement  with BANM, which
holds cellular  licenses for  both 'A  Band'  and 'B  Band' markets.  Under  the
interim  agreement, the Company  and BANM are  currently deploying the Blackbird
Products in BANM's  New York  (B Band)  market. Concurrently,  both parties  are
negotiating  a definitive license agreement  which will ultimately determine the
size and  scope  of what  the  Company believes  will  be a  greater  deployment
providing for installation of the Company's products in a large number of BANM's
cell  sites,  and  also  including  provisions  for  the  Company's  support and
maintenance services and the Real-Time Roaming Fraud Prevention Service.
 
GTE MOBILNET LETTER OF INTENT
 
     In June 1996, the Company  signed a Letter of  Intent with GTE Mobilnet  of
California,  L.P. ('GTE') to deploy at least 150 units of the Blackbird Platform
and PreTect in  GTE's San Francisco  market. The Company  and GTE are  currently
negotiating  a definitive agreement and expect deployment of such units to begin
in the second half of 1996.
 
AWS AXYS AGREEMENTS
 
     In August 1994, the Company entered into two agreements with AWS  (formerly
McCaw  Cellular Communications, Inc. ('McCaw'))  (the 'Axys Agreements') for the
design and  support of  the  AWS real-time  information management  system  Axys
Version  3.0 ('Axys  3.0'). The  Axys Agreements  consist of  a software license
('SWL') and a five year technical  services agreement ('TSA'). The SWL  provided
AWS  with a nonexclusive worldwide perpetual license for the Company's real-time
post-call data collection platform, and the rating, credit monitoring and credit
card billing  application  functions  of  that  platform.  The  Company's  fraud
prevention  products were not included  in the SWL. Under  the terms of the TSA,
the Company receives  hourly compensation  for the  development, deployment  and
servicing of the Axys 3.0 products. The two parties also signed an agreement for
the  license  and  marketing of  derivatives  of  Axys 3.0  products  (the 'MA')
granting  the  Company   marketing  and  other   rights  for  certain   software
applications  derived from Axys 3.0.  The MA and the  SWL provide for additional
potential revenue  for the  Company based  upon sales  of Axys  3.0 and  related
software  products made by either the Company or AWS to third parties as well as
to additional future AWS markets.
 
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<PAGE>
     Initially, the Company  estimated that  revenues from  the Axys  Agreements
could  exceed $20  million, most  of which was  expected to  be realized through
1996, assuming AWS  deployed Axys in  three major installations  of its  current
markets  and certain affiliated  markets under the SWL  and utilized the maximum
number of  hours  under  the  TSA.  Through March  31,  1996,  the  Company  has
recognized  cumulative revenues totaling approximately $9.5 million from the SWL
and TSA agreements of  which approximately $4.9 million  were recorded in  1995.
Revenues  from  the SWL  and TSA  began in  the  third quarter  of 1994  and are
expected to continue through at least 1996 and possibly through 1999.  Following
the  AWS acquisition of McCaw in 1995,  AWS changed the scope of its development
and deployment of  Axys products,  including the  reduction of  its reliance  on
outside  vendors  and contractors.  As a  result, the  Company is  not currently
providing services under the TSA.
 
     The Company believes there could  be additional potential revenue from  the
sale  of Axys 3.0 products by the Company  and/or AWS under the SWL and/or MA to
future domestic and international markets  including acquired affiliates of  AWS
or  other third parties who implement the Axys system. The Company believes that
such revenues, if realized, would  most likely occur in  the latter half of  the
contract  terms through 1999. Total expected revenues under the SWL, TSA, and MA
agreements cannot  be determined  at  this time  but  the Company  expects  such
revenues to be less than originally anticipated.
 
AWS HOTWATCH PRODUCTS AGREEMENT
 
     In  November 1994, the  Company signed a  contract with AWS  to license its
Accountlink and Accountvue application products under the Hotwatch Platform  and
to  provide support services for those  products during the interim period while
Axys 3.0 is  being fully  developed and  deployed. Approximately  $2 million  in
revenues  was recorded in 1995  under the AWS Hotwatch  Products Agreement. As a
result of  a change  in its  business strategy,  AWS ceased  using the  Hotwatch
Products in June 1996.
 
360[D] CC AGREEMENTS
 
     In  November 1994, the Company  signed a contract with  360[d] CC to deploy
Hotwatch Products, throughout 360[d] CC's  U.S. markets. This contract  followed
an  agreement signed in  late 1993 to  install the Company's  products in 360[d]
CC's Las Vegas market. These contracts include software licenses, hardware sales
and support services covering a  system-wide roll-out that was completed  during
1995.  Recurring support services continue on  an annual renewal basis. Revenues
from these contracts in 1995 totaled approximately $1.8 million.
 
AMERITECH AGREEMENT
 
     In November  1994 the  Company signed  a contract  with Ameritech  for  the
Company's  Hotwatch  Platform  and  its  Accountvue  application  product.  This
contract included software  licenses, hardware  sales and  support services  and
resulted  in modest recurring revenue during 1995 and is also expected to result
in modest recurring support services revenue during 1996.
 
LIN/ACC AGREEMENTS
 
     The LIN/ACC  Agreement  originally  called  for  the  installation  of  the
Hotwatch  Products in four major markets owned or operated by LIN or LIN/ACC Los
Angeles, New  York,  Dallas  and  Houston. The  original  term  of  the  LIN/ACC
Agreement  expired  in July,  1993, was  renewed for  one year  and subsequently
renegotiated to continue  on a month-to-month  basis. During 1994,  the LIN  New
York  market completed the  replacement of the  Company's Hotwatch Products with
its own internally  developed products.  During 1995, the  Company licensed  its
Accountvue  product  to  the Houston  market  for  a one-time  license  fee plus
recurring support service fees  which license is renewable  on an annual  basis.
The   remaining  markets  covered  under  the   agreement  --  Los  Angeles  and
Dallas -- have continued to use certain of the Company's Hotwatch Products on  a
month-to-month  basis.  The  Dallas  market  is expected  to  cease  use  of the
Company's Hotwatch Products during  the third quarter of  1996, when AWS's  Axys
product is expected to be installed. The Company anticipates that revenues under
the  LIN/ACC  agreement will  continue  on a  month-to-month  basis for  the Los
Angeles market. Revenues  from the  LIN/ACC markets  totaled approximately  $1.5
million during 1995.
 
                                       33
 

<PAGE>
 

<PAGE>
REVENUE GENERATION
 
OVERVIEW AND SYSTEM REVENUES
 
     The  Company's  revenues  historically  have  been  derived  primarily from
initial license fees, fixed or variable monthly software license fees and, to  a
lesser  extent, non-recurring computer equipment sales for its Hotwatch Platform
and related products. For the  Blackbird Platform and related products,  initial
revenues  are  anticipated to  be categorized  as:  system revenues,  which will
primarily include software  and hardware products;  and service revenues,  which
will  primarily include roaming fraud prevention services, maintenance, software
subscription services, and system monitoring services.
 
     Revenue recognition  for  the  Company's  systems  is  based  upon  various
performance  criteria  and  varies  from customer  to  customer  and  product to
product. Physical  hardware  and software  delivery  and definitions  of  system
delivery  and customer acceptance are generally  the significant factors used in
determining revenue recognition. Maintenance and service revenues are recognized
ratably over the period of coverage and/or as services are performed.
 
     Computer equipment  sales for  the Hotwatch  Products, which  traditionally
have  been of a non-recurring  nature, are normally made  in connection with the
initial licensing  of  the Company's  software  products, or  the  upgrading  of
previously  installed systems.  The Company  consistently has  incurred negative
margins from computer equipment sales due to fixed engineering and  installation
overhead   costs  that  have  not  been   recovered  from  equipment  sales  and
installation revenues. The Company does  not anticipate that computer  equipment
sales  will generate significant profits from Hotwatch Products equipment sales,
if any,  in  future  periods  after  applying  the  burden  of  engineering  and
installation  costs. Customers  may also  purchase their  own computer equipment
from third parties. The Company is now having proprietary hardware  manufactured
for  use in the Blackbird Platform and application products. Contracts for sales
of the  Blackbird Platform  and  its first  application product,  PreTect,  were
initially entered into in 1996 with hardware and software bundled as a part of a
complete system.
 
     During  the three years ended December 31,  1995 and the three months ended
March 31, 1996, five customers  or their affiliates accounted for  substantially
all  of the  Company's revenues.  Such customers are  ACC, LIN,  AWS, Sprint and
Shared Technologies  Cellular,  Inc. (which  acquired  PTC Cellular,  Inc.,  the
Company's  largest customer for  its former rental  phone products). The LIN/ACC
and AWS agreements are with entities that share common ownership in some of  the
markets  in  which the  Company's  products have  been  deployed. Each  of these
customers accounted for 10% or more of the Company's revenues during the quarter
ended March 31, 1996, or one or more of the three years ended December 31, 1995.
The high percentage of  revenues derived from a  limited number of customers  is
principally  attributable to the Company's  relatively small number of customers
during these  periods  and  the  fact  that  certain  of  these  customers  made
significant   non-recurring  purchases  of  computer  equipment.  The  Company's
targeted customer base is  limited due to the  concentrated nature of  ownership
and/or operational control of the most populated wireless communications markets
in  the  United States  and  limited to  a  lesser extent  in  the international
markets. The  Company expects  that certain  of its  cellular carrier  customers
operating in multiple cellular markets will continue to account for a relatively
high  percentage of the Company's total  revenues. Revenues originating from the
recent contract signings for  the Company's Blackbird  Products are expected  to
decrease the Company's reliance on the AWS and LIN/ACC Agreements.
 
RECURRING HARDWARE AND SOFTWARE SUPPORT SERVICES
 
     Hardware  maintenance, software maintenance, software subscription services
(new releases),  and  system  monitoring  are  the  primary  recurring  services
provided by the Company to its customers. Support personnel diagnose and resolve
problems, dispatch third party hardware vendors, forward enhancement requests to
the  Company's research and development staff,  and coordinate with customers on
upgrades. Software  troubleshooting,  maintenance, and  upgrades  are  conducted
either  via  the Company's  public data  network  or via  modem over  a standard
telephone line.  An  on-line  customer management  system  tracks  problems  and
resolutions.  Support  is  available 24  hours  per  day, seven  days  per week.
Research and development personnel assist in software support activities to  the
extent required.
 
                                       34
 

<PAGE>
 

<PAGE>
INSTALLATION
 
     Currently,  the  Company  arranges to  receive  certain  third-party vendor
system equipment at its facilities where it integrates its proprietary  software
with  such equipment and  performs preliminary testing prior  to shipment to the
customer. Typically, the Company, its  third-party vendors, and/or the  customer
jointly  perform  installation services,  with  each bearing  responsibility for
different aspects  of installation.  The installation  process, which  commences
upon  delivery of  the computer equipment  at the customer's  site, generally is
completed within 60  to 90  days following  execution of  a customer's  purchase
order.  The costs of installation may be separately charged or added into system
pricing.
 
TRAINING AND DOCUMENTATION.
 
     The Company's personnel provide system training on-site or at the Company's
facilities in Seattle. The training  program consists primarily of  presentation
materials,  hands-on exercises, and group  demonstrations. All of these training
costs are  factored  into  system  pricing.  Refresher  training  subsequent  to
completion  of  the  installation training  is  provided at  hourly  rates. User
manuals relating to the Company's  application software and other materials  and
documentation  produced by the Company are provided to training participants and
supervisory personnel.  Computer  equipment  documentation is  provided  by  the
computer equipment vendor.
 
CUSTOM PROGRAMMING
 
     The  Company  provides  custom  software  development  work  upon  customer
request. Customers are charged  hourly rates for such  services or may  contract
with the Company for fixed fees where appropriate.
 
PROFESSIONAL SUPPORT SERVICES
 
     The Company provides system project planning and implementation services in
connection  with sales of its systems and products. Customers are charged hourly
rates for such services or  may contract with the  Company for fixed fees  where
appropriate.
 
MARKETING
 
     To  date,  the  Company  has primarily  focused  its  marketing  efforts on
cellular carriers operating in the 50 most heavily populated MSAs.  Accordingly,
although  the Company has,  in the past, had  limited marketing capabilities and
resources, the  Company expanded  these efforts  in 1995  and will  continue  to
expand  these efforts  to further penetrate  significant wireless communications
markets, both domestic and international. The  Company has in the past  marketed
its  products directly to cellular carriers through proposals and presentations.
In 1995, the Company began marketing more aggressively at selected trade  shows,
conferences  and industry events. In addition, it began to selectively advertise
and use  direct  marketing.  The  Company also  meets  regularly  with  wireless
industry consultants to obtain leads and referrals. Achieving wide-spread market
acceptance  and penetration of the Company's  products will require, in addition
to enhancing and improving  such products, increased  marketing efforts and  the
expenditure  of significant funds to increase  customer awareness of the Company
and to inform potential customers of the benefits of the Company's products.  At
June  28,  1996, the  Company employed  20 sales,  sales support,  marketing and
product management personnel. In 1996 and beyond, the Company intends to  expand
its  product management  functions and  personnel for  both the  current product
lines and future product definitions.
 
PROPRIETARY RIGHTS
 
     The Company's success  will depend in  part on its  ability to protect  its
technology,   processes,  trade  secrets  and   other  proprietary  rights  from
unauthorized  disclosure  and  use  and   to  operate  without  infringing   the
proprietary  rights of third  parties. The Company's strategy  is to protect its
technology and other proprietary rights through patents, copyrights, trademarks,
nondisclosure agreements, license agreements, and other forms of protection. The
Company has  been  active  in  pursuing patent  protection  for  technology  and
processes  involving  its  Hotwatch  Products  and  Blackbird  Products  that it
believes to be proprietary and that offer a potential competitive advantage  for
the  Company's  products and  services. To  date, the  Company has  been granted
patents on certain features of the Hotwatch Products
 
                                       35
 

<PAGE>
 

<PAGE>
and has  patents pending  for  certain features  of  the Hotwatch  Products  and
Blackbird  Products. In  addition, the  Company has  also licensed  patents from
third parties in an effort to maintain flexibility in the development and use of
its technology, including exclusive and  non-exclusive rights to use patents  in
connection with the Blackbird Products. There can be no assurance, however, that
any  pending or future patent  application of the Company  or its licensors will
result in issuance of a  patent, that the scope of  protection of any patent  of
the  Company or its licensors will be  held valid if subsequently challenged, or
that third parties will  not claim rights  in or ownership  of the products  and
other  proprietary rights held by the Company or its licensors. In addition, the
laws of  certain foreign  countries do  not protect  the Company's  intellectual
property rights to the same extent as the laws of the United States.
 
     Although  the Company believes  that its technology  has been independently
developed and that its  products do not  infringe patents known  to be valid  or
violate  other proprietary  rights of  third parties,  it is  possible that such
infringement of existing or  future patents or  violation of proprietary  rights
may  occur.  There  can be  no  assurance  that third  parties  will  not assert
infringement claims  in the  future with  respect to  the Company's  current  or
future  products  or that  any  such claims  will  not result  in  litigation or
regulatory proceedings or require  the Company to modify  its products or  enter
into  licensing  arrangements,  regardless  of the  merits  of  such  claims. No
assurance can be given that any necessary  licenses can be obtained in a  timely
manner,  upon commercially reasonable terms, or at  all, and no assurance can be
given that third parties will not assert infringement claims with respect to any
current licensing arrangements.
 
     In addition to  the foregoing  methods of protection,  the Company  employs
various  physical  security  measures  to  protect  its  software  source codes,
technology and other proprietary rights.  However, such measures may not  afford
complete  protection  and  there  can  be  no  assurance  that  others  will not
independently develop  similar source  codes,  technology or  other  proprietary
rights  or obtain access  to the Company's software  codes, technology, or other
proprietary rights.  Furthermore,  although  the  Company  has  and  expects  to
continue  to  have  internal  nondisclosure agreements  with  its  employees and
consultants, and license agreements  with customers, which contain  restrictions
on  disclosure, use  and transfer  of proprietary  information, there  can be no
assurance  that  such  arrangements   will  adequately  protect  the   Company's
proprietary  rights or  that the  Company's proprietary  rights will  not become
known to  third parties  in such  a manner  that the  Company has  no  practical
recourse. See 'Risk Factors -- Proprietary Rights.'
 
RESEARCH AND DEVELOPMENT
 
     For  the three months ended March 31, 1996 and for the years ended December
31, 1995, 1994  and 1993, the  Company incurred gross  research and  development
expenditures of $1,397,000, $5,724,000, $4,021,000 and $2,019,000, respectively,
prior  to capitalization of software development costs during each period in the
amounts of  $434,000, $1,726,000,  $1,725,000  and $750,000,  respectively.  The
Company's  research  and development  efforts are  focused  on new  hardware and
software products,  enhancing  and  improving  existing  hardware  and  software
products, including developing new software applications and additional computer
equipment  interfaces, principally  associated with  the Hotwatch  and Blackbird
platforms. These enhancements and/or  new products may,  when and if  developed,
enable  the Company  to expand the  use of  its existing products  and perform a
broad variety  of services  and functions  not presently  being offered  by  the
Company.  Costs  included  in  the  Company's  gross  research  and  development
expenditures include costs for research, design, development, tests, preparation
of training and  user documentation, and  fixing and refining  new and  existing
features (i.e., software maintenance) for inclusion in its product line. At June
28,  1996, the Company employed 48  full-time research and development personnel
and had  contracted  with  a  number of  consultants  engaged  in  research  and
development  activities. The  Company anticipates  that development expenditures
will continue to  increase in 1996  and beyond in  response to increased  market
demand  for new  and enhanced products  as technology  in the telecommunications
industry moves forward at a rapid pace.
 
COMPETITION
 
     The market  for the  Company's products  and services  is characterized  by
intense  competition among numerous nationally recognized companies. The Company
believes, based upon its  discussions with major cellular  carriers, as well  as
upon  its  general  knowledge  of  the  industry,  that  it:  (i)  has developed
 
                                       36
 

<PAGE>
 

<PAGE>
innovative software technology  which enables it  to be one  of the few  vendors
that  have  successfully  commercially  deployed  billing  and  data  processing
software products  in large  markets incorporating  post-call real-time  rating,
analysis  and networking technology, (ii) is one  of the few vendors prepared to
deploy pre-call real-time collection, analysis and distribution systems to major
cellular carriers; and (iii)  is the only vendor  prepared to deploy a  pre-call
real-time  roaming fraud prevention service. However,  there can be no assurance
that other companies do  not have or are  not currently developing  functionally
equivalent  or superior  products, or  that functionally  equivalent or superior
products will not become available in the near future.
 
     The Company is  aware of competitors  which have indicated  that they  have
developed,  marketed and installed commercially  available products with respect
to post-call  real-time  software  technology. These  companies  include,  among
others,  IBM,  I-NET,  Inc.,  GTE  Telecommunications,  Services,  Inc.,  Boston
Communications Group, EDS Personal  Communications Corporation, Cincinnati  Bell
Information  Systems, Inc.,  Lightbridge, Inc., Subscriber  Computing, Inc., CSC
Intellicom, and Systems/Link Corporation as well as cellular carriers  operating
in  the  most  populated  cellular  markets.  In  addition,  there  are numerous
companies, including  wireless communications  carriers, hardware  and  software
development  companies and others, which have or may develop the expertise which
would encourage them to attempt to  develop and market products (such as  A-Key)
which could render the Company's products obsolete or less marketable.
 

     The  Company  is  aware of  at  least four  competitors,  including Corsair
Communications, Inc., Coral Systems,  Inc. (in connection  with a joint  venture
with   Applied   Signal   Technology),   Authentix   Network,   Inc.   and   GTE
Telecommunications Services, Inc. that compete directly with the Company in  the
user/device   authentication   area.   Two   of   these   competitors,   Corsair
Communications, Inc. and Coral Systems, Inc. compete directly with the Company's
RF-based fingerprinting  fraud protection  products. The  Company believes  that
Corsair   Communications,  Inc.   has  agreements  pursuant   to  which  Corsair
Communications, Inc. has installed or  will install its RF-based  fingerprinting
fraud  protection product in four major markets. The Company has no knowledge of
any such agreements or installations by Coral Systems, Inc.

 
     The Company believes  that the  principal competitive  factors affecting  a
prospective  customer's choice of software systems  are the number and nature of
functions available on the system, price, performance, ease of use, reliability,
technical support, customer service,  the availability of real-time  information
and the financial stability of the vendor. The ability of the Company to compete
successfully  will  depend  in  large  measure  on  its  ability  to  maintain a
technically  competent  research   and  development  staff   and  to  adapt   to
technological   changes  and  advances  in   the  industry,  including  ensuring
continuing compatibility with evolving generations of computer equipment.
 
SUPPLIERS
 
     The Company  has been  and will  continue to  be dependent  on  third-party
vendors  for the computer equipment and certain software that is incorporated in
its products.  While these  are  available from  multiple sources,  the  Company
currently   obtains  or  licenses  certain  equipment  and  software,  including
proprietary  database  software  incorporated  in  a  number  of  the  Company's
products,  from a  limited number of  sources of supply.  The Company's software
programs were  specifically designed  to adhere  to the  UNIX operating  systems
standard  which  can operate  on standard  computer  equipment sold  by numerous
manufacturers  and  vendors.  The  Company  currently  purchases  hardware  from
Hewlett-Packard  ('HP'),  its primary  system hardware  supplier, under  a Value
Added Business Program ('VAB'). As an HP Value Added Reseller ('VAR') within the
VAB program,  the  Company  qualifies  for  a  number  of  services  under  HP's
marketing,   support  and   financial  programs.  The   Company  also  maintains
relationships with  other  hardware  vendors. The  Company  currently  purchases
hardware  components  from  its vendors  at  discounts from  list  prices. These
hardware components then become  a cost component as  the Company's systems  are
generally  priced as bundled turnkey  products (system, components, installation
and training). The  Company also  currently maintains  various software  license
arrangements  with several suppliers. All of these licenses allow the Company to
use the software in perpetuity,  with the result that  the loss of a  particular
source would not affect any product already in use.
 
                                       37
 

<PAGE>
 

<PAGE>
     With  the introduction  of the  Blackbird Platform  and related application
products, the Company has manufactured to its proprietary specifications a  cell
site  processor which operates in connection  with the system hardware described
above. While the parts  and components of this  processor are industry  standard
and  available  from  many  suppliers, the  design  of  the  custom manufactured
subassemblies is  performed  by both  the  Company's personnel  and  third-party
design  firms. The  Company generally does  not subject itself  to single source
suppliers.
 
EMPLOYEES
 
     As of  June 28,  1996, the  Company had  114 full-time  employees. Of  such
employees, 16 are in corporate and administrative positions, 14 are in sales and
related  support functions, 6 are in marketing and product management functions,
17 provide customer  support, 13  are in manufacturing  and system  installation
functions,  and 48 are engaged  in research and development.  From time to time,
the Company contracts with consultants and other independent contractors on  its
development  projects.  None  of  the  Company's  employees  are  covered  by  a
collective bargaining agreement.  The Company believes  that its relations  with
its employees are good.
 
FACILITIES
 
     The  Company has committed  to leasing approximately  46,000 square feet of
general office  space  at  2401  Fourth  Avenue,  Seattle,  Washington  for  its
corporate  offices under a five year non-cancelable operating lease that expires
in September 2000. Presently, the  Company occupies approximately 29,000  square
feet of space at an annual base rent of $381,000. The terms of the lease provide
that the Company take possession of and begin paying for the remaining committed
space  at various time  periods extending through September  1997, at which time
the annual base  rent will be  $658,000. The Company  also leases  approximately
1,200  square feet of space at 2001  Sixth Avenue, Seattle, Washington, which it
uses for computer operations, at a current base annual rent of $21,800, pursuant
to a lease that  is to expire in  2000. Both of these  leases contain five  year
renewal  options and provide for the pass-through to the Company of increases in
operating and  other costs.  Although  the space  is  adequate for  its  current
activities,  the  Company believes  that additional  space,  if needed,  will be
readily available.
 
LEGAL PROCEEDINGS
 
     The Company  has  received a  request  for indemnification  from  a  former
customer who utilized the Company's discontinued phone rental products, pursuant
to  a contract  between the  Company and  the former  customer which  includes a
limited warranty against infringement. The  Company has demanded arbitration  to
resolve whether it has any obligation under the contract to indemnify the former
customer  against  a claim  of patent  infringement  brought against  the former
customer by a third party. The Company has conducted a review of the  underlying
matter  and, based upon the information  currently available to the Company, but
subject to the inherent uncertainties involved in legal proceedings, the Company
believes that the outcome of the claim will not be material to the Company.
 
     There are no other material, pending legal proceedings to which the Company
is a  party or  of which  any of  its property  is subject  which, if  adversely
decided,  would  have  a  material adverse  effect  on  the  Company's business,
financial condition and results of operations.
 
                                       38


<PAGE>
 

<PAGE>

                                   MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
 
     The directors and executive officers of the Company, their ages and present
positions with the Company are as follows:
 

<TABLE>
<CAPTION>
        NAME            AGE                          POSITION WITH COMPANY
- --------------------    ---   --------------------------------------------------------------------
 
<S>                     <C>   <C>
Stephen Katz........    52    Chairman of the Board of Directors and Chief Executive Officer
Robert P. Dahut.....    58    President, Chief Operating Officer and Director
Michael E.
  McConnell.........    46    Vice President and Chief Financial Officer
Kyle R. Sugamele....    34    Vice President, General Counsel and Corporate Secretary
David N.
  Hoogerwerf........    49    Vice President, Engineering
Heidi P. Adkisson...    38    Vice President, Operations
Douglas F.
  Anderson..........    43    Vice President, Sales
Jay Goldberg........    55    Director
</TABLE>

 
     Stephen  Katz,  Chairman  of the  Board  of Directors  and  Chief Executive
Officer, had  been Acting  Chief  Executive Officer  and Acting  President  from
November 1992 until February 1994. Mr. Katz has been Chairman of the Board and a
director  of the  Company since  its inception  and a  member of  the Management
Committee of  the  predecessor  partnership  during the  entire  period  of  its
existence.  From September 1984  until September 1995, Mr.  Katz was Chairman of
the Board,  Chief  Executive Officer  and  until September  1993,  President  of
Nationwide  Cellular  Service,  Inc.  ('Nationwide')  which  was  the  Company's
majority stockholder until May 1992 and  its largest stockholder, owning 34%  of
its  outstanding shares,  until September  1995. At  that time  such shares were
distributed to  Nationwide's  stockholders, immediately  prior  to  Nationwide's
merger  with  MCI  Communications  Corp.  ('MCI'). In  May  1996,  Mr.  Katz was
appointed Vice-Chairman of the  Board and Chief Executive  Officer of Coin  Bill
Validator, Inc. whose business is currency and coin authentication.
 
     Robert  P.  Dahut has  been  President and  Chief  Operating Officer  and a
director of the  Company since  February 1994. For  more than  five years  prior
thereto, Mr. Dahut held senior management positions with various subsidiaries of
Bell  Atlantic  as follows:  from February  1993  to February  1994 he  was Vice
President of Operations and Engineering of C&P Telephone, from November 1990  to
February  1993 he was  Vice President of  Marketing and Sales  of C&P Telephone,
from August  1988  to November  1990  he was  Chief  Executive Officer  of  Bell
Atlantic Mobile Systems, and from June 1986 to August 1988 he was Vice President
Sales  & Marketing of Bell Atlantic  Directory Publishing. Prior thereto he held
progressively responsible positions in Operations, Engineering, Planning,  Human
Resources and Budgets for C&P Telephone and AT&T.
 
     Michael E. McConnell has been Vice President and Chief Financial Officer of
the Company since January 1992. Prior to joining the Company, from April 1991 to
December  1991, Mr.  McConnell engaged  in personal  investment activities. From
1986 to March  1991, Mr.  McConnell was the  Chief Financial  Officer of  Delphi
Information  Systems,  Inc.,  a public  company  engaged in  the  development of
software systems for the  insurance field. Mr. McConnell  is a certified  public
accountant.
 
     Kyle  R. Sugamele  joined the  Company in July  1995 as  Vice President and
General  Counsel.  In  October  1995,  Mr.  Sugamele  was  appointed   Assistant
Secretary,  and in  June 1996, Mr.  Sugamele was  appointed Corporate Secretary.
From April 1991 to July 1995, Mr.  Sugamele was associated with the law firm  of
Mundt,  MacGregor, Happel, Falconer, Zulauf &  Hall in Seattle. From August 1987
to March 1991, Mr. Sugamele was associated with the law firm of Graham & Dunn in
Seattle. His  practice  has involved  a  wide range  of  commercial,  corporate,
banking and general business matters, with particular emphasis on the protection
and licensing of intellectual property and trade secrets, commercial finance and
business transactions.
 
     David  N. Hoogerwerf  joined the  Company in  December 1991  as Director of
Software Engineering and was named Vice President, Engineering in January  1994.
Prior  to joining the Company, from March  1978 to December 1991, Mr. Hoogerwerf
held various management positions with GTE including
 
                                       39
 

<PAGE>
 

<PAGE>
General Manager and Director, Engineering and Development for GTE Telecom,  Inc.
Mr. Hoogerwerf is a registered professional electrical engineer.
 
     Heidi  P. Adkisson has  been with the  Company since its  inception and was
named Vice President, Operations in September  1994. From May 1991 to  September
1994  Ms. Adkisson  was Director  of Support  Services. Ms.  Adkisson joined the
Company as Manager of Training and Documentation in September 1988.
 
     Douglas F. Anderson has been  with the Company since  July 1, 1994 and  was
named  Vice President, Sales and Marketing on  August 1, 1994. From 1991 to July
1994, Mr.  Anderson had  been Director  of North  American Operations  of  Saros
Corporation,  a company engaged in the  business of developing systems software.
For five years prior  thereto Mr. Anderson had  been Director of North  American
Sales for Lotus Development Corporation.
 
     Jay Goldberg has served as a director of the Company since August 1991. Mr.
Goldberg  had been Chairman of  the Board since November  1990 and President and
Chief Executive Officer from August 1990  until January 1994, of Image  Business
Systems  Corporation, a company previously engaged in image processing, inactive
since August 1994. In June 1989,  Mr. Goldberg formed Zeitech, Inc., a  computer
software firm of which he served as Chairman of the Board until that company was
sold  to Career Horizons  in January 1996.  Currently, Mr. Goldberg  serves as a
consultant to Zeitech, Inc. From May 1986 until February 1990, Mr. Goldberg  was
Chief  Executive  Officer  of Money  Management  Systems, Inc.,  a  company also
engaged in  the computer  software business,  which was  sold to  SunGuard  Data
Systems, Inc. in 1989.
 
     The  Company currently intends to expand  the Board of Directors to include
up to three  new directors  within approximately  90 days  of the  date of  this
Prospectus,  although  it  has  not yet  identified  individuals  to  fill these
positions.
 
     The Company's officers are elected annually and serve at the discretion  of
the Board of Directors for one year subject to any rights provided by employment
agreements including those described below under 'Executive
Compensation -- Employment Agreements.'
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
     The  Compensation and Stock Option Committee, composed of Mr. Goldberg, has
authority over  officer compensation  and the  administration of  the  Company's
stock  option plans. The Audit Committee,  composed of Mr. Goldberg, has various
functions including  oversight  and  review  of  accounting  matters.  Both  the
Compensation and Stock Option Committee and the Audit Committee were composed of
Mr.  Goldberg and Lawrence  Howard until Mr. Howard's  resignation in June 1996.
The Company expects that at least one  additional new director will be added  to
each  of such committees upon  the appointment of new  directors to the Board of
Directors. See 'Directors and Executive Officers of the Company.'

    
 
DIRECTORS' COMPENSATION
 
     Each director who  is not an  officer or employee  of the Company  receives
$1,000 per Board meeting attended and $500 per Committee meeting attended and is
reimbursed for his out-of-pocket expenses incurred in connection with attendance
at meetings or other Company business.
 
     In  December  1993 the  Board of  Directors  adopted the  1993 Non-Employee
Director Stock Option Plan ('Director Plan')  pursuant to which each person  who
is  not a salaried  employee of the  Company who first  becomes a director after
December 29, 1993 shall be  granted on the date he  first becomes a director  an
option  to purchase 20,000 shares of Common Stock  and on January 2 of each year
beginning with January 2, 1994,  each person who is  not a salaried employee  of
the  Company and is  then a director shall  be granted an  option to purchase an
additional 12,000 shares of  Common Stock. The exercise  price of each share  of
Common  Stock under any option granted under the Director Plan shall be equal to
the fair market  value of  a share of  Common Stock  on the date  the option  is
granted.
 
                                       40
 

<PAGE>
 

<PAGE>

EXECUTIVE COMPENSATION
 
     The  following table sets forth information concerning annual and long-term
compensation, paid or  accrued, for  the Chief  Executive Officer  and the  four
other  most highly  compensated executive  officers of  the Company  (the 'Named
Executive Officers') for services  in all capacities to  the Company during  the
last three fiscal years.
 
                         SUMMARY COMPENSATION TABLE(1)
 

<TABLE>
<CAPTION>
                                                                                     LONG-TERM
                                                                                    COMPENSATION
                                                                                       AWARDS
                                                                                    ------------
                                                                                     SECURITIES
                                                                  OTHER ANNUAL       UNDERLYING        ALL OTHER
 NAME AND PRINCIPAL POSITION     YEAR     SALARY      BONUS      COMPENSATION(2)      OPTIONS       COMPENSATION(3)
- ------------------------------   ----    --------    --------    ---------------    ------------    ---------------
 
<S>                              <C>     <C>         <C>         <C>                <C>             <C>
Stephen Katz .................   1995    $      0    $      0        $     0                 0          $     0
  Chairman of the Board of       1994           0     100,000              0           212,000                0
  Directors and Chief            1993           0           0              0           400,000                0
  Executive Officer(4)
Robert P. Dahut ..............   1995     150,000           0              0                 0           16,392
  President and Chief            1994     132,403(5)  110,000         76,267           600,000           13,343
  Operating Officer
Michael E. McConnell .........   1995     115,500           0              0             3,820            6,160
  Vice President and Chief       1994     110,000      55,000              0            40,000            4,094
  Financial Officer              1993     100,000           0              0           170,000            1,333
Douglas F. Anderson ..........   1995     115,000           0              0             3,820            1,150
  Vice President, Sales          1994      52,340(6)   56,338              0            70,000                0
David N. Hoogerwerf ..........   1995     105,000           0              0             3,820                0
  Vice President, Engineering    1994     100,000      30,000              0            40,000                0
                                 1993      83,333           0              0           110,000                0
</TABLE>

 
- ------------
 
(1) None of the Named Executive Officers received any Restricted Stock Awards or
    LTIP  Payouts in 1993, 1994  or 1995. Does not  include grants made or other
    compensation paid in 1996.
 
(2) On January 31,  1994, Mr. Dahut  joined the Company  as President and  Chief
    Operating  Officer.  In connection  with  his employment,  the  Company made
    payments to Mr. Dahut or on his behalf related to his relocation, which were
    deemed to be compensation in  the amount of $44,959  and for the payment  of
    related  taxes  in the  amount  of $31,308.  In  addition, the  Company made
    payments to Mr. Dahut or on his behalf related to his relocation which  were
    not  deemed to  be compensation  in the  amount of  $20,123. Other  than Mr.
    Dahut, none of the  Named Executive Officers  received perquisites or  other
    personal  benefits in excess of the lesser of $50,000 or 10% of the total of
    his salary and bonus for 1993, 1994 or 1995 as reported in the above table.
 
(3) Represents contributions by  the Company  to the  Named Executive  Officers'
    accounts  under  a 401(k)  plan and  includes for  Mr. Dahut  life insurance
    premiums paid by the Company on his  behalf in the amount of $2,075 in  1995
    and  $1,556 in  1994 and  automobile allowances given  him in  the amount of
    $8,157 in 1995 and $6,454 in 1994.
 
(4) Stephen Katz, Chairman of the Board and a Director of the Company since  its
    inception,  served as  Acting Chief Executive  Officer and  President of the
    Company from November 21, 1992 until February 2, 1994 and as Chief Executive
    Officer from February 3, 1994 to date. Nationwide received $25,000 per month
    under a four year Management Services Agreement which expired in August 1995
    under which Mr.  Katz and  other Nationwide  personnel provided  management,
    financial  and  administrative  services  to  the  Company.  See  'Executive
    Compensation -- Certain Transactions.' Amounts paid to Nationwide under said
    Agreement were $178,000 in 1995 and $300,000 in each of 1994 and 1993.
 
(5) Represents compensation paid  to Mr.  Dahut from  January 31,  1994 when  he
    became an officer of the Company.
 
                                              (footnotes continued on next page)
 
                                       41
 

<PAGE>
 

<PAGE>
(footnotes continued from previous page)
 
(6) Represents  compensation  paid to  Mr. Anderson  from July  1, 1994  when he
    became employed by the Company. Such compensation includes salary of $52,340
    and performance incentives  of $56,338 which,  effective December 31,  1994,
    were discontinued.
 
STOCK OPTION PLANS
 
1991 QUALIFIED STOCK OPTION PLAN AND 1991 NON-QUALIFIED STOCK OPTION PLAN
 
     The Company has adopted a 1991 Qualified Stock Option Plan ('1991 Qualified
Plan')  and a 1991  Non-Qualified Stock Option  Plan ('1991 Non-Qualified Plan')
(collectively the 'Stock  Option Plans' or  the 'Plans'). Pursuant  to the  1991
Qualified  Plan, as amended in 1993, the Company was authorized to grant options
to purchase shares of Common Stock to its officers and key employees, at a price
which may not be less  than the fair market value  per share of Common Stock  on
the date of the granting of the option. Pursuant to the 1991 Non-Qualified Plan,
the  Company was authorized to grant options  to purchase shares of Common Stock
to its directors, officers, key employees and others who render services to  the
Company  at a price which may not be less  than 85% of the fair market value per
share of Common Stock  on the date  of the granting of  the option. All  options
under  the 1991 Qualified  Plan are in  the form of  incentive stock options and
options under the 1991 Non-Qualified Plan  are options which do not qualify  for
treatment as incentive stock options.
 
     The  Stock Option Plans  are administered by the  Stock Option Committee of
the Board of Directors (the 'Committee') which will satisfy requirements for  an
exemption  from  the  short  swing  profits  rule  of  Section  16(b)  under the
Securities Exchange Act of 1934, as amended (the 'Exchange Act').
 
     Options granted under the Plans are nontransferable by the optionee  during
his lifetime, and will expire if not exercised within ten years from the date of
the  grant and terminate upon an optionee's termination of employment or service
with the  Company or  a subsidiary,  except that,  under certain  circumstances,
options  are exercisable for a period of 90 days after retirement or termination
of employment and for a period of one year after death or disability for options
granted under the Stock Option Plans.  Incentive stock options are also  subject
to the following limitations: (i) the aggregate fair market value (determined at
the  time an option is  granted) of stock with  respect to which incentive stock
options are exercisable for  the first time by  an optionee during any  calendar
year (under all such plans of the Company, or its subsidiaries) shall not exceed
$100,000  and (ii) if  the individual to  whom the incentive  stock options were
granted is considered  as owning  stock possessing more  than 10%  of the  total
combined  voting power  of all  classes of  stock of  the Company,  then (A) the
option price at the time of grant may  not be less than 110% of the fair  market
value  per share for such Common Stock and (B) the option period must be no more
than five years from the date of grant.
 
     Unless otherwise determined by the Committee administering the Stock Option
Plans or by other  provisions of such  Plans, options will  be exercisable at  a
rate of 20% per year and vest fully after five years.
 
     Without   giving  effect  to  the  exercise   of  options  by  the  Selling
Shareholders to purchase 226,000 shares of Common Stock, as of the date of  this
Prospectus, options to purchase an aggregate of 2,044,160 shares of Common Stock
at  a  weighted  average exercise  price  of  $6.04 per  share  were outstanding
including options to purchase 690,000, 201,820, 59,820, and 181,820 shares  held
by  Messrs. Katz, McConnell, Anderson and Hoogerwerf respectively. All executive
officers and  directors as  a  group (nine  persons)  hold options  to  purchase
1,291,300  shares at exercise prices ranging from  $1.00 to $10.94 per share. As
of the date of this Prospectus, 1,074,000 options have been exercised under  the
Stock Option Plans since the inception of such Plans.
 
     There  are no shares  presently available for  grant of non-qualified stock
options under the Company's 1991  Non-Qualified Stock Option Plan. In  addition,
pursuant  to action taken by  the Company's Board and  approved by a majority of
the Company's Shareholders,  no new  options will  be granted  under either  the
Company's 1991 Non-Qualified Plan or under the 1991 Qualified Plan.
 
                                       42
 

<PAGE>
 

<PAGE>
1993 NON-EMPLOYEE DIRECTOR PLAN
 
     The  Company has adopted  the 1993 Non-Employee  Director Stock Option Plan
(the 'Director  Plan').  The purpose  of  the Director  Plan  is to  provide  an
additional  incentive to attract and retain as directors qualified and competent
persons whose judgment is vital to the  success of the Company. The Company  may
grant  to non-employee directors and directors who are non-salaried employees of
the Company ('Outside Directors')  options to purchase up  to 300,000 shares  of
the  Company's Common Stock under the Director Plan at a price equal to the fair
market value  of a  share of  Common Stock  on the  date an  option is  granted.
Payment  of the  option price  shall be made  in cash.  In the  event any option
granted under the Director Plan shall  expire, be canceled or terminate for  any
reason without having been exercised in full or shall cease for any reason to be
exercisable  in whole or  in part, the unpurchased  shares subject thereto shall
again be available for grant thereunder. The options granted under the  Director
Plan will not qualify for treatment as incentive stock options.
 
     The Director Plan is administered by the Board of Directors. Subject to the
express provisions of the Director Plan, the Board shall grant options under the
Director Plan; correct any defect and, in general, make determinations necessary
or  advisable for Director Plan administration.  Under the terms of the Director
Plan, each individual who became or  becomes an Outside Director after  December
29,  1993, the effective date of the Director Plan, has been or will be granted,
as the case may be, on the date he first becomes an Outside Director, an  option
to  purchase 20,000 shares  of Common Stock.  In addition, on  January 2 of each
year beginning with January  2, 1994, each Outside  Director then in office  has
been or will be granted, as the case may be, an option to purchase 12,000 shares
of  Common Stock. No option granted under the Director Plan shall be exercisable
for a period of one year after the  date of the grant, at which time the  option
shall  become exercisable as to the full number of shares subject to the option.
Notwithstanding the foregoing, an option may become immediately exercisable upon
(i) the death or disability  of the holder or (ii)  upon a change in control  of
the Company which occurs while a holder is an Outside Director. No option may be
exercised  under the Director  Plan after the  expiration of ten  years from the
date of  grant and  no  option may  be granted  under  the Director  Plan  after
December 29, 2003.
 
     In  the event that an  Outside Director to whom  an option has been granted
under the Director Plan  (i) shall cease  to serve on the  Board for any  reason
(including as a result of not being reelected to the Board) other than by reason
of  his  disability,  retirement after  age  65  or death,  such  option  may be
exercised, to the extent that the Outside Director was entitled to do so at  the
time  of his cessation  of service, at  any time within  three months after such
cessation of service but not thereafter, and in no event after the date on which
the option would otherwise expire; provided, however, that if his service on the
Board shall  have  been  terminated  for  cause,  his  options  shall  terminate
immediately; (ii) shall cease to serve on the Board by reason of his disability,
the  option may be exercised at any time within three years after such cessation
of service on the Board  but not thereafter, and in  no event after the date  on
which the option would otherwise expire; (iii) shall cease to serve on the Board
as  a  result  of his  retirement  after attaining  age  65, the  option  may be
exercised to the extent that the Outside  Director was entitled to do so at  the
time  of his  cessation of service,  at any  time within three  years after such
cessation of service but not thereafter, and in no event after the date on which
the option would otherwise expire; (iv) shall die (x) while he is serving on the
Board, (y) within three years after cessation of service on the Board by  reason
of  disability  or retirement  after age  65  or (z)  within three  months after
cessation of service on the Board for any other reason except cause, such option
may be exercised in  whole or in  part by his  personal representative or  other
person  entitled by law to his rights under such option to the same extent as it
could have been exercised by the decedent  had he lived, at any time within  one
year  after the date of his  death, but in no event  after the date on which the
option would otherwise expire.
 
     As of the  date of this  Prospectus, options to  purchase 48,000 shares  of
Common  Stock  at a  weighted average  exercise  price of  $7.84 per  share were
outstanding including options to purchase 36,000 shares granted to Mr. Goldberg,
at a  weighted average  exercise price  of $8.42  per share,  and 12,000  shares
granted  to Mr. Katz, at  a weighted average exercise  price of $6.13 per share,
when he was a non-employee director. As  of the date of this Prospectus,  60,000
options have been exercised since the inception of the Director Plan.
 
                                       43
 

<PAGE>
 

<PAGE>
1996 STOCK OPTION PLAN
 
     The  Company has adopted the 1996 Stock Option Plan (the '1996 Plan') which
is designed to provide an incentive to employees of the Company and to offer  an
additional  inducement in obtaining the services  of such persons. The 1996 Plan
covers both incentive stock options and non-qualified stock options. Pursuant to
action taken by the Company's Board and approved by a majority of the  Company's
Shareholders,  no new  options will be  granted under either  the Company's 1991
Non-Qualified Plan or under the 1991 Qualified Plan.
 
     The 1996 Plan  authorizes the  grant of options  to purchase  a maximum  of
1,100,000  shares  of  the  Company's Common  Stock  (subject  to  adjustment as
described  below)  to  employees  (including  officers  and  directors  who  are
employees)  of and consultants to the  Company. Upon expiration, cancellation or
termination of unexercised  options, the  shares of the  Company's Common  Stock
subject  to such options will again be  available for the grant of options under
the 1996 Plan. Options to purchase  160,000 shares of Common Stock were  granted
in  June 1996 under the 1996  Plan at an exercise price  of $17.875 per share of
which 50,000 options were granted to  Mr. Anderson, 30,000 options were  granted
to  Mr. McConnell, 20,000 options were granted to Mr. Hoogerwerf, 25,000 options
were granted to Mr.  Sugamele and 20,000 options  were granted to Ms.  Adkisson.
Approximately  120 employees  of the Company  are currently  eligible to receive
grants of options under the 1996 Plan.
 
     Options granted  under  the Plan  may  either be  incentive  stock  options
('ISOs'),  within the  meaning of  Section 422 of  the Internal  Revenue Code of
1986, as  amended (the  'Code'), or  non-qualified stock  options which  do  not
qualify as ISOs ('NQSOs').
 
     The  1996  Plan is  administered by  the Committee  which will  satisfy the
requirements for an exemption from the short swing profits rule of Section 16(b)
under the Exchange Act for grants and exercises of options. It is intended  that
each member of the Committee will be an 'outside director' within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended.
 
     Among  other things,  the Committee is  empowered to  determine, within the
express limits  contained in  the  Plan: the  employees  and consultants  to  be
granted  options, the times when options shall  be granted, whether an option is
to be an ISO or a  NQSO, the number of shares of  Common Stock to be subject  to
each  option, the exercise  price of each  option, the term  of each option, the
date each option shall  become exercisable as well  as any terms, conditions  or
installments  relating to the  exercisability of each  option, whether and under
what conditions to accelerate the date of exercise of any option or installment,
the form of payment of  the exercise price, the amount,  if any, required to  be
withheld  with respect to  an option, and  with the consent  of the optionee, to
modify an  option. The  Committee is  also authorized  to prescribe,  amend  and
rescind  rules  and regulations  relating  to the  Plan  and to  make  all other
determinations necessary or advisable for administering the Plan and to construe
the Plan.
 
     Options granted under the 1996 Plan will be subject to, among other things,
the following terms and conditions: (a)  the exercise price of each option  will
be determined by the Committee; provided, however, that the exercise price of an
ISO  may not be less than the fair market value of the Company's Common Stock on
the date of grant (110%  of such fair market value  if the optionee owns (or  is
deemed  to own) more than  10% of the voting power  of the Company); (b) options
may be granted for  terms determined by the  Committee; provided, however,  that
the  term of an ISO may not exceed 10 years (5 years if the optionee owns (or is
deemed to  own) more  than 10%  of the  voting power  of the  Company); (c)  the
maximum  number of shares of the Company's Common Stock for which options may be
granted to an employee in any calendar  year is 400,000; (d) the aggregate  fair
market  value of shares with respect to which ISOs may be granted to an employee
which are exercisable for the first time during any calendar year may not exceed
$100,000; (e) the exercise price of each option is payable in full upon exercise
or, if the  applicable stock option  contract ('Contract') entered  into by  the
Company with an optionee permits, in installments (payment of the exercise price
of  an  option may  be  made in  cash, certified  check,  or, if  the applicable
Contract permits, in  shares of the  Company's Common Stock  or any  combination
thereof);  (f) options may not be transferred other  than by will or by the laws
of descent and distribution, and may be exercised during the optionee's lifetime
only by the  optionee or his  or her  legal representatives; (g)  except as  may
otherwise be provided in the applicable Contract, if the optionee's relationship
with  the Company  as an  employee or  consultant is  terminated for  any reason
 
                                       44
 

<PAGE>
 

<PAGE>
(other than  the  death  or disability  of  the  optionee), the  option  may  be
exercised,  to  the  extent  exercisable  at the  time  of  termination  of such
relationship,  within  three  months  thereafter  but  in  no  event  after  the
expiration  of  the  term  of  the  option  (however,  if  the  relationship was
terminated either for cause (as defined in the 1996 Plan) or without the consent
of the Company, the option will terminate immediately); in the case of the death
of an optionee  while an  employee or  consultant (or,  generally, within  three
months  after  termination  of  such  relationship,  or  within  one  year after
termination of such relationship by  reason of disability), except as  otherwise
provided  in the  Contract, his or  her legal representative  or beneficiary may
exercise the option, to the extent exercisable on the date of death, within  one
year  after such date, but in  no event after the expiration  of the term of the
option; except  as  otherwise  provided  in  the  Contract,  an  optionee  whose
relationship  with the Company was terminated by reason of his or her disability
may exercise  the  option,  to  the  extent exercisable  at  the  time  of  such
termination,  within one  year thereafter, but  not after the  expiration of the
term of the option  (options are not affected  by a change in  the status of  an
optionee  so long as he or  she continues to be an  employee of, or a consultant
to, the Company); and  (h) the Company  may withhold cash  and/or shares of  the
Company's  Common Stock having an aggregate value  equal to the amount which the
Company determines is necessary to meet its obligations to withhold any federal,
state and/or local taxes  or other amounts  incurred by reason  of the grant  or
exercise  of an  option, its disposition  or the disposition  of shares acquired
upon the exercise  of the  option (alternatively,  the Company  may require  the
optionee to pay the Company such amount, in cash, promptly upon demand).
 
     Appropriate  adjustments  will be  made in  the number  and kind  of shares
available under the 1996 Plan, in the number and kind of shares subject to  each
outstanding  option and  the exercise  prices of  such options,  as well  as the
limitation on the number of  shares that may be granted  to any employee in  any
calendar  year, in  the event  of any  change in  the Company's  Common Stock by
reason of any stock dividend, split-up, spin off, combination, reclassification,
recapitalization, merger, in which the Company is not the surviving corporation,
exchange of  shares  or  the like.  In  the  event of  (a)  the  liquidation  or
dissolution  of the  Company, or (b)  a merger in  which the Company  is not the
surviving  corporation  or  a  consolidation,  any  outstanding  options   shall
terminate  upon the earliest of  any such event, unless  other provision is made
therefor on the transaction.  The Company shall give  each optionee at least  20
days  prior notice of any such transaction,  advising the optionee of the impact
of the transaction on his option.
 
     No option may  be granted under  the 1996  Plan after April  23, 2006.  The
Board  of  Directors may  at any  time  terminate or  amend the  Plan; provided,
however, that, without the approval of the Company's stockholders, no  amendment
may  be made which would (a) except as a result of the anti-dilution adjustments
described above, increase the maximum number  of shares available for the  grant
of  options or increase the maximum number of  options that may be granted to an
employee in any calendar year, (b) prior to August 15, 1996, materially increase
the benefits accruing  to participants under  the 1996 Plan,  or (c) change  the
eligibility  requirements for persons who may receive options. No termination or
amendment may adversely  affect the  rights of an  optionee with  respect to  an
outstanding option without the optionee's consent.
 
STOCK OPTIONS
 
     The  following  table sets  forth  information as  to  all grants  of stock
options to the Named Executive Officers during 1995.
 
                                       45
 

<PAGE>
 

<PAGE>
                            OPTION GRANTS IN 1995(1)

<TABLE>
<CAPTION>
                                                                                                 POTENTIAL REALIZABLE
                                                           INDIVIDUAL GRANTS                       VALUE AT ASSUMED
                                           --------------------------------------------------      ANNUAL RATES OF
                                           NUMBER OF     % OF TOTAL                                  STOCK PRICE
                                           SECURITIES     OPTIONS                                  APPRECIATION FOR
                                           UNDERLYING    GRANTED TO                                 OPTION TERM(3)
                                            OPTIONS      EMPLOYEES      EXERCISE     EXPIRATION  --------------------
                  NAME                     GRANTED(2)     IN 1995        PRICE         DATE             AT 5%
- ----------------------------------------   ----------    ----------    ----------    --------    --------------------
<S>                                        <C>           <C>           <C>           <C>         <C>
Stephen Katz............................          0            0         $    0            --          $      0
Robert P. Dahut.........................          0            0              0            --                 0
Michael E. McConnell....................      3,820          .97          10.94      12/22/05            26,276
Douglas F. Anderson.....................      3,820          .97          10.94      12/22/05            26,276
David N. Hoogerwerf.....................      3,820          .97          10.94      12/22/05            26,276
 
<CAPTION>
 
                  NAME                           AT 10%
- ----------------------------------------  --------------------
<S>                                        <C>
Stephen Katz............................        $      0
Robert P. Dahut.........................               0
Michael E. McConnell....................          66,588
Douglas F. Anderson.....................          66,588
David N. Hoogerwerf.....................          66,588
</TABLE>

 
- ------------
 
(1) No stock  appreciation rights  ('SARs') were  granted to  any of  the  Named
    Executive Officers during 1995.
 
(2) The  options become exercisable in cumulative annual installments of 20% per
    year on each of the first five anniversaries of the grant date. The  options
    are exercisable over a ten year period.
 
(3) The  dollar  amounts  set  forth  under  these  columns  are  the  result of
    calculations at the  5% and 10%  rates established  by the SEC  and are  not
    intended  to forecast future appreciation of  the Company's stock price. The
    Company did not use an alternative formula for a grant date valuation as  it
    is  unaware of any formula which  would determine with reasonable accuracy a
    present value based  upon future unknown  factors. In order  to realize  the
    potential  values set forth under  the columns headed 'At  5%' and 'At 10%',
    the price per share of the Company's Common Stock at the end of the ten-year
    option term would be $35.63 and $56.74, respectively.
 
     The following table sets forth information with respect to the exercise  of
stock  options  during  1995 by  the  Named Executive  Officers  and unexercised
options held by them on December 31, 1995.
 
                      AGGREGATED OPTION EXERCISES IN 1995
                     AND DECEMBER 31, 1995 OPTION VALUES(1)
 

<TABLE>
<CAPTION>
                                                                  NUMBER OF SECURITIES
                                                                 UNDERLYING UNEXERCISED          VALUE OF UNEXERCISED
                                       SHARES                          OPTIONS AT              IN-THE-MONEY OPTIONS AT
                                      ACQUIRED       VALUE          DECEMBER 31, 1995             DECEMBER 31, 1995
NAME                                 ON EXERCISE    REALIZED    EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE(2)
- ----------------------------------   -----------    --------    -------------------------    ----------------------------
<S>                                  <C>            <C>         <C>                          <C>
Stephen Katz......................           0      $      0         432,000/400,000            $ 3,426,000/$2,020,000
Robert P. Dahut...................      60,000       446,250          60,000/480,000                330,000/ 2,640,000
Michael E. McConnell..............      48,000       265,500          76,000/185,820                637,125/ 1,504,813
Douglas F. Anderson...............           0             0          14,000/ 59,820                 73,750/   297,626
David N. Hoogerwerf...............      26,000       307,062          66,000/115,820                536,937/   826,188
</TABLE>

 
- ------------
 
(1) There were no  SAR exercises  during 1995 and  no SARs  were outstanding  at
    December 31, 1995.
 
(2) The  closing price for the Company's Common  Stock as reported on the NASDAQ
    National Market  on  December  31,  1995 was  $11.63  per  share.  Value  is
    calculated  by multiplying (a) the difference  between $11.63 and the option
    exercise price by (b)  the number of shares  of Common Stock underlying  the
    option.
 
EMPLOYMENT AGREEMENTS
 
     Effective  January  31,  1994,  the  Company  entered  into  an  employment
agreement with Robert P. Dahut to serve as President and Chief Operating Officer
of the Company. The agreement expires  on December 31, 1996. Mr. Dahut's  annual
base  salary is $150,000 and he is eligible to receive, at the discretion of the
Company, an annual  bonus in  an aggregate  amount of  up to  $150,000 for  each
calendar
 
                                       46
 

<PAGE>
 

<PAGE>
year   of  employment  based  upon  the  Company  meeting  performance  criteria
established from time to time by the Company. Under the terms of the  agreement,
Mr. Dahut is entitled to the use of an automobile to be provided by the Company,
a  $500,000  term  life insurance  policy  and  an accidental  death  and travel
insurance policy.
 
     In the event of the termination of Mr. Dahut's employment due to a  'Change
of  Control' of the Company  (i) if the Payment  Condition (as defined below) is
satisfied, the Company shall  pay him an  amount equal to  2.9 times his  annual
base  salary;  and (ii)  if the  Payment  Condition is  not satisfied,  then the
Company shall pay  him an amount  equal to  one year's annual  salary. For  this
purpose,  the 'Payment Condition' shall  be deemed to be  satisfied if the Value
Per Share (as defined below)  is (i) at least $17.25,  if the Change of  Control
occurs during 1996 and (ii) at least such other price as may be agreed to by the
Company and Mr. Dahut, if the Change of Control occurs after 1996. The foregoing
prices  shall be  appropriately adjusted  to give effect  to any  stock split or
similar event. The 'Value Per Share' shall mean the total consideration received
in respect  of one  share of  Common Stock  in connection  with the  transaction
constituting  the Change  of Control; provided,  however, that if  the Change of
Control occurs other than as the  result of a transaction in which  stockholders
of  the Company receive value, then the 'Value  Per Share' shall be deemed to be
the last reported sale price, regular way,  prior to the Change of Control  date
on the principal national securities exchange upon which such stock is regularly
traded  on  such date.  'Change  of Control'  is deemed  to  occur upon  (i) the
acquisition of 25% or more  of the outstanding Common  Stock or voting power  of
the  Company  (by other  than  any acquisition  directly  from the  Company, any
acquisition by the Company, any acquisition  by a Company employee benefit  plan
or  any acquisition by  any corporation pursuant to  a reorganization, merger or
consolidation), (ii) the Incumbent Directors,  as defined, becoming less than  a
majority  of  the  Board  of  Directors,  or  (iii)  a  reorganization,  merger,
consolidation,  liquidation  or  dissolution  of  the  Company  or  a  sale   of
substantially  all of its assets unless, among other things, at least 60% of the
shares of  the successor  in  said reorganization,  merger or  consolidation  or
transferee  of such assets are owned by the owners of the Company's Common Stock
prior to such transaction.
 
     Effective January 1, 1993, the Company entered into an employment agreement
with Michael E. McConnell to serve as Vice President and Chief Financial Officer
of the Company.  The agreement  expires on  December 31,  1996. Mr.  McConnell's
annual  base  salary is  currently  $122,500 and  he  is a  further  eligible to
receive, at  the discretion  of the  Company, an  annual bonus  in an  aggregate
amount  of up to  fifty percent (50%) of  his annual base  salary based upon the
Company meeting  certain operating  goals  and objectives,  including  financial
performance,  as established from time to time by the Company. In the event of a
'Change of Control' of the Company, Mr. McConnell will be entitled to a lump sum
severance payment equal to  the sum of  (i) his annual  base salary and  highest
annual  bonus paid  during the  term of the  agreement and  (ii) the  sum of his
unpaid base salary through the date of termination and a pro rata portion of the
highest annual bonus awarded him during the term of the employment agreement.  A
'Change  in Control' is deemed to occur upon  (i) the acquisition of 20% or more
of the outstanding Common Stock  or voting power of  the Company (by other  than
Mr.  McConnell or  a Company  employee benefit  plan or  pursuant to  a purchase
directly from the Company), (ii)  the Incumbent Directors, as defined,  becoming
less  than a  majority of  the Board  of Directors,  or (iii)  a reorganization,
merger, consolidation, liquidation or  dissolution of the Company  or a sale  of
substantially  all of its assets unless, among other things, at least 60% of the
shares of  the successor  in  said reorganization,  merger or  consolidation  or
transferee  of such assets are owned by the owners of the Company's Common Stock
prior to such transaction.
 
                                       47
 

<PAGE>
 

<PAGE>

                       PRINCIPAL AND SELLING SHAREHOLDERS
 
     The following table  sets forth  as of July  1, 1996  (except as  otherwise
indicated  in footnotes  3 and  4), information  with respect  to the beneficial
ownership of the Company's  Common Stock by (i)  each Selling Shareholder,  (ii)
each  person  known by  the  Company to  beneficially own  more  than 5%  of the
outstanding shares of  Common Stock, (iii)  each director of  the Company,  (iv)
each  of the Named Executive  Officers (as such term  is herein defined) and (v)
all directors and executive officers of the Company as a group.
 


<TABLE>
<CAPTION>
                                                                                                       PERCENT OF OUTSTANDING
                                                                AMOUNT AND         SHARES TO                   SHARES
                                                                NATURE OF         BE SOLD IN        ----------------------------
                      NAME AND ADDRESS                          BENEFICIAL           THIS           BEFORE THE      FOLLOWING
                   OF BENEFICIAL OWNER(1)                      OWNERSHIP(2)        OFFERING          OFFERING      THE OFFERING
- ------------------------------------------------------------   ------------    -----------------    ----------    --------------
<S>                                                            <C>             <C>                  <C>           <C>
President and Fellows of Harvard College ...................     2,141,400(3)                 --        9.7%              9.1%
  c/o Harvard Management Company, Inc.
  600 Atlantic Avenue
  Boston, MA 02210
Terren S. Peizer ...........................................     1,430,000(4)                 --        6.5%              6.1%
  1999 Avenue of the Stars
  Los Angeles, CA 90067
Stephen Katz................................................       842,614(5)                 --        3.9%              3.6%
Robert P. Dahut.............................................       180,000(6)            150,000       *               *
Jay Goldberg................................................        60,000(6)                 --       *               *
Michael E. McConnell........................................        64,000(6)                 --       *               *
David N. Hoogerwerf.........................................        78,000(6)             60,000       *               *
Douglas F. Anderson.........................................             0                    --       *               *
Heidi P. Adkisson...........................................        16,800(6)             16,000       *               *
All directors and executive officers as a group (8
  persons)..................................................     1,253,014(7)            226,000        5.5%              4.4%
</TABLE>


 
- ------------
 
*  Less than 1%.
 
(1) Pursuant to the rules of the Securities and Exchange Commission (the 'SEC'),
    addresses are only given for holders of 5% or more of the outstanding Common
    Stock of the Company.
 
(2) Unless otherwise  indicated,  each  person  or group  has  sole  voting  and
    investment  power with respect to such shares. For purposes of computing the
    percent of outstanding shares held by each person or group named above as of
    a given date,  any shares which  such person or  group has the  right to  so
    acquire  are deemed to be outstanding, but  are not deemed to be outstanding
    for the purpose  of computing the  percentage owned by  any other person  or
    group.
 
(3) Represents  2,100,794 shares as to which the President and Fellow of Harvard
    College have sole voting and dispositive power and 25,660 shares as to which
    the Harvard  Yenching  Institute, with  an  address at  2  Divinity  Avenue,
    Cambridge,  Massachusetts 02138 has  sole voting and  dispositive power. The
    information is based on  a Schedule 13G dated  February 13, 1996 filed  with
    the  SEC by  the President  and Fellow  of Harvard  College and  the Harvard
    Yenching Institute as a group.  Also represents an additional 15,006  shares
    (which  information is  based on  13(f) institutional  filings for  the week
    ended May 26, 1996, reporting as of  March 31, 1996, as reported in the  CDA
    Bullseye Ownership Report).
 
(4) Information  based  on a  Schedule 13D  dated February  5, 1993,  as amended
    through June 27, 1994, filed with the SEC by Terren S. Peizer.
 
(5) Includes 302,000 shares subject to currently exercisable options.
 
(6) Consists of shares subject to currently exercisable options.
 
(7) Represents an aggregate of 712,200  shares subject to currently  exercisable
    options.
 
                                       48
 

<PAGE>
 

<PAGE>

                              CERTAIN TRANSACTIONS
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     During  the fiscal year ended December 31, 1995, the Compensation and Stock
Option Committee of  the Board  of Directors  of the  Company (the  'Committee')
consisted of Jay Goldberg (all year), Joseph Esposito (until his death in August
1995) and Lawrence Howard (from October 1995).
 

                          DESCRIPTION OF CAPITAL STOCK
 
     The  following  summary  description  of  the  Company's  capital  stock is
qualified  in  its  entirety  by  reference  to  the  Company's  Certificate  of
Incorporation.
 
COMMON STOCK
 
     The Company is authorized to issue up to 30,000,000 shares of Common Stock,
par value $.001 per share. As of June 14, 1996, the Company had 177 shareholders
of  record and the Company believes its Common Stock is beneficially owned by in
excess of 5,000 holders.
 
     Holders of Common Stock  are entitled to  one vote for  each share held  of
record  on  each  matter  submitted  to a  vote  of  shareholders.  There  is no
cumulative voting for election of directors. Subject to the prior rights of  any
series  of preferred stock which  may from time to  time be outstanding, if any,
holders of Common Stock are entitled to receive ratably dividends when, as,  and
if  declared by the Board of Directors  out of funds legally available therefore
and, upon  the  liquidation, dissolution  or  winding  up of  the  Company,  are
entitled  to share ratably in all  assets remaining after payment of liabilities
and payment of accrued  dividends and liquidation  preferences on the  preferred
stock,  if any. Holders  of Common Stock  have no preemptive  rights and have no
rights to convert their Common Stock into any other securities. The  outstanding
Common  Stock is, and the Common Stock to be outstanding upon completion of this
Offering  will  be,  duly  authorized   and  validly  issued,  fully  paid   and
nonassessable.
 
PREFERRED STOCK
 
     The  Company is  authorized to  issue up  to 5,000,000  shares of preferred
stock, par value $.01  per share. The  preferred stock may be  issued in one  or
more series, the terms of which may be determined at the time of issuance by the
Board  of Directors,  without further  action by  shareholders, and  may include
voting rights (including the right to  vote as a series on particular  matters),
preferences  as to dividends  and liquidation, conversion  and redemption rights
and sinking fund provisions.
 
     No shares of preferred stock will be outstanding as of the closing of  this
offering,  and the Company  has no present  plans for the  issuance thereof. The
issuance of any such  preferred stock could adversely  affect the rights of  the
holders of Common Stock and therefore, reduce the value of the Common Stock. The
ability  of the  Board of Directors  to issue preferred  stock could discourage,
delay or prevent a takeover to  the Company. See 'Risk Factors --  Anti-Takeover
Provisions.'
 
ANTI-TAKEOVER PROVISIONS
 
     The Certificate of Incorporation and By-laws of the Company contain various
provisions  which may  have the effect  of discouraging,  delaying or preventing
future changes of control or takeover attempts, which the Company's stockholders
may deem to be in their best interests, and perpetuating the Company's  existing
management.  Among  other  things, such  provisions:  (i) provide  the  Board of
Directors with broad discretion  to issue serial  preferred stock; (ii)  provide
for  three-year terms for the directors of  the Company and the election of such
directors on a staggered basis; (iii) prohibit repurchases by the Company from a
stockholder owning 5%  or more or  the Company's voting  securities (other  than
those  stockholders meeting such description  as of May 30,  1991) who have held
their securities for less than two years,  unless approved by a majority of  the
disinterested  stockholders; and (iv) require the  approval of two-thirds of all
shares eligible  to  vote for  any  proposed  amendment to  the  Certificate  of
Incorporation   or  By-laws  that  seeks  to  modify  or  remove  the  foregoing
provisions. In addition,  in certain  circumstances, Delaware  law requires  the
approval of two-thirds of all shares eligible
 
                                       49
 

<PAGE>
 

<PAGE>
to  vote for certain business combinations involving a stockholder owning 15% or
more of  the  Company's voting  securities  (other than  stockholders  currently
meeting  such description), excluding the voting power held by such stockholder.
The  existence  of  all  of  the  above  provisions  may  have  the  effect   of
discouraging,  delaying or  preventing a  future change  of control  or takeover
attempt of the Company, which could have  an adverse effect on the market  price
of  the  Common  Stock.  See  'Description  of  Capital  Stock  -- Anti-Takeover
Provisions.'
 
ELECTION OF DIRECTORS
 
     The Certificate of Incorporation and By-laws of the Company set the  number
of  directors at  a minimum of  three and a  maximum of fifteen  and provide for
three-year terms of office on a staggered basis.
 
REMOVAL OF DIRECTORS
 
     The Certificate of  Incorporation of  the Company  permits stockholders  to
remove  a director with or without cause by an affirmative vote of two-thirds of
the total  votes  eligible to  be  cast at  a  duly constituted  meeting  called
expressly for that purpose.
 
APPROVAL OF REPURCHASES
 
     The  Certificate of Incorporation  of the Company  prohibits repurchases by
the Company  from a  stockholder owning  more than  5% of  the Company's  voting
securities  (a 'Significant Stockholder') (other than those stockholders meeting
such description  as of  May 30,  1991) who  has owned  such securities  of  the
Company  for less than two  years, unless approved by  an affirmative vote of at
least a majority of the total votes  entitled to vote generally in the  election
of directors other than the voting power held by the Significant Stockholder.
 
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BY-LAWS
 
     The  Certificate of Incorporation provides that  in addition to the general
requirements to amend a certificate of incorporation, an affirmative vote of the
holders of  at least  two-thirds  of the  total votes  eligible  to be  cast  is
required to amend the anti-takeover provisions described above.
 
     The  Certificate of Incorporation  of the Company  provides that either the
Board of Directors or the stockholders may alter, amend or repeal the By-laws of
the Company. The Board of Directors may take such action by an affirmative  vote
of  at least a majority of the directors  at a meeting expressly called for that
purpose. Such action by  stockholders requires an affirmative  vote of at  least
two-thirds  of the total votes eligible to be cast at a meeting called expressly
for that purpose.
 
TRANSFER AGENT
 
     Continental Stock Transfer & Trust Company, New York, New York as  Transfer
Agent for the Common Stock.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Shares  Eligible for  Future Sale.  Upon completion  of this  offering, the
Company will have  outstanding 23,669,748 (including  237,280 shares issued  for
option  exercises from April 1,  1996 to the date  of this prospectus) shares of
Common Stock, of  which the 1,726,000  shares sold in  this offering  (1,984,900
shares  if the Underwriters' over-allotment option is exercised in full) and the
4,600,000 shares sold in  the Company's initial public  offering in August  1991
and  all other  shares will be  freely tradeable without  restriction or further
registration  under  the  Securities  Act,  except  for  those  shares  held  by
'affiliates'  (as defined in  the Securities Act)  of the Company.  There are no
restricted shares  currently outstanding.  Affiliates are  able to  sell  shares
pursuant  to  Rule  144  ('Rule  144')  under  the  Securities  Act,  subject to
compliance with  certain  requirements  set  forth in  Rule  144.  In  addition,
5,400,000  shares  of  Common  Stock are  authorized  under  the  Company's 1991
Qualified Stock Option Plan, 1991 Non-
 
                                       50
 

<PAGE>
 

<PAGE>
Qualified Stock  Option  Plan, as  amended,  1993 Non-Employee  Directors  Stock
Option  Plan and 1996 Stock  Option Plan. Of these  shares, 2,176,160 shares are
issuable upon the exercise of outstanding stock options granted by the  Company,
of  which options to purchase 513,100 shares are currently exercisable (assuming
the exercise  by certain  Selling  Stockholders of  options to  purchase  76,000
shares  of Common  Stock). Registration statements  on Form S-8  have been filed
with the Securities and Exchange  Commission (the 'Commission') registering  all
of  the shares of Common Stock that may  be issued under these plans, other than
the 1996  Stock Option  Plan, and  registering 600,000  shares of  Common  Stock
issued to Robert Dahut which were not issued in connection with any stock option
plan  of the  Company. Of  these shares, 390,000  are issuable  upon exercise of
certain options to purchase shares of Common Stock (which are in addition to the
150,000 shares being sold  by Mr. Dahut in  connection with this Prospectus  and
which include 30,000 options currently exercisable by Mr. Dahut. The Company and
each  of its executive officers and directors have agreed with the Underwriters,
subject to limited  exceptions, not to  offer, sell, pledge,  contract to  sell,
grant  any other option to purchase or otherwise dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for,  or
warrants,  rights or options to acquire shares  of Common Stock, for a period of
180 days from the date of this  Prospectus without the prior written consent  of
the  Representative. The  Company estimates  that 540,434  shares of outstanding
Common Stock  and 838,820  shares of  Common Stock  that are  issuable upon  the
exercise  of  outstanding options  will be  subject to  such agreements.  No new
options will  be granted  under either  the Company's  1991 Non-Qualified  Stock
Option  Plan, or under the Company's 1991  Qualified Stock Option Plan. Sales of
substantial amounts  of shares  of Common  Stock in  the public  market, or  the
availability  of such shares for future  sale, could adversely affect the market
price of the Common Stock and could impair the Company's future ability to raise
additional capital through  an offering  of its equity  securities. See  'Shares
Eligible for Future Sale' and 'Underwriting.'
 
                                       51
 

<PAGE>
 

<PAGE>

                                  UNDERWRITING
 
     The Underwriters named below, for whom Gerard Klauer Mattison & Co., LLC is
acting  as  the representative  (the  'Representative'), have  severally agreed,
subject  to  the  terms  and  conditions  of  an  underwriting  agreement   (the
'Underwriting  Agreement'),  to  purchase  on  a  'firm  commitment'  basis, the
respective numbers of  shares of  Common Stock  set forth  opposite their  names
below:
 

<TABLE>
<CAPTION>
                                                                                     NUMBER
UNDERWRITER                                                                         OF SHARES
- ---------------------------------------------------------------------------------   ---------
 
<S>                                                                                 <C>
Gerard Klauer Mattison & Co., LLC................................................
 
                                                                                    ---------
     Total.......................................................................   1,726,000
                                                                                    ---------
                                                                                    ---------
</TABLE>

 
     The  Underwriting Agreement  provides that  the obligations  of the several
Underwriters to  pay for  and accept  delivery  of the  shares of  Common  Stock
offered  hereby are subject to approval of  certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay  for
all the shares of Common Stock if any are taken.
 
     The Representative has advised the Company that the Underwriters propose to
offer the shares of Common Stock offered hereby initially at the public offering
price  per share  set forth on  the cover page  of this Prospectus  and in part,
through the  Representative, to  certain other  dealers at  such prices  less  a
concession  not in excess of  $            per share;  that the Underwriters may
allow, and such dealers may reallow, a discount not in excess of $           per
share on sales to other dealers; and that after the initial public offering, the
public  offering price, concession and the discount selling terms may be changed
by the Representative. The Underwriters have  informed the Company that they  do
not   intend  to  confirm  sales  to  any  accounts  over  which  they  exercise
discretionary authority.
 
     The Company  and  certain of  the  Selling Shareholders  have  granted  the
Underwriters  an  option,  exercisable  for  45  days  from  the  date  of  this
Prospectus, to purchase, in the aggregate, up to an additional 258,900 shares of
Common Stock,  at the  public offering  price less  underwriting discounts.  The
Underwriters  may  exercise  such  option  only  for  the  purpose  of  covering
over-allotments, if any, incurred  in connection with the  sale of Common  Stock
offered  hereby. To the extent that  the Underwriters exercise such option, each
Underwriter will become  obligated, subject to  certain conditions, to  purchase
the  same percentage of such additional shares  as the number of other shares of
Common Stock to be  purchased by that Underwriter  shown on the foregoing  table
bears to the total number of shares initially offered hereby.
 
     The  Company and each  of its executive officers  and directors have agreed
with the  Underwriters,  subject to  limited  exceptions, not  to  offer,  sell,
pledge,  contract  to sell,  grant  any other  option  to purchase  or otherwise
dispose of any  shares of  Common Stock or  any securities  convertible into  or
exchangeable  or  exercisable for,  or warrants,  rights  or options  to acquire
shares of  Common  Stock, for  a  period  of 180  days  from the  date  of  this
Prospectus without the prior written consent of the Representative.
 
     The  Company also has agreed to  indemnify the Underwriters against certain
liabilities, including liabilities under the  Act, or to contribute to  payments
that may be required to make in respect thereof.
 
     In  connection with this  offering, certain Underwriters  and selling group
members (if any) or their respective affiliates who are qualified market  makers
on the Nasdaq National Market may have engaged
 
                                       52
 

<PAGE>
 

<PAGE>
in  passive market making transactions in the Common Stock of the Company on the
Nasdaq National Market in  accordance with Rule 10b-6A  under the Exchange  Act,
during the two business day period before commencement of offers or sales of the
Common  Stock. Passive  market making  transactions must  comply with applicable
volume and price limits and be identified as such. In general, a passive  market
maker  may display its bid  at a price not in  excess of the highest independent
bid for such  security; if all  independent bids are  lowered below the  passive
market maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded.
 

                                 LEGAL MATTERS
 
     The  validity of the Common  Stock offered hereby has  been passed upon for
the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York.  Certain
legal matters will be passed upon for the Underwriters by Andrews & Kurth L.L.P.
New York, New York.
 

                                    EXPERTS
 
     The  financial statements of the  Company as at December  31, 1994 and 1995
and for each of the three years in the period ended December 31, 1995  appearing
in this prospectus and registration statement have been audited by Ernst & Young
LLP,  independent auditors,  as set  forth in  their reports  therein, appearing
elsewhere herein, and are included in reliance upon such reports given upon  the
authority of such firm as experts in accounting and auditing.
 
                             ADDITIONAL INFORMATION
 
     The  Company is subject to the informational requirements of the Securities
Exchange Act of  1934, as  amended, and  the rules  and regulations  promulgated
thereunder,  and  in accordance  therewith files  reports, proxy  statements and
other information with the Commission. Such reports, proxy statements and  other
information filed by the Company with the Commission, including the Registration
Statement  on Form S-1 of which this Prospectus  is a part, and the exhibits and
schedules  thereto,  may  be  inspected  and  copied  at  the  public  reference
facilities  maintained by the  Commission at 450  Fifth Street, N.W., Washington
D.C. 20549, and  at the  Commission's regional offices  located at  Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
and  Seven World Trade Center,  13th Floor, New York,  New York 10048. Copies of
such material can also be obtained at  prescribed rates by mail from the  Public
Reference  Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Upon written or oral request,  the Company will provide, without  charge,
to  each person who  receives a copy  of this Prospectus,  a copy of  any of the
information that is  incorporated by reference  herein. Electronic  registration
statements  made through  the Electronic  Data Gathering  Analysis and Retrieval
System   are   publicly   available   through   the   Commission's   Web    Site
(http://www.sec.gov).
 
     The  Company  has filed  a  Registration Statement  on  Form S-1  under the
Securities Act with  the Commission  with respect  to the  Common Stock  offered
hereby.  This Prospectus does  not contain all  of the information  set forth in
that Registration Statement  and the  exhibits, as  permitted by  the rules  and
regulations  of  the Commission.  For further  information  with respect  to the
Company and its  Common Stock,  reference is  hereby made  to such  Registration
Statement  and  exhibits.  Statements contained  in  this Prospectus  as  to the
contents of any contract or any other document are not necessarily complete  and
where  such  contract  or  other  document is  an  exhibit  to  the Registration
Statement, each such statement is qualified in all respects by the provision  of
such  exhibit, to which reference is made for a full statement of the provisions
thereof.
 
                                       53


<PAGE>
 

<PAGE>

                         INDEX TO FINANCIAL STATEMENTS
 


<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                           NUMBER
                                                                                                           ------
 
<S>                                                                                                        <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................     F-2
Balance Sheets..........................................................................................     F-3
Statements of Operations................................................................................     F-4
Statements of Stockholders' Equity......................................................................     F-5
Statements of Cash Flows................................................................................     F-6
Notes to Financial Statements...........................................................................     F-7

</TABLE>


 
                                      F-1


<PAGE>
 

<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
CELLULAR TECHNICAL SERVICES COMPANY, INC.
 
     We  have  audited the  accompanying  balance sheets  of  Cellular Technical
Services Company,  Inc.  as of  December  31, 1995  and  1994, and  the  related
statements  of operations, stockholders' equity, and  cash flows for each of the
three years in the  period ended December 31,  1995. These financial  statements
are  the responsibility  of the Company's  management. Our  responsibility is to
express an opinion on these financial statements based on our audits.
 
     We conducted  our audits  in accordance  with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence  supporting
the  amounts and disclosures in the financial statements. An audit also includes
assessing the  accounting  principles used  and  significant estimates  made  by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present  fairly,
in  all material respects, the financial position of Cellular Technical Services
Company, Inc. at December 31, 1995 and  1994, and the results of its  operations
and  its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
 
                                        /s/ ERNST & YOUNG LLP
 
Seattle, Washington
 
March 1, 1996, except for the first paragraph of Note K as to which the date  is

June 24.
 
                                      F-2
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                                 BALANCE SHEETS
 

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,            MARCH 31,
                                                                       --------------------------   -----------
                                                                          1994           1995           1996
                                                                       -----------    -----------   -----------
                                                                                                     (UNAUDITED)
<S>                                                                       <C>            <C>            <C>
                               ASSETS
CURRENT ASSETS
     Cash and cash equivalents......................................   $ 9,041,985    $ 9,448,255    $ 5,720,399
     Accounts receivable, net of allowances of $177,658 in 1994,
       $70,000 in 1995 and $80,000 in 1996..........................     1,746,801        508,238        480,309
     Inventories, net...............................................       454,516      1,947,060      2,783,130
     Prepaid expenses and other current assets......................       290,668        827,712      1,289,477
                                                                       -----------    -----------    -----------
          Total Current Assets......................................    11,533,970     12,731,265     10,273,315
PROPERTY AND EQUIPMENT, net.........................................     1,336,915      2,292,632      2,257,209
SOFTWARE DEVELOPMENT COSTS, net.....................................     2,605,835      3,346,748      3,500,605
                                                                       -----------    -----------    -----------
          TOTAL ASSETS..............................................   $15,476,720    $18,370,645    $16,031,129
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
 
                LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable and accrued liabilities.......................   $   892,697    $ 1,154,396    $   912,989
     Payroll-related liabilities....................................       506,314        223,222        296,526
     Taxes (other than payroll and income)..........................       131,307        197,843         28,825
     Deferred revenue and customers' deposits.......................       220,631         61,973        195,421
                                                                       -----------    -----------    -----------
          Total Current Liabilities.................................     1,750,949      1,637,434      1,433,761
STOCKHOLDERS' EQUITY
     Preferred Stock, $.01 par value per share, 5,000,000 shares
       authorized, none issued and outstanding
     Common Stock, $.001 par value per share, 30,000,000 shares
       authorized, 19,741,268 shares issued and outstanding in 1994,
       21,602,768 in 1995 and 21,706,468 in 1996....................        19,741         21,603         21,707
     Additional paid-in capital.....................................    17,395,481     20,337,872     20,702,484
     Retained deficit...............................................    (3,689,451)    (3,626,264)    (6,126,823)
                                                                       -----------    -----------    -----------
          Total Stockholders' Equity................................    13,725,771     16,733,211     14,597,368
                                                                       -----------    -----------    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..........................   $15,476,720    $18,370,645    $16,031,129
                                                                       -----------    -----------    -----------
                                                                       -----------    -----------    -----------
</TABLE>

 
 The accompanying footnotes are an integral part of these financial statements.
 
                                      F-3
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                            STATEMENTS OF OPERATIONS
 

<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED
                                                 YEAR ENDED DECEMBER 31,                     MARCH 31,
                                        -----------------------------------------    --------------------------
                                           1993           1994           1995           1995           1996
                                        -----------    -----------    -----------    -----------    -----------
                                                                                            (UNAUDITED)
 
<S>                                     <C>            <C>            <C>            <C>            <C>
REVENUES
     License and service fees........   $ 3,875,353    $ 8,691,036    $10,944,788    $ 2,736,768    $   645,622
     Equipment sales.................     1,215,738      1,040,863      1,164,536        612,812         89,164
     Interest income.................       176,594        280,181        475,512        118,984        107,493
                                        -----------    -----------    -----------    -----------    -----------
          Total Revenues.............     5,267,685     10,012,080     12,584,836      3,468,564        842,279
COSTS AND EXPENSES
     Cost of license and service
       fees..........................     1,574,521      2,619,435      3,330,801        922,539        785,200
     Cost of equipment sales.........     1,329,276      1,112,254      1,485,952        611,731        278,405
     Sales and marketing.............       738,068        789,578      2,141,853        507,607        822,873
     General and administrative......     1,563,794      2,269,170      2,115,991        601,783        510,611
     Research and development........     1,268,361      1,661,772      3,445,052        576,777        945,749
                                        -----------    -----------    -----------    -----------    -----------
          Total Costs and Expenses...     6,474,020      8,452,209     12,519,649      3,220,437      3,342,838
                                        -----------    -----------    -----------    -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES....    (1,206,335)     1,559,871         65,187        248,127     (2,500,559)
PROVISION FOR INCOME TAXES...........            --         10,000          2,000          5,000             --
                                        -----------    -----------    -----------    -----------    -----------
NET INCOME (LOSS)....................   $(1,206,335)   $ 1,549,871    $    63,187    $   243,127    $(2,500,559)
                                        -----------    -----------    -----------    -----------    -----------
                                        -----------    -----------    -----------    -----------    -----------
NET INCOME (LOSS) PER SHARE..........       $(0.07)          $0.08          $0.00          $0.01        $(0.12)
                                        -----------    -----------    -----------    -----------    -----------
                                        -----------    -----------    -----------    -----------    -----------
WEIGHTED AVERAGE SHARES
  OUTSTANDING........................    17,363,680     20,297,326     22,026,150     22,158,686     21,608,900
                                        -----------    -----------    -----------    -----------    -----------
                                        -----------    -----------    -----------    -----------    -----------
</TABLE>

 
 The accompanying footnotes are an integral part of these financial statements.
 
                                      F-4


<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
 

<TABLE>
<CAPTION>
                                                        COMMON STOCK         ADDITIONAL
                                                    ---------------------      PAID-IN       RETAINED
                                                      SHARES      AMOUNT       CAPITAL        DEFICIT         TOTAL
                                                    ----------    -------    -----------    -----------    -----------
 
<S>                                                 <C>           <C>        <C>            <C>            <C>
Balance, January 1, 1993.........................   17,216,000    $17,216    $13,472,691    $(4,032,987)   $ 9,456,920
Exercise of common stock warrants................      320,976        321        395,551                       395,872
Exercise of stock options........................      292,000        292        372,552                       372,844
Other............................................                                 33,000                        33,000
Net loss.........................................                                            (1,206,335)    (1,206,335)
                                                    ----------    -------    -----------    -----------    -----------
Balance, December 31, 1993.......................   17,828,976     17,829     14,273,794     (5,239,322)     9,052,301
Exercise of common stock warrants................    1,628,772      1,629      2,764,671                     2,766,300
Exercise of stock options........................      283,520        283        357,016                       357,299
Net income.......................................                                             1,549,871      1,549,871
                                                    ----------    -------    -----------    -----------    -----------
Balance, December 31, 1994.......................   19,741,268     19,741     17,395,481     (3,689,451)    13,725,771
Exercise of stock options........................    1,861,500      1,862      2,942,391                     2,944,253
Net income.......................................                                                63,187         63,187
                                                    ----------    -------    -----------    -----------    -----------
Balance, December 31, 1995.......................   21,602,768     21,603     20,337,872     (3,626,264)    16,733,211
Exercise of stock options (unaudited)............      103,700        104        364,612                       364,716
Net loss (unaudited).............................                                            (2,500,559)    (2,500,559)
                                                    ----------    -------    -----------    -----------    -----------
Balance, March 31, 1996 (unaudited)..............   21,706,468    $21,707    $20,702,484    $(6,126,823)   $14,597,368
                                                    ----------    -------    -----------    -----------    -----------
                                                    ----------    -------    -----------    -----------    -----------
</TABLE>

 
 The accompanying footnotes are an integral part of these financial statements.
 
                                      F-5
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                            STATEMENTS OF CASH FLOWS
 

<TABLE>
<CAPTION>
                                                                                                    THREE MONTHS ENDED
                                                                YEAR ENDED DECEMBER 31,                 MARCH 31,
                                                         -------------------------------------   ------------------------
                                                            1993          1994         1995         1995         1996
                                                         -----------   ----------   ----------   ----------   -----------
                                                                                                       (UNAUDITED)
 
<S>                                                      <C>           <C>          <C>          <C>          <C>
OPERATING ACTIVITIES
     Net income (loss).................................  $(1,206,335)  $1,549,871   $   63,187   $  243,127   $(2,500,559)
     Adjustments to reconcile net income (loss) to net
       cash provided by (used in) operating activities:
       Depreciation and amortization of property and
          equipment....................................      433,062      433,718      609,755      127,401       180,651
       Amortization of software development costs......      556,942      550,257      984,977      241,775       279,972
       Other...........................................       33,000
     Changes in operating assets and liabilities:
       (Increase) decrease in accounts receivable......     (289,689)    (315,949)   1,238,563   (1,528,363)       27,929
       (Increase) decrease in inventories..............     (437,223)     114,663   (1,492,544)    (209,194)     (836,070)
       (Increase) in prepaid expenses and other current
          assets.......................................     (168,138)     (59,122)    (537,044)    (204,007)     (461,765)
       Increase (decrease) in accounts payable and
          accrued liabilities..........................       52,982      370,975      261,699      119,575      (241,407)
       Increase (decrease) in payroll-related
          liabilities..................................       16,711      379,835     (283,092)    (134,552)       73,304
       Increase (decrease) in taxes (other than payroll
          and income)..................................      143,627      (30,427)      66,536        2,120      (169,018)
       Increase (decrease) in deferred revenue and
          customers' deposits..........................       (1,613)     219,436     (158,658)     331,408       133,448
                                                         -----------   ----------   ----------   ----------   -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES....     (866,674)   3,213,257      753,379   (1,010,710)   (3,513,515)
INVESTING ACTIVITIES
     Purchase of property and equipment................     (439,495)    (727,690)  (1,565,472)    (597,204)     (145,228)
     Capitalization of software development costs......     (750,277)  (1,724,722)  (1,725,890)    (413,857)     (433,829)
                                                         -----------   ----------   ----------   ----------   -----------
NET CASH USED IN INVESTING ACTIVITIES..................   (1,189,772)  (2,452,412)  (3,291,362)  (1,011,061)     (579,057)
FINANCING ACTIVITIES
     Proceeds from exercise of common stock warrants...      395,872    2,766,300
     Proceeds from exercise of stock options...........      372,844      357,299    2,944,253      268,399       364,716
                                                         -----------   ----------   ----------   ----------   -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES..............      768,716    3,123,599    2,944,253      268,399       364,716
                                                         -----------   ----------   ----------   ----------   -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...   (1,287,730)   3,884,444      406,270   (1,753,372)   (3,727,856)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.........    6,445,271    5,157,541    9,041,985    9,041,985     9,448,255
                                                         -----------   ----------   ----------   ----------   -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR...............  $ 5,157,541   $9,041,985   $9,448,255   $7,288,613   $ 5,720,399
                                                         -----------   ----------   ----------   ----------   -----------
                                                         -----------   ----------   ----------   ----------   -----------
</TABLE>

 
 The accompanying footnotes are an integral part of these financial statements.
 
                                      F-6


<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                         NOTES TO FINANCIAL STATEMENTS
               (AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND
       FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE UNAUDITED)
 
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES:
 
     Nature  of  Operations  and  Organization  --  Cellular  Technical Services
Company, Inc. (the 'Company') is  primarily engaged in the design,  development,
marketing,  installation and support  of integrated data  processing systems for
the wireless communications  industry. Although the  Company's current  customer
base  is  comprised  of  domestic U.S.  cellular  service  providers, management
believes that demand for the  Company's products extends worldwide. The  Company
was  incorporated in Delaware on  August 19, 1988. Prior  to September 14, 1995,
the Company's single largest stockholder  had been Nationwide Cellular  Service,
Inc. ('Nationwide').
 
     Interim  Financial Information  -- The  financial information  at March 31,
1996 and for  the three months  ended March 31,  1996 and 1995  and the  related
notes  thereto are unaudited, but include  all adjustments (consisting of normal
recurring accruals) that the Company considers necessary for a fair presentation
of the financial position at such date and the operating results and cash  flows
for  those periods. Operating results for the  three months ended March 31, 1996
are not necessarily indicative  of results that may  be expected for the  entire
year.
 
     Cash  and  Cash  Equivalents --  The  Company considers  all  highly liquid
investments with a maturity of  three months or less  when purchased to be  cash
equivalents.
 
     Diversification  of Credit Risk -- The Company is subject to concentrations
of credit risk primarily from  cash investments and accounts receivable.  Credit
risk  from cash  investments is managed  by diversification  of cash investments
among institutions  and by  the purchase  of investment-grade  commercial  paper
securities  which  are  held  to  maturity. The  estimated  fair  values  of the
securities approximate cost.  Credit risk associated  with trade receivables  is
subject  to ongoing credit  evaluations. Reserves for  potential losses, if any,
are maintained where appropriate.
 
     Inventories -- Inventories, which primarily consist of raw materials,  work
in  process,  finished  components, and  data  processing  and telecommunication
equipment, are stated at the lower of cost or market value, with cost determined
on a  first-in, first-out  basis.  Inventories are  integrated for  delivery  to
customers by either the Company or its third-party integrators.
 
     Property  and  Equipment  -- Property  and  equipment,  including leasehold
improvements,  are   stated  at   costs,  less   accumulated  depreciation   and
amortization.  Depreciation and  amortization commences  at the  time assets are
placed in  service and  is  computed using  the  straight-line method  over  the
estimated  useful lives  of the  assets of  two to  five years  or terms  of the
associated  operating   lease.  The   Company  capitalizes   expenditures   that
significantly  increase the  life of the  related assets,  while maintenance and
repairs are  charged to  operations. Gain  or loss  is reflected  in results  of
operations upon the retirement or sale of assets.
 
     Software  Development Costs  -- Software  development costs,  consisting of
purchased and internally developed software, have been capitalized in accordance
with Financial Accounting Standards Board Statement No. 86, 'Accounting for  the
Costs   of  Computer  Software  to  be  Sold,  Leased  or  Otherwise  Marketed.'
Capitalization of software  development costs begins  upon the establishment  of
technological feasibility. The ongoing assessment of the recoverability of these
costs  considers  external factors  including, but  not limited  to, anticipated
future net product revenues, estimated economic life and changes in software and
hardware technology. Amortization of  capitalized software development costs  is
the  greater  of the  amount computed  using  (a) the  ratio that  current gross
revenues for a product bear to the total of current and anticipated future gross
revenues for that  product or (b)  the straight-line method  over the  remaining
estimated  economic life of  the product. Amortization  begins when products are
available for general release.
 
     Revenue Recognition -- Software license  fees are recognized in  accordance
with  contractual agreements entered into between  the Company and its customers
and typically provide  for (a) single  fee license sales  whereby the  purchaser
receives   unlimited  usage  of  the  software   product  for  the  duration  of
 
                                      F-7
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
               (AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND
       FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE UNAUDITED)
 
the contract, (b) fixed monthly payments over  the term of the contract, or  (c)
the  monthly payment of  fees based upon  usage levels, which  may be subject to
predetermined  minimums.  Revenues  from   services  and  equipment  sales   are
recognized  at the time the Company  has completed its material obligations with
respect to each sales transaction. Maintenance revenues, which are included with
service fees, are recognized ratably  over the period that maintenance  coverage
is provided.
 
     Income  Taxes -- The Company follows  the deferred method of accounting for
income taxes whereby deferred tax assets and liabilities are determined based on
differences between  financial  reporting basis  and  tax basis  of  assets  and
liabilities  and are  measured using  the enacted  tax rates  and laws  that are
expected to  be in  effect when  the differences  are expected  to reverse.  The
Company  provides a valuation  allowance for deferred tax  assets that cannot be
currently recognized due to the cumulative losses incurred by the Company.
 
     Net Income (Loss)  Per Share --  The computation of  net income (loss)  per
share  is based  upon the weighted  average number of  common shares outstanding
during the period plus  (in periods in  which they have  a dilutive effect)  the
weighted average effect of common shares contingently issuable upon the exercise
of  stock options and warrants (using  the treasury stock method). Fully diluted
earnings per common and common equivalent share are not presented since dilution
is less than 3%.
 
     Stock-Based Compensation  --  In  October 1995,  the  Financial  Accounting
Standards   Board  issued   Statement  No.  123,   'Accounting  for  Stock-Based
Compensation.' The  Statement  is effective  for  fiscal years  beginning  after
December  15, 1995. Under Statement No. 123, stock-based compensation expense is
measured using either  the intrinsic-value  method as  prescribed by  Accounting
Principles  Board Opinion No. 25 or the fair value method described in Statement
No. 123.  Companies choosing  the  intrinsic-value method  will be  required  to
disclose  the  pro forma  impact  of the  fair value  method  on net  income and
earnings per share. The Company plans  to implement the Statement in 1996  using
the intrinsic-value method; accordingly, there will be no effect of adopting the
Statement on the Company's financial position and results of operations.
 
     Risks and Uncertainties -- Effective for fiscal years ending after December
15,  1995,  the Company  is  required to  disclose,  among other  items, certain
significant risks and uncertainties  in accordance with  the AICPA Statement  of
Position ('SOP') No. 94-6. Management of the Company believes that the risks and
uncertainties discussed below, whether viewed individually or combined, will not
result in a significant unfavorable impact to the Company. However, there can be
no  assurance  that  any  unfavorable outcome  of  the  risks  and uncertainties
discussed below  will  not have  a  material  adverse effect  on  the  Company's
financial position, results of operations or liquidity.
 
     Competition in selling the Company's products continues to grow as cellular
software vendors, cellular carriers and other technology-oriented companies have
developed  or  are  developing products  that  do  or will  compete  against the
Company's  products.  In  connection  with  developing  the  Company's  software
products,   significant  amounts   of  software  development   costs  have  been
capitalized. Additionally,  the  Company  has  purchased  inventories  that  are
intended  to support future product sales. In  the event that the Company is not
successful in generating sufficient future product revenues, the carrying  value
of  capitalized software, inventories,  and other assets  could be significantly
impaired.
 
     The nature of the  Company's business is such  that a single customer  will
account for more than 10% of the Company's product and service revenues during a
given  fiscal  period.  Sales  to  customers  aggregating  10%  or  more, either
individually  or  combined   as  affiliates  due   to  common  ownership,   were
concentrated  as follows:  four customers  with sales of  34%, 17%,  16% and 11%
during the quarterly period ended March 31, 1996, three customers with sales  of
12%, 15% and 59% in 1995, three customers with sales of 11%, 22% and 54% in 1994
and  two customers  with sales of  24% and 56%  in 1993. The  aggregate sales to
these customers (only one of  which has accounted for  more than 10% during  all
periods  presented) represented  83%, 86%,  87% and  80% of  the Company's total
product and  service revenues  during the  1996, 1995,  1994 and  1993  periods,
respectively. There can be no assurances
 
                                      F-8
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
               (AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND
       FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE UNAUDITED)
 
that  such customers will  continue to maintain  business relationships with the
Company. Accordingly,  the loss  of one  or more  major customers  could have  a
material adverse effect on the Company.
 
     Should  the Company's recent  contract signings and  expanded sales efforts
lead to additional sales of its  Blackbird'r' Products, the Company may need  to
obtain additional financing to fund this growth. Factors impacting the need will
be  timing  of contract  signings, negotiated  payment terms,  manufacturing and
inventory lead times and others. Debt or equity financing could be obtained from
currently identified or new sources.
 
     From time to time, the Company  could be subject to involvement with  legal
actions  and claims arising in the ordinary  course of business. The Company has
received a request for indemnification from  a former customer who utilized  the
Company's discontinued phone rental products, pursuant to a contract between the
Company  and  the  former customer  which  includes a  limited  warranty against
infringement. The Company has demanded arbitration to resolve whether it has any
obligation under the contract to indemnify  the former customer against a  claim
of patent infringement brought against the former customer by a third party. The
Company  has conducted  a review  of the underlying  matter and,  based upon the
information currently  available to  the Company,  but subject  to the  inherent
uncertainties  involved in legal  proceedings, believes that  the outcome of the
claim will not be material to the Company.
 
     The preparation  of  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect  the amounts  reported in the  financial statements  and
accompanying notes. Actual results could differ from those estimates.
 
     Reclassifications  -- Certain reclassifications have been made to the prior
year financial statements to conform to the current period's presentation.
 
NOTE B -- INVENTORY:
 
     Inventory consists of the following:
 

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,         MARCH 31,
                                                                   ----------------------  ----------
                                                                     1994         1995         1996
                                                                   --------    ----------  ----------
                                                                                           (UNAUDITED)
 
<S>                                                                <C>         <C>           <C>
Raw materials...................................................   $ 78,901    $  704,641    $  923,515
Work in process and finished components.........................    464,387     1,460,211     2,107,407
                                                                   --------    ----------    ----------
                                                                    543,288     2,164,852     3,030,922
Less inventory reserves.........................................    (88,772)     (217,792)     (247,792)
                                                                   --------    ----------    ----------
                                                                   $454,516    $1,947,060    $2,783,130
                                                                   --------    ----------    ----------
                                                                   --------    ----------    ----------
</TABLE>

 
NOTE C -- PROPERTY AND EQUIPMENT:
 
     Property and equipment consist of the following:
 

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,         MARCH 31,
                                                                 ------------------------  ----------
                                                                    1994          1995         1996
                                                                 ----------    ----------  ----------
                                                                                           (UNAUDITED)
 
<S>                                                              <C>           <C>           <C>
Computer equipment and software...............................   $2,226,661    $2,917,070    $3,041,959
Furniture, fixtures and office equipment......................      558,588     1,220,404     1,240,743
Leasehold improvements........................................       61,166       222,904       222,904
                                                                 ----------    ----------    ----------
                                                                  2,846,415     4,360,378     4,505,606
Less accumulated depreciation and amortization................   (1,509,500)   (2,067,746)   (2,248,397)
                                                                 ----------    ----------    ----------
                                                                 $1,336,915    $2,292,632    $2,257,209
                                                                 ----------    ----------    ----------
                                                                 ----------    ----------    ----------
</TABLE>

 
                                      F-9
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
               (AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND
       FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE UNAUDITED)
 
NOTE D -- SOFTWARE DEVELOPMENT COSTS:
 
     Software development costs consist of the following:
 

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,          MARCH 31,
                                                                 ------------------------   ----------
                                                                    1994          1995         1996
                                                                 ----------    ----------   ---------
                                                                                            (UNAUDITED)
 
<S>                                                              <C>           <C>           <C>
Purchased software............................................   $1,008,167    $1,008,167    $1,008,167
Developed software............................................    3,549,746     5,275,636     5,709,465
                                                                 ----------    ----------    ----------
                                                                  4,557,913     6,283,803     6,717,632
Less accumulated amortization.................................   (1,952,078)   (2,937,055)   (3,217,027)
                                                                 ----------    ----------    ----------
                                                                 $2,605,835    $3,346,748    $3,500,605
                                                                 ----------    ----------    ----------
                                                                 ----------    ----------    ----------
</TABLE>

 
NOTE E -- COMMITMENTS AND CONTINGENCIES:
 
Leases  --  The  Company  leases  office  space  under  separate  non-cancelable
operating  leases that expire in 2000 and contain renewal options for additional
five-year terms. The Company also  leases equipment and telecommunication  lines
and  services under non-cancelable  operating leases with  initial terms ranging
from three to five years expiring through 1999. In addition, the Company  leases
office  space, equipment and telecommunication  lines and services under various
rental agreements with initial terms ranging from one to twelve months.  Amounts
charged  to operations under  all lease and  rental agreements totaled $754,000,
$536,000 and  $555,000 in  1995,  1994 and  1993, respectively.  Future  minimum
annual  lease payments at December 31, 1995, under those agreements with initial
terms greater than one year are as follows:
 

<TABLE>
<S>                                  <C>
1996..............................   $  482,000
1997..............................      631,000
1998..............................      684,000
1999..............................      692,000
2000..............................      503,000
                                     ----------
     Total........................   $2,992,000
                                     ----------
                                     ----------
</TABLE>

 
Royalty Agreements -- The  Company has entered  into three separate  third-party
agreements  that provide  for the payment  of royalties based  on future product
sales. The agreements, some  of which contain  minimum royalty provisions,  have
varying expiration dates.
 
Employment  Agreements  --  The  Company  has  employment  agreements  with four
officers and one senior employee with varying expiration dates extending through
1997.
 
NOTE F -- RELATED-PARTY TRANSACTIONS:
 
     In 1994 and 1993,  the Company licensed certain  of its software  products,
provided   services  and  sold  equipment  to   an  affiliate  that  had  common
shareholders and  management  with  the  Company. Sales  to  the  related  party
amounted  to $422,000 and $1,205,000  for the years ended  December 31, 1994 and
1993,  respectively.  Related-party  receivables  associated  with  such   sales
amounted  to $448,000 as of December 31,  1993. Since February 1994, the Company
has not been an affiliate of the entity to which such products and services were
provided.
 
     During 1991,  the  Company  entered  into  a  management  advisory  service
agreement  with Nationwide at $25,000 per  month for a four-year period expiring
in 1995.  Amounts charged  to  general and  administrative expenses  under  this
agreement  totaled $178,000, $300,000  and $300,000 during  1995, 1994 and 1993,
respectively.
 
                                      F-10
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
               (AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND
       FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE UNAUDITED)
 
NOTE G -- EMPLOYEE RETIREMENT SAVINGS PLAN:
 
     The Company has adopted  an Employee Retirement  Savings Plan (the  'Plan')
covering  substantially all  employees who have  been employed for  at least six
months and meet certain age and eligibility requirements. Each eligible employee
may contribute up  to 15%  of his  or her compensation  per year,  subject to  a
maximum limit imposed by federal tax law, into various funds. Under current plan
provisions,  matching contributions are made by  the Company equal to two-thirds
of the  employee's contribution,  subject to  a maximum  of 6%  of  compensation
contribution  by  the  employee.  Company  contributions  charged  to  costs and
expenses totaled  $97,000,  $57,000 and  $38,000  during 1995,  1994  and  1993,
respectively.
 
NOTE H -- INCOME TAXES:
 
     The  Company had  available for federal  income tax  purposes net operating
loss carry forwards of approximately $27,500,000 and $31,200,000 at December 31,
1995 and  March 31,  1996, respectively,  which  begin to  expire in  2003.  The
federal income tax net operating loss carryforwards exceed the retained deficit,
primarily  due to the differences between  financial reporting and tax treatment
of software development costs and  deductibility of certain amounts on  exercise
of   stock  options.  A   portion  of  the   net  operating  loss  carryforwards
(approximately $21,000,000 and $22,000,000  at December 31,  1995 and March  31,
1996, respectively) are attributed to the stock option deduction, the tax effect
of  which will be credited to additional  paid-in capital when realized. The net
operating loss carryforwards of  the Company have been  and will continue to  be
subject to limitations imposed by Section 382 of the Internal Revenue Code since
there  has  been  an  ownership  change of  greater  than  50%  in  the Company.
Additionally,  the  Company  had  research   and  development  tax  credits   of
approximately  $688,000 at  December 31, 1995  and March  31, 1996 respectively,
which begin to expire in 2003.
 
     Deferred income taxes reflect the net tax effects of temporary  differences
between  the carrying amounts of assets  and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
 

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,                  MARCH 31,
                                                           --------------------------------------   -----------
                                                              1993          1994          1995          1996
                                                           ----------    ----------    ----------   -----------
                                                                                                    (UNAUDITED)
<S>                                                        <C>           <C>           <C>           <C>
Deferred tax assets:
     Net operating loss carryforwards...................   $2,346,000    $2,822,000    $9,363,000    $10,604,000
     Research and development tax credits...............      273,000       450,000       688,000        688,000
     Reserves and allowances on financial statements in
       excess of tax returns............................       62,000       139,000        98,000        144,000
                                                           ----------    ----------    ----------    -----------
          Total deferred tax assets.....................    2,681,000     3,411,000    10,149,000     11,436,000
          Valuation allowance for deferred tax assets...   (2,260,000)   (2,547,000)   (8,988,000)   (10,215,000)
                                                           ----------    ----------    ----------    -----------
          Net deferred tax assets.......................      421,000       864,000     1,161,000      1,221,000
                                                           ----------    ----------    ----------    -----------
Deferred tax liabilities:
     Depreciation on tax returns in excess of financial
       statements.......................................       35,000        38,000        54,000         55,000
     Capitalized software development costs.............      386,000       826,000     1,107,000      1,166,000
                                                           ----------    ----------    ----------    -----------
          Total deferred tax liabilities................      421,000       864,000     1,161,000      1,221,000
                                                           ----------    ----------    ----------    -----------
Net.....................................................   $   --        $   --        $   --        $   --
                                                           ----------    ----------    ----------    -----------
                                                           ----------    ----------    ----------    -----------
</TABLE>

 
                                      F-11
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
               (AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND
       FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE UNAUDITED)
 
     The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax expense is as follows:
 

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,           MARCH 31,
                                                                 ----------------------------------    -----------
                                                                   1993         1994         1995         1996
                                                                 ---------    ---------    --------    -----------
                                                                                                       (UNAUDITED)
 
<S>                                                              <C>          <C>          <C>         <C>
Income tax provision (benefit) at statutory rate of 34%.......   $(410,154)   $ 530,356    $ 22,164     $(850,190)
Losses producing no current tax benefit.......................     410,154                                850,190
Utilization of net operating loss carryforward................                 (530,356)    (22,164)
Alternative minimum tax -- current............................                   10,000       2,000
                                                                 ---------    ---------    --------    -----------
Provision for income taxes....................................   $  --        $  10,000    $  2,000     $  --
                                                                 ---------    ---------    --------    -----------
                                                                 ---------    ---------    --------    -----------
</TABLE>

 
NOTE I -- STOCKHOLDERS' EQUITY: Stock Split -- On January 10, 1994, the  Company
declared  a two-for-one split  of its Common  Stock, $.001 par  value per share,
effected by a 100% stock dividend  whereby each holder of Common Stock  received
one  additional share of Common Stock for each share held. The additional shares
were distributed on  February 15, 1994.  All outstanding common  shares and  per
share  amounts in the accompanying  financial statements have been retroactively
adjusted to give effect to the two-for-one stock split.
 
Class A Warrant  Redemption -- On  January 28, 1994,  the Company exercised  its
right  to redeem, at a  price of $.25 per Warrant,  all 287,500 Class A Warrants
issued in  1992. Each  Class A  Warrant had  entitled the  registered holder  to
purchase,  at a price  of $8.00 per Warrant,  four shares of  Common Stock for a
period of three years ending May 12, 1995. As of March 18, 1994 (the termination
date of the Warrant exercise period), substantially all of the outstanding Class
A Warrants had been exercised in exchange for 1,149,748 shares of Common  Stock.
Proceeds  to  the  Company, net  of  expenses  of $176,885  associated  with the
issuance of the Common Stock, amounted to $2,122,611.
 
Underwriter's Warrants -- In connection with the initial public offering of  its
securities  in 1991, the  Company sold to  its underwriter, at  a nominal price,
Underwriter's Warrants to purchase 100,000 units  at an exercise price of  $5.75
per  unit. Each unit consisted of four shares of Common Stock and one underlying
warrant to purchase  for $5.00  four additional shares  of Common  Stock. As  of
December  31,  1994,  the Company  had  issued  800,000 shares  of  Common Stock
associated  with  the  exercise  of  all  Underwriter's  Warrants  and  Warrants
underlying  the  Underwriter's Warrants.  Proceeds  to the  Company  amounted to
$643,689 in 1994 and $395,872, net of registration expenses of $35,440, in 1993.
 
Nationwide Cellular Service,  Inc. --  Prior to September  14, 1995,  Nationwide
owned  6,680,000 shares of the  Company's Common Stock and  was the holder of an
option to purchase  an additional 1,280,000  shares. On September  14, 1995,  in
conjunction   with  the   merger  between  Nationwide   and  MCI  Communications
Corporation, Nationwide exercised its option and distributed the combined  total
of  7,960,000 shares  to its stockholders.  As a  result of the  exercise of the
option, the Company received  $1,600,000 and issued  1,280,000 shares of  Common
Stock.
 
Stock  Options -- The Company has adopted a 1991 Qualified Stock Option Plan and
a 1991 Non-Qualified Stock Option Plan. Pursuant to the 1991 Qualified Plan,  as
amended,  the Company may  grant options to  purchase up to  2,800,000 shares of
Common Stock to its officers and key employees, at a price which may not be less
than the fair market value  per share of Common Stock  on the date of grant  and
have  a term of ten years. Pursuant  to the 1991 Non-Qualified Plan, as amended,
the Company may grant options to purchase up to 1,200,000 shares of Common Stock
to its directors, officers, key employees and others who render services to  the
Company  at such price as fixed by  the Compensation and Stock Option Committee.
Options granted under both the 1991  Qualified Plan and 1991 Non-Qualified  Plan
generally  vest to  the respective option  holders at  the rate of  20% per year
commencing
 
                                      F-12
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
               (AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND
       FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE UNAUDITED)
 
on the  first anniversary  date of  the  grant. In  December 1993,  the  Company
adopted  the  1993 Non-E  mployee Director  Stock Option  Plan which  allows the
Company to  grant options  to purchase  up to  300,000 shares  of Common  Stock.
Pursuant  to the 1993 Non-Employee Director  Plan, each non-employee director is
to be granted  options to purchase  20,000 shares of  Common Stock upon  initial
appointment  as a director of  the Company and an  additional 12,000 options, in
recurring annual increments, at a price equal to the fair market value per share
of Common Stock on  the date of grant.  Options under the Non-Employee  Director
Plan  vest to the respective option holder after one year and have a term of ten
years.
 
The Company has also granted options to purchase 920,000 shares of Common  Stock
at  fair  market value  to  certain directors  and  officers of  the  Company at
exercise prices ranging  from $1.25  to $6.13 per  share. These  options are  in
addition  to those granted under the 1991 Qualified and Non-Qualified Plans, the
1993 Non-Employee  Director Plan,  and  the options  previously granted  to  and
subsequently  exercised  by Nationwide  (as discussed  above). The  options have
terms ranging from five to  ten years and vest  to the respective option  holder
over periods ranging from two to five years.
 
Information with respect to the Company's stock options is as follows:
 

<TABLE>
<CAPTION>
                                                                    SHARES UNDER
                                                                       OPTION            OPTION PRICES
                                                                    ------------    -----------------------
 
<S>                                                                 <C>             <C>       <C>    <C>
Balance, December 31, 1992.......................................     2,846,000     $ 1.00     -     $ 2.11
Granted..........................................................     1,897,200       1.67     -       6.13
Exercised........................................................      (292,000)      1.00     -       2.11
Canceled.........................................................      (269,600)      1.00     -       5.41
                                                                    ------------
Balance, December 31, 1993.......................................     4,181,600       1.00     -       6.13
                                                                    ------------
Granted..........................................................       724,000       6.00     -       7.25
Exercised........................................................      (283,520)      1.00     -       5.41
Canceled.........................................................       (92,000)      1.67     -       5.41
                                                                    ------------
Balance, December 31, 1994.......................................     4,530,080       1.00     -       7.25
                                                                    ------------
Granted..........................................................       462,900       7.13     -      12.38
Exercised........................................................    (1,861,500)      1.00     -       7.25
Canceled.........................................................      (116,820)      1.00     -       8.25
                                                                    ------------
Balance, December 31, 1995.......................................     3,014,660       1.00     -      12.38
Granted (unaudited)..............................................        33,000      12.00     -      12.56
Exercised (unaudited)............................................      (103,700)      1.67     -       8.25
Canceled (unaudited).............................................        (4,920)      7.25     -      10.94
                                                                    ------------
                                                                    ------------
Balance, March 31, 1996 (unaudited)..............................     2,939,040       1.00     -      12.56
                                                                    ------------
                                                                    ------------
Exercisable at December 31, 1995.................................       844,680       1.00     -       7.25
                                                                    ------------
                                                                    ------------
Exercisable at March 31, 1996 (unaudited)........................       904,780       1.00     -       8.25
                                                                    ------------
                                                                    ------------
Available for grant at December 31, 1995.........................     1,032,320
                                                                    ------------
                                                                    ------------
Available for grant at March 31, 1996 (unaudited)................     1,004,240
                                                                    ------------
                                                                    ------------
Reserved for future issuance at December 31, 1995................     4,046,980
                                                                    ------------
                                                                    ------------
Reserved for future issuance at March 31, 1996 (unaudited).......     3,943,280
                                                                    ------------
                                                                    ------------
</TABLE>

 
                                      F-13
 

<PAGE>
 

<PAGE>
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
               (AMOUNTS AND DISCLOSURES AS OF MARCH 31, 1996 AND
       FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE UNAUDITED)
 
NOTE J -- RECENT CONTRACTS:
 
     In  March  1996, the  Company signed  a  five-year agreement  with AirTouch
Cellular ('AirTouch'), under which the Company will be the exclusive provider of
cellular fraud prevention systems using  radio frequency technology to  AirTouch
and  its affiliates. Under the terms of  the agreement, the Company and AirTouch
will begin installation of the  Blackbird Platform and PreTect fraud  prevention
software  application in AirTouch's Atlanta and Los Angeles markets immediately.
The exclusive  five-year  agreement,  which  calls for  the  purchase  of  these
products  for  at  least  1,000  cell  sites,  schedules  minimum  deployment in
approximately half of  the cell  sites during 1996  and 1997.  In addition,  the
Company  and  AirTouch signed  five-year  agreements for  the  Company's support
services and real-time roaming fraud  prevention service. The real-time  roaming
fraud  prevention  service will  provide  seamless protection  initially between
AirTouch's controlled  and affiliated  markets  and subsequently  between  these
markets and the markets of other cellular carriers who contract with the Company
for its real-time fraud prevention roaming services.
 
     In  March 1996, the Company signed  an interim agreement with Bell Atlantic
NYNEX Mobile ('BANM') whereby the Company  and BANM are currently deploying  its
Blackbird  Platform and PreTect products in BANM's New York market. Concurrently
both parties are negotiating a definitive Master Purchase and License Agreement,
which will ultimately  determine the size  and scope of  an anticipated  greater
deployment.  The  Company believes  that the  definitive agreement  will include
installation of the  Company's products  in a  large percentage  of BANM's  cell
sites,   and  will  also  include  provisions  for  the  Company's  support  and
maintenance services  and  the  Company's  real-time  roaming  fraud  prevention
service.
 
NOTE K -- SUBSEQUENT EVENTS:
 
     On  June 14, 1996  the Company declared  a two-for-one split  of its Common
Stock, $.001 par value per share, effected by a 100% stock dividend whereby each
holder of Common  Stock will receive  one additional share  of Common Stock  for
each  share held. Distribution of  the shares is to take  place on June 27, 1996
for shareholders of record on June  24, 1996. All outstanding Common Shares  and
per   share  amounts  in   the  accompanying  financial   statements  have  been
retroactively adjusted to give effect to the two for one stock split.
 
     In June 1996, the Company  signed a Letter of  Intent with GTE Mobilnet  of
California, L.P. ('GTE') to deploy at least 150 units of the Company's Blackbird
Platform  and PreTect  in GTE's  San Francisco market.  The Company  and GTE are
currently negotiating a definitive agreement and expect deployment of such units
to begin in the second half of 1996.
 
     In June 1996,  the Company's  stockholders approved the  1996 Stock  Option
Plan ('the 1996 Plan') which is designed to provide an incentive to employees of
the  Company and to offer an additional  inducement in obtaining the services of
such  persons.  The  1996   Plan  covers  both   incentive  stock  options   and
non-qualified  stock  options.  As a  result  of  this adoption,  no  shares are
available for grant under  either the 1991 Qualified  Stock Option Plan and  the
1991  Non-Qualified Stock  Option Plan.  The 1996  Plan authorizes  the grant of
options to purchase a maximum of 1,100,000 shares of the Company's Common Stock.
Options to purchase an aggregate of 160,000 shares of Common Stock were  granted
subsequent to the plan adoption.
 
     During April through June 30, 1996 the Company granted 160,000 shares under
its  option  plans.  Additionally,  237,280 options  were  exercised  and 69,600
options were cancelled during the same period.
 

     In June 1996,  the Company's  Board of Directors  authorized management  to
file  a Registration  Statement with the  Securities and  Exchange Commission to
sell up to 1,758,900 Shares of its Common Stock to the public.

 
                                      F-14


<PAGE>
 

<PAGE>
_____________________________                      _____________________________
 
     NO  DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE  ANY REPRESENTATIONS OTHER THAN  THOSE CONTAINED IN  THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED  BY THE COMPANY OR ANY OF  THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL  OR A SOLICITATION OF AN  OFFER TO BUY ANY  SECURITY
OTHER  THAN THE SHARES OF  COMMON STOCK OFFERED BY  THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES  OF
COMMON  STOCK BY ANYONE IN ANY JURISDICTION  IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE  PERSON MAKING SUCH OFFER OR SOLICITATION  IS
NOT  QUALIFIED TO DO SO,  OR TO ANY PERSON  TO WHOM IT IS  UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL,  UNDER  ANY  CIRCUMSTANCES, CREATE  ANY  IMPLICATION  THAT  THE
INFORMATION  CONTAINED HEREIN IS CORRECT  AS OF ANY TIME  SUBSEQUENT TO THE DATE
HEREOF.
                            ------------------------
 
                              TABLE OF CONTENTS
 

<TABLE>
<CAPTION>
                                                                                                                               PAGE
                                                                                                                               ----
<S>                                                                                                                            <C>
Prospectus Summary..........................................................................................................     3
Risk Factors................................................................................................................     8
Use of Proceeds.............................................................................................................    16
Dilution....................................................................................................................    16
Price Range of Common Stock.................................................................................................    17
Dividend Policy.............................................................................................................    17
Capitalization..............................................................................................................    18
Selected Financial Data.....................................................................................................    19
Management's Discussion and Analysis of Financial Condition and Results of Operation........................................    20
Business....................................................................................................................    27
Management..................................................................................................................    39
Principal and Selling Shareholders..........................................................................................    48
Certain Transactions........................................................................................................    49
Description of Capital Stock................................................................................................    49
Shares Eligible for Future Sale.............................................................................................    50
Underwriting................................................................................................................    52
Legal Matters...............................................................................................................    53
Experts.....................................................................................................................    53
Additional Information......................................................................................................    53
Index to Financial Statements...............................................................................................   F-1
</TABLE>

 
                            ------------------------
     UNTIL                            ,  1996 (25  DAYS AFTER THE  DATE OF  THIS
PROSPECTUS),  ALL  DEALERS EFFECTING  TRANSACTIONS IN  THE COMMON  STOCK OFFERED
HEREBY, WHETHER OR NOT  PARTICIPATING IN THIS DISTRIBUTION,  MAY BE REQUIRED  TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF  THE DEALERS  TO DELIVER  A PROSPECTUS WHEN  ACTING AS  UNDERWRITERS AND WITH
RESPECT TO THEIR ALLOTMENTS OR SUBSCRIPTIONS.
 
                               CELLULAR TECHNICAL
                             SERVICES COMPANY, INC.
 
                                1,726,000 SHARES
                                  COMMON STOCK
 
                       ---------------------------------
                                   PROSPECTUS
                       ---------------------------------
 
                    GERARD  KLAUER  MATTISON  &  CO. ,  LLC
 
                                         , 1996
 
_____________________________                      _____________________________


<PAGE>
 

<PAGE>

 
                                   PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
     All  of  the  expenses  listed  below  are  estimated  except  for  the SEC
registration fee and the NASD filing fee. The itemized statement below  includes
all  expenses  in  connection  with the  distribution  of  the  securities being
registered, other than underwriting discounts and commissions:
 

<TABLE>
<S>                                                                               <C>
Securities and Exchange Commission registration fee............................   $ 12,320.07
NASD filing fee................................................................      4,073.00
Blue Sky fees and expenses (including attorneys' fees and expenses)............     16,625.00
Printing and engraving expenses................................................     80,000.00
Transfer Agent's fees and expenses.............................................      2,500.00
Accounting fees and expenses...................................................     65,000.00
Legal fees and expenses........................................................    100,000.00
Miscellaneous expenses.........................................................     19,481.93
                                                                                  -----------
     TOTAL.....................................................................   $300,000.00
                                                                                  -----------
                                                                                  -----------
</TABLE>

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
     The Company  is incorporated  under  the laws  of  the State  of  Delaware.
Section  145 of the General  Corporation Law of the  State of Delaware ('Section
145') provides that a Delaware corporation may indemnify any persons who are, or
are threatened  to be  made, parties  to any  threatened, pending  or  completed
action,   suit  or  proceeding,  whether   civil,  criminal,  administrative  or
investigative (other than an action by or in the right of such corporation),  by
reason  of the fact that such person  was a director, officer, employee or agent
of such corporation, or is or was serving at the request of such corporation  as
a  director,  officer, employee  or agent  of another  corporation, partnership,
joint venture, trust  or other  enterprise. The indemnity  may include  expenses
(including  attorneys' fees),  judgments, fines  and amounts  paid in settlement
actually and reasonably incurred by such person in connection with such  action,
suit  or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best  interests
and,  with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was  unlawful. A Delaware corporation may  indemnify
any  persons who are, or  are threatened to be made,  a party to any threatened,
pending or completed action  or suit by  or in the right  of the corporation  by
reason  of the fact that such person  was a director, officer, employee or agent
of another corporation, partnership, joint  venture, trust or other  enterprise.
The  indemnity  may include  expenses (including  attorneys' fees)  actually and
reasonably incurred by such person in connection with the defense or  settlement
of such action or suit, provided such person acted in good faith and in a manner
he  reasonably  believed to  be  in or  not  opposed to  the  corporation's best
interests except that no indemnification is permitted without judicial  approval
if  the director,  officer, employee or  agent is  adjudged to be  liable to the
corporation. Where a director, officer, employee  or agent is successful on  the
merits  or  otherwise  in the  defense  of  any action  referred  to  above, the
corporation must indemnify him  against the expenses which  he has actually  and
reasonably incurred.
 
     The Company's certificate of incorporation provides for the indemnification
of  directors and  officers of  the Company to  the fullest  extent permitted by
Section 145.
 
     The Underwriting Agreement contains, among other things, provisions whereby
the Underwriters agree to  indemnify the Company, each  officer and director  of
the  Company  who has  signed  the Registration  Statement  and each  person who
controls the Company  within the  meaning of Section  15 of  the Securities  Act
against  any losses, liabilities,  claims or damages arising  out of the alleged
untrue statements  or  alleged  omissions  of material  facts  with  respect  to
information  furnished  to  the  Company  by the  Underwriters  for  use  in the
Registration Statement or Prospectus. See Item 17 'Undertakings.'
 
                                      II-1
 

<PAGE>
 

<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
     Not applicable.
 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a) Exhibits:
 


<TABLE>
     <C>     <S>
      1.1    -- Form of Underwriting Agreement(11)
      3.1    -- Restated Certificate of Incorporation of the Registrant, as amended(1)
      3.2    -- By-Laws of the Registrant(1)
      3.3    -- Amendment I to By-Laws of the Registrant, dated October 28, 1993(4)
      4.1    -- Specimen Certificate for Common Stock of Registrant(1)
      5.1    -- Opinion of Parker Chapin Flattan & Klimpl, LLP(12)
      7.1    -- 1991 Qualified Stock Option Plan (as amended as of November 30, 1993)(3)(+)
      7.2    -- 1991 Non-Qualified Stock Option Plan (as amended as of November 30, 1993)(3)(+)
      7.3    -- 1993 Non-Employee Director Stock Option Plan(4)(+)
      7.4    -- 1996 Stock Option Plan(11)
     10.1    -- Employment Agreement between the Registrant and Robert P. Dahut dated January 31, 1994(4)(+)
     10.2    -- Employment Agreement between the Registrant and Michael E. McConnell dated January 1, 1993(4)(+)
     10.3    -- Employment Agreement between the Registrant and Kyle R. Sugamele dated June 29, 1995(9)(+)
     10.4    -- Agreement of Lease dated May 23, 1994 between the Registrant and Martin Selig Properties(7)
     10.4A   -- Amendment to Lease dated April 7, 1995 between the Registrant and Martin Selig Properties(9)
     10.5    -- Master Purchase and Licensing Agreement dated July 1, 1991 among the Registrant, LIN Broadcasting
                Corporation and American Cellular Communications(a)(2)
     10.5A   -- Amendment I dated July 1, 1993 to Master Purchase and License Agreement: Hotwatch System, between
                Registrant and Los Angeles Cellular Telephone Company(b)(4)
     10.6    -- Technical Services Agreement dated December 1, 1993, between Registrant and McCaw Cellular
                Communications, Inc.(c)(5)
     10.7    -- Source Code License Agreement (CTS Software) dated December 1, 1993, between Registrant and McCaw
                Cellular Communications, Inc.(c)(5)
     10.8    -- Source Code License Agreement (McCaw Software) dated July 15, 1994, between Registrant and McCaw
                Cellular Communications, Inc.(c)(5)
     10.9    -- Purchase and License Agreement (Metered Billing and Creditwatch) dated November 3, 1994, between
                Registrant and McCaw Cellular Communications, Inc.(d)(6)
     10.10   -- Master Purchase and Licensing Agreement dated November 30, 1994 among the Registrant and Sprint
                Cellular Company(f)(7)
     10.11   -- Master Purchase and License Agreement between the Registrant and AirTouch Cellular dated March 6,
                1996(10)
     10.12   -- Support Services Agreement between the Registrant and AirTouch Cellular dated March 6, 1996(10)
     10.13   -- Service Agreement for Real-Time Prevention of Roaming Cloning Fraud between the Registrant and
                AirTouch Cellular dated March 6, 1996(10)
     10.14   -- Interim Agreement with Bell Atlantic NYNEX Mobile(10)
     10.15   -- Patent Sublicense Agreement between Registrant and The Boeing Company dated April 29, 1994(f)(7)
     10.16   -- Patent Sublicense Agreement between Registrant and Motron Electronics dated May 24, 1995(e)(8)
     10.17   -- Patent License Agreement between Registrant and AirTouch Cellular, dated December 22, 1995(10)
     11.1    -- Statement Regarding Computation of Earnings Per Share(11)
     23.1    -- Consent of Ernst & Young LLP(11)
</TABLE>


 
                                      II-2
 

<PAGE>
 

<PAGE>
 

<TABLE>
     <C>     <S>
     23.2    -- Consent of Parker Chapin Flattau & Klimpl, LLP (included in opinion filed as Exhibit 5.1)
</TABLE>

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


<TABLE>
<C>    <S>
  (a)  Confidential treatment granted pursuant to order of the Secretary of the Securities and Exchange Commission
       dated April 16, 1992 (File No. 33-46531).
  (b)  Confidential treatment granted pursuant to order of the Secretary of the Securities and Exchange Commission
       dated May 24, 1994 (File No. 0-19437).
  (c)  Confidential treatment granted pursuant to order of the Secretary of the Securities and Exchange Commission
       dated December 1, 1994 (File No. 0-19437).
  (d)  Confidential treatment granted pursuant to order of the Secretary of the Securities and Exchange Commission
       dated April 21, 1995 (File No. 0-19437).
  (e)  Confidential treatment granted pursuant to order of the Secretary of the Securities and Exchange Commission
       dated January 25, 1996 (File No. 0-19437).
  (f)  Confidential treatment granted pursuant to order of the Secretary of the Securities and Exchange Commission
       dated April 21, 1995 (File No. 0-19437).
  (+)  Management contract or compensation plan or arrangement required to be noted as provided in Item 14(a)(3).
  (1)  Incorporated by reference to Registration Statement on Form S-1 declared effective on August 6, 1991 (File
       No. 33-41176).
  (2)  Incorporated by reference to Registration Statement on Form S-1 filed on March 19, 1992 (File No. 33-46531).
  (3)  Incorporated by reference to Registration Statement on Form S-8 filed on March 7, 1994 (File No. 33-76128).
  (4)  Incorporated by reference to Annual Report on Form 10-K filed on March 30, 1994 for the year ended December
       31, 1993 (File No. 0-19437).
  (5)  Incorporated by reference to Quarterly Report on Form 10-Q filed on August 12, 1994 for the quarter ended
       June 30, 1994 (File No. 0-19437).
  (6)  Incorporated by reference to Quarterly Report on Form 10-Q filed on November 11, 1994 for the quarter ended
       September 30, 1994 (File No. 0-19437).
  (7)  Incorporated by reference to Annual Report on Form 10-K filed on March 28, 1995 for the year ended December
       31, 1994 (File No. 0-19437).
  (8)  Incorporated by reference to Quarterly Report on Form 10-Q filed on August 8, 1995 for the quarter ended June
       30, 1995 (File No. 0-19437).
  (9)  Incorporated by reference to Annual Report on Form 10-K filed on March 29, 1996 for the year ended December
       31, 1995 (File No. 0-19437).
 (10)  Incorporated by reference to Annual Report on Form 10-K filed on March 29, 1996 for the year ended December
       31, 1995 (File No. 0-19437) for which a request for confidential treatment was submitted pursuant to Rule
       24b-2 of the Securities and Exchange Commission which request is currently pending.
 (11)  Filed herewith.
 (12)  To be filed by Amendment.
</TABLE>


 
- ------------
     (b) Financial Statement Schedules:
 
          For the three years ended December 31, 1995:
 
             Report of Ernst & Young LLP
 
             Schedule II -- Valuation and Qualifying Accounts
 
     All other schedules  are omitted  because they  are not  applicable or  the
required information is shown in the financial statements.
 

ITEM 17. UNDERTAKINGS.
 
     The undersigned registrant hereby undertakes to provide to the Underwriters
at  the closing  specified in  the underwriting  agreement certificates  in such
denominations and registered in  such names as required  by the Underwriters  to
permit prompt delivery to each purchaser.
 
     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 registrant  pursuant to the  foregoing provisions, or  otherwise,
the  registrant  has been  advised that  in  the opinion  of the  Securities and
 
                                      II-3
 

<PAGE>
 

<PAGE>
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
registrant  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 registrant 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.
 
     The undersigned registrant hereby undertakes that:
 
          (1)  For  purposes of  determining any  liability  under the  Act, the
     information omitted  from the  form of  prospectus filed  as part  of  this
     registration  statement in reliance upon Rule  430A and contained in a form
     of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)  or
     497(h)  under  the Act  shall be  deemed  to be  part of  this registration
     statement as of the time it was declared effective.
 
          (2) For the purpose of determining  the liability under the Act,  each
     post-effective amendment that contains a form of prospectus 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.
 
                                      II-4


<PAGE>
 

<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 New  York, State of New
York, on the 2nd  day of July 1996.
 
                                          CELLULAR TECHNICAL SERVICES COMPANY,
                                          INC.
 
                                          By:        /S/ STEPHEN KATZ
                                              _________________________________
                                            STEPHEN KATZ, CHAIRMAN OF THE BOARD
                                                       OF DIRECTORS
                                                AND CHIEF EXECUTIVE OFFICER
 
     KNOW ALL MEN BY  THESE PRESENTS, that each  person whose signature  appears
below constitutes and appoints each of Stephen Katz and Michael E. McConnell his
true and lawful attorney-in-fact and agent, each with full power of substitution
and  resubstitution, for him  and in his name,  place and stead,  in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits  thereto
and  other documents in  connection therewith, with  the Securities and Exchange
Commission, granting unto each said  attorney-in-fact and agent, full power  and
authority  to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or  could do  in person,  hereby ratifying  and confirming  all that  said
attorney-in-fact  and agent  or either  of them  or their  or his  substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
 
     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:
 

<TABLE>
<CAPTION>
                SIGNATURE                                      TITLE                              DATE
- ------------------------------------------  --------------------------------------------   -------------------
 
<C>                                         <S>                                            <C>
             /s/ STEPHEN KATZ               Chairman of the Board of Directors and Chief      July 2, 1996
- ------------------------------------------    Executive Officer
               STEPHEN KATZ
 
           /s/ ROBERT P. DAHUT              Director, President and Chief Operating           July 2, 1996
- ------------------------------------------    Officer
             ROBERT P. DAHUT
 
         /s/ MICHAEL E. MCCONNELL           Vice President and Chief Financial                July 2, 1996
- ------------------------------------------    Officer (Principal Financial and
           MICHAEL E. MCCONNELL               Accounting Officer)
 
             /s/ JAY GOLDBERG               Director                                          July 2, 1996
- ------------------------------------------
               JAY GOLDBERG
</TABLE>

 
                                      II-5


<PAGE>
 

<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
     We  have audited  the financial  statements of  Cellular Technical Services
Company, Inc. as of December 31, 1994 and 1995, and for each of the three  years
in  the period ended December 31, 1995, and have issued our report thereon dated
March 1, 1996, except for the first paragraph of Note K as to which the date  is
June  24, 1996, (included elsewhere in  this Registration Statement). Our audits
also included the  financial statement  schedule listed  in Item  16(b) of  this
Registration  Statement. That  schedule is  the responsibility  of the Company's
management. Our responsibility is to express an opinion based on our audits.
 
     In our opinion, the  financial statement schedule  referred to above,  when
considered  in  relation to  the basic  financial statements  taken as  a whole,
presents fairly in all material respects the information set forth therein.
 
                                          /s/ ERNST & YOUNG LLP
 
Seattle, Washington
March 1, 1996, except for the first paragraph of Note K as to which the date  is

June 24, 1996.
 

<PAGE>
 

<PAGE>
                                                                     SCHEDULE II
 
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
 

<TABLE>
<CAPTION>
                                                                  BALANCE AT                                BALANCE AT
                                                                 BEGINNING OF                                 END OF
                                                                    PERIOD       ADDITIONS    DEDUCTIONS      PERIOD
                                                                 ------------    ---------    ----------    ----------
 
<S>                                                              <C>             <C>          <C>           <C>
Inventory Reserves
     Year ended December 31, 1993.............................     $ 30,066      $  43,235     $ 18,394      $ 54,907
                                                                 ------------    ---------    ----------    ----------
                                                                 ------------    ---------    ----------    ----------
     Year ended December 31, 1994.............................     $ 54,907      $ 136,075     $102,210      $ 88,772
                                                                 ------------    ---------    ----------    ----------
                                                                 ------------    ---------    ----------    ----------
     Year ended December 31, 1995.............................     $ 88,772      $ 180,446     $ 51,426      $217,792
                                                                 ------------    ---------    ----------    ----------
                                                                 ------------    ---------    ----------    ----------
Sales and Receivable Allowances
     Year ended December 31, 1993.............................     $ 30,450      $  24,000     $  9,666      $ 44,784
                                                                 ------------    ---------    ----------    ----------
                                                                 ------------    ---------    ----------    ----------
     Year ended December 31, 1994.............................     $ 44,784      $ 152,444     $ 19,570      $177,658
                                                                 ------------    ---------    ----------    ----------
                                                                 ------------    ---------    ----------    ----------
     Year ended December 31, 1995.............................     $177,658      $ (58,340)    $ 49,318      $ 70,000
                                                                 ------------    ---------    ----------    ----------
                                                                 ------------    ---------    ----------    ----------
</TABLE>



                              STATEMENT OF DIFFERENCES
                              ------------------------

The trademark symbol shall be expressed as...................... 'tm'
The registered trademark symbol shall be expressed as .......... 'r'
The service mark symbol shall be expressed as .................. SM
The degree symbol shall be expressed as ........................ [d].


<PAGE>







<PAGE>


                                                                    Draft 7/1/96




                                __________ Shares

                    CELLULAR TECHNICAL SERVICES COMPANY, INC.

                            (a Delaware Corporation)

                                  Common Stock
                           (Par Value $0.001 Per Share)



                             UNDERWRITING AGREEMENT



                                                                     July , 1996


GERARD KLAUER MATTISON & CO., LLC
As Representative of the
   several underwriters
   named in Schedule I hereto
c/o Gerard Klauer Mattison & Co., LLC
529 Fifth Avenue
New York, New York 10017



Dear Sirs:

         Cellular Technical Services Company,  Inc., a Delaware corporation (the
"Company"),  proposes to issue and sell ____________ shares of its Common Stock,
$0.001 par value (the  "Company  Shares") to the several  underwriters  named in
Schedule  I hereto  (the  "Underwriters").  The  selling  shareholders  named in
Schedule  II  hereto  (the  "Selling  Shareholders")  shall  also  sell  to  the
Underwriters   _____________   shares  of  the  Company's  Common  Stock,   (the
"Shareholder  Shares").  Upon  your  request,  as  provided in Section 2 hereof,
certain  of  the  Selling  Shareholders shall have the right to, and the Company
will  be  obligated  to  sell  to the Underwriters an aggregate of not more than
_______ additional  shares  of its Common Stock (the "Additional Shares") solely
for  the  purposes  of covering over-allotments, if any. As used herein, (i) the
"Initial  Shares"  shall  mean  the  Company  Shares  and Shareholder Shares and
(ii) the "Shares" shall mean the
 Company Shares, the Shareholder Shares, and the
Additional Shares.

                                       -1-



<PAGE>
 

<PAGE>



         1. Registration Statement and Prospectus.  The Company has prepared and
filed  with  the  Securities  and  Exchange  Commission  (the  "Commission")  in
accordance  with the provisions of the  Securities Act of 1933, as amended,  and
the rules and regulations of the Commission thereunder  (collectively called the
"Act"), a registration  statement on Form S-1 including a prospectus relating to
the Shares, which may be amended.  The registration  statement as amended at the
time when it becomes  effective,  including a  registration  statement  (if any)
filed  pursuant to Rule 462(b) under the Act increasing the size of the offering
registered  under  the Act and  information  (if any)  deemed  to be part of the
registration  statement  at the time of  effectiveness  pursuant to Rule 430A or
Rule  434  under  the  Act,  is  hereinafter  referred  to as the  "Registration
Statement";  and the prospectus  (including any prospectus subject to completion
taken  together with any term sheet meeting the  requirements  of Rule 434(b) or
Rule 434(c) under the Act) in the form first used to confirm  sales of Shares is
hereinafter referred as the "Prospectus".

         2. Agreements to Sell and Purchase. On the basis of the representations
and  warranties  contained  in this  Agreement,  and  subject  to its  terms and
conditions, the Company agrees to issue and sell, and each Underwriter agrees to
purchase,  severally  and  jointly,  from the  Company  at a price  per share of
$______  (the  "Purchase  Price")  the  number of  Company  Shares  set forth in
Schedule I hereto;  the Selling  Shareholders agree to sell and each Underwriter
agrees to purchase,  severally and jointly, from the Selling Shareholders at the
Purchase Price the number of Shareholder Shares set forth in Schedule II hereto.

         On the basis of the  representations  and warranties  contained in this
Agreement,  and  subject to its terms and conditions,  the Selling  Shareholders
have the option to sell in the aggregate  up to  _______  Additional Shares, and
to the  extent  the  Selling Shareholders  exercise their  option to sell in the
aggregate  less than all of the  Additional Shares,  the Company agrees to issue
and sell any portion  of or all of the Additional Shares,  and the  Underwriters
shall  have the  right to  purchase, severally  and  jointly,  up to  __________
Additional  Shares  from  the  Selling  Shareholders  and  the  Company  at  the
Purchase  Price. Additional   Shares  may  be  purchased  solely for the purpose
of covering over-allotments  made in connection with the offering of the Company
Shares. The Underwriters may exercise their right to purchase  Additional Shares
in whole or in part from time to time by giving written  notice  thereof through
you  to  the  Company  within  30 days  after the date of this  Agreement.  Such
notice  shall specify the aggregate  number of Additional Shares to be purchased
pursuant to such exercise and the  date for payment and  delivery  thereof.  The
date specified in any such notice  shall be a  business day  (i) no earlier than
the Closing Date (as hereinafter defined),  (ii) no later than two business days
after  such notice has been given and  (iii)  no earlier than  two business days
after such notice has been given.  If any Additional Shares are to be purchased,
each  Underwriter,  severally and not jointly,  agrees to purchase the number of
Additional Shares (subject  to  such  adjustments to eliminate fractional shares
as you  may determine)  which bears the same  proportion  to the total number of
Additional Shares  as  the  number of  Company  Shares  set forth  opposite  the
name of  such  Underwriter in  Schedule I  bears  to the total number of Company
Shares.

         The Company hereby agrees and the Company shall,  concurrently with the
execution of this  Agreement,  deliver an agreement  executed by (i) each of the
directors and officers of the Company, and (ii) each shareholder listed on Annex
I  hereto,  pursuant  to which  each such  person  agrees,  not to offer,  sell,
contract to sell,  grant any option to  purchase,  or  otherwise  dispose of any
Common
                                       -2-



<PAGE>
 

<PAGE>



Stock of the  Company  or any  securities  convertible  into or  exercisable  or
exchangeable  for such Common  Stock or in any other  manner  transfer  all or a
portion of the economic  consequences  associated with the ownership of any such
common  stock,  except to the  Underwriters  pursuant to this  Agreement,  for a
period of 180 days after the date of the  Prospectus  without your prior written
consent.  Notwithstanding the foregoing,  during such period (i) the Company may
grant stock  options  pursuant to the Company's  existing  stock option plan and
(ii) the Company may issue  shares of its Common  Stock upon the  exercise of an
option or warrant outstanding on the date hereof or the conversion of a security
outstanding on the date hereof.

         3. Terms of Public  Offering.  The Company has been advised by you that
the  Underwriters  propose  (i) to make a public  offering  of their  respective
portions  of the Shares as soon  after the  effective  date of the  Registration
Statement  as in your  judgment is  advisable  and (ii)  initially  to offer the
Shares upon the terms set forth in the Prospectus.

         4. Delivery and Payment.  Delivery to the  Underwriters  of and payment
for the Initial  Shares shall be made at 10:00 A.M.,  New York City time, on the
date (the  "Closing  Date")  that is the third or fourth  business  day,  unless
otherwise  permitted by the Commission pursuant to Rule 15c6-1 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), following the date of the
initial public offering, at such place as you shall designate.  The Closing Date
and the  location of delivery of and the form of payment for the Initial  Shares
may be varied by agreement among you, the Company and the Selling Shareholders.

         Delivery to the  Underwriters of and payment for any Additional  Shares
to be  purchased  by the  Underwriters  shall be made at such place as you shall
designate  at 10:00  A.M.,  New York City  time,  on the date  specified  in the
applicable  exercise  notice  given by you  pursuant  to  Section 2 (an  "Option
Closing Date"). Any such Option Closing Date and the location of delivery of and
the form of  payment  for such  Additional  Shares  may be varied  by  agreement
between you and the Company.

         Certificates  for the  Shares  shall be  registered  in such  names and
issued in such  denominations as you shall request in writing not later than two
full business  days prior to the Closing Date or an Option  Closing Date, as the
case may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day next preceding the
Closing  Date  or the  applicable  Option  Closing  Date,  as the  case  may be.
Certificates  in definitive form evidencing the Company Shares or the Additional
Shares shall be delivered  to you on the Closing Date or the  applicable  Option
Closing Date,  as the case may be, with any transfer  taxes thereon duly paid by
the Company,  for the respective  accounts of the several  Underwriters  against
payment of the  Purchase  Price  therefor on such date by  certified or official
bank check or checks to the order of the  Company  payable in New York  Clearing
House Funds or similar  next-day  funds or by wire  transfer of similar funds to
such account as the Company may specify at least two days in advance of payment.
Certificates  in definitive  form  evidencing  the  Shareholder  Shares shall be
delivered to you on the Closing Date,  with any transfer taxes thereon duly paid
by the  Selling  Shareholders,  for  the  respective  accounts  of  the  several
Underwriters  against  payment of the  Purchase  Price  therefor on such date by
certified or official bank check or checks to the order of the

                                       -3-



<PAGE>
 

<PAGE>



Selling  Shareholders'  attorney-in-fact  (as  named  herein),  as agent for the
Selling  Shareholders,  in New York  Clearing  House  Funds or similar  next-day
funds.

         5.       Agreements  of  the  Company.  The  Company  agrees  with  the
Underwriters:

                  (a)      To use its best efforts  to  cause  the  Registration
Statement to become effective at the earliest possible time.

                  (b) To advise  you  promptly  and,  if  requested  by you,  to
confirm such advice in writing,  (i) when the Registration  Statement has become
effective and when any post-effective amendment to it becomes effective, (ii) of
any request by the Commission for  amendments to the  Registration  Statement or
amendments or supplements to the Prospectus or for additional information, (iii)
of the issuance by the Commission of any stop order suspending the effectiveness
of the  Registration  Statement or of the  suspension  of  qualification  of the
Shares  for  offering  or sale in any  jurisdiction,  or the  initiation  of any
proceeding for such purposes,  and (iv) of the happening of any event during the
period  referred  to in  paragraph  (e) below  which  makes any  statement  of a
material fact made in the  Registration  Statement or the  Prospectus  untrue or
which  requires the making of any  additions  to or changes in the  Registration
Statement  or the  Prospectus  in  order  to make  the  statements  therein  not
misleading.  If at any time the Commission shall issue any stop order suspending
the  effectiveness  of the Registration  Statement,  the Company will make every
reasonable  effort to obtain  the  withdrawal  or  lifting  of such order at the
earliest possible time.

                  (c) To furnish to you and each Underwriter  designated by you,
without  charge,  as  many  signed  copies  of  the  Registration  Statement  as
originally  filed with the Commission and of each amendment to it, including all
exhibits,  and such number of conformed copies of the Registration  Statement as
so filed and of each amendment  thereto  (including  documents  incorporated  by
reference  into the  Prospectus  but  without  exhibits)  as you may  reasonably
request.

                  (d)  Not  to  file  any   amendment  or   supplement   to  the
Registration  Statement,  whether  before  or  after  the time  when it  becomes
effective,  or to make any amendment or supplement to the Prospectus  (including
the  issuance  or filings of any term sheet  within the  meaning of Rule 434) of
which  you  shall  not  previously  have  been  advised  or to which  you  shall
reasonably  object;  and to prepare and file with the Commission,  promptly upon
your  reasonable  request,  any  amendment  to  the  Registration  Statement  or
supplement  to the  Prospectus  (including  the  issuance or filings of any term
sheet  within the meaning of Rule 434) which may be  necessary  or  advisable in
connection  with the  distribution  of the  Shares  by you,  and to use its best
efforts to cause the same to become promptly effective.

                  (e)  Promptly  after  the   Registration   Statement   becomes
effective, and from time to time thereafter for such period as in the opinion of
counsel for the  Underwriters a prospectus is required by law to be delivered in
connection  with  sales  by an  Underwriter  or a  dealer,  to  furnish  to each
Underwriter and dealer as many copies of the Prospectus (and of any amendment or
supplement  to the  Prospectus)  as such  Underwriter  or dealer may  reasonably
request.

                                       -4-



<PAGE>
 

<PAGE>



                  (f) If during the period  specified in paragraph (e) any event
shall  occur  as  a  result  of  which,  in  the  opinion  of  counsel  for  the
Underwriters,  it becomes  necessary to amend or  supplement  the  Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with any law,  forthwith to prepare
and file with the  Commission  an  appropriate  amendment or  supplement  to the
Prospectus  so  that  the  statements  in  the  Prospectus,  as  so  amended  or
supplemented,  will  not  in  the  light  of  the  circumstances  when  it is so
delivered, be misleading, or so that the Prospectus will comply with law, and to
furnish to each Underwriter and to such dealers as you shall specify such number
of copies thereof as such Underwriters or dealers may reasonably request.

                  (g) Prior to any public  offering of the Shares,  to cooperate
with you and counsel for the Underwriters in connection with the registration or
qualification  of the Shares for offer and sale under state  securities  or Blue
Sky  laws  of  such   jurisdictions  as  you  may  request,   to  continue  such
qualification  in effect so long as required for  distribution of the Shares and
to file such  consents  to  service  of  process  or other  documents  as may be
necessary in order to effect such registration or qualification.

                  (h) To mail and make generally  available to its  stockholders
as soon as reasonably  practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration  Statement (but
in no event  commencing  later than 90 days after such date) which shall satisfy
the  provisions  of Section  11(a) of the Act, and to advise you in writing when
such statement has been so made available.

                  (i) During  the  period of five  years  after the date of this
Agreement,  (i) to mail as soon as reasonably  practicable after the end of each
fiscal year to the record holders of its Common Stock a financial  report of the
Company,  all such financial  reports to include a balance sheet, a statement of
operations, a statement of cash flows and a statement of shareholders' equity as
of the end of and for such fiscal year, together with comparable  information as
of the end of and for the preceding  year,  certified by  independent  certified
public  accountants,  and (ii) to mail and make  generally  available as soon as
practicable  after  the end of  each  quarterly  period  (except  for  the  last
quarterly  period of each  fiscal  year) to such  holders,  a balance  sheet,  a
statement of  operations  and a statement of cash flows as of the end of and for
such period,  and for the period from the beginning of such year to the close of
such  quarterly   period,   together  with   comparable   information   for  the
corresponding periods of the preceding year.

                  (j) During the period referred to in paragraph (i), to furnish
to you as soon as  available a copy of each report or other  publicly  available
information  of the Company  mailed to the holders of its Common  Stock or filed
with the Commission and such other publicly available information concerning the
Company as you may reasonably request.

                  (k)      To pay all costs, expenses, fees and  taxes  incident
to (i) the preparation,  printing,  filing and distribution under the Act of the
Registration Statement (including financial statements

                                       -5-



<PAGE>
 

<PAGE>



and exhibits), each preliminary prospectus and all amendments and supplements to
any of them prior to or during the period  specified in paragraph  (e), (ii) the
printing and delivery of the  Prospectus and all amendments or supplements to it
during the period specified in paragraph (e), (iii) the printing and delivery of
this  Agreement,  the Preliminary  and  Supplemental  Blue Sky Memoranda and all
other  agreements,  memoranda,  correspondence  and  other  documents  prepared,
printed or delivered in connection with the offering of the Shares (including in
each case any  disbursements  of counsel for the  Underwriters  relating to such
preparation,  printing or delivery),  (iv) the  registration or qualification of
the  Shares  for offer and sale  under  the  securities  or Blue Sky laws of the
several states (including in each case the fees and disbursements of counsel for
the Underwriters  relating to such  registration or qualification  and memoranda
relating thereto),  (v) the filings and clearance with the National  Association
of Securities Dealers, Inc. in connection with the offering,  (vi) the inclusion
of the [Company] Shares [and the Additional Shares] on the National  Association
of Securities Dealers Automated Quotation  ("NASDAQ") National Market System and
(vii) furnishing such copies of the Registration  Statement,  the Prospectus and
all amendments and supplements thereto as may be requested for use in connection
with the  offering  or sale of the Shares by the  Underwriters  or by dealers to
whom Shares may be sold.

                  (l) To use its best efforts to maintain the  inclusion of such
Common Stock in the NASDAQ National  Market System (or on a national  securities
exchange)  for  a  period  of  five  years  after  the  effective  date  of  the
Registration Statement.

                  (m) To use its  best  efforts  to do and  perform  all  things
required or  necessary  to be done and  performed  under this  Agreement  by the
Company  prior to the Closing Date or any Option  Closing  Date, as the case may
be, and to satisfy all conditions precedent to the delivery of the Shares.

         6.       Representations  and  Warranties  of the Company.  The Company
represents and warrants you that:

                  (a) The Registration  Statement has become effective;  no stop
order suspending the  effectiveness  of the Registration  Statement is in effect
and no  proceedings  for such purpose are pending  before or  threatened  by the
Commission.

                  (b) (i) Each  part of the  Registration  Statement,  when such
part  became  effective,  did not  contain  and each such  part,  as  amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading,  (ii) the Registration  Statement
and the Prospectus comply and, as amended or supplemented,  if applicable,  will
comply in all material  respects with the Act and (iii) the Prospectus  does not
contain and, as amended or  supplemented,  if  applicable,  will not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the statements  therein,  in the light of the circumstances  under which
they were made, not misleading,  except that the  representations and warranties
set forth in this  paragraph  (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information

                                       -6-



<PAGE>
 

<PAGE>



relating  to any  Underwriter  furnished  to the  Company  in  writing  by  such
Underwriter through you expressly for use therein.

                  (c)  Each   preliminary   prospectus  filed  as  part  of  the
registration  statement as originally filed or as part of any amendment thereto,
or filed  pursuant to Rule 424 under the Act,  and each  Registration  Statement
filed  pursuant to Rule 462(b) under the Act, if any,  complied when so filed in
all material respects with the Act; and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary  to make the  statements  therein,  in the light of the  circumstances
under which they were made, not misleading.

                  (d)  The  Company  has  been  duly  incorporated,  is  validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its business
as it is currently being conducted and to own, lease and operate its properties,
and is duly qualified to do business in each jurisdiction in which the nature of
its   business  or  its   ownership  or  leasing  of  property   requires   such
qualification,  except  where the  failure to be so  qualified  would not have a
material adverse effect on the Company.

                  (e)      The Company has no subsidiaries.

                  (f) All the outstanding shares of capital stock of the Company
(including the Shareholder  Shares) have been duly authorized and validly issued
and are fully paid,  non-assessable and not subject to any preemptive or similar
rights;  and the  Company  Shares  and the  Additional  Shares  have  been  duly
authorized  and, when issued and delivered to the  Underwriters  against payment
therefor as provided by this Agreement,  will be validly issued,  fully paid and
non-assessable,  and the issuance of such Company Shares and  Additional  Shares
will not be subject to any preemptive or similar rights.

                  (g) The authorized capital stock of the Company, including the
Common Stock,  conforms as to legal matters to the description thereof contained
in the Prospectus.

                  (h) The Company is not in  violation of its charter or by-laws
or in default in the  performance  of any  obligation,  agreement  or  condition
contained in any bond, debenture,  note or any other evidence of indebtedness or
in any other agreement,  indenture or instrument to which the Company is a party
or by which it or its property is bound, except for such violations and defaults
which would not reasonably be expected to have a material  adverse effect on the
business or condition (financial or otherwise) of the Company.

                  (i) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the consummation of
the  transactions  contemplated  hereby will not require any consent,  approval,
authorization  or other  order of any  court,  regulatory  body,  administrative
agency or other  governmental  body  (except as such may be  required  under the
securities or Blue Sky laws of the various states) and will not conflict with or
constitute a breach of any of the terms or  provisions  of, or a default  under,
the charter or by-laws of the Company or any

                                       -7-



<PAGE>
 

<PAGE>



agreement,  indenture or other  instrument to which it is a party or by which it
or its property is bound,  or violate or conflict with any laws,  administrative
regulations  or rulings  or court  decrees  applicable  to the  Company  and its
property.

                  (j) Except as otherwise set forth in the Prospectus, there are
no material legal or governmental  proceedings pending to which the Company is a
party or of which any of its  property is the  subject,  and, to the best of the
Company's  knowledge,  no such  proceedings are threatened or  contemplated.  No
contract or document of a character required to be described in the Registration
Statement  or the  Prospectus  or to be filed as an exhibit to the  Registration
Statement is not so described or filed as required.

                  (k) The Company has not violated any foreign,  federal,  state
or local law or  regulation  relating  to the  protection  of human  health  and
safety,  the environment or hazardous or toxic substances or wastes,  pollutants
or contaminants ("Environmental Laws"), nor any federal or state law relating to
discrimination  in the hiring,  promotion or pay of employees nor any applicable
federal  or state  wages and hours  laws,  nor any  provisions  of the  Employee
Retirement  Income  Security  Act  or  the  rules  and  regulations  promulgated
thereunder,  which in each case might result in any material  adverse  change in
the  business,  prospects,  financial  condition  or results of operation of the
Company.

                  (l) The Company has such  permits,  licenses,  franchises  and
authorizations of governmental or regulatory authorities ("permits"), including,
without limitation, under any applicable Environmental Laws, as are necessary to
own,  lease and operate its  respective  properties and to conduct its business;
the Company has fulfilled and  performed  all of its material  obligations  with
respect to such permits and no event has occurred which allows,  or after notice
or lapse of time would allow,  revocation or  termination  thereof or results in
any other  material  impairment  of the rights of the holder of any such permit;
and, except as described in the Prospectus, such permits contain no restrictions
that are materially burdensome to the Company.

                  (m) In  the  ordinary  course  of its  business,  the  Company
conducts a periodic review of the effect of Environmental  Laws on the business,
operations and  properties of the Company,  in the course of which it identifies
and evaluates associated costs and liabilities  (including,  without limitation,
any  capital  or  operating  expenditures  required  for  clean-up,  closure  of
properties  or  compliance  with  Environmental  Laws or any permit,  license or
approval,  any related  constraints  on operating  activities  and any potential
liabilities  to third  parties).  On the basis of such  review,  the Company has
reasonably  concluded  that such  associated  costs and  liabilities  would not,
singly or in the aggregate, have a material adverse effect on the Company.

                  (n) Except as otherwise set forth in the Prospectus or such as
are not material to the business,  prospects,  financial condition or results of
operation of the Company,  the Company has good and marketable  title,  free and
clear of all liens, claims, encumbrances and restrictions except liens for taxes
not  yet  due  and  payable,  to  all  property  and  assets  described  in  the
Registration  Statement as being owned by it. All leases to which the Company is
a party are valid and binding

                                       -8-



<PAGE>
 

<PAGE>



and no default has occurred or is continuing  thereunder,  which might result in
any material adverse change in the business,  prospects,  financial condition or
results of  operation  of the  Company,  and the  Company  enjoys  peaceful  and
undisturbed  possession under all such leases to which any of them is a party as
lessee with such exceptions as do not materially  interfere with the use made by
the Company.

                  (o) The Company owns or possesses  adequate  rights to use all
patents,  trademarks  registrations,  service marks, service mark registrations,
trade names, mask works,  copyrights,  licenses,  inventions,  trade secrets and
rights  necessary for each of the products and technology  which the Company has
identified in the  Prospectus as having been  developed by the Company,  and the
Company  is not aware of any claims to the  contrary  or any  challenges  by any
other  person to the rights of the Company with  respect to the  foregoing.  The
Company's  business as now conducted  does not and will not infringe or conflict
with, in any material respect, patents,  trademarks,  service marks, mask works,
trade  names,  copyrights,   licenses,   inventions,   trade  secrets  or  other
intellectual  property or franchise  rights of any person or entity,  except for
such  infringements  or  conflicts  which would not  reasonably  have a material
adverse  effect on the business or condition  (financial  or  otherwise)  of the
Company.  Except as described in the Prospectus,  no claim has been made against
the Company alleging the infringement by the Company of any patent,  trademarks,
service marks, mask works, trade names, copyrights,  licenses, inventions, trade
secrets or other  intellectual  property  or  franchise  rights of any person or
entity.  The Company has duly and properly  filed or caused to be filed with the
United  States  Patent and  Trademark  (the "PTO") all its United  States patent
applications  described or referred to in the Prospectus.  The Company has clear
title to its patents and patent applications referred to in the Prospectus.

                  (p)      The Company  maintains reasonably adequate insurance.

                  (q)      Ernst & Young LLP are independent  public accountants
with respect to the Company as required by the Act.

                  (r) The financial statements,  together with related schedules
and notes forming part of the Registration Statement and the Prospectus (and any
amendment or supplement  thereto),  present  fairly the  consolidated  financial
position, results of operations and changes in financial position of the Company
on the basis stated in the Registration Statement at the respective dates or for
the  respective  periods  to which  they  apply;  such  statements  and  related
schedules  and notes have been prepared in accordance  with  generally  accepted
accounting  principles  consistently  applied  throughout the periods  involved,
except as disclosed therein; and the other financial and statistical information
and data set forth in the  Registration  Statement and the  Prospectus  (and any
amendment  or  supplement  thereto)  is, in all  material  respects,  accurately
presented and prepared on a basis consistent with such financial  statements and
the books and records of the Company.

                  (s) The Company is not and, immediately after the Closing Date
will not be, an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.

                                       -9-



<PAGE>
 

<PAGE>



                  (t) No holder of any  security of the Company has any right to
require  registration  of shares of Common  Stock or any other  security  of the
Company.

                  (u) There are no outstanding subscriptions,  rights, warrants,
options, calls, convertible securities,  commitments of sale or liens related to
or  entitling  any person to purchase or  otherwise to acquire any shares of the
capital stock of, or other ownership  interest in, the Company thereof except as
otherwise disclosed in the Registration Statement.

                  (v) All  material  tax  returns  required  to be  filed by the
Company in any  jurisdiction  have been filed,  other than those  filings  being
contested in good faith, and all material taxes,  including  withholding  taxes,
penalties and interest, assessments, fees and other charges due pursuant to such
returns or pursuant to any  assessment  received by the Company  have been paid,
other than those being  contested in good faith and for which adequate  reserves
have been provided.

                  (w) The Company has filed a registration statement pursuant to
Section 12(g) of the Exchange  Act, to register the Common  Stock,  has filed an
application  to list the  [Company]  Shares [and the  Additional  Shares] on the
NASDAQ National Market System,  and has received  notification  that the listing
has been  approved,  subject to notice of issuance of the [Company]  Shares [and
the Additional Shares].

                  (x) The  Company  has  signed  agreements  with AT&T  Wireless
Services,  LIN Broadcasting Company,  American Cellular  Communications,  360[d]
Communications  Company  (formerly  Sprint Cellular  Company),  Ameritech Mobile
Communications,  Inc., AirTouch Cellular,  and Bell Atlantic NYNEX Mobile. These
agreements,  as  described  in the  Prospectus,  have  been  duly  executed  and
delivered and are valid, binding and in full force and effect.

                  (y) The Company has complied  with all  provisions  of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).

                  (z)  There  are no  business  relationships or  related  party
transactions  required to be disclosed  therein by Item 404 of Regulation S-K of
the Commission.

         [Additional  representations  may  be  added  after  consultation  with
representatives of Gerard Klauer Mattison & Co., LLC]

         7.       Representations  and  Warranties  of the Selling Shareholders.
Each  Selling  shareholder  severally and not jointly represents and warrants to
the Underwriters  that:

                  (a)  Such  Selling  Shareholder  is the  lawful  owner  of the
Shareholder  Shares  which may be sold by such Selling  Shareholder  pursuant to
this  Agreement and has, and on the Option  Closing Date,  if  applicable,  will
have, good and clear title to such Shares, free of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever.

                                      -10-



<PAGE>
 

<PAGE>



                  (b) Upon  delivery of and payment for such Shares  pursuant to
this  Agreement,  good  and  clear  title  to  such  Shares  will  pass  to  the
Underwriters,  free  of  all  restrictions  on  transfer,  liens,  encumbrances,
security  interests and claims  whatsoever except as set forth in this Agreement
or in the Custody Agreement (as defined herein).

                  (c) Such Selling  Shareholder has full legal right,  power and
authority to enter into this  Agreement  and the Custody  Agreement  between the
Selling Shareholders and _____________, as Custodian (the "Custody  Agreement"),
and to sell, assign,  transfer and deliver such Shareholder Shares in the manner
provided herein and therein,  and this Agreement and the Custody  Agreement have
been duly  authorized,  executed and delivered by such Selling  Shareholder  and
each of this  Agreement  and  the  Custody  Agreement  is a  valid  and  binding
agreement of such Selling Shareholder  enforceable in accordance with its terms,
except as rights to  indemnity  and  contribution  hereunder  may be  limited by
applicable  law or  equitable  principles,  and  except  as may  be  limited  by
bankruptcy,   reorganization   or  moratorium  or  similar  laws  affecting  the
enforceability  of  creditors'  rights  generally  and  rules  of law  governing
specific performance, injunctive relief and other equitable remedies.

                  (d) The power of attorney  signed by such Selling  Shareholder
appointing  Stephen  Katz  and  Michael E.  McConnell  or either  one of them as
his or its attorney-in-fact  ("Selling  Shareholders'  attorney-in-fact") to the
extent set forth therein with regard to the transaction  contemplated hereby and
by  the  Registration   Statement  and  the  Custody  Agreement  has  been  duly
authorized,  executed and delivered by or on behalf of such Selling  Shareholder
and is a valid and binding instrument of such Selling Shareholder enforceable in
accordance   with  its  terms   except  as  may  be   limited   by   bankruptcy,
reorganization,  moratorium  or similar laws  affecting  the  enforceability  of
creditors'  rights  generally and rules of law governing  specific  performance,
injunctive relief and other equitable  remedies,  and, pursuant to such power of
attorney,  such Selling Shareholder has authorized and or either one of them, to
execute and deliver on his or its behalf this  Agreement and any other  document
necessary or desirable in connection with transactions  contemplated  hereby and
to deliver the Shares which may be sold by such Selling Shareholder  pursuant to
this Agreement.

                  (e) Such Selling Shareholder has not taken, and will not take,
directly or  indirectly,  any action  designed to, or which might  reasonably be
expected to, cause or result in  stabilization  or  manipulation of the price of
any  security  of the  Company  to  facilitate  the sale or resale of the Shares
pursuant to the  distribution  contemplated by this Agreement and, other than as
permitted by the Act, the Selling  Shareholder  has not distributed and will not
distribute  any  prospectus or other  offering  material in connection  with the
offering and sale of the Shares.

                  (f) The execution,  delivery and performance of this Agreement
by such Selling Shareholder, compliance by such Selling Shareholder with all the
provisions hereof and the consummation of the transactions  contemplated  hereby
will not  require any  consent,  approval,  authorization  or other order of any
court, regulatory body, administrative agency or other governmental body (except
such as may be required under the Act or state securities or Blue Sky

                                      -11-



<PAGE>
 

<PAGE>



laws),  and will not  conflict  with or  constitute  a breach of any  agreement,
indenture or other instrument to which such Selling Shareholder is a party or by
which such Selling  Shareholder  or any property of such Selling  Shareholder is
bound, or violate or conflict with any law, administrative  regulation or ruling
or court  decree  applicable  to such  Selling  Shareholder  or property of such
Selling Shareholder.

                  (g) Such parts of the Registration Statement under the caption
"Principal and Selling  Shareholders"  which specifically relate to such Selling
Shareholder  do not,  and will not on the Closing  Date (and any Option  Closing
Date, if applicable), contain any untrue statement of a material fact or omit to
state any material fact  required to be stated  therein or necessary to make the
statements  therein,  in light of circumstances  under which they were made, not
misleading.

                  (h) At any time during the period  described in paragraph 5(e)
hereof, if there is any change in the information  referred to in paragraph 7(g)
above with respect to such Selling  Shareholder,  such Selling  Shareholder will
immediately notify you of such change.

         8.  Indemnification.  (a) The  Company  agrees  to  indemnify  and hold
harmless each Underwriter and each person,  if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the  Exchange  Act,
from and against any and all losses, claims, damages,  liabilities and judgments
(i) caused by any untrue  statement  or alleged  untrue  statement of a material
fact contained in the Registration  Statement (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or caused by
any omission or alleged omission to state therein a material fact required to be
stated  therein or necessary to make the  statements  therein not  misleading or
(ii) caused by any untrue statement or alleged untrue statement of material fact
contained  in the  Prospectus  or any  preliminary  prospectus  or caused by any
omission or alleged  omission to state  therein a material  fact  required to be
stated  therein or necessary  to make the  statements  therein,  in light of the
circumstances under which they were made, not misleading, except insofar as such
losses, claims, damages,  liabilities or judgments are caused by any such untrue
statement  or  omission  or alleged  untrue  statement  or  omission  based upon
information relating to any Underwriter  furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use therein; provided,
however,  that the foregoing indemnity agreement with respect to any preliminary
prospectus  shall  not inure to the  benefit  of any  Underwriter  from whom the
person asserting any such losses,  claims, damages and liabilities and judgments
purchased Shares, or any person  controlling such Underwriter,  if a copy of the
Prospectus (as then amended or  supplemented if the Company shall have furnished
any amendments or supplements  thereto) was not sent or given by or on behalf of
such  Underwriter to such person,  if required by law so to have been delivered,
at or prior  to the  written  confirmation  of the  sale of the  Shares  to such
person, and if the Prospectus (as so amended and supplemented)  would have cured
the defect giving rise to such loss, claim, damage, liability or judgment.

         (b) In case any action shall be brought  against any Underwriter or any
person controlling such Underwriter,  based upon any preliminary prospectus, the
Registration  Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be


                                      -12-



<PAGE>
 

<PAGE>



sought hereunder,  such Underwriter shall promptly notify the Company in writing
and the Company shall assume the defense  thereof,  including the  employment of
counsel  reasonably  satisfactory to such  indemnified  party and payment of all
fees and expenses. Any Underwriter or any such controlling person shall have the
right to employ  separate  counsel  in any such  action and  participate  in the
defense  thereof,  but the fees and  expenses  of such  counsel  shall be at the
expense of such Underwriter or such controlling person unless (i) the employment
of such  counsel  shall  have been  specifically  authorized  in  writing by the
Company,  (ii) the  Company  shall have  failed to assume the defense and employ
counsel within a reasonable  time after notice of  commencement of the action or
(iii) the named parties to any such action  (including  any  impleaded  parties)
include both such  Underwriter  or such  controlling  person and the Company and
such  Underwriter  or such  controlling  person  shall have been advised by such
counsel  that  there may be one or more  legal  defenses  available  to it which
involve a conflict of interest  with the interests of the Company (in which case
the  Company  shall not have the right to assume the  defense of such  action on
behalf of such  Underwriter or such  controlling  person,  it being  understood,
however,  that the Company shall not, in connection  with any one such action or
separate but  substantially  similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances,  be liable for the
fees and  expenses of more than one separate  firm of attorneys  (in addition to
any local counsel) for all such Underwriters and controlling persons, which firm
shall be designated in writing by you and that all such fees and expenses  shall
be  reimbursed  as they are  incurred).  The Company shall not be liable for any
settlement of any such action  effected  without its written  consent,  provided
that such consent shall not be  unreasonably  withheld,  but if settled with the
written  consent  of the  Company,  the  Company  agrees to  indemnify  and hold
harmless any  Underwriter and any such  controlling  person from and against any
loss or liability by reason of such  settlement.  No  indemnifying  party shall,
without  the  prior  written  consent  of  the  indemnified  party,  effect  any
settlement  of any  pending  or  threatened  proceeding  in respect of which any
indemnified  party is or could have been a party and  indemnity  could have been
sought hereunder by such indemnified party,  unless such settlement  includes an
unconditional  release of such  indemnified  party from all  liability on claims
that are the subject matter of such proceeding.

         (c) Each Selling  Shareholder  agrees,  severally  and not jointly,  to
indemnify  and hold  harmless  each  Underwriter  and each  person,  if any, who
controls any Underwriter  within the meaning of Section 15 of the Act or Section
20 of the  Exchange  Act from and against any and all losses,  claims,  damages,
liabilities and judgments (including,  without limiting the foregoing,  the fees
and  expenses  of  counsel  incurred  in  connection  with any  action,  suit or
governmental  or regulatory  proceeding)  (i) caused by any untrue  statement or
alleged  untrue  statement  of a material  fact  contained  in the  Registration
Statement (as amended or  supplemented  if the Company shall have  furnished any
amendments  or  supplements  thereto),  or caused  by any  omission  or  alleged
omission  to state  therein a material  fact  required  to be stated  therein or
necessary to make the  statements  therein not  misleading or (ii) caused by any
untrue statement or alleged untrue statement of a material fact contained in the
Prospectus  or any  preliminary  prospectus or caused by any omission or alleged
omission  to state  therein a material  fact  required  to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading (but, in the case of any such  Registration
Statement or Prospectus,  only insofar as such statement
                                      -13-



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<PAGE>



or omission  was made in reliance  upon  written  information  furnished by such
Selling Shareholder to the Company or an Underwriter  specifically for inclusion
therein),  except insofar as (i) such losses,  claims,  damages,  liabilities or
judgments are caused by any such untrue  statement or omission or alleged untrue
statement  or  omission  based  upon  information  relating  to any  Underwriter
furnished  in  writing  to the  Selling  Shareholder  by or on  behalf  of  such
Underwriter  through you expressly for use therein or (ii) such losses,  claims,
damages,  liabilities or judgments  arise out of or are based upon any action or
alleged untrue statement or omission made in or from any preliminary  prospectus
but  corrected  in the  Prospectus,  as amended or  supplemented,  if the person
asserting any such loss,  claim,  damage or liability  purchased such securities
from such  Underwriter,  but was not sent or given,  at or prior to the  written
confirmation  of such sale, a copy of the  Prospectus  (or of the  Prospectus as
then amended or supplemented), in any case where such delivery is required under
the Act, and where the Prospectus (as amended or supplemented)  would have cured
the defect  giving rise to such loss,  claim,  damage,  liability  or  judgment.
Notwithstanding   the  foregoing,   the  aggregate   liability  of  any  Selling
Shareholder  pursuant to the provisions of this paragraph shall be limited to an
amount  equal  to  the  aggregate   purchase  price  received  by  such  Selling
Shareholder  from  the sale of such  Selling  Shareholder's  Shareholder  Shares
hereunder.

         (d) In case any action shall be brought  against any Underwriter or any
person controlling such Underwriter,  based upon any preliminary prospectus, the
Registration  Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against a Selling Shareholder,
such Underwriter or such person controlling an Underwriter shall promptly notify
such Selling  Shareholder in writing and such Selling  Shareholder  shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to such indemnified  party and payment of all fees and expenses of such counsel.
Any  Underwriter or any such  controlling  person shall have the right to employ
separate counsel in any such action and participate in the defense thereof,  but
the  fees  and  expenses  of  such  counsel  shall  be at the  expense  of  such
Underwriter  or such  controlling  person,  other than the Selling  Shareholder,
unless (i) the  employment of such counsel has been  specifically  authorized in
writing by such Selling Shareholder, (ii) such Selling Shareholder has failed to
assume the defense  thereof and employ  counsel  within a reasonable  time after
notice of  commencement  of the  action or (iii) the named  parties  to any such
action  (including any impleaded  parties) include both such Underwriter or such
controlling  person and such Selling  Shareholder,  and such Underwriter or such
controlling person shall have been advised by such counsel that there may be one
or more legal defenses available to it which involve a conflict of interest with
the interests of the Company (in which case, such Selling  Shareholder shall not
have  the  right  to  assume  the  defense  of such  action  on  behalf  of such
Underwriter or such controlling person, it being understood,  however, that such
Selling  Shareholder  shall  not,  in  connection  with any one such  action  or
separate but  substantially  similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances,  be liable for the
fees and  expenses of more than one separate  firm of attorneys  (in addition to
any local counsel) for all such Underwriters and controlling persons, which firm
shall be designated in writing by you, and that all such fees and expenses shall
be  reimbursed  as they are  incurred).  Such Selling  Shareholder  shall not be
liable for any  settlement  of any such  action  effected  without  the  written
consent of such Selling  Shareholder,  provided  that such consent  shall not be
unreasonably  withheld.  Such Selling
                                      -14-



<PAGE>
 

<PAGE>



Shareholder  shall not,  without the prior  written  consent of the  indemnified
party, effect any settlement of any pending or threatened  proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought  hereunder by such  indemnified  party,  unless such settlement
includes an unconditional  release of such indemnified  party from all liability
on claims that are the subject matter of such proceeding.

         (e) Each Underwriter  agrees,  severally and not jointly,  to indemnify
and hold harmless the Company,  any Selling  Shareholder  who sells  Shareholder
Shares, the Company's directors and officers who sign the Registration Statement
and any person  controlling  the Company within the meaning of Section 15 of the
Act or Section  20 of the  Exchange  Act,  to the same  extent as the  foregoing
indemnity  from the  Company  to each  Underwriter  but only with  reference  to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter  through you expressly for use in the  Registration  Statement,
the  Prospectus  or any  preliminary  prospectus.  In case any  action  shall be
brought  against  the  Company,   any  of  the  Selling  Shareholders  who  sell
Shareholder  Shares,  any of the  Company's  directors,  any such officer or any
person  controlling  the  Company  based  on  the  Registration  Statement,  the
Prospectus or any  preliminary  prospectus and in respect of which indemnity may
be sought against any  Underwriter,  the  Underwriter  shall have the rights and
duties given to the Company  (except that if the Company  shall have assumed the
defense thereof, such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such  Underwriter),  and the
Company,  its directors,  any such officers and any such person  controlling the
Company and any such Selling  Shareholder shall have the rights and duties given
to the Underwriter, by Section 8(b) hereof.

         (f)  If  the  indemnification   provided  for  in  this  Section  8  is
unavailable to an indemnified party in respect of any losses,  claims,  damages,
liabilities or judgments referred to therein,  then each indemnifying  party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or  payable  by such  indemnified  party as a  result  of such  losses,  claims,
damages,  liabilities  and judgments (i) in such proportion as is appropriate to
reflect  the  relative   benefits  received  by  the  Company  and  the  Selling
Shareholders  on the one hand and the  Underwriters  on the other  hand from the
offering of the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the  relative  benefits  referred  to in clause  (i) above but also the
relative fault of the Company, such Selling Shareholders and the Underwriters in
connection  with the  statements  or  omissions  which  resulted in such losses,
claims,  damages,  liabilities  or  judgments,  as  well as any  other  relevant
equitable  considerations.  The relative benefits  received by the Company,  the
Selling  Shareholders  and the  Underwriters  shall be  deemed to be in the same
proportion  as the  total  net  proceeds  from the  offering  (before  deducting
expenses)  received by the Company and you Selling  Shareholders,  respectively,
and  the  total   underwriting   discounts  and  commissions   received  by  the
Underwriters,  bear to the total price to the public of the Shares, in each case
as set forth in the  table on the cover  page of the  Prospectus.  The  relative
fault of the Company,  the Selling  Shareholders and the  Underwriters  shall be
determined by reference  to, among other  things,  whether the untrue or alleged
untrue  statement of a material  fact or the  omission to state a material  fact
relates to information  supplied by the Company, the Selling Shareholders or
                                      -15-



<PAGE>
 

<PAGE>



the  Underwriters  and  the  parties'  relative  intent,  knowledge,  access  to
information and opportunity to correct or prevent such statement or omission.

         The Company,  the Selling  Shareholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8(f)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take  account of the  equitable  considerations  referred to in the  immediately
preceding  paragraph.  The amount paid or payable by an  indemnified  party as a
result of the losses, claims,  damages,  liabilities or judgments referred to in
the immediately  preceding paragraph shall be deemed to include,  subject to the
limitations set forth above, any legal or other expenses  reasonably incurred by
such  indemnified  party in connection with  investigating or defending any such
action  or  claim.   Notwithstanding  the  provisions  of  this  Section  8,  no
Underwriter  shall be required to contribute  any amount in excess of the amount
by which the total price at which the Shares  underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such  Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue  statement or omission or alleged  omission.  No person guilty of
fraudulent  misrepresentation  (within the meaning of Section  11(f) of the Act)
shall be  entitled  to  contribution  from any person who was not guilty of such
fraudulent  misrepresentation.   The  Underwriters'  obligations  to  contribute
pursuant to this Section 8(f) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.

         9. Conditions of Underwriters' Obligations.  The several obligations of
the Underwriters to purchase the Initial Shares under this Agreement are subject
to the satisfaction of each of the following conditions:

                  (a) All the  representations and warranties of the Company and
the Selling  Shareholders  contained in this Agreement shall be true and correct
on the  Closing  Date with the same force and effect as if made on and as of the
Closing Date.

                  (b) The Registration Statement shall have become effective not
later than 5:00 P.M. (and in the case of a  Registration  Statement  filed under
Rule 462(b)  of the Act, not later than  10:00p.m.),  New York City time, on the
date of this  Agreement  or at such  later  date and time as you may  approve in
writing,  and at the Closing Date no stop order suspending the  effectiveness of
the  Registration  Statement  shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or  contemplated by
the Commission.

                  (c) (i) Since the date of the latest balance sheet included in
the  Registration  Statement and the  Prospectus,  there shall not have been any
material  adverse change,  or any development  involving a prospective  material
adverse change,  in the condition,  financial or otherwise,  or in the earnings,
affairs or business prospects,  whether or not arising in the ordinary course of
business,  of the  Company,  (ii)  since the date of the  latest  balance  sheet
included in the  Registration  Statement and the Prospectus there shall not have
been any change,  or any development  involving a prospective  material  adverse
change,  in the capital stock or in the long-term  debt of the Company from that
set
                                      -16-



<PAGE>
 

<PAGE>



forth in the Registration Statement and Prospectus, (iii) the Company shall have
no  liability  or  obligation,  direct or  contingent,  which is material to the
Company,  other than  those  reflected  in the  Registration  Statement  and the
Prospectus  and (iv) on the Closing Date you shall have  received a  certificate
dated the Closing Date, signed by _______________ and _______________,  in their
capacities as the _______________ and _______________ of the Company, confirming
the matters set forth in paragraphs (a), (b), and (c) of this Section 9.

                  (d) You shall have  received  on the  Closing  Date an opinion
(satisfactory to you and counsel for the Underwriters),  dated the Closing Date,
of Parker Chapin  Flattau & Klimpl LLP,  counsel for the Company,  to the effect
that:

                           (i) the  Company  is in good  standing  as a Delaware
         corporation  and is duly qualified to do business in each  jurisdiction
         in which the  nature of its  business  or its  ownership  or leasing of
         property requires such qualification, except where the failure to be so
         qualified would not have a material adverse effect on the Company;

                           (ii) all the  outstanding  shares  of  Common  Stock,
         including the Shareholder Shares, have been duly authorized and validly
         issued  and are  fully  paid,  non-assessable  and not  subject  to any
         preemptive or similar rights;

                           (iii) the Company  Shares and the  Additional  Shares
         have  been  duly  authorized,  and when  issued  and  delivered  to the
         Underwriters  against  payment  therefor as provided by this Agreement,
         will   have  been   validly   issued   and  will  be  fully   paid  and
         non-assessable,  and the  issuance of such Shares is not subject to any
         preemptive or similar rights;

                           (iv)  this   Agreement  has  been  duly   authorized,
         executed  and  delivered  by the  Company  and is a valid  and  binding
         agreement  of the  Company  enforceable  in  accordance  with its terms
         (except  as rights  to  indemnity  and  contribution  hereunder  may be
         limited by applicable law);

                           (v) the  authorized  capital  stock  of the  Company,
         including  the  Common  Stock,  conforms  as to  legal  matters  to the
         description thereof contained in the Prospectus;

                           (vi) the Registration  Statement has become effective
         under the Act,  no stop order  suspending  its  effectiveness  has been
         issued and no  proceedings  for that purpose  are, to the  knowledge of
         such counsel, pending before or contemplated by the Commission;

                           (vii) the  statements  under the captions  "_______",
         "_______________", "_______________", "_______________", "___________",
         "_______________", "Description of Capital Stock" and "Underwriting" in
         the  Prospectus  and  Items  13 and 14 of Part  II of the  Registration
         Statement  insofar  as such  statements  constitute  a summary of legal
         matters  documents or proceedings  referred to therein,  fairly present
         the  information  called  for  with  respect  to  such  legal  matters,
         documents and proceedings;

                                      -17-



<PAGE>
 

<PAGE>



                           (viii) the Company is not in violation of its charter
         or  by-laws  and,  to the best of such  counsel's  knowledge  after due
         inquiry,  the  Company  is not in  default  in the  performance  of any
         obligation,  agreement or condition  contained in any bond,  debenture,
         note or any other evidence of indebtedness  or in any other  agreement,
         indenture or instrument  material to the conduct of the business of the
         Company,  to which the  Company is a party or by which its  property is
         bound;

                           (ix) the execution,  delivery and performance of this
         Agreement by the Company and each Selling  Shareholder,  compliance  by
         each of them with all the provisions hereof and the consummation of the
         transactions   contemplated   hereby  will  not  require  any  consent,
         approval,  authorization  or other  order of or filing  with any United
         States federal or state court,  regulatory body,  administrative agency
         or other  governmental  body (except as such may be required  under the
         Act,  the  Exchange  Act, by the rules,  regulations  or by-laws of the
         National  Association  of  Securities  Dealers,  Inc.  and  the  NASDAQ
         National  Market  System or other  securities or Blue Sky laws) and, to
         the  best  of such  counsel's  knowledge,  will  not  conflict  with or
         constitute a breach of any of the terms or provisions  of, or a default
         under,  any  agreement,  indenture  or other  instrument  to which  the
         Company is a party,  or by which it or its  properties  are  bound,  or
         violate or  conflict  with any  United  States  federal or state  laws,
         administrative  regulations  or rulings or court decrees  applicable to
         the Company or its properties,  except for such conflicts, breaches and
         defaults  which  would not  reasonably  be  expected to have a material
         adverse effect on the business or condition (financial or otherwise) of
         the Company;

                           (x) after due inquiry,  such counsel does not know of
         any legal or governmental proceeding pending or threatened to which the
         Company is a party or to which any of its property is subject  which is
         required  to  be  described  in  the  Registration   Statement  or  the
         Prospectus  and is not  so  described,  or of  any  contract  or  other
         document  which  is  required  to  be  described  in  the  Registration
         Statement or the Prospectus or is required to be filed as an exhibit to
         the Registration Statement which is not described or filed as required;

                           (xi) to the best of such counsel's  knowledge,  after
         due inquiry,  the Company any has not violated any Environmental  Laws,
         nor any federal or state law relating to  discrimination in the hiring,
         promotion or pay of employees nor any applicable federal or state wages
         and hours laws,  nor any provisions of the Employee  Retirement  Income
         Security Act or the rules and regulations promulgated thereunder, which
         in each  case  might  result  in any  material  adverse  change  in the
         business, prospects, financial condition or results of operation of the
         Company;

                           (xii)  the  Company  has  such   permits,   licenses,
         franchises and authorizations of governmental or regulatory authorities
         ("permits"),   including,  without  limitation,  under  any  applicable
         Environmental  Laws,  as are  necessary  to own,  lease and operate its
         respective  properties  and to  conduct  its  business  in  the  manner
         described in the Prospectus;  to the best of such counsel's  knowledge,
         after due inquiry, the Company has fulfilled and performed all

                                      -18-



<PAGE>
 

<PAGE>



         of its material  obligations  with respect to such permits and no event
         has  occurred  which  allows,  or after  notice or lapse of time  would
         allow,  revocation  or  termination  thereof  or  results  in any other
         material  impairment  of the rights of the  holder of any such  permit,
         subject in each case to such  qualification  as may be set forth in the
         Prospectus;  and, except as described in the  Prospectus,  such permits
         contain no restrictions that are materially burdensome to the Company;

                           (xiii) the Company is not and, immediately  following
         the  Closing  Date,  will not be an  "investment  company" or a company
         "controlled"  by an  "investment  company"  within  the  meaning of the
         Investment Company Act of 1940, as amended;

                           (xiv) to the best of such counsel's knowledge,  after
         due inquiry,  no holder of any security of the Company has any right to
         require registration of shares of Common Stock or any other security of
         the Company;

                           (xv) to the best of such counsel's  knowledge,  after
         due inquiry, all leases to which the Company or any of its subsidiaries
         is a party are valid and  binding  and no default  has  occurred  or is
         continuing  thereunder,  which  might  result in any  material  adverse
         change in the business,  prospects,  financial  condition or results of
         operation  of  the  Company,   and  the  Company  enjoys  peaceful  and
         undisturbed  possession under all such leases to which any of them is a
         party as lessee with such  exceptions  as do not  materially  interfere
         with the use made by the Company;

                           (xvi) (1) the Registration  Statement  (including any
         Registration  Statement filed under 462 (b) of the Act, if any) and the
         Prospectus  and  any  supplement  or  amendment   thereto  (except  for
         financial  statements as to which no opinion need be expressed)  comply
         as to form in all material  respects with the Act, and (2) such counsel
         believes  that (except for  financial  statements,  as  aforesaid)  the
         Registration  Statement and the prospectus included therein at the time
         the Registration  Statement became effective did not contain any untrue
         statement of a material  fact or omit to state a material fact required
         to be stated  therein or necessary to make the  statements  therein not
         misleading,  and that the Prospectus,  as amended or  supplemented,  if
         applicable  (except for financial  statements,  as aforesaid)  does not
         contain  any untrue  statement  of a  material  fact or omit to state a
         material fact necessary in order to make the statements therein, in the
         light of the circumstances under which they were made, not misleading;

                           (xvii)  assuming  due  authorization,  execution  and
         delivery,  the Custody  Agreement  is a valid and binding  agreement of
         each Selling  Shareholder  enforceable  in  accordance  with its terms,
         except as may be limited by bankruptcy, reorganization or moratorium or
         similar  laws  affecting  the   enforceability   of  creditors'  rights
         generally and rules of law governing specific  performance,  injunctive
         relief and other equitable remedies;

                                      -19-



<PAGE>
 

<PAGE>



                  (xviii) assuming due authorization,  execution and delivery of
         the power of attorney  signed by each  Selling  Shareholder  appointing
         Stephen  Katz and  Michael  E.  McConnell  or either  of them,  as such
         Selling Shareholder's  attorney-in-fact to the extent set forth therein
         with  regard  to  the  transactions  contemplated  hereby  and  by  the
         Registration  Statement,  such powers of attorney are valid and binding
         instruments of each Selling Shareholder  enforceable in accordance with
         their terms;

                  (xix ) to the  best of such  counsel's  knowledge,  after  due
         inquiry, no facts exist that would form a basis for the belief that the
         Company  lacks any  rights or  licenses  to use  patents  and  know-how
         necessary  for  the  manufacture,  use or  sale of  those  products  or
         technologies  which the Company has  identified  in the  Prospectus  as
         having been  developed;  to the best of such  counsel's  knowledge,  no
         facts  exist that would  form a basis for the belief  that the  Company
         lacks any rights or licenses to use patents and know-how  necessary for
         the manufacture,  use or sale of the products proposed to be developed,
         as described in the Prospectus;

                  (xx) after due inquiry, such counsel is not aware of any valid
         patents  or  trademarks  of  others  that  would  be  infringed  by the
         manufacture,   use  or  sale  by  the  Company  of  those  products  or
         technologies  which the Company has  identified  in the  Prospectus  as
         having been  developed by the  Company,  and except as disclosed in the
         Prospectus,  such counsel has no knowledge of any pending or threatened
         action,  suit,  proceeding  or  claims by others  that the  Company  is
         infringing any patent or trademark; and
 
                 (xxi)  on the basis of  the  participation  of such  counsel in
         conferences with officers and  representatives  of the Company at which
         the portion of the  Registration  Statement and the Prospectus  dealing
         with the Company's patents and patent applications  ("Company Patents")
         were discussed, but without independent verification by such counsel of
         the accuracy,  completeness or fairness of the statements  contained in
         the  Registration  Statement,   the  Prospectus  or  any  amendment  or
         supplement  to  the  Registration  Statement  or the  Prospectus,  such
         counsel has no reason to believe that the  Registration  Statement  and
         the  Prospectus  included  therein  at the time  that the  Registration
         Statement became effective contained any untrue statement of a material
         fact  relating  to the  Company  Patents or omitted to state a material
         fact relating to the Company  Patents  required to be stated therein or
         necessary to make the statements therein, in light of the circumstances
         under which they were made, not misleading.

                  The opinion of Parker Chapin Flattau & Klimpl LLP described in
paragraph  (d) above  shall be rendered to you at the request of the company and
shall so state therein.

                  In giving such opinion with respect to the matters  covered by
clause (xvi) such counsel may state that their opinion and belief are based upon
their  participation  in the  preparation  of  the  Registration  Statement  and
Prospectus and any amendments or supplements thereto and review and

                                      -20-



<PAGE>
 

<PAGE>



discussion  of the  contents  thereof,  but are  without  independent  check  or
verification except as specified.

                  (e) You shall have  received  on the  Closing  Date an opinion
dated the Closing  Date,  of Seed & Berry,  [        ],  patent  counsel for the
Company, substantially in the form delivered to you by Seed & Berry, [        ],
on the date of this Agreement.

                  (f) You shall have  received on the  Closing  Date an  opinion
dated the Closing Date, of Andrews & Kurth, counsel for the Underwriters,  as to
the matters  referred to in clauses  (ix) and (x) (but only with  respect to the
statements under the caption  "Description of Capital Stock" and "Underwriting")
and (xvi) of the foregoing paragraph (d). In giving such opinion with respect to
the matters  covered by clause (xvi) such  counsel may state that their  opinion
and  belief  are  based  upon  their  participation  in the  preparation  of the
Registration  Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof,  but are without  independent
check or verification except as specified.

                  (g) You shall have  received a letter on and as of the Closing
Date,  in form  and  substance  satisfactory  to you,  from  Ernst & Young  LLP,
independent  public  accountants,  with respect to the financial  statements and
certain financial  information  contained in the Registration  Statement and the
Prospectus and  substantially  in the form and substance of the letter delivered
to you by Ernst & Young LLP on the date of this Agreement.

                  (h) The Company  shall have  delivered  to you the  agreements
specified in Section 2 hereof.

                  (i) The Company and the  Selling  Shareholders  shall not have
failed at or prior to the  Closing  Date to  perform  or comply in any  material
respect with any of the agreements herein contained and required to be performed
or complied with by the Company or the Selling  Shareholders  at or prior to the
Closing Date, including,  without limitation,  the termination of all preemptive
rights.

         The several  obligations of the  Underwriter to purchase any Additional
Shares  hereunder  are subject to the delivery to you on the  applicable  Option
Closing Date of such documents as you may reasonably request with respect to the
good  standing  of the  Company,  the due  authorization  and  issuance  of such
Additional  Shares and other matters  related to the issuance of such Additional
Shares.

         10. Effective Date of Agreement and  Termination.  This Agreement shall
become effective upon the later of (i) execution of this Agreement and (ii) when
notification  of  the  effectiveness  of the  Registration  Statement  has  been
released by the Commission.

         This  Agreement may be terminated at any time prior to the Closing Date
by you by written  notice to the Company if any of the  following  has occurred:
(i)  since  the  respective  dates  as of  which  information  is  given  in the
Registration  Statement  and the  Prospectus,  any  material  adverse  change or
development  involving a prospective  material  adverse change in the condition,
financial or
                                      -21-



<PAGE>
 

<PAGE>



otherwise,  of the Company,  or the earnings,  affairs, or business prospects of
the Company,  whether or not arising in the ordinary  course of business,  which
would, in your judgment, make it impracticable to market the Shares on the terms
and in  the  manner  contemplated  in  the  Prospectus,  (ii)  any  outbreak  or
escalation of hostilities or other national or international  calamity or crisis
or change in  economic  conditions  or in the  financial  markets  of the United
States or elsewhere  that, in your judgment,  is material and adverse and would,
in your judgment, make it impracticable to market the Shares on the terms and in
the manner  contemplated  in the  Prospectus,  (iii) the  suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the NASDAQ  National Market System or limitation on prices for
securities on any such exchange or National  Market System or any  suspension of
trading  of  any securities  of  the  Company on any  such exchange, or National
Market  System  or   on  any   over-the-counter  market,  (iv)   the  enactment,
publication,  decree  or  other  promulgation of  any  federal or state statute,
regulation,  rule or order of any court or other  governmental  authority  which
in your  opinion  materially  and  adversely  affects,  or  will  materially and
adversely affect, the business or operations of the Company, (v) the declaration
of a banking moratorium by either federal  or New York State authorities or (vi)
the taking of any action by any federal,  state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion  has a  material
adverse  effect on the financial markets in the United States.

         If on the Closing Date or on an Option  Closing  Date,  as the case may
be, any one or more of the  Underwriters  shall fail or refuse to  purchase  the
Initial Shares or Additional  Shares,  as the case may be, which it or they have
agreed to purchase  hereunder on such date and the  aggregate  number of Initial
Shares  or  Additional  Shares,  as the  case  may  be,  which  such  defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase  is not more  than  one-tenth  of the  total  number  of  Shares  to be
purchased  on such date by all  Underwriters,  each  non-defaulting  Underwriter
shall be obligated severally,  in the proportion which the number of Firm Shares
set forth  opposite  its name in Schedule I bears to the total number of Initial
Shares  which  all the  non-defaulting  Underwriters,  as the case may be,  have
agreed to purchase,  or in such other proportion as you may specify, to purchase
the  Initial  Shares  or  Additional  Shares,  as the  case may be,  which  such
defaulting Underwriter or Underwriters, as the case may be, agreed but failed or
refused to purchase on such date;  provided that in no event shall the number of
Initial Shares or Additional  Shares,  as the case may be, which any Underwriter
has agreed to  purchase  pursuant to Section 2 hereof be  increased  pursuant to
this  Section 10 by an amount in excess of  one-ninth  of such number of Initial
Shares or Additional  Shares, as the case may be, without the written consent of
such  Underwriter.  If on the Closing Date or on an Option  Closing Date, as the
case may be, any  Underwriter or  Underwriters  shall fail or refuse to purchase
Initial  Shares,  or  Additional  Shares,  as the case may be, and the aggregate
number of Initial Shares or Additional  Shares, as the case may be, with respect
to which such default occurs is more than  one-tenth of the aggregate  number of
Shares  to be  purchased  on such  date  by all  Underwriters  and  arrangements
satisfactory  to you and the  Company  for  purchase of such Shares are not made
within 48 hours  after such  default,  this  Agreement  will  terminate  without
liability on the part of any non-defaulting  Underwriter and the Company. In any
such case which does not result in termination of this Agreement,  either you or
the Company shall have the right to postpone the Closing Date or the  applicable
Option  Closing  Date, as the case may be, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration  Statement
and the Prospectus or any other documents or


                                      -22-



<PAGE>
 

<PAGE>



arrangements  may be effected.  Any action taken under this paragraph  shall not
relieve any defaulting  Underwriter  from liability in respect of any default of
any such Underwriter under this Agreement.

         11.  Miscellaneous.  Notices  given  pursuant to any  provision of this
Agreement shall be addressed as follows: (a) if to the Company, to Stephen Katz,
Chairman of the Board of Chief Executive  Officer,  Cellular  Technical Services
Company,  Inc.,  2401 Fourth Avenue,  Seattle,  Washington  98121 with a copy to
Edward R.  Mandell,  Esq.,  Parker Chapin  Flattau & Klimpl,  LLP, (b) if to any
Selling Shareholder, to,  Cellular Technical Services Company, Inc., 2401 Fourth
Avenue, Seattle,  Washington 98121 98121 with a copy to Edward R. Mandell, Esq.,
Parker Chapin Flattau & Klimpl,  LLP, and (c) if to you,  Simon Strauss,  Gerard
Klauer Mattison & Co., LLC, 529 Fifth Avenue,  New York, New York,  10017 with a
copy to Emanuel S. Cherney, Esq., Andrews & Kurth LLP, 425 Lexington Avenue, New
York  10017,  or in any case to such other  address as the person to be notified
may have requested in writing.

         The respective indemnities,  contribution agreements,  representations,
warranties and other  statements of the Company,  its officers and directors and
of you set forth in or made pursuant to this  Agreement  shall remain  operative
and in full force and effect,  and will survive  delivery of and payment for the
Shares,  regardless  of (i) any  investigation,  or  statement as to the results
thereof,  made by or on your  behalf  or by or on  behalf  of the  Company,  the
officers or directors of the Company or any  controlling  person of the Company,
(ii)  acceptance  of the  Shares  and  payment  for  them  hereunder  and  (iii)
termination of this Agreement.

         If this Agreement  shall be terminated by the  Underwriters  because of
any failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
the several Underwriters for all out-of-pocket  expenses (including the fees and
disbursements of counsel) reasonably incurred by them.

         Except  as  otherwise  provided,  this  Agreement  has been and is made
solely  for  the  benefit  of  and  shall  be  binding  upon  the  Company,  the
Underwriters,   and  any  controlling  persons  referred  to  herein  and  their
respective  successors  and assigns,  all as and to the extent  provided in this
Agreement,  and no other  person  shall  acquire  or have any right  under or by
virtue of this Agreement.  The term "successors and assigns" shall not include a
purchaser of any of the Shares from the several  Underwriters  merely because of
such purchase.

         This Agreement  shall be governed and construed in accordance  with the
laws of the State of New York.



                                      -23-



<PAGE>
 

<PAGE>



         This  Agreement may be signed in various  counterparts  which  together
shall constitute one and the same instrument.

                                   * * * * * *

                               [SIGNATURES FOLLOW]

                                      -24-



<PAGE>
 

<PAGE>





         Please  confirm that the foregoing  correctly  sets forth the agreement
between the Company and the several Underwriters.

                                    Very truly yours,

                                    CELLULAR TECHNICAL SERVICES COMPANY, INC.


                                    By:________________________________________
                                       Name:___________________________________
                                       Title:__________________________________


                                    THE SELLING SHAREHOLDERS NAMED IN
                                    SCHEDULE II HERETO


                                    By:________________________________________
                                       Name:___________________________________
                                       Attorney-in-Fact________________________





CONFIRMED AND ACCEPTED, as of the date first written:

GERARD KLAUER MATTISON & CO., LLC
Acting severally on behalf of themselves and
 the several Underwriters named in Schedule I hereto


   By:   GERARD KLAUER MATTISON & CO., LLC



   By:_____________________________________


                                      -25-




<PAGE>
 

<PAGE>




                                   SCHEDULE I


<TABLE>
<CAPTION>

                                               Number of Company Shares                 Number of Shareholder
             Underwriters                          to be Purchased                      Shares to be Purchased
             ------------                       ----------------------                  ----------------------
<S>                                            <C>                                      <C>
GERARD KLAUER
MATTISON & CO., LLC
[Additional Underwriters to
be specified]


</TABLE>





                                      -26-



<PAGE>
 

<PAGE>



                                   SCHEDULE II



<TABLE>
<CAPTION>
                                         Number of Shares              Number of Additional
         Selling Shareholders               to be Sold                Shares  which may be Sold
         --------------------            ----------------             --------------------------
<S>                                   <C>                            <C>

[Selling Shareholders to be specified]

</TABLE>


                                      -27-



<PAGE>
 

<PAGE>


                                     ANNEX I



               Required Officer, Director and Shareholder Lock-ups


                                      -28-


<PAGE>





<PAGE>



                             1996 STOCK OPTION PLAN

                                       of

                    CELLULAR TECHNICAL SERVICES COMPANY, INC.

          1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) of and consultants to Cellular Technical Services Company,
Inc., a Delaware corporation (the "Company") or any of its Subsidiaries (as
defined in Paragraph 19), and to offer an additional inducement in obtaining the
services of such persons. The Plan provides for the grant of "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and nonqualified stock options which do not
qualify as ISOs ("NQSOs"), but the Company makes no representation or warranty,
express or implied, as to the qualification of any option as an "incentive stock
option" under the Code.

          2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph
12, the aggregate number of shares of common stock, $.001 par value per share,
of the Company ("Common Stock") for which options may be granted under the Plan
shall not exceed 550,000. Such shares of Common Stock may, in the discretion of
the Board of Directors of the Company (the "Board of Directors"), consist either
in whole
 or in part of authorized but unissued shares of Common Stock or shares
of Common Stock held in the treasury of the Company. Subject to the provisions
of Paragraph 13, any shares of Common Stock subject to an option which for any
reason expires, is canceled or is terminated unexercised or which ceases for any
reason to be exercisable shall again become available for the granting of
options under the Plan. The Company shall at all times during the term of the
Plan reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan.

          3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee of the Board of Directors (the "Committee") consisting of not less
than two directors, each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3 (or any successor rule or regulation) promulgated under
the Securities Exchange Act of 1934, as amended (as the same may be in effect
and interpreted from time to time, "Rule 16b-3"). A majority of the members of
the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.

          Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, to determine: the employees and
consultants who shall be granted options; the times when options shall be
granted; whether an option granted to an employee shall be an ISO or a NQSO; the
number of shares of Common Stock to be subject to each option; the term

                                       -1-



<PAGE>
 

<PAGE>

of each option; the date each option shall become exercisable; whether an option
shall be exercisable in whole, in part or in installments and, if in
installments, the number of shares of Common Stock to be subject to each
installment, whether the installments shall be cumulative, the date each
installment shall become exercisable and the term of each installment; whether
and under what conditions to accelerate the date of exercise of any option or
installment; whether shares of Common Stock may be issued upon the exercise of
an option as partly paid and, if so, the dates when future installments of the
exercise price shall become due and the amounts of such installments; the
exercise price of each option; the form of payment of the exercise price;
whether to restrict the sale or other disposition of the shares of Common Stock
acquired upon the exercise of an option and, if so, whether to waive any such
restriction; whether to subject the exercise of all or any portion of an option
to the fulfillment of contingencies as specified in the contract referred to in
Paragraph 11 hereof (the "Contract"), including without limitation,
contingencies relating to entering into a covenant not to compete with the
Company, any of its Subsidiaries or a Parent (as defined in Paragraph 19), to
financial objectives for the Company, any of its Subsidiaries or a Parent, a
division of any of the foregoing, a product line or other category, and/or the
period of continued employment of the optionee with the Company, any of its
Subsidiaries or a Parent, and to determine whether such contingencies have been
met; whether an optionee is Disabled (as defined in Paragraph 19); the amount,
if any, necessary to satisfy the Company's obligation to withhold taxes or other
amounts; and the fair market value of a share of Common Stock; to construe the
Plan; with the consent of the optionee, to cancel or modify an option, provided,
that the modified provision is permitted to be included in an option granted
under the Plan on the date of the modification, and further, provided, that in
the case of a modification (within the meaning of Section 424(h) of the Code) of
an ISO, such option as modified would be permitted to be granted on the date of
such modification under the terms of the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; and to make all other determinations
necessary or advisable for administering the Plan. Any controversy or claim
arising out of or relating to the Plan shall be determined unilaterally by the
Committee in good faith in its sole discretion. The determinations of the
Committee on the matters referred to in this Paragraph 3 shall be conclusive and
binding on the parties. No member or former member of the Committee shall be
liable for any action, failure to act or determination made in good faith with
respect to the Plan or any option hereunder.

          4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to employees
(including officers and directors who are employees) of, and to consultants to,
the Company or any of its Subsidiaries. Such options granted shall cover such
number of shares of Common Stock as the Committee may determine in the
applicable Contract, in its sole discretion; provided, however, that the maximum
number of shares subject to options that may be granted to any employee during
any calendar year under the Plan (the "162(m) Maximum") shall not exceed 200,000
shares; and further, provided, that the aggregate market value (determined at
the time the option is granted in accordance with Paragraph 5) of the shares of
Common Stock for which any eligible employee may be granted ISOs under the Plan
or any other plan of the Company, or of a Parent or a Subsidiary of the Company,
which are exercisable for the first time by such optionee during any calendar
year shall not exceed

                                       -2-



<PAGE>
 

<PAGE>

$100,000. Such limitation shall be applied by taking ISOs into account in the
order in which they were granted. Any option granted in excess of such amount
shall be treated as a NQSO to the extent of such excess.

          5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee in the applicable
Contract, in its sole discretion; provided, however, that the exercise price of
an ISO shall not be less than the fair market value of the Common Stock subject
to such option on the date of grant; and further, provided, that if, at the time
an ISO is granted, the optionee owns (or is deemed to own under Section 424(d)
of the Code) stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company, of any of its Subsidiaries or of a
Parent, the exercise price of such ISO shall not be less than 110% of the fair
market value of the Common Stock subject to such ISO on the date of grant.

          The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of Common
Stock on such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (b) if the principal market for the Common Stock
is not a national securities exchange and the Common Stock is quoted on The
Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price information is
available with respect to the Common Stock, the average of the highest and
lowest sales prices per share of Common Stock on such day on Nasdaq, or (ii) if
such information is not available, the average of the highest bid and lowest
asked prices per share of Common Stock on such day on Nasdaq, or (c) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.

          6. TERM. The term of each option granted pursuant to the Plan shall be
such term as is established by the Committee in the applicable Contract, in its
sole discretion; provided, however, that the term of each ISO granted pursuant
to the Plan shall be for a period not exceeding 10 years from the date of grant
thereof; and further, provided, that if, at the time an ISO is granted, the
optionee owns (or is deemed to own under Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, of any of its Subsidiaries or of a Parent, the term of the
ISO shall be for a period not exceeding five years from the date of grant.
Options shall be subject to earlier termination as hereinafter provided.

                                       -3-



<PAGE>
 

<PAGE>

          7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract permits installment
payments) (a) in cash or by certified check or (b) if the applicable Contract
permits, with previously acquired shares of Common Stock having an aggregate
fair market value on the date of exercise (determined in accordance with
Paragraph 5) equal to the aggregate exercise price of all options being
exercised, or with any combination of cash, certified check or shares of Common
Stock.

          The Committee may, in its sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of his irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.

          A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate for such shares
or in the case of uncertificated shares, an entry is made on the books of the
Company's transfer agent representing such shares; provided, however, that until
such stock certificate is issued or book entry is made, any optionee using
previously acquired shares of Common Stock in payment of an option exercise
price shall continue to have the rights of a stockholder with respect to such
previously acquired shares.

          In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.

          8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Parent and Subsidiaries as an employee or a consultant has
terminated for any reason (other than the death or Disability of the optionee)
may exercise such option, to the extent exercisable on the date of such
termination, at any time within three months after the date of termination, but
not thereafter and in no event after the date the option would otherwise have
expired; provided, however, that if such relationship is terminated either (a)
for Cause (as defined in Paragraph 19) , or (b) without the consent of the
Company, such option shall terminate immediately.

          For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and the Company, any of its Subsidiaries
or a Parent if, at the time of the determination, the individual was an employee
of such corporation for purposes of Section 422(a) of the Code. As a result, an
individual on military, sick leave or other bona fide leave of absence shall
continue to be considered an employee for purposes of the Plan during such leave
if the period

                                       -4-



<PAGE>
 

<PAGE>

of the leave does not exceed 90 days, or, if longer, so long as the individual's
right to reemployment with the Company, any of its Subsidiaries or a Parent is
guaranteed either by statute or by contract. If the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed by statute or
by contract, the employment relationship shall be deemed to have terminated on
the 91st day of such leave.

          Except as may otherwise be expressly provided in the applicable
Contract, options granted under the Plan shall not be affected by any change in
the status of the optionee so long as the optionee continues to be an employee
of, or a consultant to, the Company, or any of the Subsidiaries or a Parent
(regardless of having changed from one to the other or having been trans ferred
from one corporation to another).

          Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, or as a
consultant to, the Company, any of its Subsidiaries or a Parent, or interfere in
any way with any right of the Company, any of its Subsidiaries or a Parent to
terminate the optionee's relationship at any time for any reason whatsoever
without liability to the Company, any of its Subsidiaries or a Parent.

          9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an optionee dies (a) while he
is an employee of, or consultant to, the Company, any of its Subsidiaries or a
Parent, (b) within three months after the termination of such relationship
(unless such termination was for Cause or without the consent of the Company) or
(c) within one year following the termination of such relationship by reason of
his Disability, his option may be exercised, to the extent exercisable on the
date of his death, by his Legal Representative (as defined in Paragraph 19) at
any time within one year after death, but not thereafter and in no event after
the date the option would otherwise have expired.

          Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or consultant to,
the Company, its Parent and Subsidiaries has terminated by reason of such
optionee's Disability may exercise his option, to the extent exercisable upon
the effective date of such termination, at any time within one year after such
date, but not thereafter and in no event after the date the option would
otherwise have expired.

          10. COMPLIANCE WITH SECURITIES LAWS. The Committee may require, in its
sole discretion, as a condition to the exercise of any option that either (a) a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock to be issued upon
such exercise shall be effective and current at the time of exercise, or (b)
there is an exemption from registration under the Securities Act for the
issuance of the shares of Common Stock upon such exercise. Nothing herein shall
be construed as requiring the Company to register shares subject to any option
under the Securities Act or to keep any Registration Statement effective or
current.

                                       -5-



<PAGE>
 

<PAGE>

          The Committee may require, in its sole discretion, as a condition to
the exercise of any option that the optionee execute and deliver to the Company
his representations and warranties, in form, substance and scope satisfactory to
the Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the registration requirements of
the Securities Act, applicable state securities laws or other legal requirement,
including without limitation that (a) the shares of Common Stock to be issued
upon the exercise of the option are being acquired by the optionee for his own
account, for investment only and not with a view to the resale or distribution
thereof, and (b) any subsequent resale or distribution of shares of Common Stock
by such optionee will be made only pursuant to (i) a Registration Statement
under the Securities Act which is effective and current with respect to the
shares of Common Stock being sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the optionee shall prior to any offer of sale or sale of such shares of Common
Stock provide the Company with a favorable written opinion of counsel
satisfactory to the Company, in form, substance and scope satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution.

          In addition, if at any time the Committee shall determine, in its sole
discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of an option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.

          11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.

          12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not withstanding any
other provision of the Plan, in the event of a stock dividend, split-up, spin
off, combination, reclassification, recapitalization, merger in which the
Company is the surviving corporation, or exchange of shares or the like which
results in a change in the number or kind of shares of Common Stock which are
outstanding immediately prior to such event, the aggregate number and kind of
shares subject to the Plan, the aggregate number and kind of shares subject to
each outstanding option and the exercise price thereof, and the 162(m) Maximum
shall be appropriately adjusted by the Board of Directors, whose determination
shall be conclusive and binding on all parties.

          In the event of (a) the liquidation or dissolution of the Company, or
(b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the

                                       -6-



<PAGE>
 

<PAGE>

transaction. The Company shall give each optionee under the Plan at least 20
days prior notice of any such transaction, advising the optionee of the impact
of the transaction on his options.

          13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on April 24, 1996. No option may be granted under the
Plan after April 23, 2006. The Board of Directors, without further approval of
the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with the provisions of Rule 16b-3, Section 162(m) of the Code, or any change in
applicable law, regulations, rulings or interpretations of administrative
agencies; provided, however, that no amendment shall be effective without the
requisite prior or subsequent stockholder approval which would (a) except as
contemplated in Paragraph 12, increase the maximum number of shares of Common
Stock for which options may be granted under the Plan or the 162(m) Maximum, (b)
materially increase the benefits accruing to participants under the Plan or (c)
change the eligibility requirements to receive options hereunder. No
termination, suspension or amendment of the Plan shall, without the consent of
the holder of an existing and outstanding option affected thereby, adversely
affect his rights under such option. The power of the Committee to administer
any options granted under the Plan prior to the termination or suspension of the
Plan nevertheless shall continue after such termination or during such
suspension.

          14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.

          15. WITHHOLDING TAXES. The Company may withhold (a) cash, (b) subject
to any limitations under Rule 16b-3, shares of Common Stock to be issued with
respect thereto having an aggregate fair market value on the exercise date
(determined in accordance with Paragraph 5), or (c) any combination thereof, in
an amount equal to the amount, if any, which the Committee determines is
necessary to satisfy the Company's obligation to withhold Federal, state and
local income taxes or other amounts incurred by reason of the grant or exercise
of an option, its disposition, or the disposition of the underlying shares of
Common Stock. Alternatively, the Company may require the optionee to pay to the
Company such amount, in cash, promptly upon demand. The Company shall not be
required to issue any shares of Common Stock pursuant to any such option until
all required payments have been made.

                                       -7-



<PAGE>
 

<PAGE>

          16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend
or legends upon the certificates for shares of Common Stock issued upon exercise
of an option under the Plan and may issue such "stop transfer" instructions to
its transfer agent in respect of such shares as it determines, in its
discretion, to be necessary or appropriate to (a) prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
and any applicable state securities laws, (b) implement the provisions of the
Plan or any agreement between the Company and the optionee with respect to such
shares of Common Stock, or (c) permit the Company to determine the occurrence of
a "disqualifying disposition," as described in Section 421(b) of the Code, of
the shares of Common Stock issued or transferred upon the exercise of an ISO
granted under the Plan.

          The Company shall pay all issuance taxes with respect to the issuance
of shares of Common Stock upon the exercise of an option granted under the Plan,
as well as all fees and expenses incurred by the Company in connection with such
issuance.

          17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for such corporate purposes as the
Board of Directors may determine.

          18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CER TAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.

          19. DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:

                    (a) Cause. The term "Cause" shall mean (i) if there is a
written employment or consulting agreement between the optionee and the Company,
any of its Subsidiaries or a Parent which defines cause for termination of such
relationship, cause as defined in such agreement, or (ii) if there is no such
agreement, cause as defined by applicable state law.

                    (b) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a transaction to which Section 424(a) of the
Code applies (or would apply if the option assumed or substituted were an ISO),
or any Parent or any Subsidiary of such corporation.

                    (c) Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.

                                       -8-



<PAGE>
 

<PAGE>

                    (d) Legal Representative. The term "Legal Representative"
shall mean the executor, administrator or other person who at the time is
entitled by law to exercise the rights of a deceased or incapacitated optionee
with respect to an option granted under the Plan.

                    (e) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.

                    (f) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.

          20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be
granted hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.

          Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.

          21. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability
of any provision in the Plan or any Contract shall not affect the validity,
legality or enforceability of any other provision, all of which shall be valid,
legal and enforceable to the fullest extent permitted by applicable law.

          22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person or by proxy at the next duly held
meeting of the Company's stockholders at which a quorum is present. No options
granted hereunder may be exercised prior to such approval; provided, however,
that the date of grant of any option shall be determined as if the Plan had not
been subject to such approval. Notwithstanding the foregoing, if the Plan is not
approved by a vote of the stockholders of the Company on or before April 23,
1997, the Plan and any options granted hereunder shall terminate.

                                       -9-


<PAGE>






<PAGE>
                                                                    EXHIBIT 11.1
 
                   CELLULAR TECHNICAL SERVICES COMPANY, INC.
                       COMPUTATION OF EARNINGS PER SHARE
                                  (UNAUDITED)
 

<TABLE>
<CAPTION>
                                                                                            THREE MONTHS
                                                                                               ENDED
                                                 YEAR ENDED DECEMBER 31,                     MARCH 31,
                                        -----------------------------------------    --------------------------
                                           1993           1994           1995           1995           1996
                                        -----------    -----------    -----------    -----------    -----------
                                                                                            (UNAUDITED)
 
<S>                                     <C>            <C>            <C>            <C>            <C>
Primary earnings per share:
Net income (loss) for calculation of
  primary earnings per share.........   $(1,206,335)   $ 1,549,871    $    63,187    $   243,127    $(2,500,559)
                                        -----------    -----------    -----------    -----------    -----------
Weighted average number of shares
  outstanding........................    17,363,680     19,091,036     20,398,272     19,752,808     21,608,900
Dilutive effect of outstanding
  warrants and stock options -- based
  upon the Treasury Stock Method
  using average market price(1)......                    1,206,290      1,627,878      2,405,878
                                        -----------    -----------    -----------    -----------    -----------
Weighted average number of shares, as
  adjusted, for calculation of
  primary earnings per share.........    17,363,680     20,297,326     22,026,150     22,158,686     21,608,900
                                        -----------    -----------    -----------    -----------    -----------
Primary earnings (loss) per
  share(2)...........................         $(.07)          $.08           $.00           $.01          $(.12)
                                        -----------    -----------    -----------    -----------    -----------
                                        -----------    -----------    -----------    -----------    -----------
</TABLE>

 
- ------------
 
(1) Common  Stock equivalent shares have not  been considered in the calculation
    for the year ended  December 31, 1993 and  the quarterly period ended  March
    31, 1996, because the effect would be antidilutive.
 
(2) Fully  diluted earnings per  share computations are  not included since they
    would not  materially change  results presented  on a  primary earnings  per
    share basis.



<PAGE>








<PAGE>
                        CONSENT OF INDEPENDENT AUDITORS
 
     We  consent  to the  reference  to our  firm  under the  captions 'Selected
Financial Data' and 'Experts' and to the use of our reports dated March 1, 1996,
except for the first paragraph of Note K, as to which the date is June 24, 1996,
in the Registration Statement on Form S-1 and the related Prospectus of Cellular
Technical Services Company, Inc. for the registration of 1,725,000 shares of its
common stock.
 
                                          /s/ ERNST & YOUNG LLP
 
Seattle, Washington
July 1, 1996