NHANCEMENT TECHNOLOGIES INC, SB-2/A, 1997-01-28

NHANCEMENT TECHNOLOGIES INC
SB-2/A, 1997-01-28
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997

REGISTRATION NO. 333-15563
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3

TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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NHANCEMENT TECHNOLOGIES INC.
(Exact name of small business issuer as specified in its charter)

<TABLE>
<C> <C> <C>
DELAWARE 7373 84-1360852
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

<TABLE>
<C> <C>
1746 COLE BOULEVARD, SUITE 265 DOUGLAS S. ZORN
GOLDEN, COLORADO 80401 SECRETARY
(303) 271-0505 1746 COLE BOULEVARD, SUITE 265
(Address and telephone number of GOLDEN, COLORADO 80401
principal executive offices) (303) 271-0505
(Name, address and telephone number
of agent for service)
</TABLE>
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Copies to:

<TABLE>
<C> <C>
LESTER R. WOODWARD, ESQ. KEVIN A. CUDNEY, ESQ.
LAURA B. GILL, ESQ. BETH J. MEIERS, ESQ.
DAVIS, GRAHAM & STUBBS LLP DORSEY & WHITNEY LLP
370 SEVENTEENTH STREET, SUITE 4700 370 SEVENTEENTH STREET, SUITE 4400
DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 892-9400 (303) 629-3400
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration 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,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

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DOLLAR AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share............................ 2,645,000 shares $4.50 $11,902,500 $3,607
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(1) Includes 345,000 shares that the Underwriters have the option to purchase
from the Company solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

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.

SUBJECT TO COMPLETION, DATED JANUARY 28, 1997

PRELIMINARY PROSPECTUS
2,300,000 SHARES

[NHANCEMENT TECHNOLOGIES INC. LOGO]
[NHANCEMENT TECHNOLOGIES INC. LOGO]
COMMON STOCK
------------------------
Of the 2,300,000 shares of Common Stock, $.01 par value (the "Common
Stock"), offered hereby (the "Shares"), 1,700,000 shares are being sold by
NHancement Technologies Inc., a Delaware corporation (the "Company"), and
600,000 shares are being sold by a stockholder of the Company (the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Stockholder.

Prior to this offering (this "Offering"), there has been no public market
for the Common Stock, and there can be no assurance that such a market will
develop after the completion of this Offering or that, if developed, it will be
sustained. It is anticipated that the initial public offering price of the
Common Stock will be between $3.50 and $4.50 per share (the "Offering Price").
See "Underwriting" for a discussion of the factors that will be considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on The Nasdaq SmallCap Market ("Nasdaq SmallCap")
under the proposed symbol "NHAN."
------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS," LOCATED AT PAGES 5 THROUGH
12, AND "DILUTION."
------------------------
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>
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=============================================================================================================================
UNDERWRITING PROCEEDS PROCEEDS
PRICE TO DISCOUNTS AND TO THE TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(1)(2) STOCKHOLDER
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total(3).......................... $ $ $ $
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</TABLE>

(1) The Company has agreed to sell to the Representative a warrant to purchase
230,000 shares of Common Stock, exercisable at a price per share equal to
120% of the Offering Price (the "Underwriter Warrant"). In addition, see
"Underwriting" for information concerning indemnification arrangements with
the Underwriters and other compensation payable to the Representative.

(2) Before deducting expenses of this Offering estimated at $350,000 payable by
the Company, including the Company's share of a non-accountable expense
allowance payable to the Representative in an amount equal to three percent
(3%) of the gross proceeds realized in this Offering or approximately
$ ($ if the Underwriters' Over-Allotment Option is
exercised in full) (the "Non-accountable Expense Allowance").

(3) The Company has granted the Underwriters an option, exercisable within 30
days after the date hereof, to purchase up to 345,000 additional shares of
Common Stock upon the same terms and conditions as set forth above, solely
to cover over-allotments, if any (the "Over-Allotment Option.") If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."

The Shares offered hereby are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve their right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of share certificates will be made at the
offices of Chatfield Dean & Co., Denver, Colorado, on or about February ,
1997.

CHATFIELD DEAN & CO.

The date of this Prospectus is , 1997.
<PAGE> 3

The Company has two federally registered trademarks: Performance Factors(R)
and FACTOR 1000.(R)

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

FOR CALIFORNIA RESIDENTS ONLY

WITH RESPECT TO SALES OF THE COMMON STOCK BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH COMMON STOCK MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS"
WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933, (2) BANKS,
SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION OR PROFIT
SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE
CORPORATION'S OR OTHER ENTITY'S AFFILIATES WHICH ARE UNDER COMMON CONTROL HAVE A
NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY
PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED, BUT NOT
NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND
SUBSIDIARIES OF THE FOREGOING, OR (3) ANY PERSON (OTHER THAN A PERSON FORMED FOR
THE SOLE PURPOSE OF PURCHASING THE SECURITY BEING OFFERED HEREBY) WHO PURCHASES
AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE SECURITY OFFERED HEREBY. EACH
CALIFORNIA RESIDENT PURCHASING THE SECURITY OFFERED HEREBY WILL BE DEEMED TO
REPRESENT BY SUCH PURCHASE THAT IT COMES WITHIN ONE OF THE AFOREMENTIONED
CATEGORIES, THAT IT WILL NOT SELL OR OTHERWISE TRANSFER SUCH SECURITY TO A
CALIFORNIA RESIDENT UNLESS THE TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED
CATEGORIES AND THAT IT WILL ADVISE THE TRANSFEREE OF THIS CONDITION WHICH
TRANSFEREE, BY BECOMING SUCH, WILL BE DEEMED TO BE BOUND BY THE SAME
RESTRICTIONS ON RESALE.
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus, including the information set forth under "Risk Factors" and in the
financial statements (including the notes thereto). All information concerning
the Company assumes, and has been adjusted to reflect, the consummation of the
transactions described under "The Company." See "The Company." Except where
otherwise indicated, all information in this Prospectus assumes (A) the
conversion in accordance with the terms of certain outstanding promissory notes
into the number of shares of Common Stock equal to the aggregate accrued
interest thereon and a portion of the outstanding principal amount thereof
divided by the Offering Price upon the consummation of this Offering, (B) no
exercise of outstanding options to purchase Common Stock, exercisable in 60
days, and (C) no exercise of the Over-Allotment Option and the Underwriter
Warrant. See "Capitalization."

THE COMPANY

The Company is a leading voice processing systems integrator, which also
offers a proprietary computerized testing system that measures human
sensorimotor skills to determine an individual's performance readiness and
fitness to perform. The Company combines the businesses of Voice Plus, Inc.
("VPI"), a national provider of voice processing systems that furnishes
businesses with advanced multimedia and voice processing solutions based on
integrating voice processing systems with various PBXs and computers, and
BioFactors, Inc. ("BFI"), a development stage company that offers the FACTOR
1000(R) system, a proprietary computerized impairment testing system. VPI and
BFI both provide stand-alone and local area network ("LAN") based systems
utilizing the Intel(R) computer platform. VPI derives its revenues from the sale
and installation of various communications systems products such as voice
messaging, facsimile messaging, voice response systems and electronic messaging.
VPI also generates revenues from recurring fees under annual maintenance service
contracts. BFI derives its revenues from recurring annual usage fees for its
FACTOR 1000(R) system and from sublicensing other uses of the technology.

The Company was incorporated to pursue an emerging business opportunity
created by the continuing changes in telecommunications and an increased
corporate emphasis on workplace productivity and security. The Company combines
the proven marketing, distribution and service capabilities of VPI with the
experienced product and business development skills of BFI management. The
Company also intends to expand into the security business and has signed a
letter of intent to acquire C.C. & Associates ("CCA"), a security systems and
services provider. The Company will pursue aggressively strategic acquisitions
following this Offering.

The Company intends to leverage its position as a leading provider of voice
processing systems to become a diversified provider of a full range of
productivity and security enhancement products and services. The specific
elements of the Company's strategy to achieve this objective are as follows:

- Capitalize and expand on VPI's existing sales and support infrastructure
and systems integration capabilities to market VPI's existing products
and the FACTOR 1000(R) system;

- Exploit a growing trend towards unified networks by providing various
solution-based stand-alone and LAN systems and applications;

- Expand sales of the FACTOR 1000(R) system by customizing the FACTOR
1000(R) system to meet the needs of specific industries such as
transportation, manufacturing and the military;

- Exploit the need for worldwide wide area network ("WAN") capabilities to
meet the growing demands from business globalization;

- Acquire complementary businesses and products; and

- License FACTOR 1000(R) technology for use in other areas.

NHancement Technologies Inc., a Delaware corporation, was incorporated in
October 1996 to succeed to the business of BFI (formerly known as Performance
Factors, Inc., a California corporation) and to acquire VPI. See "The Company."
Unless the context otherwise requires, references herein to the "Company" refer
to the Company and its subsidiaries. The Company's principal executive offices
are located at 1746 Cole Boulevard, Suite 265, Golden, Colorado 80401, and its
telephone number is 303-271-0505.

1
<PAGE> 5

THIS OFFERING

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<S> <C>
Common Stock outstanding prior to
this Offering(1)................. 2,475,300 shares
Common Stock offered:
By the Company................... 1,700,000 shares
By the Selling Stockholder....... 600,000 shares
Total............................ 2,300,000 shares
Common Stock to be outstanding
after this Offering(1)........... 4,175,300 shares
Use of Proceeds.................... The Company intends to use the net proceeds it receives
from this Offering for repayment of indebtedness and
accrued interest of BFI of approximately $2.0 million,
for product and market development costs for the FACTOR
1000(R) system of approximately $500,000, for payment of
accrued management salaries and bonuses of $440,500, for
payment of a consulting fee of $40,000 and for general
corporate purposes, including business and product
acquisitions. See "Use of Proceeds."
Proposed Nasdaq SmallCap Symbol.... NHAN
</TABLE>

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(1) Includes (i) 1,612,500 shares of Common Stock issued in connection with the
acquisition by the Company of VPI (the "VPI Acquisition") and the proposed
acquisition by the Company of CCA (the "CCA Merger"), 600,000 shares of
which are being sold in this Offering; and (ii) 250,000 shares of Common
Stock, based on an assumed Offering Price of $4.00 per share, issuable upon
the consummation of this Offering pursuant to the terms of BFI's previously
completed bridge financings. See "Business -- Recent Financings."

2
<PAGE> 6

SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

The following table sets forth certain historical and pro forma combined
financial data of the Company. The summary financial data is derived from the
financial statements of NHancement Technologies Inc. (formerly BFI), VPI and
CCA. The data should be read in conjunction with the Historical Financial
Statements and Notes to Financial Statements and other financial information
included in this Prospectus.

SUMMARY PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(4)
-------------------------- PRO FORMA(3) COMBINED
BFI VPI(1) CCA(2) COMBINED AS ADJUSTED
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ 757 $6,193 $747 $ 7,697 $7,697
Gross margin............................. 649 2,293 284 3,226 3,226
Operating income (loss).................. (757) 473 (5) (834) (872)
Other income (expense)................... (438) 17 -- (421) (9)
Income (loss) before taxes............... (1,195) 490 (5) (1,255) (863)
Net income (loss)........................ (1,195) 400 (1) (1,255) (863)
</TABLE>

SUMMARY PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(4)
-------------------------- PRO FORMA(3) COMBINED
BFI VPI(1) CCA(2) COMBINED AS ADJUSTED
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ 451 $7,259 $1,076 $ 8,786 $8,786
Gross margin............................. 264 3,069 512 3,845 3,845
Operating income (loss).................. (620) 286 123 (627) (677)
Other income (expense)................... (519) 30 1 (488) 6
Income (loss) before taxes............... (1,139) 316 124 (1,115) (671)
Net income (loss)........................ (1,139) 172 77 (1,115) (671)
</TABLE>

SUMMARY PRO FORMA COMBINED BALANCE SHEET DATA
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(6)
-------------------------- PRO FORMA(5) COMBINED
BFI VPI CCA(2) COMBINED AS ADJUSTED
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<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $ 83 $1,479 $ 9 $ 621 $ 4,842
Working capital.......................... (3,101) (167) 85 (3,247) 3,440
Excess of cost over net assets
acquired............................... -- -- -- 5,979 5,979
Total assets............................. 344 4,088 246 10,328 14,549
Long-term debt, less current portion..... -- -- -- 1,500 1,500
Total liabilities........................ 3,401 3,958 114 8,574 6,108
Stockholders' equity (deficit)........... (3,057) 130 132 1,754 8,441
</TABLE>

3
<PAGE> 7

NOTES TO THE SUMMARY HISTORICAL AND
PRO FORMA COMBINED FINANCIAL DATA

(1) Since January 1, 1996, VPI has operated as a Subchapter S corporation under
the Internal Revenue Code of 1986, as amended (the "Code"). Upon the
consummation of the VPI Acquisition, the Company will file its federal
income tax returns as a consolidated group. The pro forma income taxes and
net income of VPI for the nine months ended September 30, 1996, assuming C
corporation status and an effective tax rate of 40%, are as follows:

<TABLE>
<S> <C>
Historical income before income taxes............................. $490,000
Pro forma income taxes............................................ 196,000
--------
Pro forma net income.............................................. $294,000
========
</TABLE>

(2) CCA has a September 30 fiscal year end.

(3) The primary differences between the pro forma combined and historical
results of operations for the year ended December 31, 1995 and the nine
months ended September 30, 1996 reflect adjustments associated with the VPI
Acquisition and the proposed CCA Merger, including: (i) compensation expense
resulting from the re-negotiation of employment agreements with key
executives; (ii) amortization of the excess of cost over net assets acquired
in connection with the VPI Acquisition; (iii) depreciation expense
corresponding to the estimated increase in estimated current fair value
associated with VPI's fixed assets; and (iv) adjustment of the income tax
provision, on a combined basis, due to the offsetting of current income of
both VPI and CCA with the losses of BFI.

(4) The primary differences between the pro forma combined as adjusted and pro
forma combined results of operations for the year ended December 31, 1995
and the nine months ended September 30, 1996 reflect adjustments associated
with financing activities, including: (i) expenses related to premiums for
directors and officers insurance; and (ii) adjustments to eliminate period
interest associated with bridge financing. See "Business -- Recent
Financings" for the terms of such bridge financing.

(5) The primary differences between the pro forma combined and historical
balance sheet data as of September 30, 1996 reflect adjustments associated
with the VPI Acquisition and the proposed CCA Merger, including: (i) an
increase in estimated current fair value associated with VPI's inventory;
(ii) an increase in estimated current fair value of VPI's fixed assets;
(iii) the excess of cost over net assets acquired in connection with the VPI
Acquisition; (iv) payment of a dividend declared by VPI and payable to the
sole shareholder of VPI; (v) the long-term notes associated with the VPI
Acquisition; and (vi) adjustments to equity as a consequence of the VPI
Acquisition and the proposed CCA Merger.

(6) The primary differences between the pro forma combined as adjusted and pro
forma combined balance sheet data as of September 30, 1996 reflect
adjustments associated with financing activities, including: (i) net
proceeds from this Offering and corresponding adjustments to Common Stock
and retained earnings; (ii) repayment of bridge debt and certain other debts
and accrued interest of the Company; (iii) proceeds and related costs from
bridge debt issued prior to this Offering; and (iv) conversion of certain
notes and associated accrued interest into equity at the Offering Price. See
"Business -- Recent Financings."

4
<PAGE> 8

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk relating to the Company, the industries in which the Company
operates and the securities markets, particularly the markets for securities of
smaller issuers. Prospective purchasers of Common Stock should consider
carefully the information set forth below, as well as the other information in
this Prospectus, in determining whether to purchase the shares of Common Stock
offered hereby. In addition, certain information included in this Prospectus is
forward-looking. Such forward-looking information involves significant risks and
uncertainties that could cause actual future results to differ significantly
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These risks and uncertainties include, but are not limited to,
those discussed below.

ABSENCE OF OPERATING HISTORY OF THE COMBINED COMPANIES

To date, each of BFI, VPI and CCA (the "Combined Companies") has been
operating independently, and there can be no assurance that the Combined
Companies will be successfully integrated on an economic basis. There can be no
assurance that management of the Combined Companies will be able to oversee the
Combined Companies successfully and implement their operating and growth
strategies effectively. Results of operations may fluctuate significantly from
quarter to quarter and will depend upon numerous factors, including acceptance
of the Company's products and services in the marketplace. No assurances can be
given that future losses will not occur. There can be no assurance that the
combination of BFI and VPI into the Company will overcome the factors that have
caused BFI operating losses in the past. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
"Management."

RISK FACTORS RELATED TO VOICE PROCESSING BUSINESS

VPI's Strategic Relationship with Centigram Communications Corporation.
VPI's business is based upon the integration of hardware and software and
telecommunications and data processing equipment manufactured by others into
integrated systems designed to meet the needs of its customers. Although VPI has
distributor agreements with a number of equipment manufacturers, approximately
90% of its revenue is based upon products manufactured by Centigram
Communications Corporation ("Centigram"). Mr. Goei, the Company's Chairman,
Chief Executive Officer and President, was previously a director and Chairman of
the Board of Directors of Centigram. Any termination or adverse change in the
Company's distributor relationship with Centigram would have a material adverse
impact upon the Company's voice processing business. In addition, the Company
depends upon Centigram to offer products that are competitive with products
offered by other manufacturers as to technological advancement, reliability and
price. If Centigram's competitors should surpass Centigram in any of these
qualities, the Company may be required to establish alternative strategic
relationships. Any such development would adversely affect the Company's
business for an indeterminate period of time until new supplier relationships
could be established.

Reliance upon VPI's Distributor Relationships. VPI has distributor
agreements with a number of equipment manufacturers in addition to Centigram. In
accordance with the terms of distributor agreements, a manufacturer may
discontinue the distributor relationship because of factors related to a
particular distributor or because of a manufacturer's decision to change its
method of distributing its products to all or parts of its markets. In making
such a change, a manufacturer of key products sold by a distributor may
effectively become a direct competitor of its former distributor. Moreover, a
manufacturer may reduce its dealer discounts, eliminate exclusive distribution
rights, reduce the manufacturer's support of a distributor or otherwise
adversely affect the competitive environment in which the distributor sells the
manufacturer's products. Any material change in VPI's distributor relationships
with its key suppliers or any interruption of the delivery of equipment to VPI
by any of its key suppliers would have a material adverse effect upon the
Company. See "Business -- Suppliers."

Competition in VPI's Voice Processing Business. VPI competes with a number
of larger integrated companies that provide competitive voice processing
products and services as subsets of larger product offerings, including all the
former regional Bell operating companies and major PBX equipment manufacturers,
such as Fujitsu Limited and Lucent Technologies Inc. ("Lucent"), formerly a
division of AT&T. These

5
<PAGE> 9

integrated public company competitors are substantially larger and may encroach
on the Company's voice processing equipment and service market. Additionally, in
the customer premise equipment markets, VPI competes with two types of equipment
companies: (i) interconnects (PBX providers), including Lucent, Northern Telecom
Limited, Fujitsu Limited and NEC Corporation, and (ii) independent voice
processing manufacturers, such as Octel Communications Corporation, Digital
Sound Corp., Active Voice Corp., Applied Voice Technology, Inc., Glenayre
Technologies, Inc. and Comverse Technology, Inc. Glenayre Technologies, Inc. and
Comverse Technology, Inc., among others, also compete with the Company in the
service provider market. Many of the Company's competitors in the voice
processing field have better name recognition in the market, a larger installed
base of customers and greater financial, marketing and technical resources than
the Company. See "Business -- Competition."

RISK FACTORS RELATED TO IMPAIRMENT TESTING BUSINESS

History of Operating Losses; Qualification of Auditors' Opinion. BFI has
experienced $8.4 million in operating losses since its inception. As of
September 30, 1996, BFI had a stockholders' deficit of approximately $3.1
million. The Company's independent auditors have included an explanatory
paragraph in their report on BFI's financial statements at December 31, 1995,
that states that BFI has suffered recurring losses from operations and has a net
stockholders' deficit, the cumulative effect of which raise substantial doubt
about BFI's ability to continue as a going concern. See "Independent Auditors'
Report" and Notes to Financial Statements.

Unknown Market Acceptance of the FACTOR 1000(R) System. The Company's
business success will depend in large part upon its ability to market,
manufacture and license the FACTOR 1000(R) system. The market for the system is
not established, and it is unknown whether demand for the system will meet the
Company's expectations. The FACTOR 1000(R) impairment testing system has been
subjected to commercial trials for less than three years and is in use for beta
testing at only five commercial locations. Also, BFI has had limited success in
licensing the system. Although management believes that at least $500,000 is
needed for product and market development of the FACTOR 1000(R) system, there
can be no assurance that the Company's cash outlays and development efforts will
result in market acceptance of the system. Development of the FACTOR 1000(R)
system could require significantly more funds than the Company anticipates. In
addition, there can be no assurance that the Company's plan to rely upon VPI's
experienced sales force to increase sales of the FACTOR 1000(R) system will be
successful, as VPI has no experience in selling the FACTOR 1000(R) system.
Although VPI's sales force may be successful in increasing sales of the FACTOR
1000(R) system, there can be no assurance that such sales will generate profits
for the Company. If the VPI sales force is not successful in increasing sales of
the FACTOR 1000(R) system, the Company would have to recruit, hire and train a
new sales force. The Company may not have sufficient cash to complete product
and market development of the system. See "Business."

Employee Challenges to Implementation of FACTOR 1000(R) Impairment Testing.
Labor unions generally have resisted any form of employee testing. BFI has
experienced labor union resistance to the FACTOR 1000(R) system, and, in several
instances, labor unions have prevented implementation of the FACTOR 1000(R)
system. Similar resistance from other employee groups also may arise. In
addition, while the FACTOR 1000(R) impairment testing system has not met with
legal challenge to date, there can be no assurance that use of the FACTOR
1000(R) system will not be legally challenged or that future legal decisions
will not restrict or prohibit an employer's use of the FACTOR 1000(R) system. If
the use of the FACTOR 1000(R) system were legally restricted or prohibited, the
Company would be materially adversely affected. See "Business -- Legal
Proceedings and Product Liability Insurance."

License for Critical Tracking Task/Test Software. The Company has an
exclusive license for Critical Tracking Task/Test ("CTT") software, a critical
component of the FACTOR 1000(R) technology, from Systems Technology, Inc.
("STI"). CTT software, which measures human sensorimotor skills, is protected
under a patent and copyrights held by STI. The Company's right to market the
FACTOR 1000(R) system is totally dependent on maintenance of its CTT software
license, and the Company relies on STI for product validation and modification.
Although the Company is currently in compliance with the payment and other terms
of its license agreement with STI, the Company has been delinquent in its
payments and certain

6
<PAGE> 10

reporting obligations to STI in the past. The failure to pay future royalty
payments or otherwise to perform its obligations under the license agreement,
including failure to market the product, could result in loss of the license
from STI, which would have a material adverse effect upon the Company.

RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY

Financing Risks. Although the acquisition of complementary businesses and
products is an element of the Company's business strategy, none of the proceeds
of this Offering will be reserved specifically for the funding of future
acquisitions. If a cash payment in excess of available working capital is
required to make an acquisition, the Company will need to obtain additional debt
or equity financing. Debt financing may require the Company to pay significant
amounts as interest and principal payments, thus reducing the resources
available to expand its existing businesses. Equity financing may be dilutive to
the Company's existing stockholders' interest in the assets or earnings of the
Company. There can be no assurance that the Company will be able to obtain
either debt or equity financing if and when it is needed for acquisitions or
that, if available, such financing would be available on terms the Company deems
acceptable. The inability of the Company to obtain such financing would likely
have a material adverse effect on the Company's acquisition strategy. Further,
the refusal of potential acquisition candidates to accept Common Stock as
consideration also could require the Company to reduce or curtail its
acquisition strategy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources" and
"Business -- Strategy."

Risks in Integrating Acquired Companies. Acquisitions may involve a number
of special risks, including adverse short-term effects on the Company's
operating results, diversion of management's attention from the operations of
the Company, dependence on retention, hiring and training of key personnel,
risks associated with unanticipated problems or legal liabilities and
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's operations and financial performance.
Successfully integrating the operations of additional companies into those of
the Company will require the cooperative efforts of the managers and employees
of the respective business entities, including the integration of the owners or
managers of smaller companies into roles that require them to report to
supervisors. Significant costs and management time may be required to integrate
management control systems. Furthermore, to manage its growth effectively, the
Company must continue to improve its operational, financial and management
controls and information systems, to accurately forecast sales demand, to
control its overhead and to manage its marketing programs. There can be no
assurance of accomplishing these results without encountering substantial costs,
delays or other problems. If management fails to establish the needed controls
and to manage the expected growth effectively, the Company's operating results
and financial condition would be adversely affected. See "Business -- Strategy."

Risk that Consideration for Combined Companies Exceeds Asset Value. The
valuations of each of BFI, VPI and CCA for purposes of their combination were
established through arm's length negotiations between representatives of the
Combined Companies, without the benefit of independent valuations or appraisals.
The consideration to be received by the stockholders of each of the Combined
Companies is based primarily on their values as going concerns and not on the
net asset value of the assets acquired. Accordingly, valuations of the Combined
Companies derived solely from an appraisal of the tangible net assets acquired
would have been lower than the consideration to be paid by the Company. No
assurance can be given that the future performance of the Combined Companies
will be commensurate with the consideration paid or the price of the Common
Stock offered hereby. See "Business."

Risks Associated with Future Unspecified Acquisitions. With the exception
of the proposed acquisition of CCA, the Company has no plans, agreements,
understandings or arrangements with respect to any future acquisition. The
Company does not intend to submit a proposed acquisition or other business
transaction to the review and vote of its stockholders, except as required by
Delaware law. Even if submitted to a vote of stockholders, the Company's
management owns a substantial portion of the Company's outstanding voting
securities and may be able to control the outcome of any such proposal. The
Company's growth strategy is highly dependent on the Company's ability to make
future acquisitions. See "Use of Proceeds" and "Business -- Strategy."

7
<PAGE> 11

SUBORDINATION OF CLAIMS OF STOCKHOLDERS

The Company is a holding company, and its assets consist of its investments
in its subsidiaries, namely VPI, BFI and, upon consummation of the proposed CCA
Merger, CCA. The Company's rights, and, therefore, the extent to which holders
of Common Stock will be able to participate in the distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization, will be subject
to prior claims of the subsidiary's creditors, including trade creditors, except
to the extent that the Company may itself be a creditor with recognized claims
against such subsidiary (in which case the claims of the Company would still be
subject to the prior claims of any secured creditor of such subsidiary and of
any holder of indebtedness of such subsidiary that is senior to that held by the
Company).

DEPENDENCE UPON KEY PERSONNEL

The Company believes its success will depend to a significant extent on the
efforts and abilities of certain of its senior management, in particular, those
of Esmond T. Goei, the Company's Chairman of the Board of Directors, Chief
Executive Officer and President, Douglas S. Zorn, Executive Vice President,
Chief Operating Officer and Chief Financial Officer, James S. Gillespie, Vice
President of Sales and President of VPI, Diane E. Nowak, Vice President of
Sales, Western Region, of VPI, and Bradley J. Eickman, Director of Operations of
VPI. The Company has entered into three-year employment agreements with each of
Messrs. Goei, Zorn and Gillespie. VPI has entered into two-year employment
agreements with Ms. Nowak and Mr. Eickman. The Company has purchased a key man
insurance policy in the amount of $1 million on the life of Mr. Goei, which
names the Company as the sole beneficiary. The Company intends to purchase
additional key man insurance policies on other key employees. There can be no
assurance that the Company will be able to obtain key man insurance policies on
such individuals at an acceptable cost. The loss of the services of any of these
persons would have a material adverse effect on the Company. See "Management --
Directors, Executive Officers and Significant Employees."

RISKS RELATED TO INTELLECTUAL PROPERTY

The Company intends to protect vigorously the CTT software, the FACTOR
1000(R) technology and the Company's other intellectual property against
infringement or misappropriation by others. There can be no assurance, however,
that steps taken by the Company will prevent misappropriation of its
intellectual property or that competitors will not develop products similar to
the FACTOR 1000(R) system. Protection of the CTT software owned by STI requires
the active participation of STI in such efforts. There can be no assurance that
STI will cooperate with the Company regarding such matters. Further, the
enforcement of proprietary rights of the Company through litigation could result
in costs to the Company that could have a material adverse effect on its
financial condition. In addition, although the Company believes that the CTT
software, the FACTOR 1000(R) technology and the Company's other intellectual
property do not infringe on the proprietary rights of third parties, there can
be no assurance that infringement or invalidity claims will not be asserted
against the Company in the future. An adverse determination or the costs of
defending litigation based on such claims would have a material adverse effect
on the Company's business and financial condition. See "Business -- Intellectual
Property."

PRODUCT LIABILITY EXPOSURE; LITIGATION RISK; LIMITED INSURANCE

BFI's impairment testing business exposes it to potential litigation by
employees of companies using FACTOR 1000(R) testing if the employee's employment
relationship is affected thereby and claims by third parties who may be
indirectly affected by the Company's services or products. Product and service
liability insurance is expensive, to the extent it is available at all. BFI
currently maintains general liability insurance in the amount of $1.0 million
per policy year, which the Company intends to increase to $5.0 million per
policy year in connection with the VPI Acquisition. There can be no assurance,
however, that the Company will be able to obtain such insurance on acceptable
terms, that the Company will be able to secure increased coverage if needed or
that any insurance policy will provide adequate protection against successful
claims. A successful claim brought against the Company in excess of the
Company's insurance coverage could have a material adverse effect upon the
Company. See "Business -- Legal Proceedings and Product Liability Insurance."

8
<PAGE> 12

GOVERNMENTAL REGULATION

The Telecommunications Act of 1996 eliminated government mandated barriers
between local and long distance calling, cable television, broadcasting and
wireless service. Consequently, local telephone companies, the traditional long
distance carriers and cable television companies may now provide both local
telephone and long distance service, as well as television programming. Such
increased competition likely will change the infrastructure for implementing
communications applications, such as voice and electronic messaging. Such
changes could have a material adverse impact on VPI's voice processing business.
See "Business -- Governmental Regulation."

Under the Federal Fair Credit Reporting Act, as amended ("FCRA"), CCA is
classified as a consumer reporting agency and is subject to regulation under
FCRA and must comply with all consumer credit disclosure requirements and
protocols of FCRA. Additionally, several states have enacted statutes similar to
FCRA, and at least four states require companies engaged in the background
checking and investigative business to be licensed in order to conduct business
in those states. Many states also regulate the type of information that can be
made available to the public and impose conditions on the release of such
information. In addition, privacy and consumer-rights advocates and federal
regulators have become increasingly concerned with the use of personal
information, particularly credit reports. Attempts have been made, and likely
will continue to be made, by these groups to adopt new or more stringent federal
and state regulations on the use of personal information. See
"Business -- Governmental Regulation."

BROAD DISCRETION IN APPLICATION OF PROCEEDS

Approximately $2.8 million, or approximately 48% of the net proceeds of
this Offering, has been designated for working capital purposes, including the
development and expansion of the Company's existing products, the addition of
complementary products and businesses and general corporate purposes.
Accordingly, the Company will have broad discretion as to the application of
such proceeds. See "Use of Proceeds."

USE OF PROCEEDS FOR REPAYMENT OF INDEBTEDNESS, INCLUDING INDEBTEDNESS TO
MANAGEMENT

The Company intends to use approximately $2.0 million, or approximately 35%
of the net proceeds of this Offering, to repay outstanding indebtedness and
accrued interest, including indebtedness and accrued interest owed to certain
executives in connection with BFI's prior bridge financings. The Company also
intends to use approximately $40,500 (approximately 1%) of the net proceeds of
this Offering to pay deferred salaries for certain executives and approximately
$400,000 (approximately 6.9% of the net proceeds) to pay performance and
retention bonuses for key employees. In addition, the Company may be obligated
to pay $62,500 per quarter to repay a $500,000 three-year note given as partial
consideration for the VPI Acquisition and, although the Company expects to make
any such quarterly payments (which are due only if VPI is profitable in such
quarter) from VPI's profits, proceeds of the offering might be used for one or
more payments. See "Use of Proceeds" and "The Company -- Material Terms of the
VPI Acquisition."

ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Common
Stock offered hereby. Application has been made to have the Common Stock
approved for quotation on Nasdaq SmallCap. However, there can be no assurance
that, following this Offering, an active trading market for the Common Stock
will develop or be sustained or that the market price of the Common Stock will
not decline below the Offering Price. The Offering Price will be determined
solely by negotiations between the Company and the Representative and will not
necessarily reflect the market price of the Common Stock after this Offering.
See "Underwriting" for a discussion of the factors considered in determining the
Offering Price. The market price of the Common Stock could be subject to
significant fluctuations in response to, and may be adversely affected by,
variations in quarterly operating results, changes in earnings estimates by
analysts, developments in the telecommunications industry, adverse earnings or
other financial announcements of the Company's customers and general stock
market conditions, as well as other factors. In addition, the stock market has
experienced extreme price and volume fluctuations from time to time that have,
in certain circumstances, borne no meaningful relationship to performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

9
<PAGE> 13

POSSIBLE VOLATILITY OF STOCK PRICES; PENNY STOCK RULES

The over-the-counter markets for securities such as the Common Stock
historically have experienced extreme price and volume fluctuations during
certain periods. These broad market fluctuations and other factors, such as new
product developments and trends in the Company's industry and the investment
markets generally, as well as economic conditions and quarterly variation in the
Company's results of operations, may adversely affect the market price of the
Common Stock. Although the Common Stock is anticipated to be approved for
quotation on Nasdaq SmallCap, there can be no assurance that it will remain
eligible to be included on Nasdaq SmallCap. In the event that shares of the
Common Stock were no longer eligible for quotation on Nasdaq SmallCap, the
Common Stock could become subject to rules adopted by the Securities and
Exchange Commission (the "Commission") regulating broker-dealer practices in
connection with transactions in "penny stocks." If the Common Stock became
subject to the penny stock rules, many brokers may be unwilling to engage in
transactions in the Common Stock because of the added disclosure requirements,
thereby making it more difficult for purchasers of Common Stock in this Offering
to dispose of their securities.

RISKS ASSOCIATED WITH THE REPRESENTATIVE'S INFLUENCE ON THE MARKET

Assuming the Common Stock is accepted for trading on Nasdaq SmallCap, the
Representative may from time to time following the completion of this Offering
act as a market-maker and otherwise effect transactions in the Common Stock. The
Representative is not legally obligated by law or by contract to continue such
trading, which may be discontinued at any time. Any such cessation could have a
material adverse effect upon the price and liquidity of the Common Stock. The
Representative is subject to the supervision of various governmental and self
regulatory organizations, as well as certain capital requirements. Such
regulatory authorities periodically investigate and audit the activities of
broker-dealers, such as the Representative. In the event the Representative is
required to curtail or cease operations as a result of administrative actions
instituted by the regulatory authorities or because of lack of capital, the
price and liquidity of the Common Stock may be materially adversely affected by
the reduced participation or complete absence of the Representative from the
market.

IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS

Based on the unaudited pro forma net tangible book value of the Company at
September 30, 1996, and assuming an Offering Price of $4.00 per share, investors
in this Offering will suffer an immediate and substantial dilution of their
investment of approximately $3.41 (or 85.3%) in pro forma net tangible book
value per share of the Common Stock. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

The market price for the Common Stock could be adversely affected by the
availability of shares of Common Stock for sale or actual sales of substantial
amounts of Common Stock by existing or future stockholders. Upon completion of
this Offering, the 2,300,000 shares of Common Stock sold in this Offering will
be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), by persons other than
"affiliates" of the Company. Of the remaining shares of Common Stock,
approximately 1,575,300 shares will be "restricted securities" within the
meaning of Rule 144 under the Securities Act ("Rule 144") and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption contained in Rule 144. The
approximately 300,000 shares to be issued to Mr. Cossey in connection with the
proposed CCA merger will not be "restricted securities," but will be subject to
a lockup agreement and to certain volume and other limitations on sales
contained in Rules 144 and 145. The holders of approximately 1,367,450 shares of
Common Stock possess registration rights with respect to such shares. The
Company's Chairman of the Board and Chief Executive Officer and affiliates and
other officers, directors and key employees have agreed, with respect to 50% of
the shares of Common Stock held by them, for a period of 18 months from the date
of this Prospectus, and with respect to the remaining 50% of the shares of
Common Stock held by them, for a period of 24 months from the date of this
Prospectus, that they will not publicly offer, sell, contract to sell or

10
<PAGE> 14

otherwise publicly dispose of any shares of Common Stock directly or indirectly
owned by them without the prior written consent of the Representative. Following
the expiration of such lock-up agreements, approximately 1,298,400 shares of
Common Stock will become available for resale in the public market, subject to
the volume limitations, holding periods and other restrictions of Rule 144.
Additionally, as of December 31, 1996, 976,500 shares of Common Stock have been
reserved for issuance under the Company's Equity Incentive Plan, 634,375 shares
of which will be subject to outstanding options of BFI. See "Management." The
Company also has agreed, in connection with this Offering, to grant a warrant to
the Representative to purchase 230,000 shares of Common Stock at an exercise
price equal to 120% of the Offering Price, together with certain registration
rights relating to such shares. Future sales of shares of Common Stock, or the
perception that such sales could occur, could have an adverse effect on the
market price of the Common Stock. If the Over-Allotment Option is exercised in
full, there will be outstanding an additional 345,000 shares of Common Stock,
all of which will be freely tradeable without restriction or further
registration. See "Shares Eligible for Future Sale," "Underwriting" and
"Description of Capital Stock."

PRO FORMA FINANCIAL STATEMENTS

This Prospectus contains certain historical and pro forma financial
statements. The pro forma financial statements reflect the Company's best
estimate of the impact of the VPI Acquisition and the subsequent proposed CCA
Merger on the historical financial statements. Since those transactions have not
closed, the actual impact of those transactions on the Company's future
financial statements could be materially different than as presented.

CONTROL BY MANAGEMENT

Upon completion of this Offering, the Company's officers and directors will
own approximately 26.1% of the then issued and outstanding shares of Common
Stock (assuming no exercise of the Over-Allotment Option, the Underwriter
Warrant or other outstanding stock options and warrants) and, thus, may be able
to influence the election of a majority of the Company's directors and thereby
direct the policies of the Company.

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and certain provisions of the
Delaware General Corporation Law may make it difficult to change control of the
Company. See "Description of Capital Stock -- Certain Certificate of
Incorporation, Bylaw and Statutory Provisions Affecting Stockholders." For
example, the Certificate of Incorporation permits the Board of Directors,
without stockholder approval, to issue one or more classes or series of
preferred stock having the number of shares, designations, relative voting
rights, dividend rates, liquidation and other powers, rights, preferences and
limitations that the Board of Directors establishes. The issuance of preferred
stock, while providing flexibility in connection with possible financings,
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of the
Company, discourage bids for the Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock. Employment agreements
with the Company's Chief Executive Officer and Chief Operating Officer provide
for substantial severance pay in the event of a "Change of Control" of the
Company, as such term is defined in such agreements. In addition, in the event
of a change of control of the Company, all outstanding stock options will vest
and become immediately exercisable and all restricted stock awards will become
nonforfeitable. See "Description of Capital Stock -- Certain Certificate of
Incorporation, Bylaw and Statutory Provisions Affecting Stockholders" and
"Management -- Employment Agreements" and "Management -- Equity Incentive Plan."

CONFLICTS OF INTEREST

Certain officers, directors and stockholders of the Company have entered
into loan transactions with the Company, have purchased and sold securities of
the Company and have engaged or may engage in other businesses for their own
account, which may be in competition with the Company, all of which could give
rise

11
<PAGE> 15

to conflicts of interest. See "Certain Transactions." The Company does not
intend to enter into business transactions or arrangements with officers,
directors or stockholders unless they are on terms at least as favorable to the
Company as could be obtained from unrelated third parties. However, there can be
no assurance that any future transaction or arrangement between the Company and
an officer, director or stockholder will be advantageous to the Company, that
conflicts of interest will not arise with respect to such transactions or
arrangements, or that if such conflicts arise, they would be resolved in a
manner favorable to the Company.

INDEMNIFICATION OF DIRECTORS AND OFFICERS BY THE COMPANY; LIMITATIONS ON
LIABILITY

The Certificate of Incorporation limits the liability of directors of the
Company for monetary damages for breaches of directors' fiduciary duty of care.
In addition, the Delaware General Corporation Law and the Certificate of
Incorporation contain provisions for indemnification of officers and directors
of the Company. The Certificate of Incorporation requires the Company to
indemnify such persons to the full extent permitted by Delaware law. Each
officer and director will be indemnified in any proceeding alleging breaches of
fiduciary duty to the Company and similar wrongful conduct if he or she acted in
good faith and in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the Company. Indemnification would cover
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement. See "Description of Capital Stock -- Certain Certificate of
Incorporation, Bylaw and Statutory Provisions Affecting Stockholders."

The Company's Bylaws also provide that the Board of Directors may cause the
Company to purchase and maintain insurance on behalf of any present or past
director, officer, employee, fiduciary, or agent of the Company insuring against
any liability asserted against such person arising out of such person's
position, whether or not the Company would have the power to indemnify such
person. The Company intends to obtain directors' and officers' liability
insurance, providing $2 million of coverage.

The Company has agreed to indemnify the Underwriters against certain
liabilities in connection with this Offering. See "Underwriting."

NO DIVIDENDS

BFI has not paid dividends on its Common Stock since its inception. VPI in
the past has made distributions to its stockholders. VPI has declared $783,700
in dividends during the first nine months of 1996 and plans to declare an
additional dividend of $550,000 prior to the VPI Acquisition, and to award
bonuses of $250,000, which are accrued in the September 30, 1996 Financial
Statements of VPI. In addition, VPI paid an $85,000 dividend to its sole
stockholder in November 1996, to cover estimated individual income taxes.
However, the Company currently intends to retain earnings, if any, for use in
the business. Accordingly, the Company does not anticipate paying any dividends
to its stockholders in the foreseeable future.

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<PAGE> 16

THE COMPANY

NHancement Technologies Inc., a Delaware corporation (the "Company"), was
incorporated in October 1996 as a holding company. Immediately prior to the
consummation of this Offering, BFI (formerly known as Performance Factors, Inc.,
a California corporation), the developer and marketer of the FACTOR 1000(R)
system, will merge with a subsidiary of the Company to become a wholly owned
subsidiary of the Company (the "BFI Merger"). Also, immediately prior to the
consummation of this Offering, the Company will acquire VPI, a systems
integrator and national distributor of voice processing equipment, pursuant to a
transaction whereby VPI will merge with a subsidiary of the Company to become a
wholly owned subsidiary of the Company (the "VPI Acquisition"). The business of
the Company will be conducted by its operating company subsidiaries, BFI and
VPI. Reference in this Prospectus to "the Company" refers to the combined
operations of BFI and VPI on a going-forward basis.

The Company's principal executive offices are located at 1746 Cole
Boulevard, Suite 265, Golden, Colorado 80401, and its telephone number is
303-271-0505.

MATERIAL TERMS OF THE BFI MERGER

Immediately prior to the consummation of this Offering, BFI will become a
wholly owned subsidiary of the Company pursuant to an Agreement and Plan of
Merger, dated as of October 30, 1996, by and among the Company, BFI Acquisition
Corporation ("BAC") and BFI (the "BFI Merger Agreement"). The BFI Merger
Agreement provides for the merger of BAC with and into BFI, with BFI as the
surviving corporation. Each outstanding share of BFI Common Stock will be
converted into the right to receive seventy-five-hundredths (75/100) of a share
of Common Stock; and the Company will assume the obligations of the outstanding
BFI options and grant to each optionee an option to purchase 5.625 shares of the
Common Stock at an exercise price of 80% of the Offering Price for every 10
shares of BFI Common Stock the optionee was entitled to purchase (at an exercise
price of $0.50 per share) under the existing option. In addition to certain
customary conditions to closing, the consummation of the BFI Merger is
contingent upon the effectiveness of the registration statement of which this
Prospectus is a part, stockholder approval of the BFI Merger, the closing of the
VPI Acquisition and the absence of any pending or threatened litigation in
connection with the BFI Merger Agreement. The Company has agreed to issue
warrants to purchase 109,900 shares of Common Stock (exercisable one year after
the closing of this Offering at an exercise price of 120% of the Offering Price)
to the holders of promissory notes in connection with BFI's prior bridge
financings and to authorize the assignment from BFI and the assumption by the
Company of all obligations under certain registration rights agreements of BFI.
See "Business -- Recent Financings" and "Description of Capital
Stock -- Registration Rights." The BFI Merger Agreement may be terminated (i) if
either party fails to perform any of its obligations under the BFI Merger
Agreement or fails to cure a material breach of any representation, warranty,
agreement or covenant within 10 days after notification or (ii) if the BFI
Merger is not consummated prior to March 31, 1997. The parties have agreed to
indemnify each other with respect to any losses arising out of any
misrepresentation, breach or failure to fulfill obligations under the BFI Merger
Agreement.

MATERIAL TERMS OF THE VPI ACQUISITION

Immediately prior to the consummation of this Offering, VPI will become a
wholly owned subsidiary of the Company pursuant to an Agreement and Plan of
Merger, dated as of October 25, 1996, by and among the Company, VPI Acquisition
Corporation ("VAC"), VPI and James Gillespie, the sole stockholder of VPI (the
"VPI Acquisition Agreement"). The VPI Acquisition Agreement provides for the
merger of VAC with and into VPI, with VPI as the surviving corporation. In
consideration for all the issued and outstanding shares of common stock of VPI,
Mr. Gillespie will receive from the Company (i) two unsecured promissory notes
in principal amounts of $1,000,000 and $500,000, and (ii) shares of NHancement
Common Stock with a market value of $4,680,000 (of which, shares valued at
$2,400,000 will be sold in this Offering, and the remainder of the shares will
be subject to restrictions on transferability under the Securities Act and
pursuant to a lock-up agreement with the Representative). The notes will each
bear interest at the medium term United States Treasury bill rate and are due on
the third anniversary of the consummation of the VPI Acquisition, but are
payable earlier, depending on the future earnings of VPI, with 50% of VPI's
pre-tax profits to be applied to pay principal and interest on the $1,000,000
note quarterly, and $62,500 of principal and accrued interest to be

13
<PAGE> 17

paid on the $500,000 note in any quarter in which VPI is profitable, payable
beginning 45 days after the close of the fourth quarter 1996. In addition to
certain customary conditions to closing, the consummation of the VPI Acquisition
is contingent upon the effectiveness of the registration statement of which this
Prospectus is a part, the closing of the BFI Merger and the absence of any
pending or threatened litigation in connection with the VPI Acquisition
Agreement. The VPI Acquisition Agreement may be terminated (i) if either party
fails to perform any of its obligations under the VPI Acquisition Agreement or
fails to cure a material breach of any representation, warranty, agreement or
covenant within 10 days after notification or (ii) if the VPI Acquisition is not
consummated prior to March 31, 1997. The parties have agreed to indemnify each
other with respect to any losses arising out of any misrepresentation, breach or
failure to fulfill obligations under the VPI Acquisition Agreement, with VPI's
indemnification applying only to claims that in the aggregate exceed $75,000.

USE OF PROCEEDS

The net proceeds to the Company from this Offering, after deducting
underwriting discounts and commissions and the Nonaccountable Expense Allowance
and other offering expenses payable by the Company, are estimated to be
approximately $5,770,000 (approximately $7,053,400 if the Over-Allotment Option
is exercised in full). The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholder. The Company presently intends to use
the net proceeds of this Offering as follows:

<TABLE>
<CAPTION>
EXERCISE OF
OVER-ALLOTMENT OPTION
------------------------
PERCENTAGE PERCENTAGE
APPROXIMATE OF NET APPROXIMATE OF NET
APPLICATION OF NET PROCEEDS AMOUNT PROCEEDS AMOUNT PROCEEDS
--------------------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Repayment of notes(1)(2)................ $2,061,000 35.7% $2,061,000 29.2%
Expenditures for product and market
development of the FACTOR 1000(R)
system................................ 500,000 8.7 500,000 7.1
Payment of deferred salaries for certain
executives(3)......................... 40,500 0.7 40,500 0.6
Performance and retention bonuses for
key employees(4)...................... 400,000 6.9 400,000 5.7
Payment of consulting fee to the
Representative ....................... 40,000 0.7 40,000 0.6
Working capital(5)...................... 2,728,500 47.3 4,011,900 56.8
---------- ----- ---------- -----
Total......................... $5,770,000 100.0% $7,053,400 100.0%
========== ===== ========== =====
</TABLE>

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

(1) Includes repayment of an aggregate of $1,510,500, representing principal
amounts and accrued interest due in connection with recent bridge financings
that by their terms are due upon the consummation of this Offering and bear
interest at annual rates of 10% and 12%, including the repayment of
principal and accrued interest on loans made to the Company in connection
with a November 1996 bridge financing, from VPI, of which James Gillespie,
Vice President Sales and a director of the Company, is sole shareholder,
Esmond Goei, President and Chief Executive Officer, Admiral Capital
Corporation, an affiliate of Gary Nemetz, a director of BFI and a nominee
for director of the Company, Richard Williams, a director of BFI and a
nominee for director of the Company, and Douglas Zorn, Chief Operating and
Financial Officer, in the respective principal amounts of $50,000, $50,000,
$50,000, $25,000 and $60,000. The proceeds of the bridge financings
completed within the past year (an aggregate of $1,115,000) were used
primarily for developing and implementing the Company's acquisition strategy
(including the VPI Acquisition and the CCA Merger) and for the preparation
of an initial public offering, including related legal and accounting fees;
the remainder of the proceeds were used for general operating purposes
including officers' salaries. See "Business -- Recent Financings."

(2) Includes (i) the repayment of approximately $86,500 in principal and accrued
interest on certain notes held by Walnut Capital Corp., of which Burton
Kanter, a director of BFI, is chairman, bearing interest at the rate of 10%,
and due December 31, 1996 and currently unpaid, (ii) the repayment of
approximately $413,000 in principal and accrued interest on certain notes
held by Elliot Steinberg, a former director of BFI, bearing interest at the
rates of 10% to 12%, and due February 15, 1997, (iii) the repayment of

14
<PAGE> 18

approximately $28,000 in principal and accrued interest on a note held by a
nonaffiliated investor, (iv) the repayment of approximately $12,800 in
principal and accrued interest on loans made in April 1995 to the Company
from Mr. Zorn and Mr. Steinberg, in the respective principal amounts of
$2,500 and $10,000, bearing interest at 12% and due February 15, 1997, and
(v) the repayment of approximately $10,200 in principal and accrued interest
on a loan made in April 1995 to the Company from Walnut Capital Corp.,
bearing interest at 12% and due December 31, 1996 and currently unpaid. See
"Certain Transactions."

(3) Represents a portion of salaries deferred by Messrs. Goei and Zorn during
1996.

(4) Represents performance bonuses to be paid to Messrs. Goei and Zorn and to
Ms. Wackwitz, Vice President, General Counsel and Assistant Secretary, and
retention bonuses to be paid to three employees of VPI -- Suzette Anderson,
Bradley Eickman, and Diane Nowak. There are no written retention agreements.

(5) Although the Company has not designated precise amounts of the remaining net
proceeds for specific purposes and expects that funds generated from
operations, if any, will contribute to meeting the Company's capital needs,
the Company believes that it may use between $750,000 and $1,000,000 to
expand the sales and marketing functions, up to $500,000 for new product
developments, approximately $250,000 for professional fees related to future
acquisitions and between $500,000 and $1,000,000 for financing expanded
levels of inventories and accounts receivable in support of future
operations. In addition, the Company may be obligated to pay $62,500 per
quarter to repay a $500,000 three-year note given as partial consideration
for the VPI Acquisition and, although the Company expects to make any such
quarterly payments (which are due only if VPI is profitable in such quarter)
from VPI's profits, proceeds of the offering might be used for one or more
payments.

The net proceeds of this Offering, after repayment of indebtedness and
accrued interest, will be used to develop and expand further the Company's
existing products, to add complementary products and businesses and for general
corporate purposes. The Company plans to use stock to effect acquisitions of
companies with complementary products and businesses; however, management may
elect to use cash or debt for this purpose, if appropriate. No portion of the
net proceeds has been allocated for any specific acquisition, and no acquisition
is pending or in negotiation as of the date of this Prospectus, other than the
proposed CCA Merger. No assurance can be given that any future acquisition will
be consummated or, if consummated, that any acquisition would prove advantageous
to the Company. See "Risk Factors -- Risks Related to the Company's Acquisition
Strategy" and "Business -- Strategy."

While the above use of proceeds indicates the Company's current plans,
there may be changes due to the availability of other business opportunities or
changes in the Company's plan of operation. Management is not currently aware of
any such business opportunities or planned changes in operations.

The Company anticipates that the net proceeds from this Offering, together
with cash flow from operations, will sustain the Company's current and proposed
operations for at least 12 months following the date of this Prospectus. Any
additional net proceeds realized from the exercise of the Over-Allotment Option
will be added to the Company's working capital. Pending use, net proceeds will
be invested in short-term, investment grade, interest-bearing securities or
certificates of deposit. See "Risk Factors -- Risks Related to the Company's
Acquisition Strategy," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources," and
"Business -- Strategy."

DIVIDEND POLICY

15
<PAGE> 19

CAPITALIZATION

The following table sets forth, as of September 30, 1996: (i) the actual
capitalization of BFI, on a historical basis, and (ii) the pro forma
capitalization of BFI, VPI and CCA, combined and as adjusted to give effect to
the sale of 1,700,000 shares of Common Stock by the Company in this Offering at
an assumed Offering Price of $4.00 per share (after deducting estimated
underwriting discounts and commissions and the Nonaccountable Expense Allowance
and other offering expenses payable by the Company). This table should be read
in conjunction with the historical financial statements of BFI, VPI and CCA and
pro forma combined financial data included elsewhere in this Prospectus. See
"Unaudited Pro Forma Combined Financial Statements," "Notes to Unaudited Pro
Forma Combined Financial Statements," historical financial statements and
related notes.

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------
----------------------- AS ADJUSTED
BFI VPI CCA COMBINED FOR OFFERING
------- ---- ---- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Short-term debt and current portion of long-term
debt(1)........................................ $ 2,064 $ -- $ 0 $ 2,064 $ 0
Long-term debt, excluding current portion........ 0 -- 1 1,501 1,501
Stockholders' equity (deficit):
Common stock, $0.01 par value, 10,000,000
shares authorized, 2,225,300 shares
outstanding pro forma combined and 4,166,950
shares outstanding pro forma as
adjusted(2)(3).............................. 6 22 3 25 45
Additional paid-in capital..................... 5,314 -- -- 9,978 16,645
Retained earnings (deficit).................... (8,377) 108 128 (8,249 ) (8,249)
------- ---- ---- ------- -------
Total stockholders' equity (deficit)... (3,057) 130 131 1,754 8,441
------- ---- ---- ------- -------
Total capitalization................... $ (993) $130 $132 $ 5,319 $ 9,942
======= ==== ==== ======= =======
</TABLE>

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

(1) Includes capital lease obligations.

(2) Excludes 1,481,559 shares potentially issuable as follows: 634,375 shares of
Common Stock issuable upon the exercise of stock options pursuant to the
NHancement Technologies Inc. Equity Incentive Plan; 7,184 shares of Common
Stock issuable pursuant to the exercise of certain warrants at exercise
prices ranging from $25.88 to $188.80 per share; 610,000 shares issuable
upon the exercise of certain warrants at an exercise price per share of 120%
of the Offering Price; and 230,000 shares of Common Stock issuable upon
exercise of the Underwriter Warrant. See "Management -- Equity Incentive
Plan," "Business -- Recent Financings" and "Underwriting."

(3) Includes approximately 100 holders of record.

16
<PAGE> 20

DILUTION

The aggregate net tangible book value of BFI, VPI and CCA at September 30,
1996 was ($2,796,200). The pro forma net tangible book value of the Company at
September 30, 1996 would have been ($4,224,600), or ($1.90) per share after
giving effect to the VPI Acquisition and the CCA Merger. "Pro forma net tangible
book value per share" is the pro forma tangible net worth (total pro forma
tangible assets less total liabilities) of the Company, divided by the number of
shares of Common Stock outstanding after giving effect to the proposed CCA
Merger. After giving effect to the sale of Common Stock offered hereby (after
deducting underwriting discounts and commissions and the Nonaccountable Expense
Allowance and estimated offering expenses payable by the Company), the pro forma
net tangible book value of the Company at September 30, 1996 would have been
$2,462,000 or $0.59 per share, representing an immediate increase in pro forma
net tangible book value of $2.49 per share to existing stockholders and an
immediate dilution of $3.41 or approximately 85.3% per share to the investors
purchasing shares of Common Stock in this Offering ("New Investors").

The following table illustrates this dilution to New Investors on a per
share basis:

<TABLE>
<S> <C> <C>
Offering Price per share of Common Stock.............................. $4.00
Net pro forma tangible book value per share of Common Stock before
this Offering.................................................... (1.90)
Increase attributable to the sale of shares of Common Stock offered
hereby........................................................... 2.49
-----
Pro forma net tangible book value per share of Common Stock after this
Offering............................................................ 0.59
-----
Dilution to New Investors............................................. $3.41
=====
</TABLE>

The following table sets forth, at the date of this Prospectus, the number
of shares of Common Stock acquired from the Company, the total consideration to
the Company and the average price per share paid by existing stockholders after
giving effect to the transactions described under "The Company" and the purchase
of Common Stock in this Offering by the New Investors:

<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 2,475,300(1) 59.3% $2,754,200(2) 28.9% $1.11
New Investors................... 1,700,000 40.7 6,800,000 71.1 4.00
Total......................... 4,175,300 100.0% $9,544,200 100.0% $2.29
</TABLE>

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

(1) Includes 600,000 shares sold in this offering, issued in connection with the
VPI Acquisition.

(2) Includes the total consideration paid by the existing stockholders of BFI,
VPI and CCA of $1,754,200, plus $1,000,000 of debt and accrued interest, all
of which converts into shares of Common Stock upon the consummation of this
Offering and at a conversion price equal to the Offering Price. See
"Business -- Recent Financings."

The foregoing analysis assumes no exercise of outstanding options,
outstanding warrants or the Underwriter Warrant. In the event any of the
foregoing is exercised, the percentage ownership of the New Investors will be
reduced.

17
<PAGE> 21

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

The following discussion of the Company's results of operations and of its
liquidity and capital resources should be read in conjunction with the
individual historical financial statements of NHancement Technologies Inc.
(formerly BFI), VPI and CCA, the Unaudited Pro Forma Combined Financial
Statements and the related notes thereto appearing elsewhere in this Prospectus.

INTRODUCTION

NHancement Technologies Inc. (the "Company") was formed in 1996 as a
holding company and, immediately prior to the closing of this Offering, BFI and
VPI will become wholly owned subsidiaries of NHancement Technologies Inc. The
VPI Acquisition will be accounted for as a purchase, and the BFI Merger will be
accounted for in a manner similar to a pooling-of-interests. Further, as soon as
practicable after the consummation of this Offering, the Company intends to
acquire CCA in a transaction that will be accounted for as a
pooling-of-interests. Prior to these business combinations, each of BFI and VPI
has been operating as a separate independent entity. Accordingly, historical
results may not be comparable to or indicative of future performance. For all
periods presented, the Historical Financial Statement data include the accounts
of BFI, VPI and CCA without giving effect to the business combinations or this
Offering. The pro forma financial data give effect to the business combinations
and this Offering, and, accordingly, the assets and liabilities of BFI and CCA
are reflected at their historical amounts, with VPI presented at estimated
current fair values.

Since January 1, 1996, VPI has operated as a Subchapter S corporation under
the Code. Upon consummation of the VPI Acquisition, the Company will file as a
consolidated group for federal income tax purposes. For purposes of the
Unaudited Pro Forma Combined Statements of Operations included in this
Prospectus, pro forma federal and state income taxes have been provided as if
VPI had filed C corporation tax returns. An adjustment was made to eliminate the
provision for income taxes due to the application of the net losses of BFI on a
consolidated basis. See "Notes to Unaudited Pro Forma Combined Financial
Statements."

EFFECTS OF THE COMPANY'S ACQUISITION STRATEGY ON FUTURE RESULTS OF OPERATIONS

Management believes that the VPI Acquisition will enable the Company to
leverage VPI's established and profitable marketing and distribution capability
to cost effectively market current and future compatible products. The costs
associated with establishing such marketing and distribution capabilities within
BFI would be higher in terms of funds and time. Management believes that the
proposed CCA Merger would allow the Company to enter the security market and to
use this acquired expertise to pursue future acquisitions in the security area.
Management believes that the VPI Acquisition and the CCA Merger create
opportunities to reduce costs by (i) consolidating physical operating
facilities, (ii) eliminating redundant positions, (iii) cross-training
personnel, (iv) consolidating administrative functions such as accounting, MIS
and administration, (v) cross marketing products among the various customers of
each entity, and (vi) leveraging the increased size of the Company to create
economies of scale and to receive discounts from volume purchases. Although the
Company expects to reduce costs and, correspondingly, to increase profits, there
can be no assurance that the Company will be successful in substantially
reducing costs or that such reduction of costs, if achieved, would result in
overall profitability in the future.

18
<PAGE> 22

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 and Nine
Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.)

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ------------------
1994 1995 1995 1996
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................................... 125.5 41.4 37.8 14.3
Gross margin............................................ (25.5) 58.6 62.2 85.7
Research, selling and administrative expenses........... 482.2 196.1 187.2 185.7
Operating loss................................ (507.7) (137.5) (125.0) (100.0)
Other expense........................................... (22.8) (115.2) (85.9) (57.7)
Loss before income taxes................................ (530.5) (252.7) (210.9) (157.7)
Income taxes............................................ 0.0 0.0 0.0 0.0
Net loss................................................ (530.5) (252.7) (210.9) (157.7)
</TABLE>

BFI is a development stage company focused on employee impairment testing
systems. BFI's net sales and gross margins in 1994 and most of 1995 were
attributed to early "beta" type customer installations of the FACTOR 1000(R)
system, with significant negative gross margins and high engineering and
customer installation costs. The increased revenue for 1995 of $450,000
(compared to $375,000 in 1994) was primarily due to receipt of $300,000 as
partial payment of a $1 million licensing fee for BFI's technology for sports-
related applications in late 1995 from SportsTrac, Inc. (formerly, Bogart
Associates International, Inc.) ("SportsTrac"), and customer renewals of
licenses for the FACTOR 1000(R) impairment testing system. One of BFI's
strategies is to license its products on a usage basis, as opposed to one-time
sales of systems, resulting in recurring revenues as customers renew each year.
Secondarily, the Company intends to continue to seek licensees in various
specialty market segments, similar to the Company's sports license agreement.
Such agreement resulted in a $1.0 million initial fee, of which $700,000 was
recognized during the nine-month period ended September 30, 1996, plus an
on-going royalty of 8.5% of revenues generated from the license. As a result of
the receipt of such $700,000 payment, BFI's gross margin for the nine months
ended September 30, 1996 increased to 85.7%. Revenues in 1996 continued to come
from customer renewals and licensing fees. The first significant revenues from
the commercial release of the FACTOR 1000(R) system are expected in 1997.

Research, selling, and administrative ("RS&A") expenses as a percentage of
net sales were high during 1994, 1995 and 1996 for the following reasons: (i)
during all of 1994, BFI was developing the FACTOR 1000(R) system and had
insignificant revenues from early stage customers; (ii) for most of 1995, BFI
continued development of the FACTOR 1000(R) system, working closely with a few
beta customers as the product was made commercially viable, while several of
BFI's early stage customers committed to continue to use the FACTOR 1000(R)
system in a commercial mode; (iii) as development costs significantly decreased
during late 1995 and early 1996, most of the operating costs were expended in
finding complementary businesses to acquire that would provide a viable
marketing channel for the FACTOR 1000(R) system; and (iv) during 1996,
significant expenditures were made in connection with unconsummated mergers and
indirect expenditures were made in connection with the VPI Acquisition and the
CCA Merger and to prepare for this Offering. Finally, management believes that
at least $500,000 is needed for initial product and market development costs for
the FACTOR 1000(R) system.

Other expense increased from $85,400 in 1994 to $519,200 in 1995, primarily
due to interest and original issue discounts associated with bridge financings,
which financings will be repaid or converted upon consummation of this Offering.
Other expense continues to remain at a significant level ($437,000 during the
first nine months of 1996) for the same reasons. BFI will have no debt after the
application of funds from this Offering, except for the $1.5 million in
promissory notes payable in connection with the VPI Acquisition. See "Certain
Transactions."

19
<PAGE> 23

VOICE PLUS, INC.

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ----------------
1994 1995 1995 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................................... 62.7 57.7 56.2 63.0
Gross margin........................................... 37.3 42.3 43.8 37.0
Selling and administrative expenses.................... 33.4 38.3 35.6 29.4
Operating income............................. 3.9 4.0 8.2 7.6
Other income........................................... 0.3 0.4 0.3 0.3
Income before income taxes............................. 4.2 4.4 8.5 7.9
Income taxes........................................... (2.0) (2.0) (3.9) (1.4)
Net income............................................. 2.2 2.4 4.6 6.5
</TABLE>

VPI is an integrator and distributor of voice processing and
telecommunications systems for businesses. VPI's net sales increased 9% from
$6.7 million in 1994 to $7.3 million in 1995 and increased 12.9% for the first
nine months of 1996 to $6.2 million. The increase between 1994 and 1995 was
primarily due to the sale of larger voice processing systems. Management expects
VPI's annual revenues to increase for 1996 as compared to 1995, consistent with
prior-years' growth rates. Revenue recognition in the first nine months of 1996
has been delayed due to problems with a new voice processing system introduced
by a major supplier. During the fourth quarter of 1996, VPI obtained customer
acceptances on substantially all of the remaining installed systems that
encountered initial problems with the manufacturer's design.

Gross margin increased 22.7% from $2.5 million in 1994 to $3.1 million in
1995 and declined 4.5% for the first nine months of 1996 to $2.3 million. Gross
margin as a percentage of net sales increased from 37.3% in 1994 to 42.3% in
1995. Gross margin for the first nine months of 1996 was 37.0%, which reflects a
decrease from the gross margin for the first nine months of 1995 at 43.8%. The
higher gross margin experienced during 1995 was primarily due to the sale of a
significant amount of reconditioned equipment to other voice mail service
providers at unusually high margins during the third quarter of 1995. The
overall gross margin trend for VPI's sales, excluding sales of reconditioned
equipment, is declining at a slow rate as a result of industry competition.
Management expects this trend to continue. A major objective of the Company's
business combination strategy is to take advantage of VPI's established
distribution strength by providing VPI with complementary higher gross margin
products, such as the FACTOR 1000(R) system, that are either internally
developed or acquired in future business combinations.

Selling and administrative ("S&A") expenses increased 24% from $2.2 million
in 1994 to $2.8 million in 1995 and have decreased 6.8% during the first nine
months of 1996 to $1.8 million. S&A as a percentage of net sales increased from
33.4% in 1994 to 38.3% in 1995 and declined from 35.6% to 29.4% during the first
nine months of 1996, compared to the first nine months of 1995. The increase
from 1994 to 1995 was attributable to startup costs associated with the addition
of several new marketing and sales persons in 1995 in anticipation of increased
sales in 1996. New sales persons normally do not produce significant sales
revenues for almost six months, but normal production from established
individual sales persons is over $1.0 million annually.

The effective income tax rate of 46% in 1995 was slightly lower than the
1994 effective tax rate of 47%. These rates are different from the federal
statutory income tax rate principally due to state income taxes. The effective
income tax rate for the first nine months of 1996 of 18% reflects VPI's change
to Subchapter S corporation status, effective January 1, 1996, and the write-off
of a deferred tax asset that is not expected to be realized.

Slight increases in other income, both from 1994 to 1995 and from the first
nine months of 1995, compared to the first nine months of 1996, occurred
primarily due to interest on higher cash balances invested in interest bearing
bank accounts during the later periods. VPI had no debt during the reporting
periods.

20
<PAGE> 24

Year Ended September 30, 1996 Compared to Year Ended September 30, 1995

C.C. & ASSOCIATES

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------------
1995 1996
------ ------
<S> <C> <C>
Net sales................................................................ 100.0% 100.0%
Cost of goods sold....................................................... 52.4 59.6
Gross margin............................................................. 47.6 40.4
Selling and administrative expenses...................................... 36.1 39.5
Operating income............................................... 11.5 0.9
Other income (expense)................................................... 0.0 (0.1)
Income before income taxes............................................... 11.5 0.8
Income taxes............................................................. (4.4) (0.6)
Net income............................................................... 7.1 0.2
</TABLE>

CCA is a workplace security business that performs investigations and
designs and implements security systems. CCA has a September 30 fiscal year end.
CCA's net sales decreased by 15.0% during 1996, as compared to 1995, from $1.1
million to $915,000. Revenues for 1996, as compared to 1995, were not dependent
on a single large customer sale, as was the case in 1995, but rather were
derived from the sale of a number of products to a diverse group of clients.

Gross margin declined for 1996, as compared to 1995, from $511,800 to
$369,100, as there was no such single large customer sale in 1996 as in 1995.
Gross margin as a percentage of revenue declined from 47.6% to 40.4% from 1995
to 1996.

S&A has decreased slightly from $388,400 for 1995 to $361,500 for 1996. S&A
as a percentage of net sales increased to 39.5% in 1996, as compared to 36.1% in
1995.

LIQUIDITY AND CAPITAL RESOURCES

September 30, 1996 Compared to December 31, 1995

BIOFACTORS, INC.

During the first nine months of 1996, net cash used in the operating
activities of BFI was $455,200, and net cash provided by investing and
financing activities totaled $367,600, resulting in a net increase in cash
of about $88,000 during the period. BFI's working capital deficit at
September 30, 1996 was $3.1 million. The working capital ratio decreased
from 0.38 at December 31, 1995 to 0.09 at September 30, 1996, primarily due
to increased bridge debt financing and one-time costs associated with the
VPI Acquisition, the proposed CCA Merger, other abandoned acquisitions and
this Offering.

As of September 30, 1996, BFI had outstanding debt of approximately
$2.1 million, without giving effect to the application of net proceeds from
this Offering to repay certain outstanding debts. BFI has financed its
working capital requirements during the last two years through various
bridge financings totaling approximately $2.2 million, including a $500,000
bridge loan that closed on November 5, 1996. The Company intends to utilize
the net proceeds of this Offering to repay approximately $2.0 million of
outstanding debt and interest accrued at rates between 10% and 12% per
annum, to finance approximately $500,000 of product and market development
costs for the FACTOR 1000(R) system and for general corporate purposes. See
"Use of Proceeds."

BFI management estimates that it will incur minimal capital
expenditures during the 12 months following this Offering. It is
anticipated that all capital expenditures will be financed through fixed
asset leases and will not require significant direct outlays of cash.

Based upon its present plans, management believes that operating cash
flow, available cash and available credit resources, together with the net
proceeds of this Offering, will be adequate to make the

21
<PAGE> 25

repayments of indebtedness described herein, to meet the working capital
cash needs of the Company and to meet anticipated capital needs during the
next 12 months. Although the Company intends to issue shares of Common
Stock as its primary method of financing acquisitions, it anticipates that
additional funds will be required to implement successfully its acquisition
program, and it will use various methods to finance acquisitions, including
the payment of cash, for this purpose.

VOICE PLUS, INC.

During the first nine months of 1996, net cash provided by operating
activities of VPI was approximately $1.6 million, of which $383,700 was
used to pay dividends to VPI's sole shareholder to cover required payments
of taxes and $50,000 was used to repurchase shares of common stock of VPI,
subsequently retired. In addition, prior to the VPI Acquisition, VPI
intends to declare a dividend to its sole shareholder in an amount of
$550,000. In addition, VPI intends to pay $250,000 of accrued bonuses and
$400,000 of declared dividends prior to the VPI Acquisition, these amounts
have been accrued on the September 30, 1996 Financial Statements. Cash used
in investing activities was $167,700, all of which consisted of additions
to property and equipment. VPI had no debt during these periods.

VPI's working capital at September 30, 1996 was ($167,600). The
working capital ratio decreased from 1.2 at December 31, 1995 to 0.96 at
September 30, 1996, primarily due to increases in deferred revenues and
accounts payable recorded in the first nine months of 1996. Deferred
revenues and accounts payable increased as a result of initial problems
with a new product release from a key supplier, which delayed customers'
acceptance and payment for the products installed. The manufacturer has
substantially corrected the product problems.

Accounts receivable increased approximately 22% during the first nine
months of 1996, while average days outstanding during the first nine months
of 1996 increased to 66 days as compared to 58 for 1995, due to customer
acceptance problems in 1996. Customer acceptance problems also caused
inventory turnover to average approximately 31 days during the first nine
months of 1996, as compared to approximately 26 days during 1995.

VPI estimates that it will make minimal capital expenditures during
the 12 months following this Offering. It is anticipated that most capital
expenditures will be financed through fixed asset leases and will not
require significant direct outlays of cash.

C.C. & ASSOCIATES

During 1996, net cash provided by the operating activities of CCA was
$27,600, and net cash used in investing and financing activities was
$30,300, resulting in a net decrease in cash of $2,700 and a net decrease
in working capital of $14,500. CCA's working capital at September 30, 1996
was $84,500, and its working capital ratio increased from 1.4 at September
30, 1995 to 1.7 at September 30, 1996, primarily due to a decrease in
accounts receivable offset by decreases in accounts payable and accrued
expenses. Accounts receivable decreased approximately 40% in 1996 due to
the collection in 1996 of a large single customer receivable recorded in
1995.

CCA estimates that it will make minimal capital expenditures during
the 12 months following this Offering. It is anticipated that most capital
expenditures will be financed through fixed asset leases and will not
require significant direct outlays of cash.

ACCOUNTING STANDARDS

The Company was not significantly affected by its adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This statement is
effective for the Company's year ending December 31, 1996.

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issued for fiscal years beginning after December 15, 1995. The Company is in the
process of analyzing the impact of this statement and anticipates adopting the
provisions of the statement for the year ended December 31, 1996.

SEASONALITY AND INFLATION

The Company's net sales typically show no significant seasonal variations,
although net sales may be affected in the future by overall hiring trends and
the concentration of vacations of key employees of client companies during the
summer months.

The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.

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BUSINESS

GENERAL

The Company is a leading voice processing systems integrator that also
offers a proprietary computerized testing system for measuring human
sensorimotor skills to determine an individual's performance readiness and
fitness to perform. The Company will combine the businesses of VPI, a national
provider of voice processing systems that furnishes businesses with advanced
multimedia and voice processing solutions based on integrating voice processing
systems with various PBXs and computers, and BFI, a development stage company
that offers the FACTOR 1000(R) system, a proprietary computerized impairment
testing system. VPI and BFI both provide stand-alone and LAN-based systems
utilizing the Intel(R) computer platform. VPI derives its revenues from the sale
and installation of various communications systems products such as voice
messaging, facsimile messaging, voice response systems and electronic messaging.
VPI also generates revenues from recurring fees under annual maintenance service
contracts. BFI derives its revenues from recurring annual usage fees for its
FACTOR 1000(R) system and from licensing the system.

The Company was incorporated in October 1996 to pursue an emerging business
opportunity created by the continuing changes in telecommunications and an
increased corporate emphasis on workplace productivity and security. The Company
will combine the proven marketing, distribution and service capabilities of VPI
with the experienced product and business development skills of BFI management.
The Company has signed a letter of intent to acquire CCA, a security systems and
services provider, and will pursue aggressively strategic acquisitions following
this Offering.

STRATEGY

Capitalize and expand on VPI's existing sales and support infrastructure and
systems integration capabilities to market VPI's existing products and the
FACTOR 1000(R) system

The Company's strategy is to fully utilize the combined management,
product development, systems integration and national marketing and
distribution capabilities of BFI and VPI. Initially, the Company will
address productivity from the standpoint of enhancing communications
capability, increasing workers' productivity and reducing workplace
injuries. The Company will focus on cross-marketing the FACTOR 1000(R)
system through the VPI sales force and expanding the installed base of the
FACTOR 1000(R) system. The Company believes that, by utilizing VPI's sales
force and installed base of over 1,000 client organizations, the Company
will be positioned better to exploit the full potential of the FACTOR
1000(R) product as an impairment testing methodology and a strategic
corporate communications tool for reaching the blue collar workforce. BFI
will utilize VPI's national sales and support infrastructure to conduct
FACTOR 1000(R) risk management seminars and on-site product demonstrations,
which management believes will expand market awareness and shorten the time
from product introduction to revenue recognition. VPI has national sales
and marketing presences in major markets geared to sell telecommunications
products and services across the United States, including the San Francisco
Bay Area, Seattle, Chicago, Boston, New York, Phoenix and Dallas.

Exploit a growing trend towards unified networks by providing various
solution-based stand-alone and LAN systems and applications

The Company believes that, when implementing any new system or
technology, businesses seek to maximize the use of current resources and
facilities. As a result, previously disparate electronic systems are being
integrated to operate on a unified network. For example, networked
electronic security systems that provide access control and monitoring
within a premise or over a wide geographic area were developed following
the demand by corporations that the installation of new security systems
utilize

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existing communications networks. Further, the continuing trend towards
outsourcing of services in an environment of increased technological
complexities requires vendors to be highly skilled in integrating telephony
technology with LAN and WAN systems. The Company's goal is to provide
integrated productivity and security systems that achieve these goals.
Management believes that VPI's voice processing integration capabilities,
BFI's proprietary FACTOR 1000(R) impairment testing system and potential
worker communications capability, together with the security products and
services the Company anticipates providing, will offer solutions to meet
the productivity and security needs of corporations.

Expand sales of the FACTOR 1000(R) system by customizing the FACTOR 1000(R)
system to meet the needs of specific industries such as transportation,
manufacturing and the military

The Company intends to customize the testing device and graphical user
interface ("GUI") of the FACTOR 1000(R) system to incorporate the specific
job characteristics of certain industries (e.g., testing devices configured
as a steering wheel for truck drivers and with multiple interfaces for
manufacturing operations). In addition to expanding the sales of the FACTOR
1000(R) system in the transportation and manufacturing industries, the
Company intends to explore the potential for FACTOR 1000(R) system
applications in the military. The ability to deploy troops quickly and
effectively is a function of effective training, measured in terms of
personnel fitness to perform or undergo training, which can be monitored
through the use of the FACTOR 1000(R) system.

Exploit the need for worldwide WAN capabilities to meet the growing demands
from business globalization

The Company has targeted the need for integrated global security
systems and organizations and telecommunications systems integration
capabilities. With multiple synchronized manufacturing sites across
continents, operations increasingly are in real time, and security and
communications must be conducted in real time. The Company intends to
provide communications and security products and services on a global basis
by exploiting, among other things, management contacts in Singapore,
Indonesia, Hong Kong, Malaysia and Taiwan.

Acquire complementary businesses and products

The Company seeks to acquire additional businesses that will expand
its geographic coverage or provide complementary products and services in
the areas of productivity and security. In particular, the Company intends
to expand its product portfolio while maximizing its organizational
strength and expertise in marketing and systems integration. The first
acquisition planned is the CCA Merger. CCA is a provider of security
systems and services. The Company believes that productivity and security
must be addressed in tandem, as methods for increasing productivity that do
not address the corresponding potential for increased liability and asset
loss will result in reduced benefits. The Company intends to acquire
companies that would provide geographical extensions for CCA in the area of
private investigations and specialized personnel protection. The Company
has commenced searching for additional acquisition candidates, including
those that provide WAN security systems. See "Risk Factors -- Risks Related
to the Company's Acquisition Strategy."

License FACTOR 1000(R) technology for use in other areas

The Company has licensed its proprietary FACTOR 1000(R) technology for
use by professional sports teams in baseball, basketball and hockey to
SportsTrac, and intends to pursue other licensing arrangements in areas
unrelated to the Company's core business, such as physical therapy. The
Company believes that licensing will increase public awareness of the
FACTOR 1000(R) technology as a noninvasive tool for measuring sensorimotor
skills and detecting fatigue and other impairment in the workplace and in
other environments.

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THE COMPANY'S BUSINESSES

The Company's current and planned businesses include voice processing and
multimedia messaging, impairment testing, background checking and workplace
surveillance.

Voice Processing and Multimedia Messaging

Voice messaging systems, at a minimum, perform the functions of the
telephone operator directing incoming calls and recording messages.
Increasingly, these systems have evolved to provide more complex functions, such
as voice processing or interactive voice response, which enable users to conduct
self-inquiry of electronic databases. These innovations have resulted from the
need to increase productivity. Voice processing enables a corporation to
increase productivity by enhancing corporate communications.

Electronic messaging systems are now commonly accepted and widely used in
offices throughout the U.S. The growth of electronic mail, or "e-mail," has
transcended private corporate networks and crossed public boundaries connecting
users worldwide through a communications medium commonly referred to as the
"World Wide Web." Despite these advances in corporate communications, the
factory worker is still largely excluded. Management believes that the use of
the FACTOR 1000(R) system for impairment testing provides the basis to extend
e-mail and voice messaging to the blue-collar worker.

Impairment Testing

Management believes that corporations are seeking to increase human
productivity, and that to do so, corporations must provide both physical
integrity in performance capability and physical protection. The Company
provides systems that can be used to enhance productivity by identifying and
preventing impaired individuals from performing quality or safety sensitive
tasks, thereby increasing the quality of work performed, reducing errors,
avoiding accidents and enhancing workplace security. The Company has developed
the FACTOR 1000(R) system for routinely screening employees for fitness-for-work
prior to the performance of their jobs. The FACTOR 1000(R) system is a hand-eye
coordination measurement system that runs on an IBM(R) compatible personal
computer platform. The test is performed by the employee, without supervision,
and is administered in less than one minute. See "Risk Factors -- Risks Related
to Impairment Testing Business -- Unknown Market Acceptance of the FACTOR
1000(R) System."

Background Checking and Workplace Surveillance

The Company intends to enter the background checking and workplace
surveillance business through the proposed CCA Merger. Background checking is a
management tool used by organizations to avoid making inappropriate hiring
decisions and wasting resources on unproductive training. Background checking
and workplace surveillance are becoming more common due to increased workplace
violence, greater company liability for employee actions and increased concern
for workplace security and theft deterrence. CCA provides investigative
services, such as background checking and records verification services, and
conducts surveillance and sting operations to deter theft. CCA investigates
unaccountable losses of material or equipment, particularly in high technology
companies where there has been increasing theft of electronic components such as
computer memories and microprocessors. CCA also customizes and resells closed
circuit television ("CCTV") monitoring equipment.

Pursuant to a letter of intent entered into in October 1996, the Company
intends to acquire all of the outstanding stock of CCA, and CCA will become a
wholly owned subsidiary of the Company in exchange for the issuance of 300,000
shares of Common Stock (based on an assumed Offering Price of $4.00 per share)
to the sole stockholder of CCA.

MARKETING

VPI has an established marketing and distribution infrastructure for its
voice processing and electronic messaging products, which will be extended to
include the FACTOR 1000(R) system and other new products. VPI has marketing
personnel, a technical assistance center (including customer service
representatives, system engineers and senior level field technicians) and a
nationwide network of service/support dealers to

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provide its customers with personalized attention, flexibility, responsiveness
and accountability. VPI markets its products and services primarily through
focused telemarketing and calls to prospective customers in specific emerging
growth markets (including the paging and cellular operator markets),
participation in trade shows, acquisition of data bases and inclusion of its
products and services on bidders' lists. VPI maintains a strict sales and
marketing discipline that focuses on pre-sale analysis of its customers' needs
and the rate of return potential of specific sales opportunities to determine
whether they justify the investment of time and effort of VPI's sales and
marketing organization. Typically, VPI will only pursue sales opportunities over
$100,000 where the value added by VPI's products and services provides
significant benefits for the customer. VPI also participates in competitive
bidding for government agency work. In evaluating a prospective sales situation,
VPI also considers the lead time to revenue, the complexities of the customer's
requirements and its ability to satisfy the customer and provide it with the
necessary support. VPI's customers currently include, among others, Western
Wireless, Sysco Foods, Hitachi Data Systems, Santa Clara County and Alameda
County, California.

VPI currently sells and supports voice processing systems throughout the
United States and its territories. VPI has sales and/or support offices in the
San Francisco Bay Area, Seattle, Boston, New York, Phoenix and Dallas and
intends to expand into Denver, St. Louis, Salt Lake City, Atlanta and other
markets. BFI conducts its sales and support services from Denver.

PRODUCTS AND SERVICES

Voice Processing and Electronic Messaging

VPI is a systems integrator and national distributor of voice processing
equipment from several manufacturers, which equipment enables users to access
and interact with a broad range of information in a variety of formats
(including voice, text, data and facsimile) from a variety of terminals
(including touch-tone telephones and personal computers). Applications such as
voice messaging, fax store-and-forward, and interactive voice response are
integrated on VPI's communications server, which is based on industry-standard
hardware and software.

VPI offers a broad range of products that supports a number of enterprise
applications such as voice messaging, text messaging, LAN messaging and
interactive voice response or self-inquiry systems.

Telephone Answering. This application is an early evolution of voice
messaging systems whereby messages are recorded when a telephone is either
busy or left unanswered.

Voice Messaging. Voice messaging is the first true communications
application that generally is offered by most voice processing equipment
vendors, including Centigram, Octel Communications Corporation, and
Comverse Technology, Inc. Instead of merely recording a message, the
application enables a user to send, receive, store and forward voice
messages, on or off the system, while control is effected via the keypad of
a touchtone telephone. In some cases, such as with Centigram's One View(TM)
product, a user can access and generate voice messages via a computer. Most
vendors also offer the capability of message notification and other more
advance features such as "message receipt" whereby a sender of a voice
message on the system can obtain verification that a message was received
and the time of such receipt. Each vendor tends to have different user
protocols and keypad definitions that determine the ease of use of the
system.

Automated Attendant. This application is an early adaptation for
messaging systems whereby the system answers an incoming call and allows
callers to direct their calls to various telephone extensions without human
operator intervention.

Paging. Voice processing systems today generally have incorporated a
paging capability. A page is triggered upon receipt and storage of a voice
message. The person paged can complete the communications process by
retrieving the voice message via a touchtone telephone.

Audiotext. An early application of voice processing systems is
audiotext, which provides callers access to recorded voice announcements
such as weather reports and stock quotes.

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Facsimile Messaging. A number of manufacturers have added facsimile
capabilities to their voice processing systems. Some have added the
capability through external peripherals, while others, such as Centigram,
have integrated the feature directly, providing a multimedia capability
that allows mixing of voice and facsimile messaging. The ease of use and
functionality of the facsimile features, such as the ability to broadcast
or forward a facsimile, differ from manufacturer to manufacturer.

Voice Response. Self-inquiry systems became popular with familiar use
of automated teller machines ("ATM"), which allow customers to make routine
inquiry of their account balances and conduct certain transactions. Voice
response systems provide telephone access to electronic databases to enable
users to obtain information, as well as supply information to the system,
via a voice recording or commands via the telephone keypad.

Electronic Messaging. Electronic messaging has grown from simple text
messaging to include delivery of graphic information. E-mail now has
greater geographic coverage effected through private networks (both LANs
and WANs) and public networks such as the World Wide Web.

LAN Integration and Networking. The need for group interaction has
propelled the growth of LAN electronic messaging and the need for localized
group voice messaging through the desktop computer, whereby voice and text
messaging are integrated and available for access simultaneously. Certain
manufacturers, such as Centigram and CallWare Technologies, Inc., have
combined such access capability through the LAN. Networking capability is
an important manufacturer differentiator in terms of connectivity and voice
quality. Electronic messages, which are stored and transmitted in digital
format, preserve the integrity of the information transmitted no matter the
frequency of storing and forwarding of the message. Voice messages, like
facsimiles, undergo severe information degradation depending on the mode of
transmission and storage. A facsimile that undergoes multiple scanning
deteriorates in legibility as each scan reduces the quality of image
capture. Similarly, voice messages that undergo multiple analog to digital
and then digital to analog conversions may become unintelligible.
Networking that converts a voice message digitally only one time at the
time of storage, such as the technology Centigram employs, provides high
quality transmission.

Services. VPI offers comprehensive service and support, including
project coordination, system engineering and integration, application
development, implementation, technical training, and on-going service and
support services. VPI supports its customers with certified technicians,
maintains a large spare parts inventory and attempts to resolve problems
accurately and expeditiously. VPI offers a variety of maintenance programs
that can be customized to address the diverse needs of its customers,
including (i) a comprehensive maintenance program, offering service 24
hours per day, seven days a week; (ii) a standard maintenance program,
offering service and support during principal periods of maintenance; and
(iii) a parts and telephone maintenance program, providing support for more
technically advanced customers.

VPI is a value-added reseller of voice processing equipment from several
manufacturers, including Centigram, Digital Speech Systems, Inc., Octel
Communications Corporation and Active Voice Corp.

The FACTOR 1000(R) System

Impairment Testing. The Company's FACTOR 1000(R) impairment testing system
is based upon the CTT technology, a product of research conducted by STI for the
U.S. military in the late 1950's on pilot control of unstable aircraft. Since
such time, the CTT technology has become the accepted standard for assessing
human sensorimotor performance. Continuing studies performed in the 1970's,
1980's and 1990's used CTT technology as the yardstick to assess the effects on
performance caused by drugs, alcohol, fatigue and stress. In 1988, CTT
technology was licensed exclusively to BFI pursuant to a license agreement from
STI (the "CTT License"), with a term extendable to November 24, 2008. Under the
terms of such license, STI is allowed to use the CTT technology for research
purposes, but routine use of the technology would require STI to pay license
fees to BFI. See "-- Intellectual Property" for the material terms of the CTT
License.

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BFI has invested several million dollars and many staff-years to
commercialize the CTT technology as the FACTOR 1000(R) system. In the FACTOR
1000(R) system, the CTT technology has been enhanced significantly to (i)
operate seamlessly on networked computer systems to afford placement of tracking
stations at key customer defined locations throughout the workplace; (ii)
provide security-controlled, versatile, user-friendly management reports, and
(iii) detect non-compliant employee performance. BFI began beta testing on the
FACTOR 1000(R) system in 1990 and began limited marketing in January 1994 to
companies with employees in safety sensitive jobs, particularly vehicle and
machinery operators in the trucking, manufacturing, paramedic, school bus and
ski industries. The system is currently in regular use by several companies,
including, among others, Shawmut Mills, Durango Ski Corporation and R.F. White
Company, Inc. -- Unocal Distributor.

Future Applications. The Company believes that the design and underlying
technology of the FACTOR 1000(R) system provides a basis for expanding use of
the FACTOR 1000(R) system for applications beyond impairment testing in the
industrial environment. Management believes that the FACTOR 1000(R) system
terminals could be utilized as limited communications devices to send electronic
messages to blue collar workers as they log on at the terminal. The FACTOR
1000(R) system also could be integrated into an overall security system in high
security facilities such as nuclear power plants and military missile bases. The
self-referencing design of the FACTOR 1000(R) system that compares an
individual's performance to his or her own baseline performance may be usable to
identify that individual, providing another level of security screening. The
Company also believes that the FACTOR 1000(R) system potentially could be
integrated into commercial vehicles as interlock devices, disallowing operation
of the vehicle unless the driver successfully completes an impairment test.

Security Services and Systems

CCA provides investigative services, such as background checking and
records verification services, and conducts surveillance and sting operations to
deter theft. CCA investigates unaccountable losses of material or equipment,
particularly in high technology companies where there has been increasing theft
of electronic components such as computer memories and microprocessors. CCA has
five investigators and recently has expanded its program for addressing violence
in the workplace by establishing a workplace violence unit concentrating on gang
activities and psychological evaluations and counseling.

CCA sells customized closed circuit television ("CCTV") monitoring
equipment manufactured by third parties. Such customized systems are designed to
incorporate the variability of the customer's circumstances, such as type of
premise, coverage area, camera resolution required and recording capability.
Evolved from basic television technology, CCTV components are standardized.
Interfaces tend to be standard video and audio interfaces, as commonly found on
VCRs and camcorders, and peripheral components tend to be no more than remote TV
cameras connected to a switch bank with multiple viewing monitors. Simple remote
controls include the ability to pan and zoom a specific area and enable voice
communications through microphones and speakers at the TV camera site.

Following the proposed acquisition of CCA, the Company anticipates
expanding its offering of security products to supplement the CCTV systems
provided by CCA to include access control systems. Access control is
substantially more complex, given the multitude of peripherals that have to be
interconnected and controlled such as electronic door locks, electronic and
magnetic card readers, biometrics scanners (such as fingerprint verification
systems), CCTV subsystems, electronic turnstiles and alarms. Beyond the need for
physical interconnection of these peripherals, additional complexity comes from
designing an effective integrated system that is able to reconcile false alarms
and to provide for human error, power supply interruptions, segregation of
various access, stratification of access privileges and the administration
thereof.

COMPETITION

Voice Processing

The voice processing market is one of the fastest growing segments of the
telecommunications industry. The Company believes that competition within this
highly competitive industry will intensify with the

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introduction of new product enhancements and new competitors. The Company
competes with various companies in different markets, including Customer Premise
Equipment ("CPE") and Service Providers. The Company competes on the basis of
its quality of service. The Company believes that its familiarity with the PBX
equipment manufactured by Lucent, Northern Telecom Limited, Fujitsu Limited, NEC
Corporation and other manufacturers enables the Company to offer better system
integration.

VPI believes that its attention to customer service, as well as to the
customer's technical requirements, has resulted in success in competing and
winning sales bids against its much larger competitors. VPI provides detailed
information and support to its customers beginning with the point of sale and
extensive implementation through training and continuing through ongoing service
and support. Depending on the terms of the maintenance contract purchased, the
Company provides assistance for its customers up to 24 hours per day, 365 days a
year. The Company provides extensive training for its employees in products,
installation, system design and support in order to assist customers in
selecting the right equipment and to provide the quality of service that is
demanded. VPI's technical capabilities and expertise are enhanced by its
experienced technical personnel. VPI's junior field technicians generally have
at least two years of field experience with the particular equipment being
installed, and senior technicians have about eight years of field experience.
This level of experience is significantly more than that offered by many of
VPI's larger competitors and is often a deciding factor in a customer's purchase
decision. VPI believes it has a very loyal customer base founded on satisfaction
with its service capabilities and active account management.

Customer Premise Equipment. In the CPE markets, VPI competes with two types
of companies: interconnects (PBX providers), including Lucent, Northern Telecom
Limited, Fujitsu Limited and NEC Corporation, and independent voice processing
manufacturers, such as Octel Communications Corporation, Glenayre Technologies,
Inc., Digital Sound Corp., Active Voice Corp. and Applied Voice Technology, Inc.

PBX providers sell voice processing equipment as an integrated solution
with their own PBXs. These providers may have a competitive advantage with
customers purchasing a voice processing system at the same time they are
purchasing a new PBX, and, in many situations, the Company is competing with an
organization offering the same product platform. The Company believes its
competitive strengths are its development and delivery of customer applications,
its implementation process and its service and support performance. The Company
also believes its ability to deliver enhanced applications, such as integration
with computer networks, facsimile and voice response systems applications,
differentiates its products and services.

VPI is the only national distributor that focuses solely on voice
processing systems integration and has developed a strong national capability in
meeting and supporting its customers' varying voice processing needs. Other
distributors that focus solely on voice processing do not have a national
organization. VPI's national competitors are generally the manufacturers of
voice processing equipment. Such manufacturers are concerned primarily with the
sale of their own equipment and generally do not promote other manufacturers'
equipment that may better satisfy the needs of their customers.

The Company expects that new or enhanced products will be offered by its
principal existing competitors and new competitors. In addition, the Company
believes that computer software vendors, such as Novell, Inc., Lotus Development
Corp. and Microsoft Corporation, will continue to develop enhanced messaging and
networking software with voice and data information processing applications.

Service Providers. The Company provides products to various service
providers, including cellular communications operators and long-distance
resellers. Competitors include several independent voice processing
manufacturers such as Boston Technology Inc., Octel Communications Corporation,
Centigram, Comverse Technology, Inc., Digital Sound Corp. and Glenayre
Technologies, Inc. The further deregulation of the telecommunications industry
resulting from the Telecommunications Act of 1996 has provided opportunities for
increased competition in the local telephone market. The Company believes that
this market will require extensive integration of equipment supplied by various
vendors and, as such, would benefit from the Company's independence and
integration skills. See "-- Governmental Regulation."

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Impairment Testing.

The FACTOR 1000(R) system is a noninvasive test for impairment that
operates without supervision, takes less than one minute to administer and
report results and can be installed in an industrial environment with minimal
disruption. No direct competition for the FACTOR 1000(R) system exists. The
other current impairment testing technologies -- biochemical, neurological and
methods of performance testing other than the FACTOR 1000(R) system -- lack the
extensive, broadscale scientific validation conducted over the last 30 years on
the CTT technology, the critical component of the FACTOR 1000(R) system.
Biochemical or drug testing is not a true impairment test in that it can only
identify the presence of specific levels of specified substances. Additionally,
biochemical testing is a relatively time intensive and invasive method to manage
risk. Neurological testing is expensive and time intensive due to the
requirement of skilled technicians to evaluate results and is therefore not an
efficient method to evaluate impairment. Performance testing for impairment
includes sensorimotor testing, such as that used in the FACTOR 1000(R) system,
and cognitive testing. Cognitive testing in the industrial environment is time
consuming (test administration can take from five to 45 minutes) and lacks the
level of scientific validity obtainable from other impairment testing methods.
In summary, the Company believes that other impairment testing methods are not
as practical for the commercial environment as is the FACTOR 1000(R) system.

The FACTOR 1000(R) system's testing advantages also include extensive
scientific validation, its ease and speed of administration in an industrial
environment and the fact that it does not compromise the privacy of the test
subject. The test is self-administered in less than one minute, and designated
supervisors and managers have immediate access to a variety of reporting options
to assist them in identifying and managing potential safety risks. To ensure
success, policy consulting, procedural guidelines, operations documentation,
implementation planning, on-site training, trend analyses reporting and ongoing
support is provided to all customers of the FACTOR 1000(R) system. The FACTOR
1000(R) system is available both as a stand-alone system or networked in a LAN.

Security Systems and Services

The Company believes that the private investigation segment historically
has been fragmented, because the work force is primarily from local law
enforcement agencies. Consequently, competition tends to be localized. The
Company also believes that the fragmentation of the business is particularly
suited to the Company's acquisition strategy.

The Company believes that its expertise in integrating complex voice
processing systems and PBXs will enable it to incorporate and integrate access
control security systems with the telecommunications networks that it addresses
through VPI. The electronic access control market is one of the fastest-growing
segments in the security industry, and the Company intends to participate in the
market through acquisitions. The Company believes that, although there are over
2,500 security equipment manufacturers and distributors, the number specializing
in computerized access control is limited. Further, few companies have
demonstrated an effective capability to network a geographically dispersed
system, let alone integrate such systems into existing telecommunications
networks such as LANs and WANs. Although CCA generates minimal revenues from
this segment, the Company intends to combine VPI's distribution capabilities
with CCA's familiarity in the business to increase sales in the future. The
Company believes that few manufacturers have established strong brand
recognition. Accordingly, equipment selection tends to be influenced by
familiarity with the particular distributor at the local level, as in the case
of CCA.

SUPPLIERS

VPI's voice processing equipment sales revenues historically have been
derived primarily from the sale and servicing of equipment supplied by
Centigram. See "-- Marketing." VPI occasionally utilizes other equipment to
satisfy specific client needs and is not restricted from selling equipment made
by other manufacturers.

Pursuant to the Authorized U.S. Distributor Agreement, dated as of April
16, 1996 (the "Distributor Agreement"), between Centigram and VPI, VPI is an
independent distributor of Centigram products in the

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U.S., Puerto Rico and Canada and may expand this territory into international
locations with written authorization from Centigram. Under the Distributor
Agreement, VPI must purchase a certain number of products each quarter from
Centigram. During each of the nine years that this distributor relationship has
existed, VPI has exceeded its quotas by significant amounts. The Distributor
Agreement expires on December 31, 1997, but is renewable automatically for
successive two-year terms until cancelled by either party upon 90 days' notice.
The Distributor Agreement may be terminated for cause in the event (i) VPI
defaults in the payment of any amount due Centigram, and such default continues
unremedied for a period of 60 days after written notice of default; (ii) VPI
breaches certain provisions of the Distributor Agreement concerning the
proprietary rights of Centigram; (iii) VPI is acquired by a business entity that
provides products or services in direct competition with Centigram's products,
and in Centigram's judgment, such acquisition represents a conflict of interest;
(iv) VPI fails to perform any obligation under the Distributor Agreement and
such failure continues for a period of 20 days after written notice; (v) VPI
fails to purchase any Centigram assigned quota for a period of two consecutive
quarters; or (vi) VPI sells a Centigram product outside VPI's designated
territory. In addition, the Distributor Agreement terminates automatically if
VPI becomes insolvent, makes an assignment for the benefit of its creditors or
if bankruptcy proceedings are commenced by, for or against VPI. Any controversy
or claim related to the Distributor Agreement must be submitted to final and
binding arbitration to be held in San Jose, California, according to the rules
of the American Arbitration Association.

INTELLECTUAL PROPERTY

BFI has an exclusive worldwide license to use the CTT technology under the
terms of a license agreement between BFI and STI, dated November 24, 1988, as
amended by Addendum to License Agreement, dated May 19, 1994, and Second
Addendum to License Agreement, dated November 18, 1996 (as amended, the "CTT
License"). CTT, a measure of sensorimotor skills, is a critical component of the
FACTOR 1000(R) system. The CTT License had an initial term of five years and
provides for three additional five-year extensions upon notice given by BFI to
STI. On November 18, 1993, BFI gave the first such notice of extension. The CTT
License requires BFI to make quarterly royalty payments to STI of 8.5% of
revenues directly related to CTT impairment testing of employees. Under the CTT
License, the CTT technology is escrowed, and the escrow agent is instructed
that, in the event STI is acquired, merged or its principal assets acquired, the
CTT technology will be delivered to BFI unless the successor-in-interest agrees
in writing to be bound by all obligations undertaken by STI pursuant to the CTT
License. The CTT License provides that STI may use the FACTOR 1000(R) technology
for research purposes, but any routine use would require payment of fees to BFI.
If either party fails to fulfill its obligations under the CTT License, the
other party may terminate the CTT License by giving 60 days' written notice of
termination, and the CTT License will be terminated unless such obligations are
fulfilled during such 60-day period. In addition, in the event of any
adjudication of bankruptcy, appointment of a receiver, assignment for the
benefit of creditors or levy of execution directly involving BFI, STI may
terminate the CTT License by giving five days' written notice. Finally, any
dispute relating to the interpretation or performance of the CTT License must be
resolved at the request of either party through binding arbitration to be
conducted in Los Angeles, California, under the rules of the American
Arbitration Association.

In addition to end-user licensing, the CTT License permits BFI to
sublicense the CTT technology; provided that the sublicense agreement requires
an initial payment to BFI (the "Initial Sublicense Fee") of at least $250,000
and an on-going royalty payment of 8.5% of revenues (the "Sublicense Royalty").
BFI must make payments to STI on such sublicensing arrangements as follows: (i)
a royalty payment of 8.5% on $250,000 of the Initial Sublicense Fee and a
royalty of 50% of any Initial Sublicense Fee in excess of $250,000; and (ii) a
royalty payment equal to 50% of the Sublicense Royalty, which amount must be at
least 4.25% of the gross contract revenue. The agreement also includes a minimum
aggregate payment to STI of $150,000 over each three-year period (which
aggregate amount may include fees paid to STI for consulting services),
beginning with the three-year period commencing on January 1, 1997.

32
<PAGE> 36

The Company is totally dependent on maintenance of its CTT license to
market the FACTOR 1000(R) system and is dependent on STI for product validation
and expert witness testimony of STI's principals regarding aerospace and vehicle
performance dynamics and stability and human operator dynamic response.

In August, 1995, the Company entered into a sublicense agreement with
SportsTrac to license sports-related applications of the FACTOR 1000(R) system
during the term of the CTT License (expiring November 24, 2008 if all options to
extend are exercised) at an initial fee of $1,000,000 and an on-going royalty
equal to 8 1/2% of cash receipts from the sale or license of products or
services containing the licensed technology, but not including any revenues from
installation, maintenance, consulting, hardware sales or any other revenues not
directly or indirectly related to such technology. SportsTrac was granted an
exclusive, world-wide license to reproduce, manufacture, use and market the
licensed technology solely for sports-related and sports entertainment
applications. The Company collected the $1,000,000 initial fee from SportsTrac
and paid to STI a royalty of $42,500 on the $500,000 portion of the initial fee
which was subject to the STI royalty. To date, SportsTrac has failed to develop
a market for the Factor 1000(R) system with professional sports teams. As a
result, the Company has collected no on-going royalties from SportsTrac, and the
Company does not expect to collect, nor has it forecasted revenue from, any such
on-going royalties in the future. The Company believes that any future inability
of SportsTrac to develop a market for the sublicensed product will have no
material adverse effect on the business or financial condition of the Company.

The Company intends to explore other opportunities for sublicensing its
technologies in businesses that the Company does not intend to pursue.

In addition to other intellectual property rights, the Company has two
federally registered trademarks: Performance Factors(R) and FACTOR 1000(R). See
"Risks Factors -- Risks Related to Intellectual Property."

GOVERNMENTAL REGULATION

The Telecommunications Act of 1996 eliminated government mandated barriers
between local and long distance calling, cable television, broadcasting and
wireless service. Consequently, local telephone companies, the traditional long
distance carriers and cable television companies may now enter any of these
markets to provide both local telephone and long distance service, as well as
television programming. Such increased competition likely will change the
infrastructure for implementing communications applications, such as voice and
electronic messaging. See "Risk Factors -- Governmental Regulation."

CCA is a "consumer reporting agency" subject to regulation under FCRA and
must comply with all consumer credit disclosure requirements and protocols of
FCRA. Additionally, several states have enacted statutes similar to FCRA, and at
least four states require companies engaged in the background checking and
investigative business to be licensed in order to conduct business in those
states. Many states also regulate the type of information that can be made
available to the public and impose conditions on the release of such
information. In addition, privacy and consumer-rights advocates and federal
regulators have become increasingly concerned with the use of personal
information, particularly credit reports. Attempts have been made, and likely
will continue to be made, by these groups to adopt new or more stringent federal
and state regulations on the use of personal information. See "Risk
Factors -- Governmental Regulation."

RECENT FINANCINGS

On December 1, 1994, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $750,000 principal amount of secured promissory notes
(the "December 1994 Notes"), secured by all of the assets of BFI, bearing
interest at the rate of 12% per annum due and payable on April 1, 1997; and (ii)
shares of BFI Common Stock, which are exchangeable for 112,500 restricted shares
of Common Stock. Such shares of Common Stock are entitled to certain
registration rights. See "Description of Capital Stock -- Registration Rights."
Upon consummation of this Offering, all of the outstanding principal and accrued
interest will be converted into Common Stock at a conversion price equal to the
Offering Price, the security interest will be released, and the Company will
issue warrants to purchase an aggregate of 37,500 shares of Common Stock at an
exercise price of 120% of the Offering Price. The proceeds from the December
1994 Notes were used for general corporate purposes.

33
<PAGE> 37

On December 1, 1995, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $350,000 principal amount of promissory notes (the
"December 1995 Notes"), bearing interest from the date of issuance until due and
payable on March 31, 1997 at a rate of 10% per annum, and at 18% per annum in
the event of default, and (ii) shares of BFI Common Stock, which are
exchangeable for 78,750 restricted shares of Common Stock. Such shares of Common
Stock are entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." At the time the notes were issued, the notes were
secured by the pledge of a promissory note of SportsTrac, payable to BFI.
Subsequently, the SportsTrac Note was paid in full and the security interest
securing the December 1995 Notes was terminated. Upon consummation of this
Offering, the outstanding principal amount will be repaid, all accrued interest
will be converted into Common Stock at a conversion price equal to the Offering
Price, and the Company will issue warrants to purchase an aggregate of 26,250
shares of Common Stock at an exercise price of 120% of the Offering Price. The
proceeds from the December 1995 Notes were used for general corporate purposes.

On February 1, 1996, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $315,000 principal amount of unsecured promissory
notes (the "February 1996 Notes"), bearing interest from the date of issuance
until due and payable on March 31, 1997 at a rate of 10% per annum, and at 18%
per annum in the event of default, and (ii) shares of BFI Common Stock, which
are exchangeable for 70,875 restricted shares of Common Stock. Such shares of
Common Stock are entitled to certain registration rights. See "Description of
Capital Stock -- Registration Rights." Upon consummation of this Offering, the
outstanding principal amount will be repaid, all accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
and the Company will issue warrants to purchase an aggregate of 23,625 shares of
Common Stock at an exercise price of 120% of the Offering Price. The proceeds
from the February 1996 Notes were used for general corporate purposes.

On May 17, 1996, BFI closed a bridge financing, pursuant to which it issued
an aggregate of (i) $300,000 principal amount of unsecured promissory notes (the
"May 1996 Notes"), bearing interest at a rate of 10% per annum, due and payable
on March 31, 1997, and (ii) shares of BFI Common Stock, which are exchangeable
for 67,500 restricted shares of Common Stock. Such shares of Common Stock are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." Upon consummation of this Offering, the
outstanding principal amount will be repaid, all accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
and the Company will issue warrants to purchase an aggregate of 22,500 shares of
Common Stock at an exercise price of 120% of the Offering Price. See
"Description of Capital Stock -- Registration Rights." The proceeds from the
sale of the May 1996 Notes were used for general corporate purposes.

On November 5, 1996, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $500,000 principal amount of unsecured promissory
notes (the "November 1996 Notes"), bearing interest at 10% per annum, due and
payable on the earlier of (a) March 31, 1997, or (b) the consummation of this
Offering, and (ii) warrants to purchase 500,000 restricted shares of Common
Stock, exercisable commencing one year after the Effective Date at an initial
exercise price of 120% of the Offering Price and nontransferable except under
certain limited circumstances. The shares of Common Stock issued upon exercise
of the warrants are entitled to certain registration rights. See "Description of
Capital Stock -- Registration Rights." The proceeds from the November 1996 Notes
were used to purchase director and officer liability insurance and to pay legal,
accounting and other fees in connection with this Offering.

The Company intends to use a portion of the proceeds of this Offering to
repay $350,000 of the principal amount of the December 1995 Notes, $315,000 of
the principal amount of the February 1996 Notes, $300,000 of the principal
amount of the May 1996 Notes, and $500,000 of the principal amount and
approximately $8,300 of accrued interest on the November 1996 Notes. See "Use of
Proceeds."

LEGAL PROCEEDINGS AND PRODUCT LIABILITY INSURANCE

BFI's impairment testing business exposes it to potential litigation by
employees of companies using the FACTOR 1000(R) system if the employee's
employment relationship is affected thereby, and claims by third parties who may
be indirectly affected by the Company's services or products. Product and
service liability insurance is expensive, to the extent it is available at all.
BFI currently maintains general liability insurance in

34
<PAGE> 38

the amount of $1.0 million per policy year, which the Company intends to
increase to $5.0 million per policy year in connection with the VPI Acquisition.
See "Risk Factors -- Product Liability Exposure; Litigation Risk; Limited
Insurance."

EMPLOYEES

As of December 31, 1996, BFI employed seven employees, and VPI employed 45
employees, all on a full-time basis. Upon consummation of the BFI Merger, the
VPI Acquisition and the proposed CCA Merger, the Company will employ a total of
64 employees, all on a full-time basis. No employee is covered by a collective
bargaining agreement, and management believes that its relations with its
employees are good.

FACILITIES

The Company's corporate offices occupy approximately 3,260 square feet of
office space in Golden, Colorado, currently leased by BFI. This facility is
leased pursuant to a lease agreement expiring December 31, 1998. Rent payments
total $4,071 each month.

VPI leases office space at various locations under five short-term leases
ranging from month-to-month to one-year terms and totaling approximately 13,750
square feet. Total monthly office rental expense for all such offices is
approximately $16,460. The Company believes that leased office space at market
rates is readily available at all such locations.

The Company believes its facilities are adequate for its current level of
operations and that its facilities are adequately issued.

35
<PAGE> 39

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

The following table sets forth certain information concerning persons (i)
who are officers, directors and key employees of the Company and its
subsidiaries and (ii) who will become directors of the Company prior to
consummation of this Offering.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -----------------------------------------------
<S> <C> <C>
Esmond T. Goei................ 45 Chairman, Chief Executive Officer, President
and Director
Douglas S. Zorn............... 47 Executive Vice President, Chief Operating and
Financial Officer, Treasurer, Secretary and
Director
Linda K. Wackwitz............. 46 Vice President, General Counsel and Assistant
Secretary
James S. Gillespie............ 44 Vice President Sales and Director; President of
Voice Plus, Inc.
Diane E. Nowak................ 34 Vice President of Sales, Western Region, of
Voice Plus, Inc.
Bradley J. Eickman............ 31 Director of Operations of Voice Plus, Inc.
Kent H. Cossey................ 51 President of CCA
William Brehm................. 52 Director Nominee
Gary L. Nemetz................ 44 Director Nominee
Richard H. Williams........... 53 Director Nominee
</TABLE>

Directors are elected at the annual meeting of stockholders or may be
appointed by the Board of Directors. Each director holds office until a
successor is elected and qualified or the director resigns. The executive
officers are appointed by the Board of Directors. The following is a brief
summary of the recent background of each director, executive officer and
significant employee of the Company.

Esmond T. Goei. Mr. Goei has served as Chairman of the Board, President and
Chief Executive Officer of the Company since its incorporation in October 1996.
Mr. Goei has served as Chairman of the Board, President and Chief Executive
Officer of BFI since December 1993. Mr. Goei is a General Partner of Transition
Ventures I, L.P., a venture capital fund which he co-founded in October 1992.
Mr. Goei also was the co-founder of Transtech Venture Management Pte. Ltd., an
international venture capital management firm established in 1986, and
co-founder of Transpac Capital Management Pte. Ltd. in 1989, a venture capital
management firm established in 1989, of which he was Chief Executive Officer for
North American operations until 1992. Mr. Goei currently serves as a director
and Vice Chairman of YES! Entertainment Corp., an electronics toy company of
which he was a co-founding investor in 1992 and which is listed on The Nasdaq
National Market ("Nasdaq NMS"). From 1988 to 1995, Mr. Goei was a director of
CliniCom, Inc., a patient care information systems company listed on Nasdaq NMS,
which was sold in 1995 to HBO & Company. From 1987 to March 1995, Mr. Goei was a
director of Centigram Communications Corporation, a voice messaging equipment
company listed on Nasdaq NMS and VPI's largest supplier of voice processing
equipment. Mr. Goei was also Chairman of the Board of Centigram for six years.
From 1988 to 1994, Mr. Goei also was a director of TranSwitch Corp., a
telecommunications semiconductor systems company listed on Nasdaq NMS.

Douglas S. Zorn. Mr. Zorn has served as Executive Vice President Chief
Financial and Operating Officer and Treasurer, Secretary and a director of the
Company since its incorporation in October 1996. Mr. Zorn has served as
Executive Vice President, Secretary and Treasurer and Chief Financial and
Operating Officer of BFI since December 1993. From 1991 until he joined BFI, Mr.
Zorn was Chief Financial Officer of Monterey Telecommunications Corporation, an
OEM wireless switch manufacturer for Motorola, Inc. From 1983 to 1991, he was
employed by Centigram where he last served as Vice President of Finance and
Administration. Prior to joining Centigram, Mr. Zorn held various positions with
Gould, Inc., a manufacturer of sophisticated logic test instruments, including
Operation Controller of the Biomation Division. Mr. Zorn is a licensed certified
public accountant.

36
<PAGE> 40

Linda K. Wackwitz. Ms. Wackwitz has served as Vice President, General
Counsel and Assistant Secretary of the Company since its incorporation in
October 1996 and has held the same positions with BFI since February 1996. From
1989 until she joined the Company, Ms. Wackwitz was a corporate and securities
attorney with Davis, Graham & Stubbs LLP, a Denver, Colorado law firm.

James S. Gillespie. Mr. Gillespie has been Vice President of Sales and a
director of the Company since its incorporation in 1996 and continues as
President of VPI. Mr. Gillespie was the founder of VPI and has served as
President and Chief Executive Officer since VPI's incorporation in 1987. Mr.
Gillespie was with Centigram from 1983 to 1986, during which time he held a
number of positions, with his final position being Director of National Sales.

Diane E. Nowak. Ms. Nowak has served as Vice President of Sales, Western
Region, for VPI since July 1993. Ms. Nowak joined VPI in 1989 and has served as
Senior Sales Executive (May 1990 to July 1991) and as Director of Major Accounts
(July 1991 to July 1993). Ms. Nowak served as a director of VPI from November
1995 to September 1996.

Bradley J. Eickman. Mr. Eickman has served as Director of Operations for
VPI since November 1995. Prior to that time, Mr. Eickman served as Sales Manager
(January 1994 to November 1995), Manager of Procurement and Quality Assurance
(May 1992 to January 1994), Service Manager (July 1991 to May 1992) and Customer
Support Manager (April 1990 to July 1991). Mr. Eickman served as a director of
VPI from November 1995 to September 1996.

Kent H. Cossey, President of C. C. & Associates ("CCA"). Mr. Cossey is a
co-founder of CCA and has served as its President since CCA's incorporation in
1978. Upon the consummation of the proposed CCA Merger, CCA will become a wholly
owned subsidiary of the Company, and Mr. Cossey will continue as CCA's
President. Mr. Cossey is a retired police detective and received specialized
training in drug use in the workplace, blue and white collar crime,
surveillance, evidence collection and VIP security.

William Brehm. Mr. Brehm will become a director of the Company upon the
consummation of this Offering. Mr. Brehm served from 1994 to June 1995, and from
October 1995 to present, as a director of BFI. From 1989 to 1995, Mr. Brehm was
the Chief Executive Officer, and from 1988 to 1989, Mr. Brehm was President of
CliniCom, Inc. From 1985 to 1987, he was President of Baxter Intermediate
Systems Division, a healthcare information systems company. From 1984 to 1985,
he was Executive Vice President and Chief Operating Officer of Health
Information Systems, Inc., a healthcare information systems company.

Gary L. Nemetz. Mr. Nemetz will become a director of the Company upon the
consummation of this Offering. Mr. Nemetz has been a director of BFI since April
1996. In March 1995, Mr. Nemetz was a director of the Company. Mr. Nemetz served
as a consultant to BFI from March 1995 to April 1996. Since 1984, Mr. Nemetz has
served as President of Admiral Capital Corp., a private investment management
firm. He is a general partner of Transition Capital Management Company and
Transition Ventures I, L.P., a venture capital fund. Since 1984, Mr. Nemetz also
has conducted a management consulting business and law practice through G.L.
Nemetz, a Professional Corporation. Mr. Nemetz is a certified public accountant
(inactive status). Since 1995, Mr. Nemetz has served as a director of YES!
Entertainment Corp., which is listed on Nasdaq NMS.

Richard H. Williams. Mr. Williams will become a director of the Company
upon the consummation of this Offering. Mr. Williams has been a director of BFI
since 1995. Mr. Williams is a technology investor and entrepreneur. From
February 1996 through August 1996, he was a Senior Vice President of Informix
Corp. Mr. Williams was President and Chief Executive Officer of Illustra
Information Technology, Inc., from December 1993 until its acquisition by
Informix in February 1996. From 1991 to 1992, Mr. Williams was an Executive Vice
President of Novell, Inc., in charge of worldwide sales. From 1987 until its
acquisition by Novell, he was President and Chief Executive Officer of Digital
Research, Inc. For 22 years prior to joining Digital Research, Mr. Williams was
employed by IBM Corporation, where his last positions were Vice President of the
Data Systems Division and Vice President of the General Products Division.

37
<PAGE> 41

BOARD COMMITTEES

Upon completion of this Offering, the Board will have two standing
committees, the Compensation Committee and the Audit Committee. The Compensation
Committee will be responsible for reviewing the compensation of executives of
the Company and recommending changes to the Board. The Compensation Committee
also will administer the NHancement Technologies Inc. Equity Incentive Plan with
respect to executives. The Compensation Committee will be composed of Messrs.
Brehm, Nemetz and Williams.

The Audit Committee will be responsible for meeting periodically with
representatives of the Company's independent certified public accountants to
review the general scope of audit coverage, including consideration of the
Company's accounting practices and procedures and systems of internal controls,
and will report to the Board with respect thereto. The Audit Committee also will
recommend to the Board the appointment of the Company's independent auditors.
The Audit Committee will be composed of Messrs. Nemetz and Williams.

EXECUTIVE COMPENSATION

The following table, and the accompanying explanatory footnotes, include
annual and long-term compensation information for services rendered in all
capacities during the fiscal years ended December 31, 1993, 1994 and 1995, by
(i) the Company's Chief Executive Officer and (ii) the other most highly
compensated executive officer of the Company at December 31, 1995, and an
additional individual not serving as executive officer of the Company at
December 31, 1995, who received compensation of at least $100,000 during fiscal
year ended December 31, 1995 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- --------------------------
OTHER ANNUAL RESTRICTED SECURITIES
COMPENSATION STOCK UNDERLYING
NAME AND POSITION YEAR SALARY($) BONUS($) ($) AWARD(S)($) OPTIONS(#)
- --------------------------------- ---- --------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Esmond T. Goei(1)(2)............. 1995 $ 108,000 $ 25,000 $ --(3) $58,608(4) 168,750
Chairman of the Board, 1994 108,000 0 --(3) -- --
President and Chief Executive
Officer
Douglas S. Zorn(1)(2)............ 1995 90,000 25,000 --(3) 58,608(4) 140,625
Executive Vice President, 1994 90,000 0 --(3) -- --
Secretary, Chief Operating
Officer and Chief Financial
Officer
James S. Gillespie(5)............ 1995 300,000 550,000 --(3) -- --
Vice President of Sales and 1994 142,750 550,000 53,684 -- --
President of VPI 1993 113,464 -- -- -- --
</TABLE>

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

(1) Data reflects compensation by BFI. In 1995, the Company and Messrs. Goei and
Zorn orally agreed that future cash salary payments would be suspended until
BFI had obtained sufficient funding to pursue a public offering of its
securities. During the period of suspension, from April through December,
Messrs. Goei and Zorn continued to pursue their respective duties in the
interest of BFI. BFI compensated Mr. Goei and Mr. Zorn for their respective
past salaries by issuing to each of them 87,475 shares of restricted stock.

(2) Messrs. Goei and Zorn joined BFI in December 1993, but received no
compensation for the fiscal ended December 31, 1993.

(3) Perquisites do not exceed the lesser of $50,000 or 10% of the Named
Executive Officer's total annual salary and bonus.

(4) Each of Messrs. Goei and Zorn had 87,475 shares of restricted stock, valued
at $58,608 (based on $0.67 per share) as of December 31, 1995. Such shares
are subject to the restrictions on transfer imposed by Rule 144.

(5) Data reflect compensation paid by VPI.

38
<PAGE> 42

It is anticipated that the BFI Board of Directors will award performance
bonuses for 1996 to three executive officers in an aggregate amount up to
$250,000, which amount is part of the $400,000 performance and retention bonuses
for key employees to be paid out of the proceeds of this Offering.

EQUITY INCENTIVE PLAN

Effective upon consummation of the BFI Merger, all outstanding options to
purchase shares of BFI Common Stock will be exchanged for options to purchase an
aggregate of 534,375 shares of Common Stock of the Company at a price per share
equal to 80% of the Offering Price pursuant to the NHancement Technologies Inc.
Equity Incentive Plan (the "Plan"). Additionally, the Company has authorized the
issuance to certain VPI employees, upon consummation of the VPI Acquisition, of
options to purchase an aggregate of 100,000 shares of Common Stock of the
Company at fair market value on the date of grant pursuant to the Plan. Under
the Plan, 976,500 shares of Common Stock have been reserved for issuance upon
exercise of options and other stock rights granted to employees, officers,
directors and consultants of the Company and any subsidiary of the Company. The
Plan is administered by (i) the Compensation Committee of the Board of Directors
with respect to grants to officers and employee directors of the Company, (ii)
by the Board of Directors with respect to discretionary grants to non-employee
directors and (iii) by the Employee Committee consisting of the Company's Chief
Executive Officer with respect to all others (collectively, (i), (ii) and (iii)
are referred to under this caption as the "Committee"). The Committee has full
authority to administer the Plan, including the individuals to whom the grants
are made, the exercise or purchase prices, the number of shares, the term and
vesting schedules.

Under the Plan, incentive stock options ("ISOs"), as defined in Section 422
of the Code may be granted to employees of the Company, and nonqualified stock
options ("NSOs"), restricted stock awards and supplemental bonuses may be
granted to employees, non-employee directors and consultants. ISOs granted under
the Plan must have an exercise price of not less than 100% of the fair market
value of the Common Stock on the date of grant and are exercisable for periods
of up to 10 years from the date of grant (or, in the case of ISOs granted to
holders of more than 10% of the voting power of the Company, must have an
exercise price equal to 110% of the fair market value and are exercisable for a
period of five years). NSOs may be granted at less than fair market value at the
discretion of the Committee and are exercisable for periods of up to 10 years
from the date of grant. The exercise price of options in cash, check,
nonforfeitable shares of Common Stock, a recourse promissory note, any other
consideration that the Committee may deem appropriate or any combination of the
above payment methods.

The Plan also provides for the automatic annual grant of an option to
purchase 2,400 shares of Common Stock to each non-employee director. Each such
option vests one-third on each of the first, second and third anniversary of the
date of grant.

The Plan also provides for the award of shares of restricted stock, which
will be subject to certain restrictions as specified by the Committee, including
continued employment or attainment of performance goals.

Upon the occurrence of certain events, including a merger, liquidation or
sale of substantially all of the assets of the Company, all outstanding options
under the Plan automatically vest and restrictions on any restricted stock award
automatically lapse and such shares of restricted stock become nonforfeitable.

STOCK OPTION INFORMATION

The following table sets forth certain information concerning grants of
stock options to the Named Executive Officers during the year ended December 31,
1995.

OPTIONS GRANTED IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(1) YEAR(2) PER SHARE(3) DATE
- ----------------------------------- ------------------ ------------------ ------------ -----------
<S> <C> <C> <C> <C>
Esmond T. Goei..................... 168,750 43.2% $ 3.20 11/02/2005
Douglas S. Zorn.................... 140,625 36.0% $ 3.20 11/02/2005
</TABLE>

39
<PAGE> 43

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

(1) The options are incentive stock options with vesting as follows: one-third
of the shares vest immediately upon grant, and the remaining vest 1/24th per
month over the next 24 months.

(2) Based on an aggregate of 390,936 options granted to employees in 1995,
including options granted to the Named Executive Officers.

(3) The options were originally granted under the BFI Stock Option Plan at an
exercise price of $.50 per share. In connection with the BFI Merger, the
Company has assumed all of BFI's obligations under the BFI Stock Option Plan
and will grant an option to purchase 5.625 shares of Common Stock of the
Company (at an exercise price equal to 80% of the Offering Price) for every
10 shares of BFI Common Stock the optionee was entitled to purchase under
the BFI Stock Option Plan. See "The Company -- Material Terms of the BFI
Merger."

401(K) PROFIT SHARING PLAN

VPI has a 401(k) profit sharing plan in which all qualifying employees with
a minimum of 1,000 hours of service at year end are eligible to participate.
Matching contributions are made at the discretion of the Board. VPI pays all
fees to administer the plan.

BONUS PLAN

In December 1996, the Board of Directors of the Company approved the 1997
Management and Company Performance Bonus Plan (the "Bonus Plan"), effective for
the period from January 1, 1997 to December 31, 1997. The Bonus Plan is
available to the Company's managers, senior vice presidents, chief executive
officer and chief operating officer. The Company's actual net operating income
and revenue, as compared to targets established under the Bonus Plan, will
determine the percentage of annual base salary to be paid out as a bonus, with
no bonus awarded unless the Company achieves at least 75% of budgeted income and
75% of budgeted revenues. The bonus percentage may be increased or decreased
based on a participant's individual performance. The maximum bonus that may be
earned is 200% of eligible base salary for each individual covered under the
Bonus Plan, and the maximum aggregate bonus that the Company may award to all
eligible individuals covered under the Bonus Plan is limited to 10% of the net
income of the Company, calculated after tax liabilities and Bonus Plan payments.
The Bonus Plan may be amended or terminated at any time by the Compensation
Committee of the Board.

DIRECTORS' COMPENSATION

Directors who are also employees of the Company are not separately
compensated for serving on the Board of Directors. Non-employee Directors
receive a fee of $1,000 per board meeting requiring personal attendance and a
fee of $250 per telephonic Board meeting and committee meeting not part of,
immediately preceding or following, a scheduled Board meeting and also are
reimbursed for reasonable travel-related expenses for attendance at meetings.

Pursuant to an Agreement dated October 16, 1995, the Company agreed to pay
Burton Kanter, a non-employee director of BFI, $2,000 per month from October
1995 to June 1996 for his services as a director of BFI. In November 1995, Mr.
Kanter received an NSO to purchase shares of BFI Common Stock, which is
currently fully vested and will be exchanged for an NSO to purchase 42,188
shares of the Company's Common Stock, exercisable at a price per share equal to
80% of the Offering Price. In June 1996, Mr. Kanter also received shares of BFI
Common Stock, which will be exchanged for 18,750 shares of the Company's Common
Stock upon consummation of the BFI Merger. See "Certain Transactions."

In connection with his election to the BFI Board in December 1995, Mr.
Williams received an NSO to purchase shares of BFI Common Stock, which will be
exchanged for an NSO to purchase 16,875 shares of the Company's Common Stock,
exercisable at a price per share equal to 80% of the Offering Price. The option
will vest 50% immediately and 50% one year from the date of such exchange.

Additionally, the Company intends to grant to each of Messrs. Nemetz and
Brehm NSOs to purchase 16,875 shares of Common Stock at a price per share equal
to the fair market value on the date of grant, 50% percent of which will vest
one year from the date of grant and 50% percent of which will vest on the second
anniversary of the date of grant.

40
<PAGE> 44

EMPLOYMENT AGREEMENTS

The Company has three-year employment agreements with each of Esmond T.
Goei, as Chairman of the Board of Directors, President and Chief Executive
Officer of the Company, and Douglas S. Zorn, as Executive Vice President, Chief
Operating Officer, Chief Financial Officer, Treasurer and Secretary of the
Company. Each officer's current base salary is $135,000 per year, which may be
adjusted from time to time by mutual agreement between each such officer and the
Board of Directors. The agreements provide for an annual bonus to be paid to
each officer pursuant to a written bonus plan to be approved by the Board of
Directors. The agreements provide that each officer is entitled to reasonable
expense reimbursements, four weeks paid vacation per year and participation in
any of the Company's benefit and deferred compensation plans. Each of the
officers also receives a $500 monthly car allowance. On the annual anniversary
date of each agreement, the period of employment is extended automatically for
one year unless the officer is notified in writing. The agreements also provide
for payments in the event of termination prior to the end of the term, as
follows: if the officer is terminated without cause, then base salary will be
paid for the greater of two years or the balance of the term plus a bonus for
each such year equal to the average bonus for the two preceding years; if the
officer is terminated upon a change of control, then compensation equal to two
times the sum of the base salary plus average bonus will be paid for one year.
In the event of termination (except termination without cause), the officer is
subject to a two-year non-competition agreement.

The Company has a three-year employment agreement with James Gillespie,
Vice President of Sales of the Company and President of VPI. Mr. Gillespie's
agreement provides for a base salary of $150,000, annual sales commissions
targeted to be approximately $200,000 and an annual bonus pursuant to a written
bonus plan to be approved by the Board of Directors. The agreement provides that
Mr. Gillespie is entitled to reasonable expense reimbursements, participation in
any of the Company's benefit and deferred compensation plans, use of a company
car or a monthly car allowance and annual paid vacation, consistent with the
arrangements provided to the Company's senior management. Additionally, the
agreement contains provisions for assignment of inventions and confidentiality
and, in the event of termination, covenants not to compete, to solicit customers
or to hire employees for two years. The agreement also provides that in the
event of termination without cause or a material breach by the Company, Mr.
Gillespie will receive his base salary and 50% of sales commissions for the
duration of the term of the agreement and, in the event of a material breach by
the Company, the two promissory notes in the aggregate principal amount of $1.5
million issued by the Company in consideration for VPI will be accelerated and
immediately become due and payable. See "Certain Transactions."

VPI has two-year employment agreements with each of Diane E. Nowak, Vice
President of Sales, Western Region, of VPI, and Bradley J. Eickman, Director of
Operations for VPI. Each of these employment agreements provides for a base
salary of $65,000, sales commissions payable pursuant to an annual sales manager
compensation plan and performance-based bonus payments. Both agreements also
provide for reasonable expense reimbursements, participation in any of VPI's
benefit plans, use of a car leased by VPI and annual paid vacation.
Additionally, the agreements contain provisions for assignment of inventions and
confidentiality and, in the event of termination, covenants not to compete, to
solicit customers or to hire employees for two years. The Company has authorized
(i) the grant, to Ms. Nowak and Mr. Eickman, upon the consummation of the VPI
Acquisition, of ISOs to purchase 50,000 and 35,000 shares of Common Stock,
respectively, at a price per share equal to the fair market value on the date of
grant, 50% of which will vest 18 months from the date of grant and 50% of which
will vest on the second anniversary of the date of grant; and (ii) the payment
to Ms. Nowak and Mr. Eickman of signing and retention bonuses in the amounts of
$100,000 and $50,000, respectively, payable 50% upon the consummation of the VPI
Acquisition and 50% six-months thereafter.

41
<PAGE> 45

CERTAIN TRANSACTIONS

In December 1994, BFI entered into a Secured Note and Warrant Purchase
Agreement (as subsequently amended) with each of Messrs. Goei, Zorn and Williams
and each of Admiral Capital Corporation, of which Mr. Nemetz has sole voting and
investment power, and Walnut Capital Corp., of which Mr. Kanter (a director of
BFI) is Chairman, for the purchase and sale of BFI's December 1994 Notes in the
principal amounts of (i) $30,363, $27,500, $25,000, $100,000 and $25,000,
respectively, out of an aggregate original principal amount of $750,000, and
(ii) 0.2 shares of BFI Common Stock for each $1.00 of such portion of the
original principal amount of the notes. The December 1994 Notes are secured by
all of the assets of BFI and mature on April 1, 1997. Upon consummation of this
Offering, all of the outstanding principal and accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price
(resulting in the issuance of 9,347, 8,678, 7,744, 30,083, 8,017 shares to
Messrs. Goei, Zorn and Williams and to Admiral Capital Corporation and Walnut
Capital Corp., respectively), the security interest will be released, and the
Company will issue warrants to purchase 1,518, 1,375, 1,250, 5,000 and 1,250
shares of Common Stock at an exercise price of 120% of the Offering Price to
Messrs. Goei, Zorn and Williams and to Admiral Capital Corporation and Walnut
Capital Corp., respectively. See "Business -- Recent Financings."

In April 1995, BFI accepted unsecured loans from Mr. Zorn and Walnut
Capital Corp. in the principal amounts of $17,500 and $10,000, respectively, at
a rate of interest of 12% per annum. BFI paid Mr. Zorn $15,000 during the second
half of 1996 and the balance of the loans will be repaid upon the consummation
of this Offering.

In October 1995, BFI entered into an agreement, subsequently amended on
July 16, 1996, with Mr. Kanter. Mr. Kanter agreed on behalf of Walnut Capital
Corp. (i) to extend the maturity date of certain unsecured notes issued to
Walnut Capital Corp. in the aggregate principal amount of $54,850, represented
by five notes issued between January 29, 1992 and November 1, 1992 (the "1992
Notes"), and payment of accrued interest thereon until the earlier of December
31, 1996 or receipt by the Company of the proceeds of this Offering, (ii) to
waive the default on the 1992 Notes (in return for recomputation of interest on
the 1992 Notes on an annually compounded basis from the date each of the 1992
Notes was issued). As of January 1, 1997, the 1992 Notes remained unpaid. In
return for such agreements and his past and continuing participation on BFI's
Board of Directors, BFI (i) executed and delivered to Mr. Kanter a stock option
to purchase 75,000 shares of BFI Common Stock, which subsequently was assigned
to Windy City, Inc. and which will be exchanged for an option to purchase 42,188
shares of NHancement Common Stock, with an exercise price per share equal to 80%
of the Offering Price; (ii) transferred to Mr. Kanter and a former director all
of BFI's rights to invest in SportsTrac; (iii) transferred to Mr. Kanter and a
former director all of BFI's 7 1/2% warrants in SportsTrac; and (iv) agreed to
pay him a fee of $2,000 per month, plus reasonable expenses, in connection with
his duties as a director. In July 1996, Mr. Kanter agreed to terminate his
$2,000 per month director fees and, from that time forward, to be compensated on
the same basis as other non-employee directors. See "Management -- Directors'
Compensation."

In May and June 1996, BFI issued 87,475 shares of BFI Common Stock to each
of Messrs. Goei and Zorn in lieu of cash compensation. The aggregate value of
these shares totaled $117,200, of which $110,000 was for payment of deferred
compensation accrued in 1995. In June 1996, BFI issued 18,750 shares of Common
Stock to Mr. Kanter as consideration for his special services as a director
during 1995, paid out of compensation otherwise owing to Messrs. Goei and Zorn,
in accordance with an agreement dated July 16, 1996 by and among BFI and Messrs.
Goei, Zorn, Kanter and a former director of BFI.

In November 1996, BFI entered into a Unit Subscription Agreement with each
of VPI, Admiral Capital Corporation and Messrs. Goei and Zorn for the purchase
and sale of BFI's units consisting of (i) unsecured promissory notes in the
principal amounts of $50,000, $50,000, $35,000 and $100,000, respectively, and
(ii) warrants to purchase 50,000, 50,000, 35,000 and 100,000 shares,
respectively, at an exercise price of 120% of the Offering Price. In January
1997, Mr. Zorn transferred to Mr. Williams and Mr. Goei notes in the principal
amounts of $25,000 and $15,000, respectively, and warrants to purchase 25,000
shares and 15,000 shares, respectively, in exchange for Mr. Williams' payment to
BFI of $25,000, Mr. Goei's payment to BFI of $15,000 and Mr. Zorn's receipt of
an unsecured promissory note from BFI in the principal amount of $40,000. See
"Business -- Recent Financings."

42
<PAGE> 46

Upon consummation of the VPI Acquisition, the Company will acquire all of
the capital stock of VPI from Mr. Gillespie for total consideration valued at
approximately $6,180,000, consisting of: $1,500,000 in two long-term notes in
the principal amounts of $1,000,000 and $500,000, respectively, bearing interest
at the medium-term United States Treasury Bill rate declared at the close of
business on the maturity date or earlier payment date and maturing on the
three-year anniversary of the date of issuance but payable earlier, dependent
upon the future earnings of VPI, with fifty percent (50%) of VPI's pre-tax
profits to be applied to pay principal and accrued interest on the $1,000,000
note quarterly, and $62,500 of principal and accrued interest to be paid on the
$500,000 note in any quarter in which VPI is profitable, beginning 45 days after
the close of the quarter in which this Offering is consummated; $2,400,000 in
shares of Common Stock to be sold in this Offering and $2,280,000 in restricted
shares of Common Stock (712,500 shares based on an assumed Offering Price of
$4.00 per share). In the event of a material breach by the Company of the
employment agreement with Mr. Gillespie, the two promissory notes will be
accelerated and immediately become due and payable. See
"Management -- Employment Agreements." All such restricted shares will be
subject to a lock-up agreement in favor of the Representative for 18 months
following the consummation of this Offering with respect to 50% of the shares
and 24 months following the consummation of this Offering with respect to the
remaining 50% of the shares. Additionally, the Company has agreed to register
150,000 shares of Common Stock issued as consideration for VPI, one year after
the consummation of this Offering, subject to satisfaction by VPI of certain
1997 performance criteria. See "Description of Capital Stock -- Registration
Rights."

In October 1996, the Company signed a letter of intent to acquire all of
the outstanding stock of CCA in exchange for the issuance of 300,000 shares of
Common Stock (based on an assumed Offering Price of $4.00 per share) to Mr.
Cossey, the sole stockholder of CCA. Upon consummation of the proposed CCA
Merger, Mr. Cossey will own approximately 7.2% of the outstanding shares of
Common Stock.

The Company believes that all of the transactions described under this
"Certain Transactions" caption were on terms no less favorable to the Company
than those that could have been obtained from unaffiliated parties. Future
transactions, if any, between the Company and its officers, directors and
holders of 5% or more of Common Stock and other affiliated parties, if any, will
be for bona fide business purposes, on terms no less favorable than could be
obtained from unaffiliated third parties, and will be approved by a majority of
the Company's independent disinterested directors.

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<PAGE> 47

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of Common Stock as of December 31, 1996, after giving effect to the
BFI Merger, the VPI Acquisition and the proposed CCA Merger, by (a) each person
known to the Company to own beneficially more than 5% of the Common Stock, (b)
each of the Company's directors, director nominees and Named Executive Officers,
(c) all executive officers, directors and director nominees as a group and (d)
the stockholder selling Shares in this Offering.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY PRE-OFFERING SHARES BENEFICIALLY POST-OFFERING
OWNED PRE- PERCENTAGE SOLD IN THE OWNED %
NAMES AND ADDRESSES OFFERING OWNERSHIP(1) OFFERING POST-OFFERING OWNERSHIP(1)
------------------- ---------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
James Gillespie.................... 1,312,500 53.0% 600,000 712,500 17.1%
198 Country Club Drive
Incline Village, Nevada 89451
Kent Cossey........................ 300,000 12.1 -- 300,000 7.2
838 Minnesota Avenue
San Jose, California 95,125
Esmond T. Goei..................... 161,523(2) 6.4 -- 161,523(2) 3.8
c/o NHancement Technologies Inc.
1746 Cole Blvd., Suite 265
Golden, Colorado 80401
Douglas S. Zorn.................... 148,676(3) 5.9 -- 148,676(3) 3.5
c/o NHancement Technologies Inc.
1746 Cole Blvd., Suite 265
Golden, Colorado 80401
Gary L. Nemetz..................... 45,083(4) 1.8 -- 45,083(4) 1.1
c/o Admiral Capital Corporation
2420 Sand Hill Road, Suite 101
Menlo Park, California 94025
Richard H. Williams................ 23,787(5) 1.0 -- 23,787(5) *
P.O. Box 4281
721 Champagne Road
Incline Village, Nevada 89450
William H. Brehm................... 14,420 * -- 14,420 *
11400 Queensway
Theodore, Alabama 36582
Directors and executive officers as
a group (7 persons).............. 1,722,865(6) 66.3% 600,000 1,122,865(6) 26.1%
</TABLE>

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

* Less than 1%

(1) Includes (i) shares of Common Stock issued in connection with the VPI
Acquisition and the proposed CCA Merger, (ii) shares of Common Stock
issuable upon the conversion of $450,000 of accrued interest on the December
1994 Notes, the December 1995 Notes, the February 1996 Notes and the May
1996 Notes, and (iii) shares of Common Stock issuable upon conversion of
$750,000 of principal on the December 1994 Notes; all such shares of Common
Stock are issuable upon the consummation of this Offering, except the shares
to be issued upon consummation of the proposed CCA Merger.

(2) Includes 56,250 options that are presently exercisable or that will become
exercisable within 60 days at an exercise price equal to $3.20 per share.

(3) Includes 46,875 options that are presently exercisable or that will become
exercisable within 60 days at an exercise price equal to $3.20 per share.

44
<PAGE> 48

(4) Includes 45,083 shares beneficially owned by Admiral Capital Corporation, as
to which Mr. Nemetz has sole voting and investment power.

(5) Includes 8,438 options that are presently exercisable or that will become
exercisable within 60 days at an exercise price equal to $3.20 per share.

(6) Includes 124,688 vested option shares exercisable at an exercise price of
$3.20 per share.

45
<PAGE> 49

DESCRIPTION OF CAPITAL STOCK

The Certificate of Incorporation provides that the Company has the
authority to issue up to 20,000,000 shares of Common Stock, $0.01 par value per
share, and up to 2,000,000 shares of preferred stock, $0.01 par value per share
("Preferred Stock").

COMMON STOCK

Prior to this Offering and after giving effect to the BFI Merger, the VPI
Acquisition and the proposed CCA Merger, there were 2,466,950 shares of Common
Stock issued and outstanding. The Certificate of Incorporation provides that
holders of Common Stock are entitled to one vote for each share on all matters
submitted to a vote of stockholders. The Certificate of Incorporation does not
provide for cumulative voting. Accordingly, holders of a majority of the shares
of Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election if they choose to do so.

The holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of legally available
funds, provided that no dividend may be paid on shares of Common Stock until all
declared but unpaid dividends payable with respect to any outstanding Preferred
Stock have been paid.

Holders of Common Stock have no preemptive, subscription or redemption
rights. All outstanding shares of Common Stock are, and the Common Stock offered
hereby, upon issuance and sale, will be, fully paid and non-assessable. Upon the
liquidation, dissolution or winding up of the Company, after payment of all
debts and liabilities and after payment of the liquidation preferences of all
shares of Preferred Stock then outstanding, the holders of the Common Stock are
entitled to share ratably in all assets that are legally available for
distribution.

PREFERRED STOCK

Pursuant to the Certificate of Incorporation, the Company is authorized to
issue "blank check" preferred stock, which may be issued from time to time upon
authorization by the Board, without further approval of the stockholders. While
providing flexibility in connection with possible acquisitions and other
corporate purposes, such an issuance could, among other things, adversely affect
the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of the
Company, discourage bids for the Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock.

WARRANTS

Concurrently with the consummation of this Offering, the Company will issue
warrants to purchase an aggregate of 110,000 shares of Common Stock to holders
of the December 1994 Notes, the December 1995 Notes, the February 1996 Notes and
the May 1996 Notes (collectively, the "Bridge Notes") (the "Bridge Warrants"),
at an initial exercise price of 120% of the Offering Price per share (subject to
adjustment upon certain events), exercisable during the 36-month period
commencing one year from the effective date of the registration statement of
which this Prospectus is a part (the "Effective Date").

The Company has assumed BFI's outstanding warrants issued in connection
with the November 1996 Notes (the "November Warrants"), exercisable to purchase
an aggregate of 500,000 shares of Common Stock at an initial exercise price per
share of 120% of the Offering Price (subject to adjustment upon certain events)
during the 36-month period commencing one year from the Effective Date. The
Company also has assumed outstanding warrants issued in July 1990, exercisable
to purchase 514 shares of Common Stock at an exercise price of $188.80 per
share, and outstanding BFI warrants to purchase 6,670 shares of Common Stock at
an exercise price of $25.88 per share (collectively, the "Old Warrants").

Neither the Bridge Warrants, the November Warrants nor the Old Warrants
confer upon the holders of such warrants any voting or other rights of a
stockholder of the Company. Shares of Common Stock issuable

46
<PAGE> 50

upon exercise of the Bridge Warrants, the November Warrants and the Old Warrants
are subject to restrictions on transferability.

The Company has agreed to sell to the Representative, for a purchase price
of $100, a warrant to purchase 10% of the shares sold in this Offering at an
exercise price equal to 120% of the Offering Price (the "Underwriter Warrant").
See "Underwriting."

CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly-held
Delaware corporation from engaging, under certain circumstances, in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless either (i) prior to the date at which the person becomes an
interested stockholder the Board of Directors approves such transaction or
business combination, (ii) the stockholder acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
such transaction or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). An "interested stockholder" is a
person who, together with affiliates and associates, owns (or at any time within
the prior three years did own) 15% or more of the corporation's voting stock.
Section 203 defines a "business combination" to include, without limitation,
mergers, consolidations, stock sales and asset-based transactions and other
transactions resulting in a financial benefit to the interested stockholder.

The Certificate of Incorporation includes a provision which gives the Board
of Directors the authority to issue series of Preferred Stock with such voting
rights and other provisions as the Board of Directors may determine and which
may be deemed to have a potential anti-takeover effect in that it could be used
to delay or prevent a change of control of the Company. Additionally, the
Company is contemplating adopting certain other provisions in its Certificate of
Incorporation and its Bylaws which may have the effect of delaying or preventing
a change in control of the Company, including (i) a prohibition on the taking of
stockholder action by written consent in lieu of a meeting, (ii) the requirement
that a special stockholders' meeting may only be called by the Chairman of the
Board, the Chief Executive Officer, the President, at the direction of the
majority of the Board of Directors, or by the holders of at least ten percent of
the outstanding shares of capital stock, (iii) authorization for the Board of
Directors to consider factors other than the monetary interests of stockholders
relating to certain proposed business transactions; (iv) the requirement that an
affirmative vote of at least 66 2/3% of the voting power of the Company is
required to amend certain provisions of the Certificate of Incorporation; and
(v) an advance notice procedure for stockholders to make nominations for
candidates for election as directors.

The Company has included in its Certificate of Incorporation and in its
Bylaws provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the General Corporation Law of Delaware and (ii) indemnify its
directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the Company's Bylaws, Certificate of Incorporation or the
Underwriting Agreement, the registrant has been advised that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.

TRANSFER AGENT AND REGISTRAR

American Securities Transfer & Trust, Inc. will be the Transfer Agent and
Registrar for the Common Stock.

47
<PAGE> 51

REGISTRATION RIGHTS

Common Stock

Pursuant to a coordinated registration rights agreement (the "Coordinated
Rights Agreement"), the Company has assumed the obligations of BFI to holders of
BFI Common Stock issued in connection with, or issuable upon conversion of all
or part of, the Bridge Notes and the November 1996 Notes and to holders of BFI
Common Stock issued upon the November 1995 conversion of its Series A
Convertible Preferred Stock, par value $.01 per share. See "Business -- Recent
Financings." The Coordinated Rights Agreement provides for a maximum of two
registrations on Form S-3 pursuant to a demand by the holders of at least 40% of
all of the shares registrable under the agreement to register all or part of
their shares, or a demand by one or more holders to register shares with a
reasonably anticipated aggregate market value of at least $1,000,000, provided
that Form S-3 is available, during the 24-month period commencing one year after
the completion of this Offering.

In connection with the VPI Acquisition, the Company has entered into a
registration rights agreement covering the shares of Common Stock issued as
consideration in the VPI Acquisition. The agreement provides for one demand
registration on Form S-3 (provided Form S-3 is available) for the period of time
ending on the 36-month anniversary of the Effective Date, subject to an
agreement not to sell or otherwise dispose of the shares for the period
commencing on the date of such agreement and ending 18 months after the
Effective Date with respect to 50% of the shares and 24 months after the
Effective Date with respect to all such shares. Additionally, the Company has
agreed to register 150,000 shares of Common Stock issued as consideration for
VPI, one year after the completion of this Offering, subject to satisfaction by
VPI of certain 1997 performance criteria. See "Management -- Employment
Agreements."

Warrants

The shares of Common Stock issuable upon exercise of the Bridge Warrants
and the November Warrants are entitled to the rights granted in the Coordinated
Rights Agreement.

A majority of the holders of the Underwriter Warrant or the underlying
shares of Common Stock issuable upon exercise of the Underwriter Warrant (the
"Warrant Stock"), or both, may at any time within the period commencing 12
months after the Effective Date and ending five years after the Effective Date,
demand one time only that the Company register the Underwriter Warrant or
Warrant Stock and bear the costs of registration, except for the Underwriters'
counsel fees and sales commissions. Additionally, if the Company, at any time
during the period commencing 12 months after the Effective Date and ending five
years after the Effective Date, registers any primary or secondary offering on a
registration statement to be filed with the Commission, the holders of the
Underwriter Warrant and the Warrant Stock will have the right to register all
but not less than 20% of the Warrant Stock (subject to underwriter cutback),
without cost to such holders except for their counsel fees and commissions.

SHARES ELIGIBLE FOR FUTURE SALE

The market price for the Common Stock could be adversely affected by the
availability of shares of Common Stock for sale or actual sales of substantial
amounts of Common Stock by existing or future stockholders. Upon completion of
this Offering, the 2,300,000 shares of Common Stock sold in this Offering will
be freely tradeable without restriction or further registration under the
Securities Act, by persons other than "affiliates" of the Company. Of the
remaining shares of Common Stock, approximately 1,575,300 shares will be
"restricted securities" within the meaning of Rule 144 and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption contained in Rule 144. The
approximately 300,000 shares to be issued to Mr. Cossey in connection with the
proposed CCA Merger will not be "restricted securities," but will be subject to
a lockup agreement and to certain volume and other limitations on sales
contained in Rules 144 and 145. The holders of approximately 1,367,450 shares of
Common Stock possess registration rights with respect to such shares. The
Company's Chairman of the Board and Chief Executive Officer and affiliates and
other officers, directors and

48
<PAGE> 52

key employees have agreed that, with respect to 50% of the shares of Common
Stock held by them, for a period of 18 months from the date of this Prospectus,
and with respect to the remaining 50% of the shares of Common Stock held by
them, for a period of 24 months from the date of this Prospectus, they will not
publicly offer, sell, contract to sell or otherwise publicly dispose of any such
shares directly or indirectly owned by them without the prior written consent of
the Representative. Following the expiration of such lock-up agreements,
approximately 1,298,400 shares of Common Stock will become available for resale
in the public market, subject to the volume limitations, holding periods and
other restrictions of Rule 144. Additionally, as of December 31, 1996, 976,500
shares of Common Stock have been reserved for issuance under the Plan, 634,375
shares of which will be subject to outstanding options of BFI. See "Management."
The Company also has agreed, in connection with this Offering, to grant a
warrant to the Representative to purchase 230,000 shares of Common Stock at an
exercise price equal to 120% of the Offering Price, together with certain
registration rights relating to such shares. See "Underwriting" and "Description
of Capital Stock."

UNDERWRITING

The underwriters named below (the "Underwriters"), represented by Chatfield
Dean & Co. (the "Representative"), have severally agreed, subject to the terms
and conditions set forth in the Underwriting Agreement, to purchase from the
Company and the Selling Stockholder an aggregate of 2,300,000 shares of Common
Stock (with the number of shares of Common Stock that each Underwriter has
agreed to purchase set forth opposite its name) at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such shares if they purchase any.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Chatfield Dean & Co...............................................................

---------
Total................................................................... 2,300,000
=========
</TABLE>

The Representative has advised the Company and the Selling Stockholder that
the Underwriters initially propose to offer Common Stock to the public on the
terms set forth on the cover page of this Prospectus. The Underwriters may allow
to selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After this Offering, the
offering price and other selling terms may be changed by the Representative. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part. The Representative has advised the Company that it intends to make a
market in the Common Stock after the consummation of this Offering.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase a maximum of
345,000 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share as the initial 2,300,000 shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same

49
<PAGE> 53

proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.

The Company's Chairman of the Board and Chief Executive Officer and
affiliates and other officers, directors and key employees have agreed, subject
to certain limited exceptions, not to publicly sell or offer to sell or
otherwise publicly dispose of any shares of Common Stock currently held by them,
any right to acquire any shares of Common Stock or any securities exercisable
for or convertible into any shares of Common Stock for a period of 18 months
after the date of this Prospectus, with respect to 50% of the shares of Common
Stock held by them, and for a period of 24 months, with respect to the remaining
50% of the shares of Common Stock held by them, without the prior written
consent of the Representative. The Representative may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to these lock-up agreements.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities,
including civil liabilities under the Securities Act.

The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.

The Company has agreed to sell to the Representative, for a purchase price
of $100.00, a warrant to purchase shares of Common Stock at 120% of the Offering
Price. The total number of shares of Common Stock that may be purchased on the
exercise of the Underwriter Warrant will be equal to 10% of the number of shares
sold in this Offering, excluding shares sold as part of the Over-Allotment
Option. The Underwriter Warrant will be nonexercisable for a period of 12 months
following the date of this Prospectus and will thereafter be exercisable during
the next succeeding four-year period. During the term of the Underwriter
Warrant, the Underwriters may transfer a portion or all of the Underwriter
Warrant to such Underwriter's officers or partners.

The Company has a financial consulting agreement with the Representative
pursuant to which the Representative will provide the Company with services,
including advising the Company in connection with possible acquisitions,
stockholder relations (including the preparation of the annual report),
long-term financial planning, corporate reorganization, expansion and capital
structure and other financial assistance. The consulting agreement has a term of
one year commencing at the completion of this Offering. The agreement states
that the Representative will be paid a consulting fee of $65,000, $25,000 of
which was paid upon execution of the agreement. The remaining $40,000 will be
paid by the Company upon consummation of this Offering. See "Use of Proceeds."

Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the Offering Price will be determined through negotiations
among the Company and the Representative. Among the factors considered in such
negotiations will be the history of, and prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, the
Company's past and present operations and financial performance, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the securities markets at the time of this Offering and the
market prices of publicly traded common stocks of comparable companies in recent
periods.

LEGAL MATTERS

The due authorization, valid issuance and non-assessability of the Shares
offered hereby will be passed upon for the Company by the law firm of Davis,
Graham & Stubbs LLP, Denver, Colorado. Certain legal matters will be passed on
for the Underwriters by Dorsey & Whitney LLP, Denver, Colorado.

50
<PAGE> 54

EXPERTS

The financial statements of NHancement Technologies Inc., formerly BFI, and
VPI included in this Prospectus and in the Registration Statement have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the periods set forth in their reports appearing elsewhere herein
and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of said firm as experts in auditing and
accounting. The report of NHancement Technologies Inc., formerly BFI, contains
an explanatory paragraph regarding the Company's ability to continue as a going
concern. The financial statements of CCA included in this Prospectus and in the
Registration Statement have been audited by Meredith, Cardozo & Lanz LLP,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.

AVAILABLE INFORMATION

The Company has filed with the Commission, a Registration Statement on Form
SB-2 (the "Registration Statement") pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, with respect to the Shares being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, and to which reference is
hereby made. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
its entirety by such reference. The Registration Statement may be inspected and
copied at the offices of the Commission at Judiciary Plaza Building, 450 Fifth
Street, N.W., Washington, D.C. 20549; and its regional offices located at Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661, and Seven World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material, or any portion thereof, may be obtained from the Public
Reference Section of the Commission, Judiciary Place, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
that contains information regarding registrants' electronic filings with the
Commission. The address of the Commission's Web site is http://www.sec.gov.

The Company does not presently file reports and other financial information
with the Commission. However, following completion of this Offering, the Company
expects to make such filings and intends to furnish its stockholders with annual
reports containing audited financial statements examined and reported upon by
its independent certified public accountants and such interim reports, in each
case, as it may determine to furnish or as may be required by law.

51
<PAGE> 55

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
PRO FORMA:
NHANCEMENT TECHNOLOGIES INC. (FORMERLY BIOFACTORS, INC.), VOICE PLUS, INC. AND C.C.
& ASSOCIATES:
Unaudited Pro Forma Combined Balance Sheets as of September 30, 1996............ F-3.
Unaudited Pro Forma Combined Statement of Operations for the nine months ended
September 30, 1996............................................................. F-4.
Unaudited Pro Forma Combined Statement of Operations for the year ended December
31, 1995....................................................................... F-5.
Unaudited Pro Forma Combined Statement of Operations for the year ended December
31, 1994....................................................................... F-6.
Notes to Unaudited Pro Forma Combined Financial Statements...................... F-7.
HISTORICAL:
NHANCEMENT TECHNOLOGIES INC. (FORMERLY BIOFACTORS, INC.):
Report of BDO Seidman, LLP...................................................... F-10.
Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited)....... F-11.
Statements of Operations for the years ended December 31, 1994 and December 31,
1995, for the period from inception (January 5, 1988) to December 31, 1995, and
for the nine months ended September 30, 1995 and September 30, 1996 (unaudited)
and for the period from inception to September 30, 1996 (unaudited)............ F-12.
Statements of Stockholders' Deficit for the period from inception (January 5,
1988) to December 31, 1995, and for the nine months ended September 30, 1996
(unaudited).................................................................... F-13.
Statements of Cash Flows for the years ended December 31, 1994 and December 31,
1995, for the period from inception (January 5, 1988) to December 31, 1995, and
for the nine months ended September 30, 1995 and September 30, 1996 (unaudited)
and for the period from inception to September 30, 1996 (unaudited)............ F-14.
Summary of Accounting Policies.................................................. F-16.
Notes to Financial Statements................................................... F-19.
VOICE PLUS, INC.:
Report of BDO Seidman, LLP...................................................... F-28.
Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited)....... F-29.
Statements of Operations for the years ended December 31, 1994 and December 31,
1995 and the nine months ended September 30, 1995 and September 30, 1996
(unaudited).................................................................... F-30.
Statements of Stockholders' Equity for the years ended December 31, 1994 and
December 31, 1995 and the nine months ended September 30, 1996 (unaudited)..... F-31.
Statements of Cash Flows for the years ended December 31, 1994 and December 31,
1995 and the nine months ended September 30, 1995 and September 30, 1996
(unaudited).................................................................... F-32.
Summary of Accounting Policies.................................................. F-33.
Notes to Financial Statements................................................... F-35.
C.C. & ASSOCIATES:
Report of Meredith, Cardozo & Lanz LLP.......................................... F-40.
Balance Sheet as of September 30, 1996.......................................... F-41.
Statements of Operations for the years ended September 30, 1995 and September
30, 1996....................................................................... F-42.
Statements of Stockholders' Equity for the years ended September 30, 1995 and
September 30, 1996............................................................. F-43.
Statements of Cash Flows for the years ended September 30, 1995 and September
30, 1996....................................................................... F-44.
Summary of Accounting Policies.................................................. F-45.
Notes to Financial Statements................................................... F-46
</TABLE>

F-1
<PAGE> 56

NHANCEMENT TECHNOLOGIES INC.

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements and
accompanying footnotes give effect (i) to the VPI Acquisition, immediately prior
to the consummation of this Offering, accounted for as a purchase with the
assets acquired and the liabilities assumed recorded at estimated fair values
and, (ii) in a separate transaction expected to occur sometime after this
Offering, the CCA Merger, accounted for as a pooling of interest.

The accompanying pro forma combined financial statements as of September
30, 1996 and for the nine months ended September 30, 1996 and for the year ended
December 31, 1995 illustrate the effect on the Company's financial position and
results of operations of the VPI Acquisition and CCA Merger and, separately, the
receipt and application of the net proceeds of this Offering. The accompanying
unaudited pro forma balance sheet gives effect to the VPI Acquisition and the
CCA Merger, as if they occurred as of September 30, 1996, and is based on the
historical balance sheets of BFI, VPI and CCA as of that date included elsewhere
herein. The pro forma combined statements of operations for the nine months
ended September 30, 1996 and for the year ended December 31, 1995 are based on
the historical statements of operations for those periods of BFI, VPI and CCA
presented elsewhere in this Prospectus, except for CCA, whose 1995 results of
operations are based on its historical year end of September 30, 1995 and whose
nine month results are not presented elsewhere herein. These pro forma combined
statements of operations assume the VPI Acquisition and the CCA Merger took
place on January 1, 1995.

The pro forma combined statement of operations for the year ended December
31, 1994 illustrates the effect of the CCA Merger on the results of operations
of the Company as if the CCA Merger occurred January 1, 1994.

The pro forma combined financial statements are not intended to be
indicative of what the financial position or results of operations would have
been had such transactions occurred at the beginning of the periods presented or
to project the Company's results of operations or financial position in or for
any future period. The pro forma financial statements are based on management's
current estimate of the allocation of the purchase price for VPI. Actual
allocations may differ.

The accompanying unaudited pro forma combined financial statements should
be read in connection with the historical financial statements of BFI, VPI and
CCA included elsewhere in this Prospectus.

F-2
<PAGE> 57

NHANCEMENT TECHNOLOGIES INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------------------
------------------------- MERGER COMBINED FINANCING COMBINED
BFI VPI CCA ADJUSTMENTS COMPANIES ADJUSTMENTS AS ADJUSTED
------- ------ ---- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 83 $1,479 $ 9 (950)(a) $ 621 $ 450 (f) $ 4,842
5,770 (g)
(1,488)(h)
(511)(i)
Accounts receivable, net............. 29 1,666 153 1,848 1,848
Inventories, net..................... 12 564 -- $ 486 (a) 1,062 1,062
Prepaid expenses and other
current assets.................... 176 82 37 295 295
------- ------ ---- ------- -------
Total current assets......... 300 3,791 199 3,826 8,047
Property and equipment, net............ 44 276 47 135 (a) 502 502
Excess of cost over net assets
acquired............................. -- -- -- 5,979 (a) 5,979 5,979
Other assets........................... -- 21 -- 21 21
------- ------ ---- ------- -------
TOTAL ASSETS........................... 344 4,088 246 10,328 14,549
======= ====== ==== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt...................... 2,064 -- -- 2,064 500 (f) --
(2,238)(h)
(326)(i)
Accounts payable..................... 396 1,436 12 1,844 1,844
Accrued expenses..................... 896 981 50 (400)(a) 1,527 (217)(h) 1,125
(185)(i)
Deferred revenues.................... 40 1,530 -- 1,570 1,570
Income taxes payable................. -- -- 6 6 6
Deferred income taxes................ -- 11 46 57 57
Current portion of obligations under
capital leases.................... 5 -- -- 5 5
------- ------ ---- ------- -------
Total current liabilities.... 3,401 3,958 114 7,073 4,607
Long-term debt......................... -- -- -- 1,500 (a) 1,500 1,500
Deferred income taxes and other
deferred credits..................... -- -- 1 1 1
STOCKHOLDERS' EQUITY
Common Stock......................... 6 22 3 (6)(a) 25 17 (g) 44
2 (h)
Additional paid-in capital........... 5,314 -- -- 4,664 (a) 9,978 (50)(f) 16,646
5,753 (g)
965 (h)
Retained (deficit) earnings.......... (8,377) 108 128 (108)(a) (8,249) (8,249)
Total stockholders' equity
(deficit).................. (3,057) 130 131 1,754 8,441
------- ------ ---- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................... $ 344 $4,088 $246 $10,328 $14,549
======= ====== ==== ======= =======
</TABLE>

F-3
<PAGE> 58

NHANCEMENT TECHNOLOGIES INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)

F-4
<PAGE> 59

NHANCEMENT TECHNOLOGIES INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------------------
--------------------------- MERGER COMBINED FINANCING COMBINED
BFI VPI CCA(1) ADJUSTMENTS COMPANIES ADJUSTMENTS AS ADJUSTED
------- ------ ------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 451 $7,259 $1,076 $ 8,786 $ 8,786
Cost of goods sold................... 187 4,190 564 4,941 4,941
------- ------ ------ ------- ------
Gross margin............... 264 3,069 512 3,845 3,845
Research and development, selling and
administrative expenses............ 884 2,783 389 598(a) 4,472 50(e) 4,522
------- ------ ------ ------- ------
(201)(b)
Income (loss) from operations........ (620) 286 123 19(c) (627) (677)
Interest expense, net and other
expenses (income).................. 519 (30) (1) 488 (494)(f) (6)
------- ------ ------ -------
Income (loss) before provision for
(benefit for) income taxes......... (1,139) 316 124 (1,115) (671)
Provision for income taxes........... -- 144 47 (191)(d) -- --
------- ------ ------ ------- ------
Net income (loss).................... $(1,139) $ 172 $ 77 $(1,115) $ (671)
======= ====== ====== ======= ======
Net loss applicable to common
stockholders....................... $(1,115) $ (671)
Weighted average shares
outstanding(g)..................... 2,315 2,755
Loss per share applicable to common
stockholders....................... $ (0.48) $ (0.24)
</TABLE>

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

(1) CCA's fiscal year end is September 30.

F-5
<PAGE> 60

NHANCEMENT TECHNOLOGIES INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994

(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
---------------- PROFORMA
BFI CCA(1) COMBINED
------- ---- -------
<S> <C> <C> <C>
Net sales........................................................ $ 374 $375 $ 749
Cost of goods sold............................................... 469 208 677
------- ---- -------
Gross margin (loss)............................................ (95) 167 72
Research and development, selling and administrative expenses.... 1,802 217 2,019
------- ---- -------
Loss from operations............................................. (1,897) (50) (1,947)
Interest expense, net and other expenses (income)................ 86 (3) 83
------- ---- -------
Loss before benefit for income taxes............................. (1,983) (47) (2,030)
Benefit for income taxes......................................... -- (6) (6)
------- ---- -------
Net loss......................................................... $(1,983) $(41) $(2,024)
======= ==== =======
</TABLE>

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

(1) CCA's fiscal year end is September 30th.

F-6
<PAGE> 61

NHANCEMENT TECHNOLOGIES INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996

1. UNAUDITED PRO FORMA MERGER ADJUSTMENTS

(a) Adjustments (i) to record the dividend payable to the shareholder of
Voice Plus, Inc. ("VPI") from the available cash of VPI, and (ii) to reflect the
purchase price paid for VPI as follows:

<TABLE>
<CAPTION>
VPI(1)
----------
<S> <C>
CONSIDERATION
Common Stock -- selling shares(2)...................................... $2,400,000
Long-term notes........................................................ $1,500,000
Common Stock(2)........................................................ $2,280,000
----------
Total consideration............................................ $6,180,000
----------
CALCULATION OF GOODWILL:
Net assets acquired(3)................................................. $ 751,200
Dividend prior to Merger............................................... $ (550,000)
----------
Subtotal............................................................... $ 201,200
Excess of cost over net assets acquired................................ $5,978,800
==========
</TABLE>

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

(1) accounted for as a purchase with the assets acquired and liabilities
assumed recorded at estimated fair values.

(2) 712,500 shares subject to lock-up agreements and 600,000 shares to be
sold in this Offering by VPI shareholder.

(3) net assets of $129,600 and an increase of estimated fair value of (i)
inventories of $486,300 and (ii) fixed assets of $135,300. The increase
in valuation of inventories is based on estimated selling prices less a
reasonable profit allowance for installation and selling effort. The
increase in valuation of fixed assets is based on physical counts
valued at current replacement cost.

And (iii) subsequent to this Offering, to record the statutory merger of C.C. &
Associates ("CCA") as a pooling-of-interests for 300,000 shares of NHancement
Technologies Inc. Common Stock.

(b) Adjustment to reflect the recording of estimated goodwill amortization
resulting from the acquisition of VPI for the first nine months of 1996, based
on a 10-year amortization period.

(c) Adjustment to reflect the increase in the corporate overhead of the
newly formed public company resulting from the renegotiation of the employment
agreement of the key management employees of VPI and CCA.

(d) Adjustment to reflect the depreciation expense for the first nine
months of 1996 resulting from the recording of certain fixed assets of VPI at
estimated fair values.

(e) Adjustment to record the income tax effect of the pro forma operating
adjustments and the pro forma tax provisions for VPI, which was organized as a
Subchapter S corporation, effective January 1, 1996, and CCA, a Subchapter C
corporation. The provision for income taxes on the unaudited combined financial
statements has been eliminated due to application of the losses of BFI on a
consolidated reporting basis.

2. UNAUDITED PRO FORMA OFFERING AND USE OF PROCEEDS ADJUSTMENTS

(f) Adjustment to record the proceeds and costs associated with a bridge
debt financing closed by the Company subsequent to the date of the pro forma
financial statements presented herein.

(g) Adjustment to reflect the sale of 2,300,000 shares of Common Stock to
the public, of which 600,000 shares are selling shares with proceeds going to
the shareholder of VPI, at an assumed Offering Price

F-7
<PAGE> 62

NHANCEMENT TECHNOLOGIES INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

of $4.00 per share, net of expenses and underwriting discounts and commissions
and the Nonaccountable Expense Allowance and other offering expenses payable by
the Company.

(h) Adjustment to reflect the (i) repayment from the proceeds of this
Offering of outstanding notes totaling $1.5 million, and (ii) the conversion of
outstanding notes of $750,000 and accrued interest of $216,600 into 241,650
shares of Common Stock at an assumed Offering Price of $4.00 per share.

(i) Adjustment to reflect repayment of unsecured notes and accrued interest
thereon to certain shareholders.

(j) Adjustment to reflect the effect of the recording Officers' and
Directors' insurance expense for the first nine months of 1996.

(k) Adjustment to reflect the reduction of interest expense resulting from
the retirement of debt through the application of a portion of the net proceeds
of this Offering.

(l) The weighted average shares outstanding is based on the estimated
number of shares of common stock and common stock equivalents of the BFI, VPI
and CCA outstanding during the period, calculated as follows:

<TABLE>
<S> <C> <C>
Shares outstanding at December 31, 1995....................... 93,225
Cheap stock:
Shares issued to note holders and management in 1996........ 519,575
Shares of common stock equivalents related to stock
options.................................................. 534,375
Less shares assumed to be repurchased pursuant to the
Treasury Stock method.................................... (445,060) 608,890
--------
Shares issued to VPI, including 600,000 selling shares........ 1,312,500
Shares issued to CCA.......................................... 300,000
---------
Total for combined companies........................ 2,314,615
Shares issued in this Offering to effect conversion and
repayment of indebtedness................................... 741,253
---------
Total for combined companies, as adjusted for debt conversion
and repayment from the proceeds of this Offering............ 3,055,867
=========
</TABLE>

F-8
<PAGE> 63

NHANCEMENT TECHNOLOGIES INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. UNAUDITED PRO FORMA MERGER ADJUSTMENTS

(a) Adjustment to reflect recording of estimated goodwill amortization for
1995 resulting from the acquisition of VPI, based on a ten-year amortization
period.

(b) Adjustment to reflect the decrease in the corporate overhead of the
newly formed public company resulting from the renegotiation of the employment
agreements of the key management employees of VPI and CCA. Adjustment is based
on signed employment agreements that will become effective upon completion of
this Offering.

(c) Adjustment to reflect the depreciation expense for 1995 resulting from
the recording of certain fixed assets of VPI at estimated fair market values.

(d) Adjustment to record the income tax effect of the pro forma operating
adjustments and the pro forma tax provisions for VPI and CCA. The provision for
income taxes on the unaudited combined financial statements has been eliminated
due to application of the losses of BFI on a consolidated reporting basis.

2. UNAUDITED PRO FORMA OFFERING AND USE OF PROCEEDS ADJUSTMENTS

(e) Adjustment to reflect the effect of the recording Officers' and
Directors' insurance expense for 1995.

(f) Adjustment to reflect the reduction of interest expense resulting from
the retirement of debt through the application of a portion of the net proceeds
of this Offering.

(g) The weighted average shares outstanding is based on the estimated
number of shares of common stock and common stock equivalents of the BFI, VPI
and CCA outstanding during the period, calculated as follows:

<TABLE>
<S> <C> <C>
Shares outstanding at December 31, 1995..................... 93,225
Cheap stock:
Shares issued to note holders and management in 1996...... 519,575
Shares of common stock equivalents related to stock
options................................................ 534,375
Less shares assumed to be repurchased pursuant to the
Treasury Stock method.................................. (445,060) 608,890
---------
Shares issued to VPI, including 600,000 selling shares...... 1,312,500
Shares issued to CCA........................................ 300,000
---------
Total for combined companies...................... 2,314,615
Shares issued in this Offering to effect conversion and
repayment of indebtedness................................. 440,025
---------
Total for combined companies, as adjusted for debt
conversion and repayment from the proceeds of this
Offering.................................................. 2,754,640
=========
</TABLE>

F-9
<PAGE> 64

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
and the Stockholders of
NHancement Technologies Inc.

We have audited the accompanying balance sheet of NHancement Technologies
Inc. (formerly BioFactors, Inc., a development stage company) as of December 31,
1995 and the related statements of operations, stockholders' deficit, and cash
flows for the years ended December 31, 1994, 1995 and for the period from
inception (January 5, 1988) to 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 NHancement Technologies Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the years ended December 31, 1994, 1995 and for the period from inception
(January 5, 1988) to December 31, 1995 in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company is a development stage company with significant losses
to date and significant stockholders' deficit as of December 31, 1995. Further,
the Company has a significant amount of notes and loans, which per their current
terms, are due to be repaid in early 1997. These items and the additional
factors discussed in Note 1 to the financial statements raise a substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans with regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

BDO Seidman, LLP

San Francisco, California
April 19, 1996, except for Notes 10 and 11
which are as of November 5, 1996

F-10
<PAGE> 65

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current
Cash (Note 8)................................................... $ 170,500 $ 82,900
Accounts receivable, net of allowance for doubtful accounts of
$10,000 and $15,000.......................................... 15,000 28,600
Note receivable (Note 2)........................................ 700,000 --
Inventory....................................................... 13,900 12,700
Prepaid expenses and other...................................... 31,600 3,800
Prepaid debt issuance and stock offering costs.................. -- 172,100
----------- -----------
Total current assets.................................... 931,000 300,100
----------- -----------
Furniture and equipment........................................... 124,200 136,700
Less accumulated depreciation..................................... 65,600 92,500
----------- -----------
Furniture and equipment, net...................................... 58,600 44,200
----------- -----------
$ 989,600 $ 344,300
=========== ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current
Accounts payable................................................ $ 344,900 $ 395,900
Accrued liabilities............................................. 113,700 70,800
Accrued professional fees....................................... 34,000 178,600
Payroll related liabilities..................................... 87,100 244,700
Deferred compensation to officers and stockholders (Note 7)..... 110,000 --
Deferred revenue (Note 2)....................................... 724,700 40,100
Accrued interest................................................ 267,000 402,000
Current portion of long-term debt (Notes 3 and 7)............... 742,400 2,068,800
----------- -----------
Total current liabilities......................................... 2,423,800 3,400,900
Long-term debt, net of current portion (Notes 3 and 7)............ 774,200 --
----------- -----------
Total liabilities................................................. 3,198,000 3,400,900
----------- -----------
Commitments and contingencies (Note 6)
Stockholders' deficit (Notes 4 and 5)
Preferred stock, $0.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding............................. -- --
Common stock, $0.01 par value, 10,000,000 shares authorized,
93,200 and 612,800 shares issued and outstanding at December
31, 1995 and September 30, 1996.............................. 1,000 6,100
Additional paid-in capital...................................... 4,972,600 5,313,900
Deficit accumulated during development stage.................... (7,182,000) (8,376,600)
----------- -----------
Total stockholders' deficit....................................... (2,208,400) (3,056,600)
----------- -----------
$ 989,600 $ 344,300
=========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-11
<PAGE> 66

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
INCEPTION INCEPTION
(JANUARY 5, NINE MONTHS (JANUARY 5,
YEARS ENDED DECEMBER 31, 1988) TO ENDED SEPTEMBER 30, 1988) TO
------------------------- DECEMBER 31, ------------------------- SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
----------- ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Sales, including $300,000 and
$700,000 from the sale of
sublicense in 1995 and 1996
(Notes 2 and 8).............. $ 373,700 $ 450,700 $ 1,471,600 $ 429,000 $ 757,100 $ 2,228,700
Cost of sales.................. 469,100 186,400 1,571,200 162,000 108,300 1,679,500
----------- ----------- ----------- --------- ----------- -----------
Gross profit (loss)............ (95,400) 264,300 (99,600) 267,000 648,800 549,200
----------- ----------- ----------- --------- ----------- -----------
Operating expenses
Research and development..... 326,600 214,500 2,157,200 184,700 74,300 2,231,500
Selling, marketing and
administrative (Notes 3
and 7).................... 1,475,300 669,500 4,326,500 618,400 1,332,000 5,658,500
----------- ----------- ----------- --------- ----------- -----------
Total operating expenses....... 1,801,900 884,000 6,483,700 803,100 1,406,300 7,890,000
----------- ----------- ----------- --------- ----------- -----------
Loss from operations........... (1,897,300) (619,700) (6,583,300) (536,100) (757,500) (7,340,800)
----------- ----------- ----------- --------- ----------- -----------
Other income (expense)
Interest income.............. -- -- 22,800 -- -- 22,800
Interest expense............. (85,400) (519,200) (704,900) (368,600) (437,100) (1,142,000)
Other........................ -- -- 83,400 -- -- 83,400
----------- ----------- ----------- --------- ----------- -----------
Total other income
(expense).......... (85,400) (519,200) (598,700) (368,600) (437,100) (1,035,800)
----------- ----------- ----------- --------- ----------- -----------
Net loss............. $(1,982,700) $(1,138,900) $ (7,182,000) $(904,700) $(1,194,600) $ (8,376,600)
=========== =========== =========== ========= =========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-12
<PAGE> 67

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
CONVERTIBLE COMMON STOCK
PREFERRED STOCK PAR VALUE ADDITIONAL
--------------------- ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ----------- ------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, inception (January 5, 1988).......... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock for cash ($6.40 and
$188.61 per share) in January and June 1989,
respectively................................ -- -- 100 -- 5,000 -- 5,000
Issuance of PFI Series A Preferred stock for
cash ($188.61 per share) in June 1989....... 2,500 475,100 -- -- -- -- 475,100
Issuance of PFI Series A Preferred stock
($188.61 per share) for cash and conversion
of $280,000 of debt in May 1990............. 2,800 520,900 -- -- -- -- 520,900
Issuance of PFI Series B Preferred stock for
cash ($282.92 per share) in September
1990........................................ 3,900 1,100,000 -- -- -- -- 1,100,000
Issuance of PFI Series C Preferred stock
($377.19 per share) for cash and conversion
of $339,000 in debt in December 1991........ 1,600 600,000 -- -- -- -- 600,000
Net loss (inception to December 31, 1991)..... -- -- -- -- -- (2,923,300) (2,923,300)
------- ----------- ------- ----- ---------- ----------- -----------
Balance, December 31, 1991.................... 10,800 2,696,000 100 -- 5,000 (2,923,300) (222,300)
Net loss...................................... -- -- -- -- -- (393,400) (393,400)
------- ----------- ------- ----- ---------- ----------- -----------
Balance, December 31, 1992.................... 10,800 2,696,000 100 -- 5,000 (3,316,700) (615,700)
Issuance of PFI Series D Preferred stock for
cash ($25.92 per share) in October 1993, net
of offering costs of $25,000................ 15,400 375,000 -- -- -- -- 375,000
Net loss...................................... -- -- -- -- -- (743,700) (743,700)
------- ----------- ------- ----- ---------- ----------- -----------
Balance, December 31, 1993.................... 26,200 3,071,000 100 -- 5,000 (4,060,400) (984,400)
Issuance of PFI Series D Preferred stock in
conversion of debt ($25.92 per share) in
March 1994.................................. 27,500 712,800 -- -- -- -- 712,800
Issuance of PFI Series D Preferred stock for
cash ($25.92 per share) in April 1994....... 400 12,500 -- -- -- -- 12,500
Issuance of PFI Common stock upon conversion
of debt and exercise of options............. -- -- 2,300 -- 58,700 -- 58,700
Issuance of BioFactors Series A Preferred
stock upon conversion of PFI Common stock
($25.92 per share) in May 1994.............. 2,300 58,700 (2,300) -- (58,700) -- --
Issuance of BioFactors Series A Preferred
stock for cash ($96.00 per share) in August
1994, net of offering costs of $97,500...... 9,800 836,300 -- -- -- -- 836,300
Issuance of warrants with notes payable in
November and December 1994.................. -- -- -- -- 158,000 -- 158,000
Compensation related to grant of stock options
in November 1994............................ -- -- -- -- 7,200 -- 7,200
Net loss...................................... -- -- -- -- -- (1,982,700) (1,982,700)
------- ----------- ------- ----- ---------- ----------- -----------
Balance, December 31, 1994.................... 66,200 4,691,300 100 -- 170,200 (6,043,100) (1,181,600)
Conversion of Series A Preferred to Common
Stock....................................... (66,200) (4,691,300) 66,200 700 4,690,600 -- --
Issuance of Common stock in February 1995..... -- -- 300 -- -- -- --
Issuance of Common stock upon exercise of
options in March 1995....................... -- -- 400 -- 2,600 -- 2,600
Issuance of warrants with notes payable in
January through June 1995................... -- -- -- -- 92,000 -- 92,000
Issuance of Common stock with notes payable in
December 1995............................... -- -- 26,200 300 17,200 -- 17,500
Net loss...................................... -- -- -- -- -- (1,138,900) (1,138,900)
------- ----------- ------- ----- ---------- ----------- -----------
Balance, December 31, 1995.................... -- -- 93,200 1,000 4,972,600 (7,182,000) (2,208,400)
Issuance of Common stock with notes payable in
January through June 1996 (unaudited)....... -- -- 303,400 3,000 199,300 -- 202,300
Issuance of Common stock in lieu of salaries
and outside service fees in June 1996
(unaudited)................................. -- -- 216,200 2,100 142,000 -- 144,100
Net loss (unaudited).......................... -- -- -- -- -- (1,194,600) (1,194,600)
------- ----------- ------- ----- ---------- ----------- -----------
Balance, September 30, 1996 (unaudited)....... -- $ -- 612,800 $6,100 $5,313,900 $(8,376,600) $(3,056,600)
======= =========== ======= ===== ========== =========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-13
<PAGE> 68

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
INCEPTION INCEPTION
(JANUARY 5, NINE MONTHS (JANUARY 5,
YEARS ENDED DECEMBER 31, 1988) TO ENDED SEPTEMBER 30, 1988) TO
-------------------------- DECEMBER 31, --------------------------- SEPTEMBER 30,
1994 1995 1995 1995 1996 1996
----------- ----------- ------------ ----------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss......................... $(1,982,700) $(1,138,900) $(7,182,000) $(904,700) $(1,194,600) $(8,376,600)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation..................... 21,700 35,200 99,500 25,000 27,000 126,500
Amortization of deferred
revenue........................ -- 24,700 24,700 26,500 (684,600) (659,900)
Amortization of discount and debt
issue costs on notes payable... 26,300 241,200 267,500 223,700 202,300 469,800
Compensation related to grant of
stock options and common
stock.......................... 7,300 -- 7,300 2,500 34,100 41,400
Changes in assets and
liabilities:
Accounts receivable............ (45,700) 35,700 (15,000) 40,000 (13,600) (28,600)
Note receivable................ -- -- -- -- 700,000 700,000
Inventory...................... (5,100) (2,900) (14,000) (12,300) 1,200 (12,800)
Prepaid expenses and other..... (15,300) (7,600) (31,600) 3,600 27,700 (3,900)
Accounts payable and other
current liabilities.......... 443,800 294,100 1,031,200 330,200 445,300 1,476,500
----------- ----------- ----------- --------- ----------- -----------
Net cash used in operating
activities....................... (1,549,700) (518,500) (5,812,400) (265,500) (455,200) (6,267,600)
----------- ----------- ----------- --------- ----------- -----------
Cash flows from investing
activities
Purchases of furniture and
equipment...................... (55,600) (27,700) (165,300) (13,000) (12,500) (177,800)
Proceeds from the sale of
furniture and equipment........ -- -- 14,200 -- -- 14,200
----------- ----------- ----------- --------- ----------- -----------
Net cash used in investing
activities....................... (55,600) (27,700) (151,100) (13,000) (12,500) (163,600)
----------- ----------- ----------- --------- ----------- -----------
Cash flows from financing
activities
Prepaid debt issuance and stock
offering costs................. -- -- -- -- (172,100) (172,100)
Proceeds from sale of preferred
stock.......................... 946,300 -- 3,423,300 -- -- 3,423,300
Preferred and common stock
issuance costs................. (97,500) -- (122,500) -- -- (122,500)
Proceeds from sale of common
stock.......................... -- 2,500 7,500 -- -- 7,500
Proceeds from long-term
convertible debt............... 375,300 -- 1,399,300 -- -- 1,399,300
Proceeds from bank line of
credit......................... -- -- 45,000 -- -- 45,000
Principal payments on bank line
of credit...................... -- -- (45,000) -- -- (45,000)
Proceeds from long-term debt..... 429,600 623,500 1,615,000 314,400 670,000 2,285,000
Repayment of long-term debt...... (40,000) (29,300) (170,900) (5,500) (117,800) (288,700)
Other............................ (12,900) (4,800) (17,700) -- -- (17,700)
----------- ----------- ----------- --------- ----------- -----------
Net cash provided by financing
activities....................... 1,600,800 591,900 6,134,000 308,900 380,100 6,514,100
----------- ----------- ----------- --------- ----------- -----------
Net increase (decrease) in cash.... (4,500) 45,700 170,500 30,400 (87,600) 82,900
Cash, beginning of period.......... 129,300 124,800 -- 124,800 170,500 --
----------- ----------- ----------- --------- ----------- -----------
Cash, end of period................ $ 124,800 $ 170,500 $ 170,500 $ 155,200 $ 82,900 $ 82,900
=========== =========== =========== ========= =========== ===========
Supplemental data:
Interest paid...................... $ -- $ 2,800 $ 4,000 $ 3,300 $ 34,200 $ 38,200
=========== =========== =========== ========= =========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-14
<PAGE> 69

DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:

During 1994, property and equipment totaling $15,800 were acquired with
capital leases; accrued liabilities of $44,400 were added to principal on the
bridge financing notes payable; and the Company converted $780,300 notes payable
to Preferred Stock.

In 1995, the Company received $700,000 of notes receivable as partial
proceeds from the sublicense agreement, and the related revenue was deferred as
of December 31, 1995 (see Note 2); accrued interest of $21,300 was added to the
principal of the note payable to a vendor (see Note 3); and 66,200 shares,
adjusted for the 3-for-4 merger exchange and the 1-for-24 reverse stock split,
of the Company Series A Preferred Stock were converted to 66,200 shares of
Common Stock (see Note 4).

In 1996, the Company issued 178,700 shares of its Common Stock to three
officers in lieu of cash compensation. The aggregate value of these shares
totaled $119,700, of which $110,000 was for payment of deferred compensation
accrued in 1994 (see Note 7).

F-15
<PAGE> 70

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

SUMMARY OF ACCOUNTING POLICIES

ORGANIZATION

NHancement Technologies Inc., a Delaware corporation (NHancement), was
incorporated in October 1996 as a holding company and successor to the business
of BioFactors, Inc. (BFI), a Delaware corporation. Immediately prior to the
consummation of a proposed initial public offering (IPO) of the Company's common
stock, which is expected to be in February 1997, BFI will merge with a
subsidiary of NHancement whereupon BFI will be the surviving corporation and a
wholly owned subsidiary of NHancement (BFI Merger). NHancement and its wholly
owned subsidiary, BFI, are collectively referred to as "the Company" unless
otherwise indicated by context. Also, immediately prior to the consummation of
the proposed IPO, the Company will acquire Voice Plus, Inc. (VPI), a California
corporation, a systems integrator and national distributor of voice processing
equipment, pursuant to a transaction by which VPI will merge with a subsidiary
of the Company, whereupon VPI will be the surviving corporation and a wholly
owned subsidiary of the Company (VPI Acquisition). The business of the Company
will be conducted by its operating company subsidiaries, BFI and VPI (see Note
11).

BFI was incorporated in April 1994 and is a successor corporation to
Performance Factors, Inc. (PFI), a California corporation, incorporated in
January 1988. In May 1994, pursuant to an Agreement and Plan of Merger (PFI
Merger Agreement), PFI was merged with and into BFI, and BFI was the surviving
corporation and continued the business of PFI. Accordingly, the accompanying
financial statements include the accounts of PFI and BFI since the inception of
the California corporation. Further, all per share amounts have been reflected
as if converted to BFI Common Stock, based on the conversion formulas outlined
in the PFI Merger Agreement and giving effect to a 1-for-24 reverse stock split
effected in November 1995.

In addition, all share amounts have been retroactively restated to give
effect to a 3-for-4 exchange ratio in connection with the BFI Merger, except the
stock option plan data which has not been restated (see Note 5).

BUSINESS

The Company is a provider of productivity and security enhancement products
and systems. To date, the Company has principally focused on the development for
commercial implementation of a proprietary computerized testing system, FACTOR
1000(R), which measures human sensorimotor skills to determine an individual's
performance readiness and fitness to perform, the development of supporting
programs, raising capital, personnel recruitment and market analysis.

The Company's FACTOR 1000(R) system is based upon the Critical Tracking
Task (CTT) software, which is exclusively licensed from Systems Technology Inc.
(STI) in Hawthorne, California. CTT is a critical component of the FACTOR
1000(R) system and is protected under patents and copyrights held by STI. The
Company is totally dependent on maintenance of its CTT license to market the
FACTOR 1000(R) system, and is dependent on STI for product validation and expert
witness testimony of STI's principals regarding aerospace and vehicle
performance dynamics and stability, and human operator dynamic response. The
license agreement with STI is effective through November 2008 and grants the
Company the right to issue sublicenses during the term of the agreement (Note
2).

BASIS OF PRESENTATION

The financial statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standards No. 7, "Accounting and
Reporting by Development Stage Enterprises," which requires development stage
enterprises to employ the same accounting principles as operating companies.

The accompanying balance sheet as of September 30, 1996 and the statements
of operations and cash flows for each of the nine months ended September 30,
1995 and 1996 have not been audited. However, in the

F-16
<PAGE> 71

opinion of management, they include all adjustments necessary for a fair
presentation of the financial position and the results of operations for the
periods presented. The results of operations for the nine months ended September
30, 1996 are not necessarily indicative of results to be expected for any future
period.

REVENUE RECOGNITION

Revenue is currently derived from two principal sources, direct sales and
third-party sales into the commercial marketplace. The Company's only current
product is the FACTOR 1000(R) system used in commercial applications to test
"fitness for work" in safety sensitive jobs. The Company recognizes revenue on
the sale of a FACTOR 1000(R) system when the system has been installed and the
Company's related contractual training and support obligations are substantially
complete.

The Company recognizes other revenue based on the sublicense of the FACTOR
1000(R) system for the measurement and enhancement of on-field athletic
performance (Note 2). The Company bills customers in accordance with the terms
of the individual contracts. Billings in advance of the recognition of revenue
are recorded as deferred revenue in the accompanying financial statements.

INVENTORY

Inventory consists primarily of component parts, raw materials and finished
goods and is valued at the lower of cost (first-in, first-out basis) or market.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the respective
assets, generally three to five years. Leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or their
estimated useful life. Maintenance and repairs are expensed as incurred, and
improvements are capitalized.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

INCOME TAXES

The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income tax assets and liabilities are recognized
based on the temporary differences between the financial statement and income
tax bases of assets, liabilities and carryforwards using enacted tax rates.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized.

USE OF ESTIMATES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose the
estimated fair values for its financial instruments for

F-17
<PAGE> 72

which it is practicable to estimate their values. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:

Note receivable -- Due to the terms of the note receivable, the
Company is unable to estimate the fair value of such instrument.

Long-term debt -- The aggregate carrying value of $1,516,600 at
December 31, 1995, including the current portion, approximates the fair
value because of the short-term maturities of these instruments.

NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of,"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. This statement had no effect on the
1996 interim financial statements, and management does not believe that it will
have a material impact on the Company's financial statements for the year ended
December 31, 1996.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," established financial accounting and reporting
standards for stock-based employee compensation plans and certain other
transactions involving the issuance of stock. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
The Company is in the process of analyzing the impact of this statement and
anticipates adopting the provisions of the statement for the year ended December
31, 1996.

F-18
<PAGE> 73

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)

1. DEVELOPMENT STAGE RISKS

The Company is in the development stage and has not generated significant
revenue or income from operations. The Company is completing development of its
technology and is currently engaged in establishing its market. Commercial
acceptance of the Company's product will have to occur in the marketplace before
the Company can attain successful operations.

The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company as of September 30, 1996 has incurred recurring losses
totaling $8,438,600 since inception, has a working capital deficit of $3,162,800
and a stockholders' deficit of $3,118,600. Further, the Company has a
significant amount of notes and loans, which per their current terms, are due to
be repaid in early 1997. Presently, the Company is attempting to raise capital
through a proposed public offering; however, there can be no assurance that the
Company will be successful in obtaining any additional financing through this
offering or any other source or that financing will be available on acceptable
terms. The Company's current business strategy is also dependent upon completing
various proposed business acquisitions (see Note 11). If the Company is unable
to raise additional funds when needed, and ultimately attain successful
operations, it may be unable to support its projected growth and business
acquisitions and may be required to defer for a period of time, or indefinitely,
its current business plans.

These factors raise a substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

2. NOTE RECEIVABLE

In August 1995, the Company entered into a sublicense agreement (the
Agreement) with SportsTrac, Inc., a company whose chief executive officer is a
minority stockholder and former executive officer of the Company. The Agreement
provides for the exclusive, world-wide sublicense of sports and
on-field-athletic-performance related uses of the FACTOR 1000(R) system, through
November 2008. As consideration for the sublicense, the Company received
$300,000 in cash and a $700,000 non-interest bearing note payable in two equal
installments in March 1996 and July 1996. The Company has recognized $300,000 in
revenue during 1995 and $700,000 for the nine months ended September 30, 1996.
In addition, the Company is entitled to royalties at 8.5% of cash receipts from
the sale of products or services containing the licensed technology.

F-19
<PAGE> 74

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER
31, SEPTEMBER 30,
1995 1996
---------- -------------
<S> <C> <C>
Notes payable related to bridge financing secured by all
assets of BFI, no monthly installments, stated interest at
12%, effective interest at 21%, maturity date at April 1,
1997, as amended(1)....................................... $ 750,000 $ 750,000
Notes payable related to bridge financing, secured by a
promissory note from a sublicensee, no monthly
installments, stated interest at 10%, effective interest
at 21%, maturity date at March 31, 1997, as
amended(2)(7)............................................. 300,000 350,000
Notes payable related to bridge financing, unsecured, no
monthly installments, stated interest at 10%, effective
interest at 25%, maturity date at March 31, 1997, as
amended(3)(7)............................................. -- 315,000
Notes payable related to bridge financing, unsecured, no
monthly installments, stated interest at 10%, effective
interest at 30%, maturity date at March 31, 1997, as
amended(4)(7)............................................. -- 300,000
Notes payable to stockholders, unsecured, no monthly
installments, interest ranging from 10% to prime plus 2%
(10.5% and 10.25% at December 31, 1995 and September 30,
1996), unsecured, maturity dates at earlier of various
dates during 1996 or closing date of proposed public
offering(5)............................................... 321,500 326,500
Note payable to a vendor for unpaid royalties under
licensing agreement, unsecured, monthly installments of
$7,500 through August 1996, interest at prime plus 3%
(11.5% at December 31, 1995).............................. 62,700 --
Other, including $38,000 to former BFI officer(6)........... 82,400 27,300
---------- -----------
1,516,600 2,068,800
Less current portion........................................ 742,400 2,068,800
---------- -----------
$ 774,200 $ --
========== ===========
</TABLE>

The aggregate principal maturities of long-term debt as of December 31,
1995 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, TOTAL
------------ ----------
<S> <C>
1996................................................................... $ 742,400
1997................................................................... 774,200
----------
$1,516,600
==========
</TABLE>

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

(1) In December 1994, BFI entered into a Secured Note and Warrant Purchase
Agreement (the Agreement) with the Purchasers named therein. BFI authorized
the issuance of secured promissory notes in the aggregate principal amount
of $750,000. Accrued interest totaled $90,600 and $160,900 as of December
31, 1995 and September 30, 1996, respectively.

In March 1996, BFI and a majority of the Purchasers entered into an
amendment to the Agreement. The amendment provided that, upon the closing of
the IPO, note holders would receive, at no additional cost, two shares of
BFI Common Stock (the "Additional Shares") for each $10 of the original
principal balance of the notes. In May 1996, BFI accelerated the issuance of
the Additional Shares and issued

F-20
<PAGE> 75

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

112,500 shares to the Purchasers in respect of the Agreement. BFI recorded
$75,000 of debt issue costs in 1996, based on the estimated fair value of
$0.67 per share. In October 1996, BFI and a majority of the purchasers
entered into another amendment to the Agreement. The amendment provides
that, upon consummation of an IPO, the outstanding principal and all accrued
interest on the notes will be converted into the Company's Common Stock at a
conversion price equal to the price per share to the public of the Common
Stock sold in the IPO (IPO price). In addition, upon the closing of the IPO,
note holders would receive at no additional cost a warrant to purchase 50
shares of BFI Common Stock for each $1,000 of the outstanding principal
balance of the note held by such holder at an exercise price equal to 120%
of the IPO price.

(2) In December 1995, BFI entered into a Secured Note and Stock Purchase
Agreement (the "December 1995 Agreement") with the Purchasers named therein.
BFI authorized the issuance of secured promissory notes (the "Notes") in the
aggregate principal amount of $350,000 of which $300,000 was received as of
December 31, 1995. In connection with the issuance of the Notes, BFI issued
an aggregate of 26,200 shares of BFI Common Stock and recorded $17,500 of
debt issue costs in 1995, based on the estimated fair value of $0.67 per
share. Accrued interest totaled $1,600 and $27,700 as of December 31, 1995
and September 30, 1996, respectively.

In March 1996, BFI and a majority of the Purchasers entered into an
amendment (the "Amendment") to the December 1995 Agreement. Pursuant to the
Amendment, upon closing of the proposed bridge loan, note holders would
receive, at no additional cost, two shares of BFI Common Stock (the
"Additional Shares") for each $10 of the original principal balance of the
Notes. In May 1996, BFI accelerated the issuance of the Additional Shares
and issued 52,500 shares to the Purchasers pursuant to the Amendment. BFI
recorded $35,000 of debt issue costs in 1996, based on the estimated fair
value of $0.67 per share.

(3) In February 1996, BFI authorized the issuance of unsecured promissory notes
in the aggregate principal amount of $315,000 pursuant to an Unsecured Note
and Stock Purchase Agreement (the "February 1996 Agreement"). In connection
therewith, BFI issued an aggregate of 70,900 shares of BFI Common Stock and
recorded $47,300 of debt issue costs in 1996, based on the estimated fair
value of $0.67 per share.

(4) In May 1996, BFI authorized the issuance of unsecured promissory notes in
the aggregate principal amount of $300,000 pursuant to a Unit Subscription
Agreement (the "May 1996 Agreement"). In connection therewith, BFI issued an
aggregate of 67,500 shares of BFI Common Stock and recorded $45,000 of debt
issue costs, based on the estimated fair value of $0.67 per share.

(5) Accrued interest on these notes totaled $147,100 and $184,400 as of December
31, 1995 and September 30, 1996, respectively.

(6) In March 1996, BFI and a former BFI officer and current minority stockholder
entered into a Settlement Agreement under which BFI agreed to pay the former
BFI officer $75,000 in complete settlement of all claims, including $38,000
in principal amount of unsecured notes and related accrued interest of
approximately $13,000. The amount of settlement in excess of the principal
and accrued interest was charged to administrative expenses for the year
ended December 31, 1995.

(7) In October 1996, BFI and the note holders entered into an amendment to each
of the December 1995, February 1996 and May 1996 Agreements, pursuant to
which, in the event the IPO is consummated prior to March 31, 1997, the
principal of each such note will be paid in full by the proceeds of the IPO
and all accrued interest through the IPO closing date will be converted into
the Company's Common Stock at the IPO price. The amendments also provide
that upon the closing of the IPO, the Company will issue to each note
holder, at no cost, a warrant to purchase 75 shares of the Company's Common
Stock for each $1,000 of the original principal amount of the notes at an
exercise price equal to 120% of the IPO price.

F-21
<PAGE> 76

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. STOCKHOLDERS' EQUITY

In May 1994, pursuant to the PFI Merger Agreement, each share of Series A,
B, and C Preferred Stock and each share of Series D Preferred Stock of PFI was
converted into .05 and .41 shares, respectively, of Series A Preferred Stock of
BFI. In addition, each share of PFI Common Stock was converted into .05 shares
of BFI Common Stock.

At December 31, 1994, BFI had 66,200 shares (giving effect to the reverse
stock split and the 3-for-4 BFI Merger exchange as mentioned below) of its
Series A Preferred Stock issued and outstanding. All outstanding shares of BFI
Series A Preferred Stock at December 31, 1994 were fully paid and
non-assessable. Holders of BFI Series A Preferred Stock had the right to
convert, at any time, some or all of their shares into fully paid and
non-assessable shares of BFI's Common Stock. In July 1995, holders of the BFI
Series A Preferred Stock consented to such conversion, and accordingly, all
shares of BFI Series A Preferred Stock were converted into the same amount of
fully paid non-assessable shares of BFI Common Stock.

Pursuant to an amendment to the Certificate of Incorporation approved by
BFI's Board of Directors and stockholders effective November 1995 (the Charter
Amendment), BFI is authorized to issue 10,000,000 shares of Common Stock, $0.01
par value per share, and 10,000,000 shares of Preferred Stock, $0.01 par value
per share. As provided in the Charter Amendment, each 24 shares of BFI's Common
Stock issued and outstanding were reclassified into one share of BFI Common
Stock. Accordingly, all references in the financial statements to share amounts,
per share amounts and stock option plan data have been restated to reflect this
1-for-24 reverse stock split.

The Charter Amendment also provides that Preferred Stock may be issued from
time to time as a class or in one or more series and that BFI's Board of
Directors is authorized to determine, for a class or each series of Preferred
Stock, the number of shares, dividend rate, terms of redemption, conversion
privilege and voting rights. As of September 30, 1996, no BFI Preferred Stock
was issued and outstanding, and no series of BFI Preferred Stock had been
designated.

The financial statements have been retroactively restated to give effect to
the 3-for-4 exchange ratio in connection with the anticipated BFI Merger (see
Note 11.) Accordingly, all references in the financial statements to share
amounts and per share amounts have been adjusted to reflect the BFI Merger
exchange, except the BFI stock option plan data which has not been restated
(Note 5).

In connection with the issuance of $750,000 notes in December 1994,
$350,000 notes in December 1995, and $315,000 of notes in February 1996 and
$300,000 in May 1996 (see Note 3), BFI issued to the note holders an aggregate
of 329,600 shares of BFI Common Stock. The Company recorded $220,800 of debt
issue costs in 1996 based on the estimated fair market value of $0.67 per share.

5. STOCK OPTIONS AND WARRANTS

Stock Options

BFI's Stock Option Plan adopted in February 1994 (the Plan), which is
administered by the Board of Directors, provides for the granting of 1,302,000
stock options. Upon consummation of the BFI Merger, the stock options
outstanding under BFI's plan will be regranted by the Company, and will be
subject to the terms of the plan the Company intends to adopt. Options granted
may be either incentive stock options, as defined in the Internal Revenue Code,
or non-qualified options. The stock options are exercisable over a period
determined by the Board of Directors of BFI, but no longer than ten years after
the date of grant. Incentive stock options must have an exercise price of not
less than fair market value of the Common Stock on the date of grant (or, for
incentive stock options granted to a person holding more than 10% of the voting
power of BFI, options must have an exercise price equal to 110% of the fair
market value, and be exercisable for a period of

F-22
<PAGE> 77

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

five years). The aggregate fair value of the Common Stock subject to options
granted to an optionee that are exercisable for the first time by an optionee
during any calendar year may not exceed $100,000. Options generally expire three
months following termination of employment. BFI recorded compensation expense
related to grants and exercise of stock options of $7,200 in 1994 and $2,600 in
1995.

The following table summarizes transactions pursuant to the Plan:

<TABLE>
<CAPTION>
OPTION
NUMBER PRICE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1993.................. 893 $37.68-$141.36
Granted................................................. 34,367 $ 4.80-$ 24.00
Canceled................................................ (271) $ 24.00
Exercised............................................... (3,021) $19.44-$ 24.00
------- --------------
Options outstanding at December 31, 1994.................. 31,968 $ 4.80-$141.36
Granted................................................. 875,000 $ 0.50
Canceled................................................ (31,438) $ 4.80-$141.36
Exercised............................................... (530) $ 4.80
------- --------------
Options outstanding at December 31, 1995.................. 875,000 $ 0.50
Granted................................................. 75,000 $ 0.50
------- --------------
Options outstanding at September 30, 1996................. 950,000 $ 0.50
======= ==============
Options available for grant at September 30, 1996......... 352,000 --
Options exercisable at September 30, 1996................. 492,639 $ 0.50
======= ==============
</TABLE>

The total number of options granted in 1995 consisted of non-statutory
options to purchase 250,000 shares and incentive stock options to purchase
625,000 shares. Incentive stock options to purchase 75,000 shares were granted
in 1996.

Pursuant to the BFI Merger agreement, the Company will grant options to
purchase 5.625 shares of the Company's Common Stock at an exercise price equal
to 80% of the IPO price for every 10 shares of BFI Common Stock the optionee was
entitled to purchase under the Plan (see Note 11). At September 30, 1996, after
giving effect to the BFI Merger agreement, the total number of shares to be
purchased for options outstanding is 534,375, and the number of shares for
options available for grant is 442,125.

Warrants

In connection with previous financings, BFI issued warrants to acquire
7,184 shares of Common Stock at $25.92 per share, which have been assumed by
NHancement in connection with the BFI Merger. Therefore, 7,184 shares of Common
Stock are reserved for issuance upon conversion of outstanding Common Stock
warrants.

In December 1994, BFI entered into a Secured Note and Warrant Purchase
Agreement with various individuals for notes with an aggregate principal amount
of $750,000 (see Note 3). Under this Agreement, BFI issued warrants to purchase
up to an aggregate of 7,800 shares of its Common Stock at a purchase price of
$96.00 per share (250,000 shares at $3.00 per share prior to the 1-for-24
reverse stock split and the 3-for-4 BFI Merger exchange discussed elsewhere
herein). At the issuance, the warrants were valued by BFI at an estimated fair
market value of $250,000. This amount was recorded in additional paid-in capital
($158,000 in 1994 and $92,000 in 1995). These warrants were subsequently
canceled pursuant to the amendment to the Agreement entered into in March 1996.

In October 1996, BFI and a majority of the holders of the December 1994,
December 1995, February 1996 and May 1996 notes entered into amendments to the
respective note agreements, pursuant to

F-23
<PAGE> 78

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

which, upon the closing of an IPO, the Company will issue to each note holder a
warrant to purchase Common Stock at an exercise price equal to 120% of the IPO
price. The aggregate number of shares of Common Stock to be issued upon exercise
of these warrants is approximately 109,900 (see Note 3).

6. COMMITMENTS AND CONTINGENCIES

The Company's impairment testing business exposes it to potential
litigation (i) by employees of companies using the FACTOR 1000(R) system if the
employee's employment relationship is affected thereby and (ii) by third parties
who may be indirectly affected by the Company's services or products. Products
and service liability insurance is expensive, to the extent it is available at
all. The Company currently maintains general liability insurance in the amount
of $1.0 million per policy year, which the Company intends to increase to $5.0
million per policy year in connection with the VPI Acquisition.

The Company leases its office space under a non-cancelable lease agreement
which expires in December 1998. The Company also leases certain office equipment
under operating lease agreements which terminate on various dates through 1999.
Future minimum commitments under these leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1996....................................................... $ 62,000
1997....................................................... 61,000
1998....................................................... 60,000
1999....................................................... 10,000
--------
$193,000
========
</TABLE>

Rent expense for its office lease for the years ended December 31, 1995 and
1994 was $29,600 and $37,100, respectively. Rent expense for the nine months
ended September 30, 1996 and 1995 was $41,000 and $22,500, respectively.

The Company's product is based on licensed technology. Accordingly, the
Company is required to pay a royalty of up to 8.5% of sales of the related
product. The license agreement also provides for a minimum aggregate payment
over each three-year period of $150,000. In addition, the Company's license
permits the sublicense of the CTT technology and requires that the Company make
payments to its licensor on such sublicensing arrangements as follows: (i) a
royalty payment of 8.5% on up to $250,000 of the initial sublicense fee and 50%
of any sublicense fee in excess of $250,000; and (ii) a royalty payment equal to
50% of the sublicense fee, which amount must be at least 4.25% of the
sublicensee's gross contract revenue. The Company's ability to sell its product
is dependent on the continuation of this license.

The Company has entered into employment agreements with two officers that
provide for specified severance payments should the Company terminate the
executive's employment with the Company, other than for cause. The amount to be
paid is two years' base salaries and bonuses.

7. RELATED PARTY TRANSACTIONS

During the years 1991 through 1994, BFI borrowed approximately $415,800 in
aggregate from three stockholders. The notes are unsecured and have maturity
dates at the earlier of various dates in 1996 and 1997 or the closing of the
IPO. As of December 31, 1995 and September 30, 1996, the principal balance was
$321,500 and $326,500, respectively, and accrued interest was $147,100 and
$184,400, respectively (see Note 3).

F-24
<PAGE> 79

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

During the years 1992 and 1993, BFI borrowed approximately $38,000 from a
former BFI officer. These notes were unsecured and were originally due on
demand. In March 1996, BFI and the former officer entered into a Settlement
Agreement under which BFI agreed to pay the former officer $75,000 in complete
settlement of all claims, including $38,000 in principal amount of unsecured
notes and the related accrued interest of approximately $13,000 (see Note 3).

In November 1994, BFI borrowed a total of $55,000 from various BFI
officers. The notes were unsecured and were due on December 14, 1994. The terms
of the notes provided for an interest rate at 12% per annum. In addition, BFI
borrowed $50,000 from a director of BFI. The note was unsecured and due December
14, 1994. The terms of the note provided for an interest rate of 12% per annum.
In December 1994, notes totaling $55,000 from various officers and $50,000 from
a director of BFI were converted into notes issued pursuant to the Secured Note
and Warrant Purchase Agreement dated December 1, 1994. The notes are secured by
the unencumbered assets of BFI and, as amended, have a maturity date of April 1,
1997 (see Note 3).

In June 1996, BFI issued an aggregate of 178,700 shares of its Common Stock
to three of its officers in lieu of cash compensation; and, in June 1996, BFI
issued an aggregate of 37,500 shares to two of its directors for services
rendered. These shares are valued at $0.67 per share. In connection therewith,
$110,000 was accrued as deferred compensation to officers as of December 31,
1995, and the Company recorded an additional $9,700 of compensation expense and
$25,000 of outside service fees in 1996.

On November 5, 1996 two of BFI's officers purchased $135,000 in total of
unsecured promissory notes pursuant to Unit Subscription Agreements (see Note
10).

8. CONCENTRATION RISK

The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and accounts receivable. The Company
places its cash with high quality financial institutions. At December 31, 1995
and periodically throughout the year, the Company maintained a balance in one
bank account in excess of the federally insured limit of $100,000. The Company's
accounts receivable are unsecured and are due from customers located across the
United States. The Company performs on-going credit evaluations of its
customers' financial conditions and establishes an allowance for doubtful
accounts based upon the credit risk of specific customers, historical trends and
other information.

Various customers accounted for more than 10% of total net sales for the
years ended December 31, 1995 and 1994 as follows:

<TABLE>
<CAPTION>
CUSTOMER 1995 1994
------------------------------------------------------------- ---- ----
<S> <C> <C>
A............................................................ 68% --
B............................................................ -- 30%
C............................................................ -- 22
D............................................................ -- 14
E............................................................ -- 13
=== ===
</TABLE>

9. INCOME TAXES

From its inception, the Company has generated losses for both financial
reporting and tax purposes. As of December 31, 1995, the Company's net operating
losses for federal income tax purposes were approximately $6 million, and expire
between the years 2003 and 2010. For state income tax purposes, as of December
31, 1995, the Company had net operating loss carryforwards of approximately $1.5
million for the State of California and $2.5 million for the State of Colorado,
which expire in 1997 and in years between 2008 and

F-25
<PAGE> 80

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2010, respectively. The Company files its income tax returns on the cash basis;
this creates the primary differences between the Company's net operating losses
for financial reporting and tax purposes. The combined Federal and state tax
benefit of the net operating loss carryforwards was approximately $2.2 million
as of December 31, 1995.

This deferred tax asset has been offset completely by a valuation allowance
since management cannot determine that it is more likely than not that the
deferred tax asset can be realized. The use of such net operating loss
carryforwards will be subject to annual limits if the Company has incurred an
"ownership change." In general, an ownership change occurs if, during any
three-year test period, the aggregate of all increases in percentage ownership
by stockholders is more than 50%.

10. PRIVATE PLACEMENT DEBT OFFERING

On November 5, 1996, BFI closed a $500,000 debt offering pursuant to Unit
Subscription Agreements, dated as of October 3, 1996, by and among BFI and
certain Purchasers, for the sale of an aggregate of 10 units, each unit
consisting of (i) an unsecured promissory note in the principal amount of
$50,000, with stated interest at 10%, no monthly installments and a maturity
date of March 31, 1997, and (ii) a warrant to purchase 50,000 shares of BFI
common stock at an exercise price of 120% of the IPO Price, with a provision to
prevent dilution in connection with the BFI Merger (see Note 11).

11. ACQUISITIONS AND MERGER TRANSACTIONS

On October 30, 1996, NHancement entered into an Agreement and Plan of
Merger which provides for the merger, immediately prior to consummation of the
IPO, of a wholly owned subsidiary of NHancement with and into BFI, whereupon BFI
will be the surviving corporation and a wholly owned subsidiary of NHancement,
and the exchange of shares of NHancement Common Stock for all the issued and
outstanding common stock of BFI, in a ratio of three shares of Common Stock for
every four shares of BFI common stock. Pursuant to the BFI Merger agreement,
NHancement will assume (i) the obligations of BFI's outstanding stock options,
by which assumption the optionee will have the right to purchase 5.625 shares of
NHancement Common Stock for every 10 shares of BFI common stock the optionee
could have purchased prior to the BFI Merger at an exercise price per share
equal to 80% of the IPO Price, (ii) the obligations of BFI's issued and
outstanding warrants in accordance with their terms, and (iii) the obligations
of the Registration Rights Agreement dated as of September 1, 1996, and
NHancement will undertake to issue to certain holders of BFI notes, warrants to
purchase an aggregate of 109,900 shares of NHancement's Common Stock,
exercisable one year from the close of the IPO at an exercise price of 120% of
the IPO Price. The consummation of the BFI Merger is contingent upon BFI
stockholder approval, the registration statement filed in connection with the
IPO having been declared effective, and the VPI Merger having been scheduled to
close immediately prior to the IPO (see below).

On October 25, 1996, the Company entered into an Agreement and Plan of
Merger which provides for the merger, immediately prior to consummation of the
IPO, of a wholly-owned subsidiary of the Company with and into VPI whereupon VPI
will be the surviving corporation and a wholly-owned subsidiary of the Company,
and the exchange of (i) the Company's unsecured promissory note in a principal
amount of $1,000,000, bearing interest at the medium term T-bill rate, due on
the third anniversary of the consummation of the merger, (ii) the Company's
unsecured promissory note in a principal amount of $500,000, bearing interest at
the medium term T-bill rate, due on the third anniversary of the consummation of
the merger, and (iii) shares of NHancement Common Stock with a market value of
$4,680,000 (of which, shares valued at $2,400,000 will be sold in the proposed
IPO, and the remainder of the shares are subject to restrictions on
transferability under the Security Act of 1933 and pursuant to a lock-up
agreement with the underwriter of

F-26
<PAGE> 81

NHANCEMENT TECHNOLOGIES INC.
(FORMERLY BIOFACTORS, INC.
A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

IPO), for all the issued and outstanding common stock of VPI. The consummation
of the VPI Acquisition is contingent upon the registration statement filed in
connection with the proposed IPO having been declared effective. The Agreement
terminates, without liability, if the merger shall not have been consummated
prior to March 31, 1997. In connection with the VPI Acquisition, the Company
entered into a three-year employment agreement with the president and sole
stockholder of VPI, pursuant to which the Company will pay a base salary of
$150,000 per year, commissions of approximately $200,000 per year and an annual
performance based bonus. The employment agreement provides that, if the Company
materially breaches the agreement or terminates the employee without "cause,"
the Company will continue to pay base salary and 50% of the commissions for the
duration of the term and, in the event of a material breach by the Company, the
two promissory notes will be accelerated and immediately become due and payable.

In October, 1996, the Company entered into a letter of intent, which
provides for the merger of a wholly owned subsidiary of the Company, with and
into Cossey-Capozzi, Inc. (CCA), whereupon CCA will be the surviving corporation
and a wholly-owned subsidiary of the Company, and the exchange of shares of
Common Stock with a market value of $960,000 (which shares are subject to
restrictions on transfer pursuant to a lock-up agreement) for all of the issued
and outstanding common stock of CCA. The consummation of the merger is
contingent upon the receipt of approval from the California Commissioner of
Corporations. The letter of intent terminates, without liability, if the merger
shall not have been consummated prior to March 31, 1997.

F-27
<PAGE> 82

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
and the Stockholders of
Voice Plus, Inc.

We have audited the accompanying balance sheet of Voice Plus, Inc. as of
December 31, 1995, and the related statements of operations, stockholders'
equity, and cash flows for each of the two 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Voice Plus, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

BDO Seidman, LLP

San Francisco, California
April 19, 1996, except for notes 10 and 11
which are as of November 26, 1996

F-28
<PAGE> 83

VOICE PLUS, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
SEPTEMBER 30, 1996
DECEMBER 31, 1996 PRO FORMA
1995 ACTUAL (NOTE 9)
------------ ------------- -------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Current
Cash and cash equivalents (Note 7)................. $ 457,400 $ 1,478,800 $ 1,478,800
Accounts receivable, less allowance for doubtful
accounts of $25,000 and $35,000 in 1995 and
1996............................................ 1,363,300 1,665,600 1,665,600
Inventories........................................ 324,600 564,500 564,500
Prepaid expenses and other......................... 38,800 82,300 82,300
Deferred income taxes (Note 3)..................... 68,300 -- --
---------- ---------- -----------
Total current assets....................... 2,252,400 3,791,200 3,791,200
---------- ---------- -----------
Property and equipment, net (Note 1)................. 168,500 275,700 275,700
---------- ---------- -----------
Other assets......................................... 17,400 21,500 21,500
---------- ---------- -----------
$2,438,300 $ 4,088,400 $ 4,088,400
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Line of credit (Note 2)............................ $ -- -- --
Deferred revenues.................................. 816,100 1,530,300 1,530,300
Accounts payable................................... 665,300 1,435,800 1,435,800
Accrued expenses................................... 174,800 117,700 117,700
Commissions payable................................ 119,600 142,400 142,400
Accrued compensation and benefits (Note 5)......... 99,500 321,100 321,100
Dividends payable.................................. -- 400,000 950,000
Deferred income taxes (Note 3)..................... -- 11,500 11,500
---------- ---------- -----------
Total current liabilities.................. 1,875,300 3,958,800 4,508,800
---------- ---------- -----------
Commitments and contingencies (Notes 4, 5, 7, 10 and 11)
Stockholders' equity (deficit)
Common stock, no par -- 100,000 shares authorized,
96,000 and 91,000 shares issued and outstanding
in 1995 and 1996 (Note 6)....................... 72,000 22,000 22,000
Retained earnings (deficit) (Note 10).............. 491,000 107,600 (442,400)
---------- ---------- -----------
Total stockholders' equity (deficit)....... 563,000 129,600 (420,400)
---------- ---------- -----------
$2,438,300 $ 4,088,400 $ 4,088,400
========== ========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-29
<PAGE> 84

VOICE PLUS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------ --------------------------
1994 1995 1995 1996
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues................................. $6,698,600 $7,258,900 $ 5,485,400 $ 6,193,300
Cost of revenues............................. 4,197,700 4,190,100 3,082,800 3,900,300
---------- ---------- ---------- ----------
Gross profit................................. 2,500,900 3,068,800 2,402,600 2,293,000
---------- ---------- ---------- ----------
Marketing and selling........................ 1,010,400 1,242,800 942,400 1,147,700
General and administrative, including
$550,000 of officer bonuses in 1994 and
1995....................................... 1,228,800 1,540,300 1,011,000 672,600
---------- ---------- ---------- ----------
Total operating expenses........... 2,239,200 2,783,100 1,953,400 1,820,300
---------- ---------- ---------- ----------
Income from operations....................... 261,700 285,700 449,200 472,700
Interest and other, net...................... 20,500 30,600 15,600 17,300
---------- ---------- ---------- ----------
Income before income taxes................... 282,200 316,300 464,800 490,000
Income taxes (Note 3)........................ 134,000 144,500 212,300 89,700
---------- ---------- ---------- ----------
Net income......................... $ 148,200 $ 171,800 $ 252,500 $ 400,300
========== ========== ========== ==========
Pro forma (Note 9)
Historical income before income taxes...... $ 490,000
Pro forma income taxes..................... 196,000
----------
Pro forma net income............... $ 294,000
==========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-30
<PAGE> 85

VOICE PLUS, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ -------- --------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993........................ 96,000 $ 72,000 $ 271,000 $ 343,000
Net income........................................ 148,200 148,200
------ -------- --------- ---------
Balance, December 31, 1994........................ 96,000 72,000 419,200 491,200
Dividends......................................... (100,000) (100,000)
Net income........................................ 171,800 171,800
------ -------- --------- ---------
Balance, December 31, 1995........................ 96,000 72,000 491,000 563,000
Dividends (unaudited)............................. (783,700) (783,700)
Repurchase and retirement of common stock (Note 6)
(unaudited)..................................... (5,000) (50,000) (50,000)
Net income (unaudited)............................ 400,300 400,300
------ -------- --------- ---------
Balance, June 30, 1996 (unaudited)................ 91,000 $ 22,000 $ 107,600 $ 129,600
====== ======== ========= =========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-31
<PAGE> 86

VOICE PLUS, INC.

STATEMENTS OF CASH FLOWS

DECEMBER 31, NINE MONTHS
YEARS ENDED ENDED SEPTEMBER 30,
----------------------- -------------------------
1994 1995 1995 1996
----------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income................................... $ 148,200 $ 171,800 $ 252,500 $ 400,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts on
accounts receivable..................... -- 13,000 13,000 10,000
Proceeds from sales of assets............. -- -- -- 800
Loss on disposition of assets............. 55,700 3,500 -- 400
Depreciation.............................. 66,500 46,900 31,200 59,300
Deferred income taxes..................... (9,900) (59,400) (87,500) 79,800
Changes in assets and liabilities:
Accounts receivable..................... 301,700 (436,700) (312,300) (312,300)
Inventories............................. 124,600 (40,800) (272,500) (239,900)
Prepaid expenses and other.............. (7,500) (20,400) (4,000) (47,600)
Deferred revenues....................... 15,900 (146,200) 25,400 714,200
Accounts payable and accrued expenses... 6,800 598,900 1,005,000 957,800
----------- --------- ----------- -----------
Net cash provided by operations................ 702,000 130,600 650,800 1,622,800
----------- --------- ----------- -----------
Cash flows from investing activities
Capital expenditures......................... (53,900) (123,700) (73,200) (167,700)
----------- --------- ----------- -----------
Net cash used in investing activities.......... (53,900) (123,700) (73,200) (167,700)
----------- --------- ----------- -----------
Cash flows from financing activities
Borrowings under line of credit.............. 932,000 -- -- --
Repayments on line of credit................. (1,117,000) -- -- --
Repurchase and retirement of common stock.... -- -- -- (50,000)
Dividends paid............................... -- (100,000) -- (383,700)
----------- --------- ----------- -----------
Net cash used in financing activities.......... (185,000) (100,000) -- (433,700)
----------- --------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. $ 463,100 $ (93,100) $ 577,600 $ 1,021,400
Cash and cash equivalents, beginning of
period....................................... 87,400 550,500 550,500 457,400
----------- --------- ----------- -----------
Cash and cash equivalents, end of period....... $ 550,500 $ 457,400 $ 1,128,100 $ 1,478,800
=========== ========= =========== ===========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-32
<PAGE> 87

VOICE PLUS, INC.

SUMMARY OF ACCOUNTING POLICIES

BUSINESS

Voice Plus, Inc. (the Company) is a retailer of voice processing equipment
and was incorporated in the State of California in April 1987. The Company also
provides various services, including equipment installation, technical support
and ongoing maintenance. Revenues generated from providing these services were
approximately 25% and 18% of total 1995 and 1994 revenues, respectively. The
Company maintains offices in the states of California, New York, Washington,
Massachusetts and Arizona, and as of October 1996 in Texas.

CASH EQUIVALENTS

The Company considers all short-term investments purchased with a maturity
of three months or less to be cash equivalents.

INVENTORIES

Inventories consist primarily of systems and system components and are
valued at the lower of cost (first-in, first-out method) or market.

PROPERTY, EQUIPMENT AND DEPRECIATION

Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, which range from five to ten years. Maintenance and repairs are expensed
as incurred and improvements are capitalized.

REVENUE RECOGNITION

The Company recognizes revenue under several methods as dictated by the
nature of the service or product provided and the terms of the sales agreement.
System sales are recognized when all significant uncertainties about customer
acceptance of the system have been resolved. Once system installation is
complete, seller obligations, including estimated future technical support
costs, are immaterial. Revenue from maintenance contracts is prorated over the
life of the contract, normally one year, although the entire amount of the
contract is collected at the beginning of the term. Services, labor and the sale
of parts, upgrades, moves, adds and changes are recorded in the period shipped
or provided.

INCOME TAXES

USE OF ESTIMATES

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

F-33
<PAGE> 88

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose the
estimated fair value for its financial instruments for which it is practicable
to estimate their values. The Company's financial instruments include cash,
accounts receivable and accounts payable, and their carrying value approximates
fair value due to the short maturities of these instruments.

BASIS OF PRESENTATION

The accompanying balance sheet as of September 30, 1996 and the statements
of operations and cash flows for each of the nine months ended September 30,
1996 and 1995 have not been audited. However, in the opinion of management, they
include all adjustments necessary for a fair presentation of the financial
position and the results of operations for the periods presented. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of results to be expected for any future period.

F-34
<PAGE> 89

VOICE PLUS, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)

1. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Automobiles................................................. $171,300 $194,000
Office equipment............................................ 56,700 115,100
Furniture and fixtures...................................... 61,700 57,400
Computers................................................... 105,900 183,600
-------- --------
395,600 550,100
Accumulated depreciation.................................... 227,100 274,400
-------- --------
$168,500 $275,700
======== ========
</TABLE>

2. LINE OF CREDIT AGREEMENT

At December 31, 1995, the Company had a $400,000 revolving line of credit,
collateralized by substantially all of the assets of the Company and guaranteed
by the president, who is also a majority stockholder of the Company. Interest is
payable on outstanding borrowings at the bank's prime rate (8.5% at December 31,
1995) plus 1.5%. At December 31, 1995 and September 30, 1996, the Company had no
outstanding borrowings under the line of credit. The credit agreement contains
various restrictions which require, among other things, maintenance of certain
financial ratios. At December 31, 1995, the Company was in compliance with all
such covenants.

3. INCOME TAXES

The provision for income taxes consists of:

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ---------------------------
1994 1995 1995 1996
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current
Federal............................... $122,700 $154,600 $227,300 $ --
State................................. 33,000 49,300 72,500 9,900
-------- -------- -------- -------
155,700 203,900 299,800 9,900
Deferred
Federal............................... (21,700) (59,400) (87,500) 79,800
-------- -------- -------- -------
Provision for income taxes.............. $134,000 $144,500 $212,300 $89,700
======== ======== ======== =======
</TABLE>

Effective January 1, 1996, the Company elected to be taxed under the
Subchapter S rules of the Internal Revenue Code. As a result of this change, the
stockholders will report corporate taxable income in their individual tax
returns and be taxed depending on their personal tax strategies. The effect of
this change during the nine months ended September 30, 1996 was an elimination
of the net deferred tax asset totaling $68,300 and the establishment of an
$11,500 deferred tax liability for potential built-in gains on the effective
date of election. The states in which the Company operates recognize Federal S
Corporation provisions but impose a tax at a reduced rate of approximately 1.5%.

F-35
<PAGE> 90
VOICE PLUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)

The following summarizes the difference between the income tax expense and
the amount computed by applying the Federal income tax rate of 34% in 1995 and
1994 to income before income taxes:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Federal income tax at statutory rate........................... $ 95,900 $107,500
State income taxes, net of Federal tax benefit................. 22,000 33,000
Other, net..................................................... 16,100 4,000
-------- --------
$134,000 $144,500
======== ========
</TABLE>

The effective tax rate for the nine months ended September 30, 1995 differs
from the Federal statutory tax rate due primarily to State income taxes. The
effective tax rate for the nine months ended September 30, 1996 differs from the
Federal statutory tax rate due to the change to the Subchapter S corporation
status effective January 1, 1996.

Deferred tax assets comprise the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 AMOUNT
----------------- -------
<S> <C>
Deferred revenue on system sales........................................... $33,300
State income taxes......................................................... 15,100
Reserves and accrued liabilities........................................... 17,200
Accumulated depreciation................................................... 2,700
-------
Net deferred tax asset..................................................... $68,300
=======
</TABLE>

4. COMMITMENTS

The Company leases certain property consisting of corporate and sales
office facilities and equipment under operating leases that expire during 1996
and 1997. Certain facility leases require the Company to pay real estate taxes,
maintenance and utilities.

The Company's future minimum lease commitments for operating leases are as
follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------- --------
<S> <C>
1996.................................................................. $166,200
1997.................................................................. 38,600
--------
$204,800
========
</TABLE>

Rent expense under operating leases was $119,600 and $183,800 for the years
ended December 31, 1994 and 1995, respectively, and $130,600 and $130,700 for
the nine months ended September 30, 1995 and 1996, respectively.

5. ACCRUED COMPENSATION AND BENEFITS

The Company has a 401(k) profit sharing plan in which all qualifying
employees with a minimum of 1,000 hours of service at year end are eligible to
participate. Matching contributions are made at the discretion of the Company's
Board of Directors. The Company pays all fees to administer the plan. On
December 29, 1995, the Company accrued matching contributions up to 6.5% of
employee compensation, plus an additional $50,000 for the plan year ended
December 31, 1995. Total expense under this plan was $0 and $99,500 for the

F-36
<PAGE> 91

VOICE PLUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)

years ended December 31, 1994 and 1995. The accrued contribution at December 31,
1995 was paid in August 1996. Total expense under this plan was $37,100 and
$37,500 for the nine months ended September 30, 1995 and 1996.

During the nine months ended September 30, 1996, the Company declared a
$250,000 discretionary bonus, of which $125,000 is included in cost of revenues
and $125,000 is included in marketing and selling. At September 30, 1996, this
bonus remains unpaid and is included in accrued compensation and benefits.

6. RELATED PARTY TRANSACTIONS

A customer controlled by a minority stockholder of the Company, purchased
$94,500 and $99,700 of equipment from the Company during the years ended
December 31, 1994 and 1995. Included in accounts receivable at December 31, 1995
is $19,000 due from this related customer. In February 1996, the Company
purchased this minority stockholder's 5% interest in the Company for $50,000 and
retired the related shares of common stock.

7. CONCENTRATION RISK

Revenues from one customer accounted for approximately 13% and 10% of total
net revenues during the years ended December 31, 1994 and 1995. Included in
accounts receivable at December 31, 1995 is $431,900 due from this customer.
Revenues from two customers accounted for approximately 12% and 15% of total net
revenues during the nine months ended September 30, 1995, and approximately 35%
and 22% of total net revenues during the nine months ended September 30, 1996.
Included in accounts receivable at September 30, 1996 is $459,000 and $342,300
due from these two customers.

Trade accounts receivable are due from numerous customers located in many
geographic regions throughout the United States. The Company performs ongoing
credit evaluations of its customers' financial condition and establishes an
allowance for doubtful accounts based upon the credit risk of specific
customers, historical trends and other information. The Company does not require
collateral from its customers.

Substantially all of the Company's inventory purchases in 1994 and 1995
were made from one vendor, Centigram Communications Corporation (Centigram). Any
termination or adverse change in the Company's distributor relationship with
Centigram would have a material adverse impact upon the Company's voice
processing business. In addition, the Company depends upon Centigram to offer
products which are competitive with products offered by other manufacturers as
to technological advancement, reliability and price. If Centigram's competitors
should surpass Centigram in any of these qualities, the Company may be required
to establish alternative strategic relationships. Any such development would
have an adverse effect on the Company's business for an indefinite period until
new supplier relationships could be established. Included in accounts payable at
December 31, 1995 and September 30, 1996 are $634,800 and $1,385,400,
respectively, due to Centigram.

Cash and cash equivalents are held principally at two high quality
financial institutions. At times, such balances may be in excess of the FDIC
insurance limit.

F-37
<PAGE> 92

VOICE PLUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)

8. STATEMENT OF CASH FLOWS

Supplemental disclosures of cash flow information:

Cash paid for:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ --------------------------
1994 1995 1995 1996
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest................................ $ 4,900 $ 1,100 $ 200 $ 3,200
======== ======== ======== ======
Income taxes............................ $135,100 $226,000 $ 224,500 $45,300
======== ======== ======== ======
</TABLE>

During 1994 and 1995, the Company reclassified equipment leased to
customers with a net book value of $29,700 and $4,500, respectively, from
property and equipment to inventories.

9. PRO FORMA

Statement of Operations

In connection with the contemplated purchase of the Company by NHancement
Technologies Inc. (NHancement), successor to BioFactors, Inc. (BFI) (see Note
11), the Company intends to terminate its status as a Subchapter S corporation.
The pro forma adjustment reflects a provision for income taxes at an effective
rate of 40% for the nine months ended September 30, 1996. Prior to January 1,
1996, the Company was a C Corporation.

Balance Sheet

The Company intends to declare a $550,000 dividend and/or bonus to the sole
stockholder prior to the pending merger discussed in Note 11. The pro forma
balance sheet is presented to reflect this change as if it had been recorded at
September 30, 1996.

10. SUBSEQUENT EVENTS

On October 16, 1996, the Company signed a binding letter of intent to
purchase certain assets, including all inventory, fixed assets, customer lists,
trademarks and logos, and assume certain liabilities, including approximately
$52,500 due to Centigram, all liabilities associated with equipment and office
leases and all liabilities incurred in connection with the maintenance of
service contracts with customers, of Phonetics, Inc. (Phonetics), which is
located in Dallas, Texas, for $145,000; and, as of such date, the Company took
control of those assets and liabilities. The purchase is subject to the
completion of due diligence, approval by the directors of both companies,
delivery of a closing balance sheet and the execution and delivery of a
definitive written purchase agreement. Phonetics distributes voice processing
equipment and provides various services including equipment installation,
technical support and ongoing maintenance, primarily within the state of Texas.
Phonetics had unaudited net revenues of $512,000 and a net loss of $12,000
during the eight months ended August 31, 1996.

On November 5, 1996, the Company entered into a Unit Subscription Agreement
with BFI which provides for the Company's purchase of one BFI unit, each unit
consisting of (i) an unsecured promissory note of BFI in the principal amount of
$50,000, with stated interest at 10%, no monthly installments and a maturity
date of March 31, 1997, and (ii) a warrant to purchase 50,000 shares of BFI
Common Stock at an exercise price of 120% of the initial public offering (IPO)
price of NHancement Technologies, Inc., the successor to BFI ("NHancement"),
with a provision to prevent dilution in connection with the merger of a wholly
owned subsidiary of NHancement into BFI.

F-38
<PAGE> 93

VOICE PLUS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)

On November 26, 1996, the Company paid an $85,000 dividend to its sole
stockholder to cover his individual estimated income taxes.

11. ACQUISITION AGREEMENT

On October 25, 1996, the Company and its sole shareholder entered into an
Agreement and Plan of Merger (the Merger) with NHancement whereby NHancement
would acquire, immediately prior to the consummation of NHancement's proposed
IPO, all outstanding shares of the Company. The consideration for the
outstanding shares consists of (i) an unsecured promissory note in a principal
amount of $1,000,000, bearing interest at the medium term T-bill rate, due on
the third anniversary of the consummation of the Merger, (ii) an unsecured
promissory note in a principal amount of $500,000, bearing interest at the
medium term T-bill rate, due on the third anniversary of the consummation of the
Merger, and (iii) shares of NHancement Common Stock with a market value of
$4,680,000 (of which, shares valued at $2,400,000 will be sold in the proposed
IPO, and the remainder of the shares are subject to restrictions on
transferability under the Securities Act of 1933 and pursuant to a lock-up
agreement with the underwriter of the proposed IPO). The consummation of the
Merger is contingent upon the registration statement filed in connection with
the proposed IPO having been declared effective. The Agreement terminates,
without liability, if the merger shall not have been consummated prior to March
31, 1997. In connection with the Merger, NHancement entered into a three-year
employment agreement with the president and sole stockholder of the Company,
pursuant to which NHancement will pay a base salary of $150,000 per year,
commissions of approximately $200,000 per year and an annual performance-based
bonus. The employment agreement provides that if NHancement materially breaches
the agreement or terminates the employee without "cause," NHancement will
continue to pay base salary and 50% of the commissions for the duration of the
term and, in the event of a material breach, the two promissory notes will be
accelerated and immediately become due and payable.

F-39
<PAGE> 94

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
and the Stockholders of
Cossey-Capozzi, Inc.
dba C. C. & Associates

We have audited the accompanying balance sheet of Cossey-Capozzi, Inc. as
of September 30, 1996, and the related statements of operations, stockholders'
equity, and cash flows for the years ended September 30, 1995 and 1996. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cossey-Capozzi, Inc. as of
September 30, 1996, and the results of its operations and its cash flows for the
years ended September 30, 1995 and 1996 in conformity with generally accepted
accounting principles.

Meredith, Cardozo & Lanz LLP

San Jose, California
October 30, 1996

F-40
<PAGE> 95

COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER
30, 1996
------------
<S> <C>
Current assets
Cash and cash equivalents (Note 5).......................................... $ 9,100
Accounts receivable, net of allowance for doubtful accounts of $7,600 (Note
5)....................................................................... 153,000
Due from stockholder (Note 1)............................................... 32,400
Other assets................................................................ 3,900
--------
Total current assets................................................ 198,400
--------
Property and equipment, net (Note 2).......................................... 47,300
--------
$245,700
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................................................ $ 11,900
Accrued payroll and related expenses........................................ 50,500
Income taxes payable (Note 3)............................................... 5,500
Deferred income taxes (Note 3).............................................. 46,000
--------
Total current liabilities........................................... 113,900
--------
Deferred income taxes (Note 3)................................................ 1,000
--------
Commitments (Notes 4 and 7)
Stockholders' equity
Common stock, no par value: 500,000 shares authorized, 400 shares issued and
outstanding.............................................................. 3,000
Retained earnings........................................................... 127,800
--------
Total stockholders' equity.......................................... 130,800
--------
$245,700
========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-41
<PAGE> 96

COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
Net revenues (Note 5)................................................ $1,075,800 $ 914,300
Cost of revenues..................................................... 564,000 545,200
---------- ---------
Gross profit......................................................... 511,800 369,100
---------- ---------
Selling, general and administrative expenses......................... 388,400 361,500
---------- ---------
Income from operations............................................... 123,400 7,600
Other income (expense)
Interest expense................................................... (2,100) (700)
Other income....................................................... 2,600 --
---------- ---------
Total other income (expense)............................... 500 (700)
---------- ---------
Income before income taxes........................................... 123,900 6,900
Income taxes (Note 3)................................................ 47,200 5,300
---------- ---------
Net income................................................. $ 76,700 $ 1,600
========== =========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-42
<PAGE> 97

COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance, September 30, 1994........................... 400 $3,000 $ 49,500 $ 52,500
Net income.......................................... -- -- 76,700 76,700
--- ------ -------- --------
Balance, September 30, 1995........................... 400 3,000 126,200 129,200
Net income.......................................... -- -- 1,600 1,600
--- ------ -------- --------
Balance, September 30, 1996........................... 400 $3,000 $127,800 $ 130,800
=== ====== ======== ========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-43
<PAGE> 98

COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1996
--------- -----------
<S> <C> <C>
Cash flows from operating activities (Note 6)
Net income........................................................ $ 76,700 $ 1,600
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 19,300 11,600
Deferred income taxes.......................................... 46,400 (2,800)
Changes in assets and liabilities:
Accounts receivable.......................................... (244,000) 104,400
Other assets................................................. -- 5,900
Accounts payable............................................. 43,000 (64,700)
Accrued expenses............................................. 70,000 (33,900)
Income taxes payable......................................... (800) 5,500
--------- ---------
Net cash provided by operating activities........................... 10,600 27,600
--------- ---------
Cash flows from investing activities
Purchase of property and equipment................................ (10,400) (27,200)
Disposition of property and equipment............................. 37,600 --
--------- ---------
Net cash provided by (used in) investing activities................. 27,200 (27,200)
--------- ---------
Cash flows from financing activities
Advances to stockholder........................................... (36,000) (5,600)
Repayment on advances to stockholder.............................. -- 17,800
Proceeds from bank borrowings..................................... 9,200 --
Repayments of bank borrowings..................................... -- (15,300)
Repayment of notes payable........................................ (14,100) --
--------- ---------
Net cash (used in) financing activities............................. (40,900) (3,100)
--------- ---------
Net (decrease) in cash and cash equivalents......................... (3,100) (2,700)
Cash and cash equivalents, beginning of period...................... 14,900 11,800
--------- ---------
Cash and cash equivalents, end of period............................ $ 11,800 $ 9,100
========= =========
</TABLE>

See accompanying summary of accounting policies and notes to financial
statements.

F-44
<PAGE> 99

COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES

SUMMARY OF ACCOUNTING POLICIES

BUSINESS

Cossey-Capozzi, Inc. (the Company) was incorporated in California in 1978.
The Company provides employee investigation services for corporations,
specializing in investigating employee theft and work related drug use.
Investigations include surveillance for employee misconduct.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
certificates of deposit and all liquid cash investments with original maturities
of three months or less to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciation is calculated
using the straight-line method over the estimated useful lives of the related
assets, generally three to five years.

REVENUE RECOGNITION

Revenue is generally recognized upon the completion of the services
performed.

ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising expenses
were $1,800 and $8,500 for the years ended September 30, 1995 and 1996,
respectively.

USE OF ESTIMATES

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

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. Under SFAS No. 109, deferred tax
liabilities or assets at the end of each period are determined using the tax
rate expected to be in effect when taxes are actually paid or recovered.
Deferred income taxes as of September 30, 1996 primarily result from certain
expenses that are not currently deductible for tax purposes.

F-45
<PAGE> 100

COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES

NOTES TO FINANCIAL STATEMENTS

1. DUE FROM STOCKHOLDER

Due from stockholder consists principally of expenses paid by the Company
for the benefit of the stockholder. This amount is due on demand.

2. PROPERTY AND EQUIPMENT

A summary of property and equipment follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Furniture and fixtures................................................ $ 42,200
Machinery and equipment............................................... 28,900
Office equipment...................................................... 25,700
Leasehold improvements................................................ 700
---------
97,500
Less accumulated depreciation and amortization........................ (50,200)
---------
Property and equipment, net................................. $ 47,300
=========
</TABLE>

3. INCOME TAXES

Income taxes (benefit) comprise:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
Current:
Federal........................................................ $ -- $ 5,200
State.......................................................... 800 2,900
------- -------
800 8,100
Deferred:
Federal........................................................ 38,300 (2,200)
State.......................................................... 8,100 (600)
------- -------
46,400 (2,800)
Total:
Federal........................................................ 38,300 3,000
State.......................................................... 8,900 2,300
------- -------
$47,200 $ 5,300
======= =======
</TABLE>

Deferred income taxes result from temporary differences in the recognition
of certain expenses and income items for tax and financial reporting purposes as
follows:

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
------------------
1995 1996
------- -------
<S> <C> <C>
Cash to accrual adjustment........................................ $47,400 $(2,800)
Depreciation...................................................... (1,000) --
------- -------
$46,400 $(2,800)
======= =======
</TABLE>

F-46
<PAGE> 101

COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes the difference between the income tax expense and
the amount computed by applying the Federal income tax rate of 34% in 1995 and
1996 to income before income taxes:

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
------------------
1995 1996
------- -------
<S> <C> <C>
Federal income tax (benefit) expense at statutory rate............ $42,100 $ 2,300
State income taxes, net of federal tax benefit.................... 7,500 600
Surtax exemption.................................................. (6,400) (1,300)
Other, net........................................................ 4,000 3,700
------- -------
$47,200 $ 5,300
======= =======
</TABLE>

Deferred tax assets (liabilities) comprises the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Cash to accrual adjustment.............................................. $ (48,500)
Depreciation............................................................ 1,500
--------
Net deferred tax liability.................................... $ (47,000)
========
</TABLE>

4. COMMITMENTS

The Company leases its office space under a lease agreement on a month to
month basis from a related party.

Rent expense for the years ended September 30, 1995 and 1996 was $38,400
and $38,100, respectively.

5. CONCENTRATION RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents and accounts
receivable. The Company places its cash and cash equivalents with high quality
financial institutions and, by policy, limits the amount of credit exposure to
any one financial institution.

In 1995, one customer accounted for approximately 46% of net revenues. In
1996, three customers accounted for approximately 18%, 12% and 24% of net
revenues.

The Company's accounts receivable are spread across many customers in
various industries. The Company performs credit evaluations of its customers'
financial condition and establishes an allowance for possible losses based upon
credit risk of specific customers, historical trends and other information. The
Company generally does not require cash collateral or other security to support
customer receivables.

F-47
<PAGE> 102

COSSEY-CAPOZZI, INC.
DBA C. C. & ASSOCIATES

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information:

Cash paid for:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------
1995 1996
------ ----
<S> <C> <C>
Interest.......................................................... $2,100 $700
====== ====
Income taxes...................................................... $1,600 $800
====== ====
</TABLE>

7. MERGER AGREEMENT

The Company entered into a letter of intent dated October 25, 1996, which
provides for the merger of a wholly owned subsidiary of NHancement Technologies
Inc., a Delaware corporation (NHancement), with and into the Company, whereupon
the Company will be the surviving corporation and a wholly owned subsidiary of
NHancement, and the exchange of shares of NHancement common stock with a market
value of $960,000 (which shares are subject to restrictions on transfer pursuant
to a lock-up agreement) for all of the issued and outstanding common stock of
the Company. The consummation of the merger is conditioned upon the terms and
conditions of the merger having been approved by the California Commissioner of
Corporations pursuant to a fairness hearing held pursuant to Section 25142 of
the California Corporate Securities Law of 1968, as amended. The letter of
intent terminates, without liability, if the merger shall not have been
consummated prior to March 31, 1997.

F-48
<PAGE> 103

================================================================================

2,300,000 SHARES OF COMMON STOCK

[NHANCEMENT TECHNOLOGIES INC. LOGO]

NHANCEMENT TECHNOLOGIES INC.

--------------------
PROSPECTUS
--------------------

CHATFIELD DEAN & CO.

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary..................... 1
Summary Historical and Pro Forma
Combined Financial Data.............. 3
Risk Factors........................... 5
The Company............................ 13
Use of Proceeds........................ 14
Dividend Policy........................ 15
Capitalization......................... 16
Dilution............................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 24
Management............................. 36
Certain Transactions................... 42
Principal and Selling Stockholders..... 44
Description of Capital Stock........... 46
Shares Eligible for Future Sale........ 48
Underwriting........................... 49
Legal Matters.......................... 50
Experts................................ 51
Available Information.................. 51
Index to Financial Statements.......... F-1
</TABLE>

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

, 1997

================================================================================
<PAGE> 104

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company will purchase a directors' and officers' insurance policy with
a $1 million coverage limit per occurrence and $2 million in the aggregate per
year.

Section 7 of the Underwriting Agreement (filed as Exhibit 1.1 hereto)
provides that the Underwriters will indemnify and hold harmless the Company and
each director, officer or controlling person of the Company from and against any
liability caused by any misstatement or omission in this Registration Statement
or Prospectus based on certain information furnished to the Company by the
Underwriters for use in the preparation thereof.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the Nonaccountable Expense Allowance,
payable by the Company in connection with the sale of Common Stock being
registered (all amounts are estimated except the Commission Registration Fee and
the Nasdaq SmallCap Filing Fee.

<TABLE>
<S> <C>
Commission Registration Fee....................................................... $ 3,607
Nasdaq SmallCap Filing Fee........................................................ 9,154
NASD Fee.......................................................................... 1,814
Blue Sky Qualification Fees and Expenses (including legal fees)................... [12,275]
Printing Expenses................................................................. K
Legal Fees and Expenses........................................................... K
Accountants' Fees and Expenses.................................................... K
Transfer Agent and Registrar Fees................................................. K
Miscellaneous Expenses............................................................ K
--------
Total........................................................................... $350,000
========
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

In the three years preceding the filing of this Registration Statement, the
Company has issued the following securities that were not registered under the
Securities Act. Except in limited circumstances (as described below), all such
securities were issued in reliance on the exemption from registration provided
by Rule 506 ("Rule 506") promulgated under the Securities Act, all sales were
made to accredited investors and all other requirements of Rule 506 were
satisfied.

On March 16, 1994, BFI's predecessor, Performance Factors, Inc. ("PFI"),
consummated a bridge financing (the "Series D Financing") pursuant to which it
issued an aggregate of (i) 1,212,124 shares of PFI Series D Preferred Stock, and
(ii) $721,550 principal amount of unsecured promissory notes, bearing interest
at the rate equal to 2% per annum above a certain domestic rate announced by the
Bank of America, NT&SA, San Francisco. In May 1994, the stockholders of PFI
approved a merger of PFI with and into BFI. The terms of the merger required
that all PFI common stock be converted into shares of BFI Common Stock and all
other PFI securities, including the PFI Series D Preferred Stock and the Series
D Notes, be converted into

II-1
<PAGE> 105

shares of BFI Series A Preferred Stock as follows: (i) 3.0303 shares of PFI
Series D Preferred Stock for each $1.00 of PFI Series D Notes; and (ii) .4072
shares of BFI Series A Preferred Stock for each share of PFI Series D Preferred
Stock. Concurrently, the BFI shareholders approved a 24-to-one reverse split.
The shares of Common Stock issued upon conversion and exchange of the securities
issued in connection with the BFI Series D Financings are entitled to certain
registration rights. See "Description of Capital Stock -- Registration Rights."
The proceeds from the sale of the Series D Financing were used for general
corporate purposes.

On June 1, 1994, BFI consummated a bridge financing (the "Series A
Financing"), pursuant to which it issued an aggregate of 311,245 shares of its
Series A Preferred Stock in reliance on Rule 506, except with respect to 219,581
shares that were issued in reliance on an exemption from registration provided
by Regulation S ("Regulation S") promulgated under the Securities Act. All sales
under Regulation S were made to qualified offshore investors, and all other
requirements of Regulation S, including the holding period, were satisfied. In
July 1995, the holders of BFI Series A Preferred Stock approved the conversion
of BFI A Preferred Stock into shares of BFI Common Stock, effective in November
1995. Concurrently, the BFI shareholders approved a 24-to-one reverse split. The
shares of Common Stock issued upon conversion and exchange of the securities
issued in connection with the BFI Series A Financing are entitled to certain
registration rights. See "Description of Capital Stock -- Registration Rights."
The proceeds from the sale of the Series A Financing were used for general
corporate purposes.

On December 1, 1994, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $750,000 principal amount of promissory notes (the
"December 1994 Notes"), secured by the all of the assets of BFI, bearing
interest at the rate of 12% per annum due and payable on April 1, 1997; and (ii)
shares of BFI Common Stock, which are exchangeable for 112,500 restricted shares
of Common Stock. The December 1994 Notes and the shares of Common Stock were
issued in reliance on Rule 506, except with respect to $278,327 in principal
amount of December 1994 Notes and 55,665 shares that were issued in reliance on
an exemption from registration provided by Regulation S. All sales under
Regulation S were made to qualified investors, and all other requirements of
Regulation S, including the holding period, were satisfied. Such shares of
Common Stock are entitled to certain registration rights. See "Description of
Capital Stock -- Registration Rights." At the time the notes were issued, the
notes were secured by the pledge of a promissory note of Sports Trac, payable to
BFI. Subsequently, the Sports Trac Note was paid in full and the security
interest securing the December 1995 Notes was terminated. Upon consummation of
this Offering, all of the outstanding principal and accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
the security interest will be released, and the Company will issue warrants to
purchase an aggregate of 37,500 shares of Common Stock at an exercise price of
120% of the Offering Price. The proceeds from the sale of the December 1994
Notes were used for general corporate purposes.

On December 1, 1995, BFI closed a bridge financing pursuant to which it
issued an aggregate of (i) $350,000 principal amount of unsecured promissory
notes (the "December 1995 Notes"), bearing interest from the date of issuance
until due and payable on March 31, 1997 at a rate of 10% per annum, and
thereafter at 18% per annum, and (ii) shares of BFI Common Stock, which are
exchangeable for 78,750 restricted shares of Common Stock. Such shares are
entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." Upon consummation of this Offering, the
outstanding principal amount will be repaid and all accrued interest will be
converted into Common Stock at a conversion price equal to the Offering Price,
and the Company will issue warrants to purchase an aggregate of 26,250 shares of
Common Stock at an exercise price of 120% of the Offering Price. The proceeds
from the December 1995 Notes were used for general corporate purposes.

On February 1, 1996, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $315,000 principal amount of unsecured promissory
notes (the "February 1996 Notes"), bearing interest from the date of issuance
until due and payable on March 31, 1997 at a rate of 10% per annum, and
thereafter at 18% per annum, and (ii) shares of BFI Common Stock, which are
exchangeable for 70,875 restricted shares of Common Stock. Such shares of Common
Stock are entitled to certain registration rights. See "Description of Capital
Stock -- Registration Rights." Upon consummation of this Offering, the
outstanding principal amount will be repaid and all accrued interest will be
converted into Common Stock at a conversion

II-2
<PAGE> 106

price equal to the Offering Price, and the Company will issue warrants to
purchase an aggregate of 23,625 shares of Common Stock at an exercise price of
120% of the Offering Price. The proceeds from the February 1996 Notes were used
for general corporate purposes.

On May 17, 1996, BFI closed a bridge financing, pursuant to which it issued
an aggregate of (i) $300,000 principal amount of unsecured promissory notes (the
"May 1996 Notes"), bearing interest at 10% per annum, due and payable on March
31, 1997, and (ii) shares of BFI Common Stock, which are exchangeable for 67,500
restricted shares of Common Stock. Such shares of Common Stock are entitled to
certain registration rights. See "Description of Capital Stock -- Registration
Rights." Upon consummation of this Offering, the outstanding principal amount
will be repaid and all accrued interest will be converted into Common Stock at a
conversion price equal to the Offering Price, and the Company will issue
warrants to purchase an aggregate of 22,500 shares of Common Stock at an
exercise price of 120% of the Offering Price. See "Description of Capital
Stock -- Registration Rights." The proceeds from the sale of the May 1996 Notes
were used for general corporate purposes.

On November 5, 1996, BFI closed a bridge financing, pursuant to which it
issued an aggregate of (i) $500,000 principal amount of unsecured promissory
notes (the "November 1996 Notes"), bearing interest at 10% per annum, due and
payable on the earlier of (a) March 31, 1997, or (b) the consummation of this
Offering, and (ii) warrants to purchase 500,000 shares of restricted Common
Stock exercisable commencing one year after the Effective Date at an initial
exercise price of 120% of the Offering Price and nontransferable except under
certain limited circumstances. The shares of Common Stock issued upon exercise
of the warrants are entitled to certain registration rights. See "Description of
Capital Stock -- Registration Rights." The proceeds from the November 1996 Notes
were used to purchase directors' and officers' liability insurance and to pay
legal fees and accounting and other fees in connection with this Offering.

II-3
<PAGE> 107

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1** -- Certificate of Incorporation with the Amended and
Restated Certificate of Incorporation
3.2** -- Amended and Restated Bylaws
4.1**** -- Form of Common Stock Certificate
4.2*** -- Form of Underwriter Warrant
4.3*** -- Registration Rights Agreement, dated September 1, 1996
between BioFactors, Inc. ("BFI") and (i) a majority of
the holders of securities pursuant to the Secured Note
and Warrant Purchase Agreement dated December 1, 1994, as
amended; (ii) a majority of the holders of securities
issued pursuant to the Secured Note and Stock Purchase
Agreement, dated December 1, 1995, as amended; (iii) a
majority of the holders of securities issued pursuant to
the Unsecured Note and Stock Purchase Agreement, dated
February 1, 1996, as amended; (iv) a majority of the
holders of securities issued pursuant to the Unit
Subscription Agreement, dated May 17, 1996, as amended;
(v) the purchasers of securities issued pursuant to the
Unit Subscription Agreement, dated October 3, 1996; and
(vi) the former holders of BFI's Series A Preferred Stock
4.4**** -- Registration Rights Agreement, dated October 25, 1996,
between the Company and James S. Gillespie
5.1* -- Form of Opinion of Davis, Graham & Stubbs LLP as to the
legality of issuance of the Common Stock
10.1**** -- Formation Agreement, dated as of October 15, 1996,
between BFI and VPI
10.2*** -- Agreement and Plan of Merger, dated as of October 30,
1996, between the Company, BFI Acquisition Corporation
and BFI
10.3* -- Agreement and Plan of Merger, dated as of October 25,
1996, between the Company, VPI Acquisition Corporation,
Voice Plus, Inc. ("VPI") and James S. Gillespie; together
with Forms of Promissory Notes
10.4*** -- Letter of Intent, dated as of October 25, 1996, between
the Company and C.C. & Associates
10.5*** -- License Agreement, dated November 24, 1988, by and
between BFI and Systems Technology Inc., as amended by
Addendum to License Agreement, dated May 19, 1994, as
amended by Second Addendum to License Agreement, dated
November 18, 1996
10.6**** -- Sublicense Agreement, dated August 30, 1995, between BFI
and SportsTrac, Inc., as amended by Addendum to
Sublicense Agreement, dated July 31, 1996
10.7*** -- Secured Note and Warrant Purchase Agreement, dated
December 1, 1994, between BFI and the purchasers listed
therein, as amended by the First Amendment to Secured
Note and Warrant Purchase Agreement, dated July 1995, and
as amended by Amendment to Secured Note and Warrant
Purchase Agreement, dated December 1, 1995, as amended by
Third Amendment to Secured Note and Warrant Purchase
Agreement, dated March 1, 1996, and as amended by Fourth
Amendment to Secured Note and Warrant Purchase Agreement,
dated October 1, 1996, together with Amended and Restated
Security Agreement and Form of Secured Promissory Note
</TABLE>

II-4
<PAGE> 108

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.8*** -- Secured Note and Stock Purchase Agreement, dated December
1, 1995 between BFI and the purchasers listed therein, as
amended by First Amendment to Secured Note and Stock
Purchase Agreement, dated March 22, 1996, as amended by
Second Amendment to Secured Note and Stock Purchase
Agreement, dated July 1, 1996, and as amended by Third
Amendment to Secured Note and Stock Purchase Agreement,
dated October 1, 1996; together with Form of Secured
Promissory Note
10.9*** -- Unsecured Note and Stock Purchase Agreement, dated
February 1, 1996, between BFI and the purchasers listed
therein, as amended by First Amendment to Unsecured Note
and Stock Purchase Agreement, dated March 22, 1996, as
amended by Second Amendment to Unsecured Note and Stock
Purchase Agreement, dated July 1, 1996, and as amended by
Third Amendment to Unsecured Note and Stock Purchase
Agreement, dated October 1, 1996; together with Form of
Unsecured Promissory Note
10.10*** -- Unit Subscription Agreement, dated May 17, 1996, between
BFI and the purchasers listed therein, as amended by
First Amendment to Unit Subscription Agreement, dated
October 1, 1996; together with Form of Promissory Note
10.11** -- Unit Subscription Agreement, dated October 3, 1996,
between BFI and the purchasers listed therein; together
with Form of Promissory Note and Form of Warrant
10.12** -- Form of Equity Incentive Plan
10.13**** -- Employment Agreement, dated as of October 30, 1996,
between Douglas S. Zorn and the Company
10.14**** -- Employment Agreement, dated as of October 25, 1996,
between James S. Gillespie and the Company
10.15**** -- Employment Agreement, dated as of October 30, 1996,
between Esmond T. Goei and the Company
10.16**** -- Form of Factor 1000(R) Service Contract
10.17*** -- Office Building Lease, dated April 8, 1996, between BFI
and Denver West Office Building No. 21 Venture
10.18**** -- Authorized U.S. Distributor Agreement, dated April 16,
1996, between Centigram Communications Corporation and
VPI
10.19*** -- Office Lease, dated October 20, 1994, between AJ Partners
Limited Partnership and VPI
10.20*** -- Agreement, dated October 16, 1995, between BFI, Burton
Kanter and Elliot Steinberg, as amended by Amendment
dated July 16, 1996, between BFI, Esmond Goei, Douglas
Zorn, Burton Kanter and Elliot Steinberg
10.21*** -- Stockholder Agreement, dated October 25, 1996, between
the Company and James S. Gillespie
10.22*** -- 1997 Management and Company Performance Bonus Plan
10.23** -- Employment Agreement, dated as of November 1, 1996,
between Diane E. Nowak and VPI
10.24** -- Employment Agreement, dated as of November 1, 1996,
between Bradley Eickman and VPI
10.25* -- Forms of Promissory Notes, issued at various dates
between September 1, 1991 and September 30, 1993 by
Performance Factors, Inc., a predecessor to BFI
21*** -- Subsidiaries
</TABLE>

II-5
<PAGE> 109

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23.1* -- Consent of BDO Seidman, LLP
23.2* -- Consent of Meredith, Cardozo & Lanz LLP
23.3* -- Consent of Davis, Graham & Stubbs LLP (See Exhibit 5.1)
23.4** -- Consent of William Brehm, director nominee
23.5** -- Consent of Gary L. Nemetz, director nominee
23.6** -- Consent of Richard H. Williams, director nominee
24**** -- Power of Attorney (included on Page II-6)
27*** -- Financial Data Schedule
</TABLE>

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

* Filed with Amendment No. 3 to Registration Statement on Form SB-2,
Registration No. 333-15563

** Filed with Amendment No. 2 to Registration Statement on Form SB-2,
Registration No. 333-15563

*** Filed with Amendment No. 1 to Registration Statement on Form SB-2,
Registration No. 333-15563

**** Previously filed with Registration Statement on Form SB-2, Registration No.
333-15563

(b) Financial Statement Schedules

None.

ITEM 28. 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 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the Company's Bylaws, Certificate of Incorporation or the
Underwriting Agreement, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the 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 Securities Act
of 1933, 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 Securities 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 any liability under the Securities
Act of 1933, 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-6
<PAGE> 110

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets the requirements for filing on Form SB-2 and has authorized this
amendment to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on January 27, 1997.

NHancement Technologies Inc.

By: /s/ ESMOND T. GOEI
---------------------------------
Esmond T. Goei
Chairman, President and Chief
Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears herein constitutes and appoints Esmond T. Goei and Douglas S. Zorn, and
each of them, as his true and lawful attorneys-in-fact and agents, 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 to this
Registration Statement (including post-effective amendments), including a
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>

/s/ ESMOND T. GOEI Chairman, President, Chief January 27, 1997
- ----------------------------------------------------- Executive Officer and Director
Esmond T. Goei (Principal Executive Officer)

/s/ DOUGLAS S. ZORN Executive Vice President, January 27, 1997
- ----------------------------------------------------- Secretary, Chief Operating and
Douglas S. Zorn Financial Officer, Treasurer and
Director (Principal Financial
and Accounting Officer)

/s/ JAMES S. GILLESPIE Vice President of Sales and January 27, 1997
- ----------------------------------------------------- Director
James S. Gillespie
</TABLE>

II-7
<PAGE> 111

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* -- Form of Underwriting Agreement
3.1** -- Certificate of Incorporation of the Company with the
Amended and Restated Certificate of Incorporation
3.2** -- Amended and Restated Bylaws of the Company
4.1**** -- Form of Common Stock Certificate
4.2*** -- Form of Underwriter Warrant
4.3*** -- Registration Rights Agreement, dated September 1, 1996
between BioFactors, Inc. ("BFI") and (i) a majority of
the holders of securities pursuant to the Secured Note
and Warrant Purchase Agreement dated December 1, 1994, as
amended; (ii) a majority of the holders of securities
issued pursuant to the Secured Note and Stock Purchase
Agreement, dated December 1, 1995, as amended; (iii) a
majority of the holders of securities issued pursuant to
the Unsecured Note and Stock Purchase Agreement, dated
February 1, 1996, as amended; (iv) a majority of the
holders of securities issued pursuant to the Unit
Subscription Agreement, dated May 17, 1996, as amended;
(v) the purchasers of securities issued pursuant to the
Unit Subscription Agreement, dated October 3, 1996; and
(vi) the former holders of BFI's Series A Preferred Stock
4.4**** -- Registration Rights Agreement, dated October 25, 1996,
between the Company and James S. Gillespie
5.1* -- Form of Opinion of Davis, Graham & Stubbs LLP as to the
legality of issuance of the Common Stock
10.1**** -- Formation Agreement, dated as of October 15, 1996,
between BFI and VPI
10.2*** -- Agreement and Plan of Merger, dated as of October 30,
1996, between the Company, BFI Acquisition Corporation
and BFI
10.3* -- Agreement and Plan of Merger, dated as of October 25,
1996, between the Company, VPI Acquisition Corporation,
Voice Plus, Inc. ("VPI") and James S. Gillespie; together
with Forms of Promissory Notes
10.4*** -- Letter of Intent, dated as of October 25, 1996, between
the Company and C.C. & Associates
10.5*** -- License Agreement, dated November 24, 1988, by and
between BFI and Systems Technology Inc., as amended by
Addendum to License Agreement, dated May 19, 1994, as
amended by Second Addendum to License Agreement, dated
November 18, 1996
10.6**** -- Sublicense Agreement, dated August 30, 1995, between BFI
and SportsTrac, Inc., as amended by Addendum to
Sublicense Agreement, dated July 31, 1996
10.7*** -- Secured Note and Warrant Purchase Agreement, dated
December 1, 1994, between BFI and the purchasers listed
therein, as amended by the First Amendment to Secured
Note and Warrant Purchase Agreement, dated July 1995, and
as amended by Amendment to Secured Note and Warrant
Purchase Agreement, dated December 1, 1995, as amended by
Third Amendment to Secured Note and Warrant Purchase
Agreement, dated March 1, 1996, and as amended by Fourth
Amendment to Secured Note and Warrant Purchase Agreement,
dated October 1, 1996, together with Amended and Restated
Security Agreement and Form of Secured Promissory Note
</TABLE>

<PAGE> 112

<PAGE> 113

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

* Filed with Amendment No. 3 to Registration Statement on Form SB-2,
Registration No. 333-15563

** Filed with Amendment No. 2 to Registration Statement on Form SB-2,
Registration No. 333-15563

*** Filed with Amendment No. 1 to Registration Statement on Form SB-2,
Registration No. 333-15563

**** Previously filed with Registration Statement on Form SB-2, Registration No.
333-15563

<PAGE> 1
EXHIBIT 1.1

FORM OF

UNDERWRITING AGREEMENT

AMONG

CHATFIELD DEAN & CO., INC.,

NHANCEMENT TECHNOLOGIES INC.

AND

JAMES S. GILLESPIE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
SECTION 1

Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Representative's Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

SECTION 2

Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Registration Statement on Form SB-2 and Related Prospectus . . . . . . . . . . . . . . . . . . . 2
2.2 Accuracy of Registration Statement and Related Prospectus . . . . . . . . . . . . . . . . . . . . 3
2.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Incorporation and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Legality of Outstanding Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Legality of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Prior Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.12 Representative's Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.13 Finder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.15 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.18 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.19 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.20 Availability of Information Concerning the Company . . . . . . . . . . . . . . . . . . . . . . . 7
2.21 Suspension Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.22 Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.23 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.24 Florida Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

SECTION 3

Representations and Warranties of the Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Ownership of Selling Shareholder Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Validity of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>

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<TABLE>
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3.4 Accuracy of Registration Statement and Related Prospectus . . . . . . . . . . . . . . . . . . . . 9
3.5 Payment of Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

SECTION 4

Issue, Sale and Delivery of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Appointment of Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Default by a Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Principal Terms of Representative's Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Inspection of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.7 Representative's Expense Allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Mutual Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Sales Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10 Re-offers By Selected Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

SECTION 5

Registration Statement and Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Representative's Copies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Copies of Preliminary Prospectus and Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Post-Effective Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Use of Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 6

Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.1 Filing of Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Declaration of Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Amendments at the Request of the Representative . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Further Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.6 Reports to Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.7 Expenses of Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Stockholder Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.9 1933 Act Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.11 Transfer Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.12 Information About the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.13 Due Diligence Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.14 Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.15 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.16 Sales Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>

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6.17 1934 Act Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.18 No Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.19 Bound Volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.20 Financial Consulting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.21 Restriction on Sale of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.22 Public Relations Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.23 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

SECTION 7

Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

SECTION 8

Effectiveness of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

SECTION 9

Conditions to the Representative's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.2 Accuracy of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.3 Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.5 No Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.6 Review by Representative's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.7 Opinion of Company Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.8 Opinion of Counsel to Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.9 BDO Seidman, LLP Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.10 Meredith Cardozo & Lanz LLP Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.11 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.12 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.13 Selling Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.14 Opinion of Representative's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.15 Tender of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.16 Blue Sky Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.17 Approval of Representative's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.18 Officer's Certificate as a Company Representation . . . . . . . . . . . . . . . . . . . . . . . . 39
9.19 NASDAQ Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.20 Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

SECTION 10

Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.1 Termination by Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

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10.2 Termination by Representative--"Market Out" . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.3 Survival of Obligations After Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.4 Suspension Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

SECTION 11

Representative's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.1 Registration as Broker-Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.2 No Pending Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.3 Finder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

SECTION 12

Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

SECTION 13

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.1 Sole Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

</TABLE>

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<TABLE>
<S> <C>
EXHIBITS
Representative's Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A

SCHEDULES
Underwriting Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I
List of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.19

</TABLE>

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<PAGE> 7
UNDERWRITING AGREEMENT

Chatfield Dean & Co., Inc.
7935 East Prentice Avenue
Suite 200
Englewood, Colorado 80111

Gentlemen:

NHancement Technologies Inc., a Delaware corporation (unless the
context requires otherwise, referred to herein, together with its subsidiaries,
as the "Company") and James S. Gillespie, the record and beneficial owner of
the Selling Shareholder Shares (hereinafter defined) (the "Selling
Shareholder"), hereby confirm their agreement with Chatfield Dean & Co., Inc.,
a Colorado corporation (the "Representative"), and with the other members of
the Underwriting Group named in Schedule I attached hereto (individually
referred to as "Member" and collectively referred to as "Members"), including
the Representative (hereinafter the "Underwriting Group") as follows (if there
is no Schedule I attached, all references in this Agreement to the Underwriting
Group shall be deemed to refer only to the Representative):

SECTION 1

Description of Securities

1.1 Offering. The Company represents, covenants, warrants and
agrees that its authorized, issued and outstanding capitalization, when the
offering (the "Offering") of the Shares (hereinafter defined) contemplated
hereby is permitted to commence and at the Closing Date (hereinafter defined),
will be as set forth in the Registration Statement and related Prospectus (as
such terms are hereinafter defined or described). The Company proposes to
issue, offer and sell to the Underwriting Group an aggregate of 1,700,000
Shares (the "Company Shares"), at an offering price of $____ per Share (the
"Offering Price") and on the terms hereinafter set forth. In addition, the
Selling Shareholder proposes to sell to the Underwriting Group an aggregate of
600,000 Shares (the "Selling Shareholder Shares") as defined below, at an
Offering Price of $____ per Share and on the terms hereinafter set forth. The
Underwriting Group shall also have an over-allotment option to purchase from
the Company up to an additional 345,000 Shares as provided in Section 4.1
hereof.

1.2 Shares. As used herein, the shares of the Company's common
stock, $0.01 par value, which include both the Company Shares and the Selling
Shareholder Shares, may be referred to as the "Stock" or the "Common Stock",
and the shares of the Common Stock to be registered in the Registration
Statement, including those which comprise the over-allotment option described
above, but excluding the Representative's Warrant Stock (defined below), may be
referred to as the "Shares".
<PAGE> 8
1.3 Representative's Warrant. As partial consideration for the
services of the Representative hereunder, the Company will authorize, issue,
sell and deliver to the Representative on the Closing Date for a purchase price
of $100.00, a warrant (the "Representative's Warrant") to purchase a certain
number of shares of the Common Stock (the "Representative's Warrant Stock"), as
more fully set forth at Section 4.4 of this Agreement.

SECTION 2

Representations and Warranties of the Company

In order to induce the Representative to enter into this Agreement,
the Company hereby represents and warrants to, and agrees with, the
Representative as follows:

2.1 Registration Statement on Form SB-2 and Related Prospectus. A
Registration Statement on Form SB-2 (File No. 333-15563) and a Prospectus on
the form specified by Form SB-2 with respect to the Shares, copies of which
have been delivered heretofore by the Company to the Representative, have been
prepared carefully by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the rules and
regulations promulgated thereunder, including, but not limited to, Regulations
C and S-B (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission"), and the Registration Statement and related
Prospectus, together with all exhibits and other documents required by the
Rules and Regulations have been filed by the Company with the Commission under
the 1933 Act; and the Company will use its best efforts to cause and assist the
Commission in declaring the same effective as promptly as possible. The
Company may file one or more additional amendments to the Registration
Statement and related Prospectus with the Commission on or prior to the
Effective Date defined in Section 8 of this Agreement, and copies of each such
amendment will be delivered to the Representative for its approval prior to
such filing.

As used in this Agreement, the terms "Registration Statement on Form
SB-2" and "Registration Statement" refer to and mean the Registration Statement
on Form SB-2 prepared by the Company in connection with the Offering and any
and all amendments thereto including, but not limited to, exhibits and
financial statements and, in the event of any amendment after the Effective
Date, the term "Registration Statement on Form SB-2" or "Registration
Statement" is inclusive of such amendments. The term "Prospectus" refers to
and means the Prospectus, including the Preliminary Prospectus (hereinafter
defined) prepared by the Company in the form specified by Form SB-2 and all
amendments thereto, and, in the event of any amendment or supplement to such
Prospectus after the Effective Date, the term "Prospectus" shall refer to and
mean such Prospectus inclusive of such amendments or supplements; and the term
"Preliminary Prospectus" means any prospectus included in the Registration
Statement before the Effective Date.

2.2 Accuracy of Registration Statement and Related Prospectus.
The Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus with

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<PAGE> 9
respect to the Shares, and each Preliminary Prospectus has conformed in all
material respects with the requirements of the 1933 Act and the applicable
Rules and Regulations and has not included any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. On the Effective Date and on the Closing Date, the Registration
Statement and Prospectus will comply in all respects with the requirements of
the 1933 Act and the Rules and Regulations for the purpose of the proposed
Offering of the Shares; and all statements of material fact contained in the
Registration Statement and Prospectus will be true and correct, except, to the
extent that the Preliminary Prospectus anticipates facts that will be true and
correct as of the Effective Date that are not true on the date of the
Preliminary Prospectus, and neither the Registration Statement nor the
Prospectus will include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
the Company does not make any representations or warranties as to the
information contained in or omitted from the Registration Statement or
Prospectus in reliance upon written information furnished on behalf of the
Representative specifically for use therein.

2.3 Financial Statements. The audited and other financial
statements of the Company, together with related schedules and notes as set
forth in the Registration Statement and Prospectus, present correctly and truly
the financial position and results of operations of the Company as of the
respective dates, and for the respective periods, to which they apply. Such
statements have been prepared in accordance with generally accepted accounting
principles and the applicable rules and regulations of the Commission relating
to financial statements. All financial statements filed with the Registration
Statement and Prospectus will reflect all liabilities of the Company,
contingent or otherwise, required to be set forth therein under generally
accepted accounting principles in effect as of the respective dates thereof and
will include adequate reserves for all federal and state tax liabilities
incurred prior to their respective dates and the Company will have no material
liabilities, contingent or otherwise, obligations or claims against it except
as set forth therein.

2.4 Independent Public Accountants. BDO Seidman, LLP and
Meredith, Cardozo & Lanz LLP, who have certified or will certify certain of the
financial statements filed or to be filed with the Commission as part of the
Registration Statement and Prospectus and, as experts, have reviewed certain
other information of a financial or accounting nature contained in the
Registration Statement and Prospectus, are independent certified public
accountants as required by the 1933 Act.

2.5 No Material Adverse Change. Except as may be reflected in or
contemplated by the Registration Statement and Prospectus, subsequent to the
dates as of which information is given therein and through the Closing Date:

(1) there shall not have been any material adverse change
in the condition, financial or otherwise, or in the results of
operations of the Company or in its business taken as a whole;

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<PAGE> 10
(2) there shall not have been any material transaction
entered into by the Company other than transactions in the ordinary
course of the Company's business;

(3) the Company shall not have incurred any material
obligations, contingent or otherwise, which are not disclosed in the
Registration Statement and Prospectus;

(4) there shall not have been any change in the capital
stock or long-term debt (except current payments thereof) of the
Company; and

(5) the Company shall not have paid or declared any
dividends or made any other distribution in respect of the capital
stock of the Company.

2.6 No Defaults. Other than as disclosed in the Registration
Statement and Prospectus, the Company is not in default in the performance of
any obligation, agreement or condition contained in any debenture, note or
other evidence of indebtedness or any indenture or loan agreement of the
Company. The execution and delivery of this Agreement and the consummation of
the transactions herein contemplated and compliance with the terms of this
Agreement will not conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, the certificate of
incorporation, as amended, or bylaws, as amended, of the Company, any note,
indenture, mortgage, deed of trust or other agreement or instrument to which
the Company is a party or by which it or any of its property is bound, or any
existing law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company or its
property. The consent, approval, authorization or order of any court or
government instrumentality, agency or body is not required for the consummation
of the transactions herein contemplated except such as may be required under
the 1933 Act or under the Blue Sky, or securities laws, of any state or
jurisdiction.

2.7 Incorporation and Standing. The Company is, and at the
Closing Date will be, duly incorporated and validly existing in good standing
as a corporation under the laws of its jurisdiction of incorporation and with
full power and authority (corporate and other) to own its property and conduct
its business, present and proposed, as described in the Registration Statement
and Prospectus, and the Company has and will have an authorized and outstanding
capital stock as set forth in the Registration Statement and Prospectus; the
Company has full power and authority to enter into this Agreement; the Company
owns, free and clear of any lien, charge or encumbrance, all of the unissued
capital stock as set forth in the Registration Statement and Prospectus; and
the Company is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which it owns or leases real property or transacts
business requiring such qualification, and in which the failure to so qualify
would have a material adverse effect on the Company.

2.8 Legality of Outstanding Common Stock. At the Closing Date,
the Company will have an authorized capitalization of 20,000,000 shares of
Common Stock, $0.01 par value per share, of which no more than 4,175,300 shares
(excluding shares issued pursuant to exercise of

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<PAGE> 11
the over-allotment option described in Section 4.1) will be issued and
outstanding, and no shares of which will be held in the treasury of the
Company. At the Closing Date, the outstanding shares of Common Stock will have
been duly and validly authorized and issued, and will be fully paid and
nonassessable. The outstanding shares of Common Stock conform to all
statements with regard thereto contained in the Registration Statement and
Prospectus. No offers or sales of the Common Stock or other securities have
been made by the Company in violation of the 1933 Act. On the Effective Date,
and through and including the Closing Date, there will be no outstanding
options, warrants or other rights (however characterized or described) to
purchase any shares of the Common Stock or securities convertible into Common
Stock, except as described in the Registration Statement and Prospectus.

2.9 Legality of Securities. The Shares, the Representative's
Warrant, and the Representative's Warrant Stock have been duly and validly
authorized and, when issued and delivered against payment therefor as provided
in this Agreement, will be validly issued, fully paid and nonassessable. Said
securities, upon issuance, will not be subject to any preemptive right of any
stockholder of the Company, and no preemptive rights will exist with respect to
any securities of the Company through the Closing Date or until the expiration
of the Representative's Warrant Period (hereinafter defined). The
Representative's Warrant, when sold and delivered, will constitute a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms. A sufficient number of shares of the Common Stock have been
reserved for issuance as Representative's Warrant Stock upon exercise thereof.
The Shares, the Representative's Warrant and the Representative's Warrant Stock
will conform to all statements with regard thereto in the Registration
Statement and Prospectus.

2.10 Prior Sales. No shares of the Common Stock or other
securities of the Company have been sold by the Company, or by or on behalf of
or for the benefit of any officer, director, predecessor, affiliate, promoter,
associate, principal security holder, Representative or other controlling
person of the Company since three years prior to the date hereof, except as set
forth in the Registration Statement.

2.11 Litigation. Except as set forth in the Registration Statement
and Prospectus, there is, and at the Closing Date there will be, no litigation,
cause of action, suit or proceeding before any court or governmental agency,
authority, or body pending or, to the knowledge of the Company, threatened,
which might result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse change in
the condition (financial or otherwise), the business or the prospects of the
Company or would materially affect the properties or assets of the Company.

2.12 Representative's Warrant. Upon delivery and receipt of
payment for the Representative's Warrant to be sold by the Company as set forth
in Section 4.4 of the Agreement, the Representative and its assignees will
receive good and marketable title thereto, free and clear of all liens,
encumbrances, charges and claims whatsoever; and the Company will have on the
Effective Date and at the time of delivery of the Representative's Warrant,
full legal

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<PAGE> 12
right, power and authority required by law to issue, sell, transfer and deliver
the Representative's Warrant in the manner provided hereunder.

2.13 Finder. The Company represents that no finder's fee has been
or will be paid in connection herewith. It is understood that, should a claim
be made for any finder's fee in connection with the sale of the Shares and
based upon any agreement by the Company, the Company will indemnify the
Representative with respect to any such claim.

2.14 Exhibits. There are no contracts, instruments or other
documents which are required by the 1933 Act or by the Rules and Regulations to
be filed as exhibits to the Registration Statement which have not been so
filed; and each contract or other instrument (however characterized or
described) to which the Company is a party and to which reference is made in
the Registration Statement and Prospectus has been duly and validly executed,
is in full force and effect in all material respects and is enforceable against
the parties thereto in accordance with its terms, and none of such contracts or
instruments has been assigned by the Company; and the Company knows of no
present situation or condition or fact which would prevent compliance by the
parties with the terms of such contracts or instruments as amended to date.
Except for amendments or modifications of such contracts or instruments in the
ordinary course of business, the Company has no intention of exercising any
right which would cause any other party to the contract to cancel any of their
obligations under any of such contracts or instruments, and the Company has no
knowledge that any other party to any of such contracts or instruments has any
intention not to render full performance thereunder.

2.15 Tax Returns. The Company has filed all federal, foreign,
state and local tax returns which are required to be filed, and has paid all
taxes shown on such returns and on all assessments received by it to the extent
such taxes have become due. All taxes with respect to which the Company is
obligated have been paid or adequate accruals have been set up to cover any
taxes which remain unpaid.

2.16 Property. Except as otherwise set forth in, or contemplated
by, the Registration Statement and Prospectus: (i) the Company has good title,
free and clear of all liens, encumbrances and defects, except liens for current
taxes not due and payable, to all real and personal property and assets
described in the Registration Statement and Prospectus as being owned by the
Company, subject only to such exceptions as are not material and do not affect
adversely the present or prospective business of the Company; and (ii) the
properties, including equipment, referred to in the Registration Statement and
Prospectus as being held under lease or option by the Company, are held under
valid, subsisting and enforceable leases or options with only such exceptions
which collectively are not material and do not affect adversely the present or
prospective business of the Company.

2.17 Use of Proceeds. The Company shall apply the proceeds from
the sale of the Shares solely and exclusively to the purposes set forth in the
Registration Statement and Prospectus.

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<PAGE> 13
2.18 Authority. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action, and this
Agreement is the valid and binding obligation of the Company enforceable
against it in accordance with its terms.

2.19 Subsidiaries. The Company has no subsidiaries except for
those described on Schedule 2.19 hereto. Unless the context expressly requires
otherwise, all references in this Agreement to the Company shall refer to the
Company and all of its Subsidiaries.

2.20 Availability of Information Concerning the Company. All
documents and other information relating to the Company's affairs shall be made
available upon request to the Representative and its counsel at the
Representative's office or at the office of its counsel, and copies of any such
documents shall be furnished upon request to the Representative or its counsel.
Prior to the Effective Date, the contents of all such documents and other
information shall be subject to the approval of the Representative and, if not
so approved, the Representative may choose not to proceed with the Offering.
Notice of disapproval of any document shall be given to the Company or counsel
to the Company within a reasonable time after the document is made available to
the Representative or its counsel. Included within the documents to be made
available are the Company's articles of incorporation, as amended, and related
charter documents, bylaws and amendments thereto, minutes of all meetings and
other actions taken by the Company's incorporators, directors and stockholders,
all financial statements, correct copies of any material contracts, licenses,
leases or agreements to which the Company is a party or by which it or its
property is bound, including contracts for the sale of products or services in
the normal course of business and including any employee (including officers
and/or directors) incentive plans and any other type of fringe benefit plan, of
whatever nature, and copies of all patents, patent applications, trademarks and
trademark applications in which the Company may have an interest.

2.21 Suspension Orders. The Company shall advise the
Representative immediately and confirm in writing the receipt of any threat of,
or the initiation of any steps or proceedings which would impair or prevent the
right to offer any of the securities, or the issuance by the Commission or
other regulatory authority of any stop order or suspension order or other
prohibition preventing or impairing the proposed transactions.

2.22 Transfer Agent. The Company has appointed American Securities
Transfer & Trust, Incorporated, 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202, as its transfer agent (the Transfer Agent") for the Common
Stock.

2.23 Employment Agreements. The Company has entered into and
delivered to the Representative employment agreements with each of Esmond T.
Goei, Douglas S. Zorn and James S. Gillespie, which employment agreements
specifically include limits on bonus compensation, noncompetition covenants and
confidentiality provisions satisfactory to the Representative. Voice Plus,
Inc. has entered into and delivered to the Representative employment agreements
with each of Diane E. Nowak and Bradley J. Eickman, which employment agreements
specifically include limits on bonus compensation, noncompetition

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<PAGE> 14
covenants and confidentiality provisions satisfactory to the Representative.
The Company has obtained a key-man life insurance policy on the life of Esmond
T. Goei, in the amount of $1,000,000.

2.24 Florida Compliance. The Company has complied and will comply
with all provisions of Florida Statutes Section 517.075 (Chapter 92-198, Laws
of Florida). Neither the Company, nor any affiliate thereof, does business
with the government of Cuba or with any person or affiliate located in Cuba.

SECTION 3

Representations and Warranties of the Selling Shareholder.

In order to induce the Representative to enter into this Agreement,
the Selling Shareholder hereby represents and warrants to, and agrees with, the
Representative as follows:

3.1 Ownership of Selling Shareholder Shares. The Selling
Shareholder owns all issued and outstanding shares of Common Stock of Voice
Plus, Inc. and at the Closing Date will own the Selling Shareholder Shares free
and clear of any liens, charges, claims, security interests or encumbrances.

3.2 Validity of Agreement. The Agreement has been duly
authorized, executed and delivered by Selling Shareholder and the sale of the
Selling Shareholder Shares by the Selling Shareholder and the compliance by the
Selling Shareholder with all of the provisions of this Agreement and the
consummation of the transactions contemplated herein will not conflict with,
result in a breach or violation of, or constitute, either by itself or upon
notice or passage of time or both, a default under any indenture, mortgage,
deed of trust, loan agreement, lease, franchise, license or other contract,
agreement or instrument to which the Selling Shareholder is a party or by which
the Selling Shareholder is bound or to which any property or assets of the
Selling Shareholder are subject.

3.3 Representations and Warranties. To the knowledge of the
Selling Shareholder, all of the representations and warranties of the Company
contained in this Agreement are true and correct as of the date hereof.

3.4 Accuracy of Registration Statement and Related Prospectus.
The material set forth under "Principal and Selling Stockholders" in the
Prospectus, insofar as it relates to the Selling Shareholder, is accurate and
complete.

3.5 Payment of Costs and Expenses. The Selling Shareholder shall
be responsible for and pay a pro rata share of the non-accountable expense
allowance of the Representative (equal to 3% of the gross proceeds derived from
the sale of the Selling Shareholder Shares) and the Representative's discount
from the Offering Price (equal to 7% of the gross proceeds derived

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<PAGE> 15
from the sale of the Selling Shareholder Shares). Selling Shareholder shall be
entitled to receive only the purchase price specified in Section 4.1 for the
Selling Shareholder Shares.

SECTION 4

Issue, Sale and Delivery of the Shares

4.1 Appointment of Representative. The Company hereby agrees to
sell 1,700,000 Shares and the Selling Shareholder agrees to sell 600,000 Shares
to the Members, severally and not jointly, and each Member, upon the basis of
the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase from the Company and the
Selling Shareholder, severally and not jointly, the number of Shares set forth
opposite their respective names in Schedule I attached hereto at a purchase
price of $____ per Share. The Company hereby grants to the Underwriting Group
an over-allotment option for a period of thirty (30) days after the Effective
Date to purchase at a purchase price of $____ per Share up to 345,000 additional
Shares of Common Stock. Such Shares shall be purchased for the account of each
Member as nearly as practicable in the proportion that the number of Shares set
opposite the name of each of the Members in Schedule I attached hereto bears to
the 2,300,000 Shares purchased prior to the exercise of the over-allotment
option. The obligations of the Members hereunder are subject to, among other
things: (a) notice from the Commission of effectiveness of the Registration
Statement; (b) receipt of written advice from the NASD, pursuant to Section 1 of
Article III of the NASD's Rules of Fair Practice, approving the fairness and
reasonableness of the underwriting arrangements in connection with the sale of
the Shares; (c) qualification of the sale of the Shares under applicable state
laws and the absence of any action by any government body, agency or official
prohibiting the sale of the Shares; and (d) the terms and conditions contained
in this Agreement and in the Registration Statement and Prospectus covering the
sale of the Shares to which this Agreement relates.

4.2 Default by a Member. If for any reason one or more Members
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 10 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such
Member, the Company shall immediately give notice thereof to the
Representative, and the non-defaulting Members shall have the right within
twenty-four (24) hours after the receipt by the Representative of such notice,
to purchase or procure one or more other Members to purchase, in such
proportions as may be agreed upon between the Representative and such
purchasing Member or Members, and upon the terms herein set forth, the Shares
which such defaulting Member or Members agreed to purchase. If the non-
defaulting Members fail to make such arrangements with respect to all such
Shares, the number of Shares which each non-defaulting Member is otherwise
obligated to purchase under the Agreement shall be automatically increased pro
rata to absorb the remaining Shares which the defaulting Member or Members
agreed to purchase; provided, however, that the non-defaulting Members shall
not be obligated to purchase the Shares which the defaulting Member or Members
agreed to purchase if the aggregate number of such Shares exceeds ten percent
(10%) of the total number of Shares which all Members agreed to purchase
hereunder. If the total number of

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<PAGE> 16
Shares which the defaulting Member or Members agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within twenty-four (24) hours next succeeding the
twenty-four (24) hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to the Representative for the purchase
of such Shares on the terms herein set forth. In any such case, either the
Representative or the Company shall have the right to postpone the Closing
determined as provided in Section 4.6 hereof for not more than seven (7)
business days after the date originally fixed as the Closing pursuant to said
Section in order that any necessary changes in the Registration Statement, the
Prospectus or any other documents or arrangements may be made. If neither the
non-defaulting Members nor the Company shall make arrangements within the
twenty-four (24) hour periods stated above for the purchase of all the Shares
which the defaulting Member or Members agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Member and without
any liability on the part of any non-defaulting Member to the Company.

Nothing contained in this Section 4.2 shall relieve any defaulting
Member of its liability, if any, to the Company or to the remaining Members for
damages occasioned by its default hereunder.

4.3 Offering Price. After the Commission notifies the Company
that the Registration Statement has become effective, the Members propose to
offer the Shares to the public at an Offering Price of $____ per Share as set
forth in the Prospectus. The Members may allow such concessions and discounts
upon sales to selected dealers as may be determined from time to time by the
Representative. Payment for the Shares (including Shares included in the over-
allotment option) which the Representative agrees to purchase shall be made to
the Company and to the Selling Shareholder or to their order by certified or
official bank check or checks in the amount of the purchase price by or on
behalf of the Representative at the offices of Dorsey & Whitney LLP in Denver,
Colorado, or by wire transfer in the amount of the purchase price pursuant to
instructions delivered by the Company and Selling Shareholder, upon delivery to
the Representative of certificates for the Shares in definitive form in such
numbers and registered in such names as the Representative shall request in
writing at least two (2) full business days prior to such delivery.

4.4 Principal Terms of Representative's Warrant. Upon payment for
the Shares, at the Closing the Company shall sell and deliver to the
Representative and/or its designees, the Representative's Warrant to purchase
230,000 shares of Common Stock, for a purchase price of $100.00. The
Representative's Warrant shall be in the form attached as Exhibit A hereto and
shall be in form and content acceptable to counsel for the Representative; and
the Representative's Warrant shall evidence the right of the Representative to
purchase 230,000 shares of the Common Stock and shall be exercisable commencing
one (1) year after the Effective Date and for a period of four (4) years
thereafter (such four (4) year period shall be known as the "Representative's
Warrant Period") and shall contain antidilution and adjustment provisions
acceptable to the Representative. The Representative's Warrant shall be
exercisable at an exercise price of $______ per share (120% of the Offering
Price). On the fifth anniversary of the

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<PAGE> 17
Effective Date, the Representative's Warrant shall expire. The Company will
not be obligated to sell and deliver the Representative's Warrant, and the
Representative will not be obligated to purchase and pay for the
Representative's Warrant, except upon payment for the Shares. The
Representative's Warrant to be acquired by the Representative and/or its
designees shall be restricted from sale, transfer, exercise, assignment or
hypothecation for twelve (12) months after the Effective Date, except to
officers of the Representative and to Members and their respective officers or
partners or other designees. Such designation will only be made prior to the
Effective Date if the Representative determines that such designation would not
violate the interpretation of the Board of Governors of the NASD relating to
the review of corporate financing arrangements. The Representative has
disclosed to the Company, and the Company has agreed, that the Representative
may transfer, after twelve (12) months from the date of the Representative's
Warrant, a portion or all of the Representative's Warrant to certain persons,
including, but not limited to, the Representative's officers, directors,
stockholders, employees, or registered representatives. The Representative and
the Company agree that such transfers will only be made if they do not violate
the registration provisions of the 1933 Act. The Representative's Warrant
Stock will be registered by the Company in the Registration Statement.

4.5 Inspection of Certificates. For the purpose of expediting the
checking and packaging of the certificates for the securities comprising the
Shares and the Representative's Warrant, the Company agrees to make the
certificates available for inspection by the Representative at the main office
of the Representative in Denver, Colorado, at least one (1) full business day
prior to the proposed delivery date.

4.6 Closing. The time and date of delivery and payment hereunder
is herein called the "Closing Date". The Company and the Selling Shareholder
will deliver the Shares to the Representative at the offices of Dorsey &
Whitney LLP in Denver, Colorado or at such other location as may be specified
by the Representative, at 10:00 a.m. New York time, against payment of the
purchase price, on the third full business day after commencement of the
Offering or, if the Offering commences after 4:30 p.m., New York time, on the
fourth full business day after commencement of the Offering, or such earlier
time as may be agreed upon by the Representative and the Company. Should the
Representative elect to exercise any part of the over-allotment option pursuant
to Section 4.1 hereof, the time and date of delivery and payment for said over-
allotment Shares shall be as mutually agreed, but not later than the thirtieth
(30th) calendar day after the Effective Date. Said date is hereinafter
referred to as the "Over-allotment Closing Date."

4.7 Representative's Expense Allowance. It is understood that the
Company will reimburse the Representative for its expenses on a non-accountable
basis in the amount of three percent (3%) of the gross proceeds from the sale
of the Shares (i.e., $____ per Share), including proceeds from the sale of the
Shares included in the over-allotment option, less a credit to the Company at
Closing of $20,000. In no event shall this expense allowance be refundable or
accountable, except as provided in the next paragraph.

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<PAGE> 18
The Company and the Representative mutually acknowledge that the
Company paid the Representative $20,000 towards the Representative's
nonaccountable expense allowance, and the Representative hereby acknowledges
receipt of such portion of the nonaccountable expense allowance. At the
Closing and, if applicable, on the Over-allotment Closing Date, the Company
shall pay to the Representative the unpaid balance of such expense allowance to
defray the expenses incurred by the Representative in connection with the
Offering. The Representative's expenses shall include, but are not to be
limited to, the fees of Representative's counsel, plus any additional expenses
and fees, travel expenses, postage expenses, duplication expenses, long
distance telephone expenses and other expenses incurred by the Representative
in connection with the proposed sale of the Shares.

4.8 Mutual Warranty. The parties represent and warrant that as of
the date hereof and as of the Closing Date, the representations and warranties
herein contained and the statements contained in all certificates delivered by
any party to another pursuant to this Agreement shall in all respects be true
and correct.

4.9 Sales Reports. The Representative covenants that reasonably
promptly after the Closing Date it will supply the Company with all information
requested in writing by the Company and required from the Representative for
the completion of Form SR as may be required by Rule 463 of Regulation C and
such additional information as the Company may reasonably request to be
supplied to the securities commissions of the states in which the Shares have
been qualified for sale.

4.10 Re-offers By Selected Dealers. On each sale by the
Representative of any of the Shares through such dealers and institutions
agreeing to purchase Shares under the Selected Dealers Agreement with the
Representative (each, a "Selected Dealer"), the Representative shall require
the Selected Dealer purchasing any such Shares to agree to re-offer the same on
the terms and conditions of the Offering set forth in the Registration
Statement and Prospectus.

SECTION 5

Registration Statement and Prospectus

5.1 Representative's Copies. The Company shall deliver to the
Representative, without charge, two (2) signed copies of the Registration
Statement including all financial statements and exhibits and amendments or
supplements thereto as filed with the Commission and shall deliver without
charge to the Representative an additional seven (7) conformed copies of the
Registration Statement and any amendments or supplements thereto, including
such financial statements and exhibits. The signed copies of the Registration
Statement so furnished to the Representative shall include signed copies of any
and all consents and certificates of the independent public accountants
certifying to the financial statements included in the Registration Statement
and Prospectus and signed copies of any and all consents and certificates of
any other person whose profession gives authority to statements made by him and
who is named in the Registration Statement or Prospectus as having prepared,
certified or reviewed any part thereof.

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<PAGE> 19
5.2 Copies of Preliminary Prospectus and Prospectus. Prior to the
Effective Date, the Company shall procure at its expense and shall deliver to
Members and to other broker/dealers, as many printed copies of each Preliminary
Prospectus filed with the Commission bearing the statement required by Rule
481(b)(2) of Regulation C under the 1933 Act as may be required by the
Representative. The Company consents to the use of the same by Members and by
dealers prior to the Effective Date. In addition, on and after the Effective
Date, the Company shall procure at its expense as many printed copies of the
Prospectus at such addresses as the Representative may direct for the purposes
contemplated by this Agreement and shall deliver such printed copies of the
Prospectus within one (1) business day after the Effective Date.

5.3 Post-Effective Amendments. If, during such period of time as
in the opinion of the Representative or its counsel a Prospectus relating to
the sale of the Shares contemplated hereby is required to be delivered under
the 1933 Act, any event occurs or any event known to the Company relating to or
affecting the Company shall occur as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or if it
is necessary at any time after the Effective Date to amend or supplement the
Prospectus to comply with the 1933 Act, the Company shall forthwith notify the
Representative thereof and shall prepare and file with the Commission such
further amendment to the Registration Statement or supplemental or amended
Prospectus as may be required and shall furnish and deliver to the
Representative and to others whose names and addresses are designated by the
Representative, all at the cost of the Company, a reasonable number of copies
of the amended or supplemented Prospectus which, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the Prospectus not misleading in the
light of the circumstances existing when it is delivered to a purchaser or
prospective purchaser and which will comply in all respects with the 1933 Act;
and in the event the Representative shall be required to deliver a Prospectus
ninety (90) days or more after the Effective Date, upon request of the
Representative, the Company shall prepare promptly such Prospectus as may be
necessary to permit compliance with the requirements of Section 10 of the 1933
Act.

5.4 Use of Prospectus. The Company authorizes the Members in
connection with the distribution of the Shares, and all dealers to whom any of
the Shares may be sold to or through the Members to use the Prospectus as from
time to time amended or supplemented in connection with the offering and sale
of the Shares and in accordance with the applicable provisions of the 1933 Act,
the applicable Rules and Regulations and the applicable state securities or
Blue Sky laws.

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<PAGE> 20
SECTION 6

Covenants of the Company

The Company covenants and agrees with the Representative and other
Members that:

6.1 Filing of Amendments. After the date hereof, the Company will
not at any time, whether before or after the Effective Date, file any amendment
or supplement to the Registration Statement or Prospectus, a copy of which
amendment or supplement the Representative shall not previously have been
furnished a reasonable time prior to the proposed filing thereof, and as to
which the Representative or its counsel shall have reasonably objected in
writing on the ground that it is not in compliance with the 1933 Act or the
Rules and Regulations. The Company agrees to supply the Representative's
counsel with the contents of any oral comments and copies of all comments,
correspondence and orders received from the Commission in connection with the
filing of any Registration Statement or amendment or supplement thereto.

6.2 Declaration of Effectiveness. The Company shall use its best
efforts to cause the Registration Statement and any post-effective amendment
subsequently filed to become effective as promptly as practicable, but shall
not obtain an Effective Date or allow the Registration Statement to become
effective without the approval of the Representative. The Company will
promptly advise the Representative, and will confirm such advice in writing:

(1) when the Registration Statement shall have become
effective and when any amendment thereto shall have become effective
and when any amendment of or supplement to the Prospectus shall have
been filed with the Commission;

(2) when the Commission shall make a request or
suggestion for any amendment to the Registration Statement or the
Prospectus or for additional information and the nature and substance
thereof;

(3) of the issuance by the Commission of any order
suspending the effectiveness of the Registration Statement pursuant to
Section 8 of the 1933 Act or of the initiation of any proceeding for
that purpose;

(4) of the happening of any event which, in the judgment
of the Company, makes any material statement in the Registration
Statement or Prospectus untrue or which requires the making of any
change in the Registration Statement or Prospectus in order to make
the statements therein not misleading; and

(5) of the refusal to qualify or the suspension of the
qualification of the Shares for offering or sale in any jurisdiction
or of the institution of any proceeding for any of such purposes.

The Company shall use every reasonable effort to prevent the issuance of any
such order or of any order preventing or suspending such use, to prevent any
such refusal to qualify or any such

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<PAGE> 21
suspension and to obtain as soon as possible a lifting of any such order, the
reversal of any such refusal and the termination of any such suspension.

6.3 Amendments at the Request of the Representative. The Company
shall prepare and file promptly with the Commission, upon the request of the
Representative, such amendments or supplements to the Registration Statement
and Prospectus in form satisfactory to counsel to the Company as, in the
opinion of counsel to the Representative, may be necessary or advisable in
connection with the sale of the Shares and will use its best efforts to cause
the same to become effective as promptly as possible.

6.4 Blue Sky. (1) The Company shall, at its sole cost and expense
and when and as requested by the Representative, apply for and qualify the sale
of the Shares in all states in which the Representative reasonably requests in
order to qualify under such state's Blue Sky laws. The Company agrees that the
Representative will instruct its counsel to make all of the appropriate
filings, and the Company agrees to advance to the Representative the estimated
attorneys' fees of the Representative incurred in connection therewith and to
pay any balance of such fees promptly upon the Representative's request
therefor. The maximum number of Shares to be offered in the entire offering
shall be registered in each state (or if sales will be permitted by exemption
rather than registration, the exemption shall be obtained for such maximum
number of Shares), unless the Representative agrees otherwise in writing. The
Company will advance to the Representative all filing fees for all state
filings. The Company will continue such qualifications in effect so long as
required for the purposes of the sale of the Shares. Copies of the
applications for the registration of securities filed with the various states
shall be supplied to the Company's and Representative's counsel, and copies of
all comments and orders received from the various states will be supplied to
Company's and Representative's counsel. (2) No less than one week prior to the
expected Effective Date of the Registration Statement, and immediately prior to
the release of the Preliminary Prospectus, Representative's counsel shall
prepare and deliver to both parties and other counsel, a Preliminary Blue Sky
Memorandum, including, among other things, all states wherein the proposed sale
of the Shares has been qualified or registered for sale and the number of
Shares registered in any such state, and all states where an exemption from
qualification or registration is available, and the basis thereof. Immediately
prior to the Effective Date of the Registration Statement, counsel who prepared
the Blue Sky filings shall prepare and deliver to both parties and other
counsel a final Blue Sky Memorandum, including, among other things, all states
wherein the offering may be sold to the public and all states where an
exemption from qualification or registration is available, the basis thereof,
and the number of Shares which may be sold in each such state.

6.5 Further Reports. The Company, at its own expense, shall
prepare and give and shall continue to give such financial statements and other
information to the Commission and the proper public bodies of the states in
which the Shares may be qualified as may be required from time to time by the
Commission and such proper public bodies and will furnish the Representative
with copies thereof promptly upon the filing thereof with the Commission or
such proper public bodies.

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<PAGE> 22
6.6 Reports to Representative. During the period of five (5)
years from the Closing Date, the Company shall deliver to the Representative
copies of each annual report of the Company, and also shall deliver to the
Representative:

(1) within ninety (90) days (or such later period for
filing of the Company's Annual Report on Form 10-K as may be permitted
under Rule 12b-25) after the close of each fiscal year of the Company,
a financial report of the Company on a consolidated basis (if
applicable) and a similar financial report of all unconsolidated
subsidiaries, if any, all such reports to include a balance sheet as
of the end of the preceding fiscal year, an income statement, a
statement of cash flow, all to be in reasonable detail and certified
by independent public accountants who may, however, be the regularly
employed independent public accountant of the Company;

(2) within forty-five (45) days (or such later period for
filing of the Company's Quarterly Report on Form 10-Q as may be
permitted under Rule 12b-25) after the end of each quarterly fiscal
period of the Company, other than the last quarterly fiscal period in
any fiscal year, copies of the consolidated (if applicable) income
statement and statement of changes in financial condition for that
period and the balance sheet as of the end of that period of the
Company and the income statement, statement of changes in financial
condition and the balance sheet of each unconsolidated subsidiary, if
any, of the Company for that period, all subject to year-end
adjustment, certified by the principal financial or accounting officer
of the Company;

(3) copies of all other statements, documents or other
information which the Company shall mail or otherwise make available
to any class of its security holders or shall file with the Commission
pursuant to the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act") or otherwise;

(4) copies of all news, press or public information
releases when made; and

(5) subject to such assurances of confidentiality as the
Company may request with respect to any non-public information, upon
request in writing from the Representative, furnish to the
Representative such other information as reasonably may be requested
with reference to the property, business and affairs of the Company.

If the Company shall fail to furnish to the Representative financial
statements as provided in subparagraphs (1) and (2) above within the times
specified, and the Company has not received an extension of such time for
filing or is not in the immediate process of preparing such filing, the
Representative shall have the right to have such financial statements prepared
by independent public accountants of its own choosing and the Company shall
furnish such independent public accountants such data and assistance and access
to such records as they may reasonably require to enable them to prepare such
statements and shall pay their reasonable fees and expenses in preparing the
same.

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<PAGE> 23
6.7 Expenses of Offering. The Company shall pay, whether or not
the transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement, including
all expenses incident to the authorization, issuance and delivery of the Shares
and Representative's Warrant, any original issue taxes in connection therewith,
all transfer taxes, if any, incident to the initial sale of the Shares, the
Representative's Warrant and Representative's Warrant Stock, if such sales are
consummated, the initial fees and expenses of the Transfer Agent, if any, the
fees and expenses of the Company's counsel and accountants, the costs and
expenses incident to the preparation, printing and filing under the 1933 Act
and with the NASD of the Registration Statement and Prospectus and any
amendments or supplements thereto, the cost of preparing and filing all
exhibits to the Registration Statement, this Agreement, the Blue Sky
Memorandums and the Questionnaires to officers and directors of the Company for
the obtaining of information for the Registration Statement and Preliminary and
final Prospectus, the cost of printing and furnishing to the Representative
copies of the Registration Statements and copies of the Preliminary and final
Prospectus as herein provided, and the cost of qualifying the Shares under the
state securities or Blue Sky laws as provided in Section 6.4 herein, including
filing fees. In addition to the above, the Company shall also pay all
expenses, up to a maximum of $15,000, incurred in connection with the placement
of a "tombstone" advertisement in the national edition of The Wall Street
Journal, Investor's Business Daily, Investment Dealers Digest and the Rocky
Mountain News or any other periodical determined appropriate by the
Representative, after Closing of the Offering. For a period of twelve (12)
months following the Effective Date, the Company will be responsible for
reasonable travel expenses for visits to or on behalf of the Company by a
representative of the Representative when necessarily occasioned by material
adverse changes or events in the business of the Company. These expenses shall
be paid promptly by the Company upon receipt of a billing from the
Representative. The Company, at its sole expense, shall also make a
representative of its management available for the Representative's corporate
manager's meeting after the completion of the Offering, and the Company shall
be responsible for all reasonable expenses related to such meeting.

6.8 Stockholder Reports. The Company shall, as promptly as
possible after each annual fiscal period, render and distribute reports to its
stockholders which will include audited statements of its operations and cash
flow during such period and its balance sheet as of the end of such period.

6.9 1933 Act Reporting. Within the time during which the
Prospectus is required to be delivered under the 1933 Act, the Company shall
comply at its own expense with all requirements imposed upon it by the 1933
Act, the Rules and Regulations as from time to time in force and any order of
the Commission, so far as is necessary to permit the continuance of offers,
sales and trading of the Shares.

6.10 Use of Proceeds. The Company will apply the net proceeds from
the sale of the Shares solely and exclusively in the manner set forth in the
Registration Statement and Prospectus.

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<PAGE> 24
6.11 Transfer Sheets. The Company shall issue at the Closing
irrevocable instructions to the Transfer Agent to provide the Representative,
for its confidential use and at the Company's expense, reasonable access to its
daily transfer sheets (provided such access does not result in expense to the
Company) and, annually upon request of the Representative to the Transfer Agent
therefor (but more frequently in the event of an investigation requiring the
same or inquiry therefor by the Commission or other government body or agency
or by the NASD), with lists of stockholders of the Company, all for a period of
five (5) years after the Closing Date.

6.12 Information About the Company. The Company shall deliver to
the Representative the documents described in Section 2.20. In addition, at
Closing, the Company shall deliver to the Representative or its counsel,
certificates of good standing in each state where the Company does business,
certificates as to tax status, incumbency or any other certificate or document
which the Representative may reasonably require prior to Closing.

6.13 Due Diligence Investigation. Prior to the Closing Date, the
Company shall cooperate with the Representative in such investigation as it may
make or cause to be made of all the properties, business and operations of the
Company in connection with the sale of the Shares, and the Company shall make
its officers and directors available to the Representative for interrogation,
without cost or expense, in connection therewith, and the Company shall make
available such information in its possession as the Representative may
reasonably request.

6.14 Transfer Agent. During the period three years after the
Closing Date, the Company shall not change or terminate the appointment of the
Transfer Agent pursuant to Section 2.22 hereto, without first obtaining the
written consent of the Representative, which consent shall not be unreasonably
withheld.

6.15 Conditions Precedent. The Company shall use due diligence to
comply or cause to be complied with all conditions precedent to the several
obligations of the Representative specified in this Agreement.

6.16 Sales Reports. If applicable, the Company shall file with the
Commission all required reports on Form SR in accordance with the provisions of
Rule 463 of Regulation C under the 1933 Act and shall provide a copy of each
such report to the Representative and its counsel.

6.17 1934 Act Registration. Simultaneously with a declaration of
effectiveness of the Registration Statement, the Company, at its sole cost and
expense, shall register the Common Stock by filing with the Commission,
pursuant to Section 12(g) of the 1934 Act, a Registration Statement on Form 10,
or Form 8-A, or other appropriate filing, containing such information and
documents as the Commission may specify. Two (2) signed copies of the
Registration Statement on Form 10, or Form 8-A, or other appropriate filing,
including the certified financial statements and other required exhibits, shall
be supplied to the Representative prior to the filing thereof. In addition, any
amendments or supplements as may be made by the Company or required by the
Commission to the Registration Statement on Form 10, or Form 8-A, or other

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<PAGE> 25
appropriate filing, will be furnished to the Representative after the filing
thereof with the Commission. The Company shall thereafter comply with all
periodic reporting and proxy solicitation requirements imposed by the
Commission pursuant to the 1934 Act, so long as the Company is legally required
to do so and shall furnish the Representative promptly with copies of all
materials filed with the Commission pursuant to the 1934 Act or otherwise
furnished to stockholders of the Company. In addition, the Company agrees to
qualify, simultaneously with a declaration of effectiveness of the Registration
Statement, and maintain such qualification with respect to its Common Stock for
listing on the Nasdaq SmallCap Market ("Nasdaq SmallCap"). The Company shall
also maintain its listing and qualification for listing in the Standard &
Poor's Corporation Records so as to afford the availability of secondary
trading under the Blue Sky laws of various states.

6.18 No Material Change. The Company shall not, except as
described in the Prospectus or with approval of the Representative, until (a)
the termination of this Agreement prior to the Closing pursuant to Sections
10.1 or 10.2, or (b) the expiration of ninety (90) days after the Effective
Date, whichever occurs later:

(1) undertake or authorize any change in its capital
structure or authorize or issue or permit any public offering of any
additional shares of its capital stock, except as herein provided;

(2) authorize, create, issue or sell any funded
obligations, notes or other evidences of indebtedness, except in the
ordinary course of business and maturing not more than twelve (12)
months from the date thereof; or

(3) consolidate, merge or form a joint venture with or
into or acquire any other enterprise (whether in the form of a
corporation or otherwise) or create any mortgage or lien upon any of
its properties or assets other than in the ordinary course of
business.

6.19 Bound Volumes. The Company shall supply to the Representative
and the Representative's counsel, at the Company's cost, two sets of bound
transcripts each containing all of the Closing materials within a reasonable
time after the Closing Date, not to exceed six (6) months.

6.20 Financial Consulting Agreement. At the time of Closing, the
Company shall enter into a financial consulting agreement with the
Representative in the form attached hereto as Exhibit B, pursuant to which the
Representative shall receive a consulting fee of $65,000 per annum. The
services of the Representative pursuant to the agreement shall include, but
shall not be limited to, advising the Company in connection with possible
acquisitions, stockholder relations (including the preparation of the annual
report), long term financial planning, corporate reorganizations, expansion and
capital structure and other financial assistance. The term of the consulting
agreement shall be one (1) year commencing at the completion of this Offering.
The

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<PAGE> 26
Representative has been paid $25,000 of this fee and will receive the balance
of $40,000 at the completion of this Offering.

6.21 Restriction on Sale of Securities. Prior to the declaration
of effectiveness of the Registration Statement, the Company will obtain from
the following identified stockholders, and deliver to the Representative,
agreements from said persons concerning restrictions on future sales of
securities owned by them immediately prior to the declaration of effectiveness
of the Registration Statement by the Commission: Selling Shareholder, Kent
Cossey, Esmond T. Goei, Douglas S. Zorn, Burton Kanter, Gary L. Nemetz, Richard
H. Williams, William H. Brehm and Linda K. Wackwitz. All of said agreements
shall be on a form for which prior approval has been obtained from the
Representative, but shall include agreements that such securities and
underlying securities may not be publicly sold during the eighteen (18)-month
period following the Effective Date, without the prior written consent of the
Representative, which shall not be unreasonably withheld; provided, however,
that such securities may be sold during that time period, provided that such
sale or disposition is a privately negotiated transaction, that the purchaser
agrees in writing with the Representative to the provisions of the transferor's
written agreement with the Representative and the disposition is otherwise in
accordance with applicable securities laws. Notwithstanding the foregoing,
the number of shares owned by Kent Cossey equal to [100,000] Shares may be sold
at the six-month anniversary of the Effective Date and, subject to certain
agreements with the Company and the Representative, the number of shares owned
by Selling Shareholder equal to [150,000] Shares may be sold at the one year
anniversary of the Effective Date.

6.22 Public Relations Firm. The Company shall engage a public
relations firm, acceptable to the Representative, by the Effective Date of the
Registration Statement.

6.23 Board of Directors. For three years after the Effective Date,
the Company shall give written notice to the Representative of all Board of
Directors' meetings at the time such meeting is called and as such notice is
given to the Company's directors and the Representative shall be entitled to
have an observer attend all such Board of Directors' meetings, with any
expenses paid by the Company. Such observer shall be an affiliate of the
Representative.

6.24 Bonus Plan. Notwithstanding any other provision herein, for
___ years after the Effective Date, bonus payments to all eligible individuals
made under the 1997 Management and Company Performance Bonus Plan (the "Bonus
Plan") shall be limited to ten percent (10%) of the net income of the Company,
calculated after tax liabilities and Bonus Plan payments.

SECTION 7

Indemnification

(a) The Company agrees to indemnify and hold harmless the
Representative and each person, if any, who controls the Representative, its
affiliated companies and each of the Representative's and such affiliated
companies' respective officers, directors, agents and controlling persons
(within the meaning of each of Section 20 of the 1934 Act and Section 15 of the
1933 Act) (each of the foregoing, including the Representative, is individually
referred to in this Section 7 as a "Representative" and collectively are
referred to as the "Representative") against any losses, claims, damages or
liabilities, joint or several, brought by a third party, to which such
Representative or each such controlling person may become subject, under the
1933

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<PAGE> 27
Act, the 1934 Act, the common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of, or are
based upon: (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or made orally or in writing
to the Representative or to any representative of a Member, or the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto 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
(provided that the Company shall not be liable to the Representative under the
indemnity agreement in this subsection (i) with respect to any Preliminary
Prospectus or Prospectus to the extent that any such loss, claim, damage or
liability (or action in respect thereof) results from the fact that such
Representative sold Common Stock to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Preliminary Prospectus or Prospectus as then amended or supplemented if the
Company has previously furnished copies thereof to such Representative); or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the Company or
based upon written information furnished by the Company and filed in any
jurisdiction in order to qualify the Shares under, or exempt the Shares or the
sale thereof from qualification under, the securities laws of such
jurisdiction, or the omission or alleged omission to state in such application
or statement 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; and, subject to the provisions this Section 7, will
reimburse the Representative for any legal or other expenses reasonably
incurred by the Representative in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of, or is based upon, an
untrue statement, or alleged untrue statement, omission or alleged omission,
made in reliance upon and in conformity with information furnished to the
Company by, or on behalf of, the Representative in writing specifically for use
in the preparation of the Registration Statement or any such post effective
amendment thereof, any such Preliminary Prospectus or the Prospectus or other
application or statement filed under any states' securities, or blue sky, law
or any such amendment thereof or supplement thereto. This indemnity agreement
is in addition to any liability which the Company may otherwise have. Any
losses, claims, damages, liabilities or expenses for which the Representative
is entitled to indemnification under this Section 7 shall be paid by the
Company as such losses, claims, damages or expenses are incurred. At the
election of the Representative, and subject to subsection (d) below, the
Representative may request, and is entitled to receive, from the Company
reimbursement for legal or other expenses reasonably incurred on a monthly
basis, with the effect that the Company will pay in full each detailed invoice
for legal or other expenses incurred by the Representative within 30 days after
the date of presentation thereof by the Representative.

(b) The Selling Shareholder agrees to indemnify and hold
harmless the Representative and each person, if any, who controls the
Representative within the meaning of Section 15 of the Act against any losses,
claims, damages or liabilities, joint or several, to which

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<PAGE> 28
the Representative or each such controlling person may become subject, under
the Act, the Exchange Act, the common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of, or
are based upon any breach or violation of any representation or warranty of the
Selling Shareholder contained in Section 3 of this Agreement; and, subject to
the provisions of paragraph (d) of this Section 7, will reimburse the
Representative and each such controlling person for any legal or other expenses
reasonably incurred by the Representative or controlling person in connection
with investigating or defending against any such loss, claim, damage, liability
or action; provided, however, that the Selling Shareholder will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of, or is based upon, an untrue statement, or alleged untrue
statement, omission or alleged omission, made in reliance upon and in
conformity with information furnished to the Selling Shareholder or the Company
by, or on behalf of, the Representative in writing specifically for use in the
preparation of the Registration Statement or any such post effective amendment
thereof, any such Preliminary Prospectus or the Prospectus or other application
or statement filed under any states' securities, or blue sky, law or any such
amendment thereof or supplement thereto. Provided further that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any untrue statement, alleged untrue statement, omission or alleged omission
made in any Preliminary Prospectus but eliminated or remedied in the
Prospectus, such indemnity agreement shall not inure to the benefit of the
Representative (or to the benefit of any person who controls such
Representative), if the person asserting any loss, claim, damage or liability
purchased the Shares from the Representative which are the subject thereof, was
not sent or given a copy of the Prospectus with, or prior to, the written
confirmation of the sale of such Shares to such person. This indemnity
agreement is in addition to any liability which the Selling Shareholder may
otherwise have. Notwithstanding the foregoing provisions of this Section 7(b),
in no event shall (i) the liability of the Selling Shareholder in respect of
the indemnification obligations hereunder exceed the net proceeds received by
the Selling Shareholder from the sale of the Selling Shareholder Shares, or
(ii) the indemnified party become entitled to indemnification from the Selling
Shareholder unless and until such indemnified party has exhausted all
indemnification and contribution rights that it may have against the Company
under this Agreement. Any losses, claims, damages, liabilities or expenses for
which the Representative is entitled to indemnification under this Section 7
shall be paid by the Selling Shareholder as such losses, claims, damages or
expenses are incurred. At the election of the Representative, and subject to
subsection (d) below, the Representative may request, and is entitled to
receive, from the Selling Shareholder reimbursement for legal or other expenses
reasonably incurred on a monthly basis, with the effect that the Selling
Shareholder will pay in full each detailed invoice for legal or other expenses
incurred by the Representative within 30 days after the date of presentation
thereof by the Representative.

(c) The Representative agrees to indemnify and hold
harmless the Company, each of the Company's directors, each of the Company's
officers who has signed the Registration Statement, each person who controls
the Company within the meaning of Section 15 of the 1933 Act and the Selling
Shareholder against any losses, claims, damages or liabilities, joint or
several, to which the Selling Shareholder, the Company or any such director,
officer, or controlling person may become subject, under the 1933 Act, the 1934
Act, the common law or otherwise,

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<PAGE> 29
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of, or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, 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; or (ii) any untrue statement or alleged untrue
statement of a material fact contained in any application or other statement
executed by the Company or by the Representative or based upon written
information furnished by the Company or the Representative and filed in any
jurisdiction in order to qualify the Shares under, or exempt the Shares or the
sale thereof from qualification under, the securities laws of such
jurisdiction, or the omission or alleged omission to state in such application
or statement 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; in each of the above cases to the extent, but only the
extent, that such untrue statement, alleged untrue statement, omission or
alleged omission, was made in reliance upon and in conformity with information
contained in the material set forth under the sections entitled "Underwriting",
"Risk Factors--Possible Volatility of Stock Prices; Penny Stock Rules" and
"Risk Factors--Secondary Trading Market" of the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto; any losses, claims, damages, liabilities or expenses for which the
Company is entitled to indemnification under this Section 7 shall be paid by
the Representative as such losses, claims, damages or expenses are incurred.
This indemnity agreement is in addition to any liability which the
Representative may otherwise have. At the election of the Company, and subject
to subsection (d) below, the Company may request, and is entitled to receive,
from the Representative reimbursement for legal or other expenses reasonably
incurred on a monthly basis, with the effect that the Representative will pay
in full each detailed invoice for legal or other expenses incurred by the
Company within 30 days after the date of presentation thereof by the Company.

(d) Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify in writing the indemnifying
party of the commencement thereof. The omission to so notify the indemnifying
party will not relieve it from any liability under this Section 7 as to the
particular item for which indemnification is then being sought, unless such
omission so to notify prejudices the indemnifying party's ability to defend
such action. In case any such action is brought against any indemnified party
and the indemnified party notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel who shall be
reasonably satisfactory to such indemnified party; and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 7 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation;

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<PAGE> 30
provided, however, that if, in the reasonable judgment of the indemnified party
or parties, it is advisable for such party or parties and any controlling
persons to be represented by separate counsel by reason of a conflict of
interest of the counsel chosen by the indemnifying party, any indemnified party
shall have the right to employ separate counsel to represent it and other
parties and their controlling persons who may be subject to liability arising
out of any claim in respect of which indemnity may be sought by any party
hereunder, in which event the reasonable fees and expenses of such separate
counsel shall be borne by the indemnifying party. In any such event, the
indemnifying party will not be obligated to pay the fees and expenses of more
than one counsel for the indemnified parties with respect to such claim, unless
either (i) the nature of the claim makes it reasonable to engage counsel in
more than one jurisdiction, or, (ii) in the reasonable judgment of any
indemnified party, a conflict of interest may exist between such indemnified
party and any other indemnified parties with respect to such claim, in which
event the indemnifying party shall be obligated to pay the reasonable fees and
expense of additional counsel or counsels for the indemnified parties. Any
such indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the written
consent of such indemnifying party, which consent shall not be unreasonably
withheld. In the event that an indemnifying party assumes the defense of a
claim in accordance with its obligation to indemnify under this Section 7, it
is understood and agreed that the indemnifying party will thereby assume a
fiduciary duty to the indemnified party to conduct the defense of such claim
consistent with the interests of the indemnified party.

SECTION 8

Effectiveness of Agreement

This Agreement shall become effective the later of (a) the
date and time that this Agreement is executed and delivered by the parties
hereto and (b) at 10:00 a.m., Eastern Daylight Time, on the first full business
day following the Effective Date, or at such earlier time after the Effective
Date as the Representative in its discretion shall first release the Shares for
offering to the public. For purposes of this Section 8, the Shares shall be
deemed to have been released to the public upon release by the Representative
of the publication of a newspaper advertisement relating to the Shares or upon
release of a telegram or a letter offering the Shares for sale to securities
dealers, whichever shall first occur.

SECTION 9

Conditions to the Representative's Obligations

The Representative's obligation to purchase the Shares and to make
payment to the Company hereunder on the Closing Date and on the Over-allotment
Closing Date shall be subject to the accuracy, as of the Closing Date and the
Over-allotment Closing Date, of the representations and warranties on the part
of the Company herein contained, to the performance by the Company of all its
agreements herein contained, to the fulfillment of or compliance by the

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<PAGE> 31
Company with all covenants and conditions hereof, and to the following
additional conditions specified in the subsections of this Section 9.

9.1 Effective Date. The effective date of the Registration
Statement (the "Effective Date") shall occur on or prior to 12:00 noon, Denver,
Colorado time, on __________, ____________________, or such later date as the
Representative may agree to in writing. On or prior to the Closing Date, no
order suspending the effectiveness of the Registration Statement pursuant to
Section 8 of the 1933 Act or otherwise shall have been issued and no proceeding
for that purpose shall have been initiated or threatened by the Commission; any
request for additional information on the part of the Commission or the NASD
shall have been complied with to the satisfaction of the Commission or the
NASD, as the case may be; and neither the Registration Statement, the
Prospectus nor any amendment thereto shall have been filed to which counsel to
the Representative reasonably shall have objected in writing.

9.2 Accuracy of Registration Statement. The Representative shall
not have disclosed in writing to the Company that the Registration Statement or
the Prospectus or any amendment thereof or supplement thereto contains an
untrue statement of a fact which, in the opinion of counsel to the
Representative, is material or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.

9.3 Casualty. Between the date hereof and the Closing Date and
Over-allotment Closing Date, the Company shall not have sustained any loss on
account of fire, explosion, flood, accident, calamity, rebellion, civil
uprising, act of a foreign state, or any other cause of such character as
materially adversely affects its business or property considered as an entire
entity, whether or not such loss is covered by insurance.

9.4 Litigation. Except as set forth in the Registration
Statement, between the date hereof and the Closing Date and the Over-allotment
Closing Date, there shall be no litigation instituted or threatened against the
Company, and there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body or
administrative agency or other government body, domestic or foreign, wherein an
unfavorable ruling, decision or finding would materially adversely affect the
business, franchises, licenses, permits, operations or financial condition or
income of the Company.

9.5 No Material Change. Except as contemplated herein or as set
forth in the Registration Statement and Prospectus, during the period
subsequent to the Effective Date, and prior to the Closing Date and the Over-
allotment Closing Date: (1) the Company shall have conducted its business in
the usual and ordinary manner as the same was being conducted on the Effective
Date, and (2) except in the ordinary course of its business, the Company shall
not have incurred any liabilities or obligations (direct or contingent) or
disposed of any of its assets or entered into any material transaction or
suffered or experienced any materially adverse change in its condition,
financial or otherwise. At the Closing Date and the Over-allotment Closing
Date, the capital stock and surplus accounts of the Company shall be
substantially the same as at the

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<PAGE> 32
Effective Date, without considering the proceeds from the sale of Shares, other
than as may be set forth in the Registration Statement and Prospectus.

9.6 Review by Representative's Counsel. The authorization of the
Shares and the Representative's Warrant, the Registration Statement, the
Prospectus and all corporate proceedings and other legal matters incident
thereto and to this Agreement shall be reasonably satisfactory in all respects
to the Representative and its counsel, and the Company shall have furnished the
Representative and such counsel such documents as they may have requested to
enable them to evaluate the matters referred to in this Section.

9.7 Opinion of Company Counsel. The Company shall have furnished
to the Representative the opinion, dated the Closing Date and the Over-
allotment Closing Date, addressed to the Representative, of Davis, Graham &
Stubbs LLP and/or such other counsel as may be acceptable to the
Representative, to the effect that, based upon a review by them of the
Registration Statement, Prospectus, the Company's articles of incorporation,
bylaws, and relevant corporate proceedings, an examination of such statutes and
such other investigation by such counsel as they deem necessary to express such
opinion:

(1) The Company has been duly incorporated and is a
validly existing corporation in good standing under the laws of its
respective state of incorporation (specifying the same and attaching a
certificate of good standing for each), with full corporate power and
authority to own and operate its properties and to carry on its
business as set forth in the Registration Statement and Prospectus.

(2) The Company is duly qualified and registered to
transact the business in which they are respectively engaged and are
qualified and in good standing in each and every foreign or domestic
jurisdiction in which their ownership of property or their conduct of
business requires such qualification or registration and in which
failure to so qualify would have a material adverse effect upon the
business of the Company.

(3) The Company has an authorized and outstanding
capitalization as set forth in the Registration Statement and
Prospectus; the Shares and the Representative's Warrant conform to the
statements concerning them in the Registration Statement and
Prospectus; the outstanding Common Stock of the Company has been duly
and validly issued and is fully paid and nonassessable and no Common
Stock is subject to any preemptive rights; cumulative voting is not
permitted by the holders of any of the Company's securities; the
Shares, Representative's Warrant, and the shares of Representative's
Warrant Stock issuable upon exercise of the Representative's Warrant,
have been duly and validly authorized and, upon issuance thereof and
payment therefor in accordance with this Agreement, will be duly and
validly issued, fully paid and nonassessable, free and clear of all
liens, encumbrances, equities and claims whatsoever, and will not be
subject to any preemptive rights.

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<PAGE> 33
(4) The Representative's Warrant has been duly and
validly authorized and issued and are valid and binding instruments
enforceable against the Company in accordance with their terms.

(5) A sufficient number of shares of Common Stock have
been duly reserved for issuance as Representative's Warrant Stock upon
exercise of the Representative's Warrant.

(6) The holders of the issued and outstanding shares of
Common Stock are, and the holders of the Shares, Representative's
Warrant Stock and Representative's Warrant (when such securities have
been issued and fully paid for in accordance with the provisions of
the Registration Statement) will be entitled to the rights and
preferences set forth in the certificates representing the same.

(7) No consents, approvals, authorizations or orders of
agencies, officers or other regulatory authorities are necessary for
the valid authorization, issue or sale of the Shares, Representative's
Warrant Stock or Representative's Warrant hereunder, except as
required under the 1933 Act or state Blue Sky or other securities
laws.

(8) The issuance and sale of the Shares, Representative's
Warrant Stock and Representative's Warrant and the consummation of the
transactions herein contemplated and compliance with the terms of this
Agreement will not conflict with or result in a breach of any of the
terms, conditions, or provisions of, or constitute a default under,
the Articles of Incorporation, as amended, or Bylaws of the Company,
as amended, or any note, indenture, mortgage, deed of trust or other
agreement or instrument (however characterized or described) known to
such counsel to which the Company is a party or by which the Company
or any of its property is bound or any existing laws, order, rule,
regulation, writ, injunction or decree known to such counsel of any
government, governmental instrumentality, agency, body, arbitration
tribunal or court, domestic or foreign, having jurisdiction over the
Company or its property.

(9) The Registration Statement and Prospectus have become
effective under the 1933 Act and, to the knowledge of such counsel, no
order suspending the effectiveness of the Registration Statement
pursuant to Section 8 of the 1933 Act or otherwise has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated by the Commission under the 1933 Act or otherwise, and
the Registration Statement and Prospectus and each amendment and
supplement thereto comply as to form in all material respects with the
requirements of the 1933 Act and the Rules and Regulations thereunder
(except that no opinion needs to be expressed as to financial
statements and financial data contained in the Registration Statement
or Prospectus).

(10) The Company owns or holds by valid lease the real and
personal properties as shown in the Registration Statement and
Prospectus and, to the extent such properties are owned by the
Company, they are owned free and clear of all liens,

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<PAGE> 34
encumbrances and equities of record except for those expressly
referred to in the Registration Statement and Prospectus and except
for those as do not in the opinion of counsel adversely affect
materially the value of such assets and except for the lien of current
taxes not then due.

(11) This Agreement has been duly authorized and executed
by the Company and is a valid and binding agreement of the Company.

(12) The Company owns one hundred percent (100%) of all of
the issued and outstanding voting stock of each of the Subsidiaries.

(13) The form of certificate for the Shares is in due and
proper form and complies with all applicable statutory requirements.

(14) Nothing has come to the attention of counsel that all
prior offers and sales of securities by the Company were not exempt
from registration under the Act and were not either registered
pursuant to, or exempt from registration under, all pertinent state
securities, or blue sky, laws.

(15) Since _______, 1995, all prior offers and sales of
securities of the Company were exempt from registration under the Act
and were either registered pursuant to, or exempt from registration
under, all pertinent state securities, or blue sky, laws.

(16) To such counsel's knowledge, there are no pending
legal proceedings relating to trademarks, tradenames or service marks
of the Company, and no such proceedings are threatened or
contemplated.

Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement in form satisfactory to the
Representative's counsel as the Representative shall reasonably request. As an
illustration of the foregoing, but not as a limitation thereof, it is expected
that such opinion will cover the ownership by the Company of all licenses
required to conduct their businesses and such matters concerning disclosure of
and compliance with applicable environmental laws or regulations as may be
deemed advisable by the Representative.

In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel is not passing
upon and does not assume any responsibility for, the accuracy, completeness or
fairness of any of the statements contained in the Registration Statement or
Prospectus and such counsel makes no representation that it has independently
verified the accuracy, completeness or fairness of such statements, in
connection with such counsel's representation of the Company in the preparation
of the Registration Statement and Prospectus, nothing came to the attention of
such counsel which caused it to conclude that, as of the Effective Date, the
Closing Date or the Over-allotment Closing Date, as the case may be, and

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<PAGE> 35
except to the extent that the Preliminary Prospectus anticipates facts true as
of the Effective Date, the Registration Statement or any further amendment
thereto (other than the financial statements and notes thereto and other
financial and statistical data included therein, as to which such counsel need
express no opinion), contained an untrue statement of a material fact or
omitted to state 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 or that, as of its date, the Prospectus or any
further amendment or supplement thereto (other than the financial statements
and notes thereto and other financial and statistical data included therein, as
to which such counsel need express no opinion), contained an untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.

9.8 Opinion of Counsel to Selling Shareholder. The Selling
Shareholder shall have furnished to the Representative the opinion, dated the
Closing Date and the Over-allotment Closing Date, addressed to the
Representative, of _________ and/or such other counsel as may be acceptable to
the Selling Shareholder, to the effect that, based upon a review by them of the
Registration Statement, Prospectus, an examination of such statutes and such
other investigation by such counsel as they deem necessary to express such
opinion:

(1) The Agreement has been duly authorized, executed and
delivered by Selling Shareholder and the performance and consummation
of the Agreement by the Selling Shareholder of the transactions
therein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, any
statute, any agreement or instrument known to us to which the Selling
Shareholder is a party or by which he is bound or to which any of the
property of the Selling Shareholder is subject, or any order, rule or
regulation known to us of any court or governmental agency or body
having jurisdiction over the Selling Shareholder or any of his
properties; an no consent, approval, authorization or order of, or
filing with, any court or governmental agency or body is required for
the consummation of the transactions contemplated by the Agreement in
connection with the sale of the Selling Shareholder Shares thereunder,
except such as have been obtained under the 1933 Act and such as may
be required under any state securities or Blue Sky laws in connection
with the purchase and distribution by the Representative of the
Shares.

(2) Immediately prior to the time of delivery of the
Selling Shareholder Shares to the Representative, the Selling
Shareholder is the sole registered owner of the shares of Common Stock
to be delivered by the Selling Shareholder free and clear of any
claims, liens, encumbrances or security interests of which we are
aware, and, assuming the Representative purchases such shares for
value in good faith and without notice of any adverse claim, upon
delivery of such shares to the Representative and registration of the
Representative in the stock records of the Company, the Representative
will acquire all of the rights of the Selling Shareholder in such
shares free of any adverse claim, lien in favor of the Company and any
restrictions on transfer imposed by the Company.

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<PAGE> 36
Such opinion shall also cover such other matters incident to the
transactions contemplated by this Agreement in form satisfactory to the
Representative's counsel as the Representative shall reasonably request.

9.9 BDO Seidman, LLP Letter. On the Closing Date and the Over-
allotment Closing Date, the Representative shall have received from BDO
Seidman, LLP an opinion letter dated the Closing Date and Over-allotment
Closing Date, as applicable, stating that (for this Section 9.9 only,
references to the "Company" shall exclude references to Cossey-Capozzi, Inc.,
dba C. C. & Associates):

(1) They are independent public accountants within the
meaning of the 1933 Act and the Rules and Regulations, and the
response to Item 509 of Regulation S-K as reflected by the
Registration Statement is correct insofar as it relates to them;

(2) In their opinion, the financial statements and
supporting schedules of the Company examined by them at all dates and
for all periods referred to in their opinion letter and included in
the Registration Statement and Prospectus comply as to form in all
material aspects with the applicable requirements of the 1933 Act and
the published Rules and Regulations with respect to registration
statements on Form SB-2;

(3) On the basis of certain indicated procedures (but not
necessarily an examination in accordance with generally accepted
accounting principles), including an examination of the Company's
underlying financial books and records, debt instruments (if any) of
the Company described in the Prospectus, a reading of the latest
available interim unaudited financial statements of the Company,
whether or not appearing in the Prospectus, inquiries to the officers
of the Company and other persons responsible for the Company's
financial and accounting matters, and a reading of the minute books of
the Company, nothing has come to their attention which would cause
them to believe that during the period from the date of the last
audited financial statement, to a specified date not more than five
(5) days prior to the date of such opinion letter:

(a) there has been any material change in the
financial position of the Company not contemplated by and
disclosed in the Prospectus;

(b) there has been any material change in the
capital stock and surplus accounts of the Company or any
payment or declaration of any dividend or other distribution
in respect thereof or exchange therefor or in the debt of the
Company from that shown in its audited balance sheet, in the
Registration Statement and Prospectus, other than as set forth
or contemplated by the Registration Statement and Prospectus;

(c) there have been any material decreases in
working capital or shareholders' equity (deficit) as compared
with amounts shown in the last audited balance sheet included
in the Prospectus; or

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<PAGE> 37
(d) there were any material decreases, as
compared with amounts shown in the last audited balance sheet,
in the cash balance, except in all instances for changes
disclosed in or contemplated by the Registration Statements
and Prospectus; and

(4) On the basis of their examinations referred to in
their opinion letter, report and consent included in the Registration
Statement and Prospectus and the indicated procedures and discussions
referred to in clause (3) above, nothing has come to their attention
which, in their judgment, would cause them to believe or indicate that
(a) the financial statements set forth in the Registration Statement
and Prospectus do not present fairly the financial position and
results of operations of the Company, for the period indicated, in
conformity with generally accepted accounting principles applied on a
consistent basis, and are not in all material respects a fair
presentation of the information purported to be shown, and (b) the
dollar amounts, percentages and other financial information set forth
in the Registration Statement and Prospectus under the captions
"Prospectus Summary", "Risk Factors", "Selected Financial Information"
and "Dilution" are not in agreement with the Company's general ledger,
financial records or computations made by the Company therefrom.

9.10 Meredith Cardozo & Lanz LLP Letter. On the Closing Date and
the Over-allotment Closing Date, the Representative shall have received from
Meredith, Cardozo & Lanz LLP an opinion letter dated the Closing Date and Over-
allotment Closing Date, as applicable, stating that:

(2) In their opinion, the financial statements and
supporting schedules of Cossey-Capozzi, Inc., dba C. C. & Associates
("C.C. & Associates") examined by them at all dates and for all
periods referred to in their opinion letter and included in the
Registration Statement and Prospectus comply as to form in all
material aspects with the applicable requirements of the 1933 Act and
the published Rules and Regulations with respect to registration
statements on Form SB-2;

(3) On the basis of certain indicated procedures (but not
necessarily an examination in accordance with generally accepted
accounting principles), including an examination of C.C. & Associates'
underlying financial books and records, debt instruments (if any) of
C.C. & Associates described in the Prospectus, a reading of the latest
available interim unaudited financial statements of C.C. & Associates,
whether or not appearing in the Prospectus, inquiries to the officers
of C.C. & Associates and other persons responsible for C.C. &
Associates' financial and accounting matters, and a reading of the
minute books of C.C. & Associates, nothing has come to their attention
which would cause them to believe that during the period from the date
of the last

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<PAGE> 38
audited financial statement, to a specified date not more than five
(5) days prior to the date of such opinion letter:

(a) there has been any material change in the
financial position of C.C. & Associates not contemplated by
and disclosed in the Prospectus;

(b) there has been any material change in the
capital stock and surplus accounts of C.C. & Associates or any
payment or declaration of any dividend or other distribution
in respect thereof or exchange therefor or in the debt of C.C.
& Associates from that shown in its audited balance sheet, in
the Registration Statement and Prospectus, other than as set
forth or contemplated by the Registration Statement and
Prospectus;

(c) there have been any material decreases in
working capital or shareholders' equity (deficit) as compared
with amounts shown in the last audited balance sheet included
in the Prospectus; or

(d) there were any material decreases, as
compared with amounts shown in the last audited balance sheet,
in the cash balance, except in all instances for changes
disclosed in or contemplated by the Registration Statements
and Prospectus; and

(4) On the basis of their examinations referred to in
their opinion letter, report and consent included in the Registration
Statement and Prospectus and the indicated procedures and discussions
referred to in clause (3) above, nothing has come to their attention
which, in their judgment, would cause them to believe or indicate that
(a) the financial statements set forth in the Registration Statement
and Prospectus do not present fairly the financial position and
results of operations of C.C. & Associates, for the period indicated,
in conformity with generally accepted accounting principles applied on
a consistent basis, and are not in all material respects a fair
presentation of the information purported to be shown, and (b) the
dollar amounts, percentages and other financial information set forth
in the Registration Statement and Prospectus under the captions
"Prospectus Summary", "Risk Factors", "Selected Financial Information"
and "Dilution" are not in agreement with C.C. & Associates' general
ledger, financial records or computations made by C.C. & Associates
therefrom.

9.11 Officer's Certificate. The Company shall have furnished to
the Representative a certificate of the President and Chief Financial Officer
of the Company, and attested by its Secretary, dated the Closing Date and the
Over-allotment Closing Date, to the effect that:

(1) There is no litigation, arbitration, claim by any
current or former employee or any form of regulatory proceeding
instituted or threatened against the Company of a character required
to be disclosed in the Registration Statement and

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<PAGE> 39
Prospectus which is not disclosed; and there is no material contract
required to be filed as an exhibit to the Registration Statement which
has not been so filed.

(2) The representations and warranties of the Company in
this Agreement are true and correct at and as of the date of the
certificate; the Company has complied with all of its agreements
herein contained; no stop order suspending the effectiveness of the
Registration Statement pursuant to Section 8 of the 1933 Act or
otherwise has been issued at or before the date of the certificate and
no proceeding for that purpose have been initiated at or before the
date of the certificate and, to the best of their knowledge, no such
proceeding has been threatened by the Commission; and that any request
for additional information on the part of the Commission or NASD (to
be included in the Registration Statement or the Prospectus or any
amendment or supplement thereto or otherwise) has been complied with
to the reasonable satisfaction of counsel for the Representative and
no amendment or supplement to the Registration Statement or Prospectus
has been filed to which counsel for the Representative has reasonably
objected after adequate notice.

(3) There has been no material adverse change in the
general affairs of the Company, financial or otherwise, except as
disclosed or indicated in the Registration Statement and Prospectus.

(4) Since the Effective Date, there has not been any
material transaction entered into by the Company other than in the
ordinary course of business.

(5) There are no material direct or indirect contingent
liabilities or obligations of the Company not disclosed in the
Registration Statement and Prospectus.

(6) Since the Effective Date, the Company has not
sustained any loss on account of fire, flood, accident or other
calamity of such character as to interfere materially with the
continuous operation of the Company's business or which materially
adversely affects the financial position or business of the Company
regardless of whether or not such loss shall have been insured.

(7) The Company is not delinquent in the filing of any
federal, state or municipal or other local, state or municipal taxes
required to be reported and paid; to the best of their knowledge
(after diligent investigation in connection therewith) there is no
proposed redetermination or reassessment of such taxes adverse to the
Company; and the Company has paid or provided for, by adequate
reserves, all known tax liabilities.

(8) This Agreement, the consummation of the transactions
herein contemplated and the fulfillment of the terms hereof will not
result in a breach by the Company of any term of, or constitute a
default under, any indenture, mortgage, lease, deed of trust, bank
loan or credit agreement or any other agreement or undertaking
(however characterized or described) of the Company, including by way
of specification

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<PAGE> 40
but not by way of limitation, any agreement or instrument to which the
Company is now a party or pursuant to which it has acquired any right
or obligation by succession or otherwise, and that any existing
agreement materially affecting the Company has been delivered to the
Representative or its counsel.

(9) They have carefully examined the Registration
Statement and Prospectus and, in their opinion, (a) as of the
Effective Date, the statements contained in the Registration Statement
and Prospectus are true and correct and the Registration Statement and
Prospectus do not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they are made, not
misleading (such opinion need not be expressed, however, as to any
material contained in the Registration Statement and Prospectus
furnished by the Representative); and (b) since the Effective Date, no
event has occurred which should have been set forth in a supplement to
or amendment of the Registration Statement or Prospectus which has not
been set forth in such supplement or amendment.

(10) At and as of the Effective Date and the date of the
certificate, there are no agreements, understandings or negotiations
in force and effect, in process or contemplated by them or of which
they are aware to the best of their individual and collective
knowledge which, if in force and effect or in process or so
contemplated would be required to be disclosed.

(11) The officers and directors of the Company have not
taken and will not take, directly or indirectly, any action designed
to, or which might reasonably be expected to, cause or result in the
stabilization or manipulation of the price of the Company's Common
Stock to facilitate the sale and resale of the Shares.

9.12 Secretary's Certificate. The Representative shall have
received from the Secretary of the Company a certificate of incumbency, dated
as of the Closing Date, certifying the names, titles and signatures of the
officers authorized to execute, deliver and perform this Agreement. Attached
to such certificate shall be a copy of the Bylaws of the Company and the
resolutions of the Board of Directors of the Company authorizing the execution,
delivery and performance of this Agreement. Such certificate shall also
certify that such resolutions, the Articles of Incorporation of the Company and
the Bylaws of the Company have been validly adopted and have not been amended
or modified, except as described in the Prospectus.

9.13 Selling Shareholder. The Representative shall have received
from the Selling Shareholder a certificate, dated as of the Closing Date, to
the effect that:

(i) The representations and warranties contained
in Section 3 of this Agreement are true and correct with the
same effect as though expressly made as of the Closing Date
and the Selling Shareholder has performed all covenants and
complied with all conditions required by the Agreement on its
part to be

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<PAGE> 41
performed or complied with by it at or prior to the delivery
of the Selling Shareholder Shares and on such date.

(ii) The information set forth in the Registration
Statement and the Prospectus and any amendments or supplements
thereto under the caption "Principal and Selling
Shareholders," insofar as it relates to the Selling
Shareholder, contains all material statements that are
required to be stated therein in accordance with the Act and
the Regulations and conform in all material respects to the
requirements of the Act and the Regulations, and with respect
to such information, neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto
contains any untrue statement of a material fact or omits to
state any 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.

9.14 Opinion of Representative's Counsel. The Representative shall
have received from Dorsey & Whitney LLP, counsel for the Representative, an
opinion dated the Closing Date, with respect to the incorporation of the
Company, the validity of the Shares, the Registration Statement, the
Prospectus, and other related matters as the Representative may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters.

9.15 Tender of Securities. All the Shares being offered by the
Company and the Selling Shareholder and the Representative's Warrant shall be
tendered for delivery in accordance with the terms and provisions of this
Agreement.

9.16 Blue Sky Qualification. The Shares shall be qualified in such
states as determined under paragraph 5.4 above and each qualification shall be
in effect and not subject to any stop order or other proceeding on the Closing
Date.

9.17 Approval of Representative's Counsel. All opinions, letters,
certificates and documents mentioned above or elsewhere in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
form and substance satisfactory to counsel to the Representative, whose
approval shall not be unreasonably withheld.

9.18 Officer's Certificate as a Company Representation. Any
certificate signed by an officer of the Company and delivered to the
Representative or to counsel for the Representative will be deemed a
representation and warranty by the Company to the Representative as to the
statements made therein.

9.19 NASDAQ Listing. The Company's Shares must be qualified for
listing on Nasdaq SmallCap on the Effective Date of the Registration Statement.

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<PAGE> 42
9.20 Board Committees. A compensation committee, which shall
consist of at least two (2) independent outside board members, shall be formed
to review executive compensation and make recommendations to the Board of
Directors on an as needed basis. An audit committee of the Board of Directors
shall be formed consisting of at least two independent outside directors. Such
audit committee shall be charged with reviewing all systems and making
recommendations for corrective actions to the Board of Directors on an as
needed basis.

SECTION 10

Termination

10.1 Termination by Representative. This Agreement may be
terminated by Representative by notice to the Company in the event the Company
shall have failed or been unable to comply with any of the terms, conditions,
representations, warranties, covenants or other provisions of this Agreement on
the part of the Company to be performed, complied with or fulfilled within the
respective times herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by
Representative in writing.

10.2 Termination by Representative--"Market Out". This Agreement
may be terminated by Representative by notice to the Company at anytime if, in
the sole judgment of the Representative, payment for and delivery of the Shares
is rendered impracticable or inadvisable because of: (a) material adverse
changes in the Company's business, business prospects, management, earnings,
properties or conditions, financial or otherwise; (b) any action, suit or
proceedings, threatened or pending, at law or equity against the Company, or by
any federal, state or other commissions, board or agency wherein any
unfavorable result or decision could materially adversely affect the business,
business prospects, properties, financial condition, income or earnings of the
Company; (c) additional material governmental restrictions not in force and
effect on the date hereof shall have been imposed upon the trading in
securities generally, or minimum or maximum prices shall have been generally
established on a registered securities exchange, or trading in securities
generally on any such exchange shall have been suspended, or a general
moratorium shall have been established by federal or state authorities; (d)
substantial and material changes in the condition of the market beyond normal
fluctuations are such that it would be undesirable, impracticable or
inadvisable in the judgment of the Representative to proceed with this
Agreement or with the offering; (e) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war by
Congress or any other substantial national or international calamity or
emergency if, in the judgment of the Representative, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it impractical
or inadvisable to proceed with completion of the sale of and payment for the
Shares; (f) the NASDAQ Stock Market, Inc. notifies the Company that the Shares
will not be listed for trading on Nasdaq SmallCap as required under this
Agreement; or (g) any suspension of trading in the common stock of the Company
in the over-the-counter market or the interruption or termination of quotations
of the Shares on the NASDAQ System.

- 36 -
<PAGE> 43
10.3 Survival of Obligations After Termination. Any termination of
this Agreement under Section 10.1 or 10.2 shall be without liability of any
nature whatsoever (including, but not limited to, loss of anticipated profits
or consequential damages) on the part of either party hereto, except that the
Company shall remain obligated to pay the costs and expenses provided to be
paid by it specified in Section 6.7 (subject to the limitation which entitles
the Representative to return or be paid only the accountable out-of-pocket
expenses described therein); and the Company and the Representative shall be
obligated to pay, respectively, all losses, claims, demands, liabilities and
expenses under Section 7.

10.4 Suspension Proceedings. It is understood that the Company and
the Representative will each advise the other party immediately and confirm in
writing the receipt of any threat of or the initiation of any steps or
procedures which would impair or prevent the right to offer any of the
Company's Shares or the issuance of any "suspension orders" or other
prohibitions preventing or impairing the proposed offering by the Commission or
other regulatory authority.

SECTION 11

Representative's Representations and Warranties

The Representative represents, warrants and agrees with the Company
that:

11.1 Registration as Broker-Dealer. The Representative is
registered as Broker/Dealers with the Commission and are registered as
Broker/Dealers in the State of Colorado and are members in good standing of the
NASD.

11.2 No Pending Proceedings. Except as otherwise disclosed in the
Registration Statement, there is not now pending or threatened against such
Representative any material action or proceeding of which such Representative
has been advised, either in any court of competent jurisdiction, before the
Commission or before any state securities commission concerning such
Representative's activities as brokers or dealers that is material to this
offering, nor has such Representative been named as a "cause" in any such
action or proceeding.

11.3 Finder. The Representative represents that no finder's fee
has been or will be paid in connection herewith. It is understood that should
a claim for finder's fee in connection with the sale of the Shares be made, the
Representative will indemnify the Company with respect to any such claim.

- 37 -
<PAGE> 44
SECTION 12

Notices

All notices, demands or requests required or authorized hereunder
shall only be deemed given sufficiently if in writing and hand delivered by
messenger or courier service or sent by registered mail or certified mail,
return receipt requested and postage prepaid, in the case of the
Representative:

Chatfield Dean & Co., Inc.
7935 East Prentice Avenue, Suite 200
Englewood, Colorado 80111
Attention: Sanford D. Greenberg, President

with a copy to:

Dorsey & Whitney LLP
370 Seventeenth Street, Suite 4400
Denver, Colorado 80202
Attention: Kevin A. Cudney, Esq.

and, in the case of the Company:

NHancement Technologies Inc.
1746 Cole Boulevard, Suite 265
Golden, Colorado 80401
Attention: Douglas S. Zorn, Secretary

with a copy to:

Davis, Graham & Stubbs LLP
370 Seventeenth Street, Suite 4700
Denver, Colorado 80202
Attention: Lester R. Woodward, Esq.

and, in the case of the Selling Shareholder:

James Gillespie
198 Country Club Drive
Incline Village, NV 89451

Any such notice shall be deemed effectively given on the earlier of
the date of actual receipt or the second business day after delivered,
telecopied, or deposit of the notice with the United States Postal Service.

- 38 -
<PAGE> 45
SECTION 13

Miscellaneous

13.1 Sole Benefit. This Agreement is made solely for the benefit
of the Company, the Representative, the Selling Shareholder, other Members,
their respective officers and directors and any controlling person thereof
within the meaning of Section 15 of the 1933 Act and their respective
successors and assigns; and no other person shall acquire or have any right
under or by virtue of this Agreement. The terms "successors" or "successors
and assigns" shall not under any circumstance include any purchaser, as such
purchaser, of the Shares from any person or of any of the Representative's
Warrant or shares of the Representative's Warrant Stock from any person unless
otherwise expressly provided herein. This Agreement constitutes the entire
agreement between the parties concerning the subject matter hereof, and
supersedes all prior agreements and understandings, including, but not limited
to, the Letter of Intent dated September 3, 1996.

13.2 Survival. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company or
its officers or directors and of the Representative as set forth in or made
pursuant to this Agreement, and the indemnity agreements of the Company and the
Representative contained in Section 7 hereof shall survive and remain in full
force and effect regardless of: (a) any investigation or inspection made by or
on behalf of the Company or the Representative or any such officer or director
of either of them or any controlling person (within the meaning of Section 15
of the 1933 Act) of the Company or of the Representative; (b) delivery of or
payment for the Shares; and (c) the Closing Date.

13.3 Governing Law. This Agreement and all instruments, if any,
delivered in connection herewith or pursuant hereto shall be governed by and
construed in accordance with the substantive laws of the State of Colorado.

13.4 Waiver. All the rights and remedies of either party under
this Agreement are cumulative and are not exclusive of any other rights and
remedies provided by law. Unless expressly stated to the contrary elsewhere
herein, no delay or failure on the part of either party in the exercise of any
right or remedy arising from a breach of this Agreement or any agreement or
instrument executed in connection with this Agreement shall operate as a waiver
of any subsequent right or remedy arising from a subsequent breach of this
Agreement or any agreement or instrument executed in connection with this
Agreement. The consent of any party where required hereunder to any act or
occurrence shall not be deemed to be a consent to any other act or occurrence.

13.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original, but all of which
together shall constitute one and the same instrument.

- 39 -
<PAGE> 46
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose
wherein this letter and your acceptance shall become and evidence a binding
contract between us.

Very truly yours,

NHancement Technologies Inc.,
a Delaware corporation

By:
--------------------------------------
Esmond T. Goei, Chairman of the Board,
President and CEO

-----------------------------------------
James S. Gillespie, Selling
Shareholder

ACCEPTED AND CONFIRMED AS OF THE DAY OF , 1997:
---- ------

Chatfield Dean & Co., Inc. (for itself and
as representative of Members of the
Underwriting Group)

By:
-------------------------------
Sanford D. Greenberg, President

- 40 -
<PAGE> 47
NHANCEMENT TECHNOLOGIES INC.

SCHEDULE I

This Schedule sets forth the name of each Member referred to in the
above Agreement and the number of Shares to be purchased by each Member.

<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C> <C>

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

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

Total
--------------

</TABLE>

- 41 -

<PAGE> 1
EXHIBIT 5.1

[DAVIS, GRAHAM & STUBBS LLP LETTERHEAD]

January 28, 1997

NHancement Technologies Inc.
1746 Cole Boulevard, Suite 265
Golden, Colorado 80401

RE: SALE OF 2,645,000 SHARES OF COMMON STOCK
ON REGISTRATION STATEMENT ON FORM SB-2
REGISTRATION NO. 333-15563

Ladies and Gentlemen:

We are counsel to NHancement Technologies Inc., a Delaware corporation
(the "Company"), and are providing this opinion in connection with the
registration by the Company of 2,645,000 shares of common stock, par value $.01
per share (the "Shares"), on a Registration Statement on Form SB-2,
Registration Number 333-15563, as filed with the Securities and Exchange
Commission (the "Commission") on November 5, 1996, as amended by Amendment No.
1 to Form SB-2, as filed with the Commission on December 20, 1996, and as
amended by Amendment No. 2 to Form SB-2, as filed with the Commission on
January 13, 1997, and as subsequently amended by Amendment No. 3 to Form SB-2,
as filed with the Commission on January 28, 1997 (the "Registration
Statement"). In connection with this opinion, we have examined certain
corporate records and proceedings of the Company, including actions taken by
the Company in respect of the authorization and issuance of the Shares, and
such other matters as we deemed appropriate.

The following opinions are limited solely to applicable federal law of
the United States of America, the laws of the state of Colorado and the General
Corporation Law of the State of Delaware. While we are not licensed in the
State of Delaware, we have reviewed applicable provisions of the General
Corporation Law of Delaware as we have deemed appropriate in connection with
the provisions expressed herein. Except as described, we have neither examined
nor do we express any opinion with respect to Delaware law.

<PAGE> 2

Based on the foregoing, we are of the opinion that the Shares have
been duly authorized and, when sold as contemplated in the Registration
Statement, will be validly issued, fully paid and non-assessable.

We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
this firm under the heading "Legal Matters" in the Registration Statement, and
in the Prospectus constituting a part thereof, as the counsel who will pass on
the validity of the Shares. In giving this consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section
7 of the Securities Act or the rules of the Securities and Exchange Commission
thereunder.

Very truly yours,

/s/ Davis, Graham & Stubbs LLP

DAVIS, GRAHAM & STUBBS LLP

<PAGE> 1
EXHIBIT 10.3
AGREEMENT AND PLAN OF MERGER

By and Among

NHANCEMENT TECHNOLOGIES INC.,
A DELAWARE CORPORATION,

VPI ACQUISITION CORPORATION,
A DELAWARE CORPORATION,

VOICE PLUS, INC.
A CALIFORNIA CORPORATION

AND

JAMES GILLESPIE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 THE MERGER.................................................. 2
1.1 The Merger.................................................. 2
1.2 Effective Time; Effects of the Merger....................... 2
1.3 Articles of Incorporation; Bylaws; Directors and Officers... 2
1.4 Closing; Filing of Certificate of Merger.................... 3
1.5 Conversion of Merger Sub Common Stock....................... 3
1.6 Conversion of VPI Common Stock.............................. 3
1.7 Taking of Necessary Action; Further Action.................. 5

ARTICLE 2 CANCELLATION; EXCHANGE...................................... 5
2.1 Cancellation................................................ 5
2.2 Exchange.................................................... 5

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER............... 5
3.1 Organization, Power, Standing and Qualification............. 5
3.2 Authority and Enforceability................................ 6
3.3 Validity of Contemplated Transactions; Consents............. 6
3.4 Capitalization of VPI....................................... 6
3.5 Ownership of Shares......................................... 7
3.6 No Subsidiaries............................................. 7
3.7 Title to Properties......................................... 7
3.8 Intangibles; Names.......................................... 7
3.9 Financial Information....................................... 8
3.10 Certain Tax Matters......................................... 8
3.11 Litigation.................................................. 9
3.12 Compliance with Law......................................... 9
3.13 ERISA Matters............................................... 10
3.14 Insurance................................................... 11
3.15 Contracts................................................... 11
3.16 Other Transactions.......................................... 12
3.17 Bank Accounts............................................... 13
3.18 Compensation Arrangements................................... 13
3.19 Corporate Records........................................... 13
3.20 Environmental Matters....................................... 13
3.21 Suppliers and Customers..................................... 14
3.22 Knowledge................................................... 14

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT.................... 15
4.1 Organization and Good Standing.............................. 15
4.2 Corporate Power and Authority............................... 15
4.3 Capitalization.............................................. 15
</TABLE>
-i-

<PAGE> 3

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.4 Conflict with Authority, Bylaws, Other Instruments.......... 15
4.5 Availability of Information................................. 16
4.6 Validity of Agreement....................................... 16

ARTICLE 5 COVENANTS OF VPI AND STOCKHOLDER PRIOR TO THE CLOSING
DATE........................................................ 16
5.1 Operation of Business....................................... 16
5.2 Tax Liability............................................... 17
5.3 Confidentiality............................................. 17
5.4 Access to Information....................................... 18
5.5 Best Efforts................................................ 18

ARTICLE 6 COVENANTS OF PARENT PRIOR TO THE CLOSING DATE............... 18
6.1 Operation of BFI............................................ 18
6.2 Confidentiality............................................. 19
6.3 Access to Information....................................... 19
6.4 Offering of Securities...................................... 19
6.5 Sale of Registered Shares................................... 19
6.6 Best Efforts................................................ 20

ARTICLE 7 CONDITIONS PRECEDENT TO THE CLOSING......................... 20
7.1 Obligation of Parties to Close.............................. 20
(a) Offering............................................... 20
(b) BFI Merger............................................. 20
(c) Litigation Affecting Closing........................... 20
7.2 Obligation of Parent to Close............................... 20
(a) Compliance with Agreement.............................. 20
(b) Required Consents...................................... 21
(c) No Material Adverse Change............................. 21
7.3 Obligation of VPI and Stockholder to Close.................. 21
(a) Compliance with Agreement.............................. 21
(b) No Material Adverse Change............................. 21
7.4 Closing..................................................... 21
(a) Time and Place of Closing.............................. 21
(b) Transactions at Closing................................ 21

ARTICLE 8 POST-CLOSING COVENANT....................................... 23
8.1 Post-Closing Covenant....................................... 23

ARTICLE 9 INDEMNIFICATION............................................. 23
9.1 By Stockholder.............................................. 23
9.2 By Parent................................................... 23
</TABLE>

-ii-

<PAGE> 4

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
9.3 Limitation of Indemnity..................................... 23
9.4 Notice...................................................... 24

ARTICLE 10 BROKERAGE; EXPENSES......................................... 24
10.1 Brokerage................................................... 24
10.2 Expenses.................................................... 24

ARTICLE 11 TERMINATION PRIOR TO CLOSING................................ 25
11.1 Termination of Agreement.................................... 25
(a) Mutual Consent......................................... 25
(b) Deadline............................................... 25
(c) Material Breach........................................ 25
11.2 Termination of Obligations.................................. 25

ARTICLE 12 GENERAL..................................................... 25
12.1 Entire Agreement; Amendments................................ 25
12.2 Headings.................................................... 26
12.3 Gender; Number.............................................. 26
12.4 Exhibits and Schedules...................................... 26
12.5 Severability................................................ 26
12.6 Notices..................................................... 26
12.7 Waiver...................................................... 26
12.8 Assignment.................................................. 27
12.9 Successors and Assigns...................................... 27
12.10 Governing Law............................................... 27
12.11 No Benefit to Others........................................ 27
12.12 Publicity................................................... 27
12.13 Counterparts................................................ 27
</TABLE>

-iii-

<PAGE> 5

LIST OF EXHIBITS TO AGREEMENT

EXHIBIT A-1 AMENDMENT TO VPI ARTICLES OF INCORPORATION
EXHIBIT A-2 AMENDMENT TO VPI BYLAWS
EXHIBIT B DISCLOSURE SCHEDULE
EXHIBIT C-1 FIRST NOTE
EXHIBIT C-2 SECOND NOTE
EXHIBIT D REGISTRATION RIGHTS AGREEMENT
EXHIBIT E EMPLOYMENT AGREEMENT
EXHIBIT F STOCKHOLDER AGREEMENT
EXHIBIT G VPI SECRETARY'S CERTIFICATE
EXHIBIT H VPI OFFICERS' CERTIFICATE
EXHIBIT I OPINION OF VPI COUNSEL
EXHIBIT J PARENT OFFICERS' CERTIFICATE

-iv-

<PAGE> 6

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this "Agreement") is made as of the
25th day of October, 1996 by and among NHANCEMENT TECHNOLOGIES INC., a Delaware
corporation ("Parent"), VPI ACQUISITION CORPORATION, a Delaware corporation
("Merger Sub"), VOICE PLUS, INC., a California corporation ("VPI"), and JAMES
GILLESPIE, a resident of the State of Nevada (the "Stockholder") (Merger Sub and
VPI being sometimes referred to herein as the "Constituent Corporations").

W I T N E S S E T H

WHEREAS, pursuant to that certain Formation Agreement dated as of
October 15, 1996 by and between BioFactors, Inc., a Delaware corporation ("BFI")
and VPI (the "Formation Agreement"), BFI and VPI agreed to effect the formation
and incorporation under the laws of the State of Delaware of Parent (with each
of BFI and VPI owning 50% of the outstanding shares of common stock of Parent)
and the subsequent merger of two, wholly-owned subsidiaries of Parent into BFI
and VPI, respectively, concurrently with the underwritten initial public
offering of Parent's securities pursuant to a registration statement filed under
the Securities Act of 1933, as amended, in an integrated transaction intended
for federal income tax purposes to be a transfer pursuant to Internal Revenue
Code Section 351;

WHEREAS, Parent is a corporation duly organized and existing under the
laws of the State of Delaware;

WHEREAS, Merger Sub is a corporation duly organized and existing under
the laws of the State of Delaware, having an authorized capital stock of 100
shares of common stock, $0.01 par value (the "Merger Sub Common Stock") of which
100 shares are issued and outstanding and owned by Parent and are the only
shares of capital stock of Merger Sub issued and outstanding;

WHEREAS, VPI is a corporation duly organized and existing under the
laws of the State of California, having an authorized capital stock of 100,000
shares of common stock, $1.00 par value per share (the "VPI Common Stock") of
which 91,000 shares are issued and outstanding and owned by Stockholder and are
the only shares of capital stock of VPI issued and outstanding;

WHEREAS, pursuant to and in furtherance of the Formation Agreement, the
respective Boards of Directors of Parent, VPI and Merger Sub each have
determined that it is advisable and in the best interests of such corporations
that Merger Sub merge with and into VPI as authorized by the statutes of the
States of Delaware and California and upon the terms and subject to the
conditions set forth herein; and

<PAGE> 7

WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
VPI have, by resolutions duly adopted, approved this Agreement, Parent has
approved this Agreement as the sole stockholder of Merger Sub and James
Gillespie has approved this Agreement as the sole shareholder of VPI.

THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, representations, warranties, and agreements herein
contained, and intending to be legally bound, the parties hereby agree as
follows:

ARTICLE 1
THE MERGER

1.1 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as hereinafter defined), Merger Sub
shall be merged with and into VPI in accordance with this Agreement, and the
separate corporate existence of Merger Sub shall thereupon cease (the "Merger").
VPI shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation" or as "VPI Sub"). The Merger shall
have the effects specified in the Delaware General Corporation Law (the "DGCL")
and in the California General Corporation Law ("CGCL").

1.2 EFFECTIVE TIME; EFFECTS OF THE MERGER. The Merger shall become
effective at the later of the time of filing of the certificate of merger with
the Secretary of State of the State of Delaware in accordance with the
requirements of Section 251 of the DGCL and the time of filing of the
certificate of merger with the Secretary of State of the State of California in
accordance with the requirements of Section 1103 of the CGCL or at such later
time which the parties hereto shall have agreed upon and designated in such
filings as the effective time of the Merger (the "Effective Time").

1.3 ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS. The
Articles of Incorporation of VPI, amended as set forth in EXHIBIT A-1 hereto,
and the Bylaws of VPI, amended as set forth in EXHIBIT A-2, shall become the
Articles of Incorporation and Bylaws of the Surviving Corporation until
thereafter amended as provided therein and under applicable law. The directors
of Merger Sub immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation and shall serve until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws and applicable law. The officers of
Merger Sub immediately prior to the Effective Time will be the initial officers
of the Surviving Corporation and shall serve until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws and appropriate law.

-2-
<PAGE> 8

1.4 CLOSING; FILING OF CERTIFICATE OF MERGER. Upon the terms and
subject to the conditions hereof, as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles 5, 6 and 7,
Merger Sub and VPI shall execute and file with the Delaware and California
Secretaries of State, respectively, the documents referred to in Section 1.2 in
the manner required by applicable law, and the parties hereto shall take all
such other and further actions as may be required by law to make the Merger
effective. Prior to such filings, a closing (the "Closing") will be held as set
forth in Section 7.4 hereof, for the purpose of confirming all of the foregoing.

1.5 CONVERSION OF MERGER SUB COMMON STOCK. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
VPI or any holder of shares of Merger Sub Common Stock, each share of Merger Sub
Common Stock outstanding immediately prior to the Effective Time shall be
converted into and deemed to be 910 shares of Common Stock, par value $0.01 per
share, of the Surviving Corporation ("Surviving Corporation Common Stock"). Each
certificate which immediately prior to the Effective Time represents a number of
outstanding shares of Merger Sub Common Stock shall, from and after the
Effective Time, be deemed for all purposes to represent 910 shares of Surviving
Corporation Common Stock for each share of Merger Sub Common Stock represented.

1.6 CONVERSION OF VPI COMMON STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, VPI or
Stockholder, the aggregate of 91,000 shares of VPI Common Stock, $1.00 par value
per share, issued and outstanding immediately prior to the Effective Time shall
cease to be outstanding and thereupon shall be deemed to have been converted
into the following (the "Merger Consideration"):

(a) Parent's promissory notes, as follows:

(i) Parent's non-negotiable unsecured promissory note (the "First
Note") in the form of EXHIBIT C-1 attached hereto, in the
aggregate original principal amount of One Million Dollars
($1,000,000), bearing interest at the rate of interest quoted at
the close of business on the date of payment for the medium-term
United States Treasury Bill (the "T-bill Rate"). The principal
and all accrued interest thereon shall be due and payable in full
on the three-year anniversary of the Closing Date, or if such
date shall not be a business day, the next following business day
(the "First Note Maturity Date"); provided, however, outstanding
principal of the First Note and accrued interest thereon
(computed at the T-bill Rate quoted at the close of business on
the Quarter Closing Date (defined below)) in an amount equal to
fifty percent (50%) of Net Profit (defined below), and as
reported in VPI Sub's financial statements, (x) for the period of
time ending on the Quarter Closing Date immediately following the
Closing Date, such amount to be calculated based on Net Profit
for the period commencing October 1, 1996 through the Quarter
Closing Date, shall be due and payable within 45 days of the
Quarter Closing Date, and (y) for each succeeding calendar
quarter, such amount to

-3-
<PAGE> 9

be calculated based on Net Profit for such quarter, shall be
due and payable within 45 days of the Quarter Closing Date.
"Quarter Closing Date" shall mean the last day of the
respective calendar quarter.

(ii) Parent's non-negotiable promissory note in the form of
EXHIBIT C-2 attached hereto (the "Second Note") (the First Note
and Second Note, together, the "Promissory Notes"), in the
aggregate original principal amount of Five Hundred Thousand
Dollars ($500,000) bearing interest at the T-bill Rate. The
principal and all accrued interest thereon shall be due and
payable in full on the three-year anniversary of the Closing
Date, or if such date shall not be a business day, the next
following business day (the "Second Note Maturity Date");
provided, however, Sixty-Two Thousand Five Hundred Dollars
($62,500) of the principal and the accrued interest thereon
(computed at the T-bill Rate quoted at the close of business on
the respective Quarter Closing Date) shall be due and payable
within 45 days of the Quarter Closing Date for any calendar
quarter (commencing with the quarter ending December 31, 1996)
in which VPI Sub had a Net Profit (the payment, if any,
relating to the first quarter shall be due and payable within
45 days of the Quarter Closing Date for the Quarter in which
the IPO is consummated).

(iii) "Net Profit" shall mean net profit before taxes of VPI
Sub, as determined in accordance with generally accepted
accounting principles consistently applied, consistent with
operations of VPI in the ordinary course prior to the Merger,
without giving effect to Parent's overhead allocations, to
legal and accounting fees and other extraordinary expenses
incurred in connection with the acquisition at Parent's
direction of the stock or assets of other businesses or to
dividend or compensation payments in an amount up to $1,250,000
declared in calendar year 1996.

(iv) Any failure by Parent to cure, within forty-five (45)
days after written notice from Stockholder, any payment default
on either of the Promissory Notes, shall accelerate the
respective Maturity Date and all outstanding principal and
accrued interest on the Promissory Notes shall immediately
become due and payable (an "Acceleration Event").

(b) The number of shares of common stock of Parent, $0.01 par value
per share (the "Parent Common Stock") equal to the quotient of Five Million Two
Hundred Fifty Thousand Dollars ($5,250,000) divided by the price per share to
the public ("IPO Price") in the IPO (defined in Section 6.4) (the "Consideration
Shares"), which Consideration Shares, subject to the agreements set forth in
Section 6.5, will be subject to the rights and limitations (including the market
stand-off agreement in favor of the underwriter of the IPO (the "Underwriter"))
set forth in the Registration Rights Agreement attached hereto as EXHIBIT D (the
"Rights Agreement").

-4-
<PAGE> 10

1.7 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent, Merger
Sub, Stockholder and VPI shall use all reasonable efforts to take all such
actions as may be necessary or appropriate in order to effectuate the Merger
under the DGCL and the CGCL as promptly as commercially practicable. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of either of the Constituent Corporations, the
officers and directors of the Surviving Corporation are fully authorized in the
name of their corporation or otherwise to take, and shall take, all such lawful
and necessary action.

ARTICLE 2
CANCELLATION; EXCHANGE

2.1 CANCELLATION. As a result of the Merger and without any action on
the part of the holder thereof, at the Effective Time all shares of VPI Common
Stock shall cease to be outstanding and shall be cancelled and retired, and
Stockholder shall thereafter cease to have any rights with respect to such
shares of VPI Common Stock, except the right to receive, without interest, the
Merger Consideration in accordance with Section 1.6 upon the surrender of
certificates representing such shares of VPI Common Stock. Notwithstanding
anything to the contrary in Section 1.6, all shares of VPI Common Stock held in
VPI's treasury at the Effective Time shall be cancelled.

2.2 EXCHANGE. At or after the Effective Time, Stockholder shall
surrender the VPI Common Stock certificates for cancellation to Parent's
corporate Secretary, who shall act as the exchange agent to effect the exchange
of VPI Common Stock certificates for the Merger Consideration. Until such
surrender and cancellation, each such outstanding VPI Common Stock certificate
shall, after the Effective Time, be deemed for all corporate purposes to
evidence solely the Merger Consideration to which it is entitled under Section
1.6 above.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER

Stockholder hereby represents and warrants to Parent as follows:

3.1 ORGANIZATION, POWER, STANDING AND QUALIFICATION. VPI is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California and has full corporate power and authority to
carry on its business as it is now being conducted, and to own, lease, and use
the properties and assets that it purports to own, lease or use. VPI is duly
qualified to do business and is in good standing in California and, as of the
Closing Date, is duly qualified to do business as a foreign corporation and is
in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used

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<PAGE> 11

by it, or the nature of the activities conducted by it, requires such
qualification, other than jurisdictions in which the failure to so qualify would
not have a material adverse effect on the condition, financial or otherwise, of
the business operations or income of VPI. SECTION 3.1 OF THE DISCLOSURE
SCHEDULE attached hereto as EXHIBIT B (the "Disclosure Schedule") contains a
complete and accurate list of each jurisdiction in which VPI is authorized to do
business.

3.2 AUTHORITY AND ENFORCEABILITY. Each of VPI and Stockholder has the
full corporate power and authority or legal capacity and right, as the case may
be, to execute and deliver this Agreement and to perform the obligations
hereunder. This Agreement has been duly executed and delivered on behalf of VPI
and Stockholder and, at the Closing, all documents and instruments required
hereunder to be executed by VPI and Stockholder (the "Collateral Documents")
shall have been duly executed and delivered. This Agreement and the Collateral
Documents will constitute legal, valid and binding obligations of VPI and
Stockholder, enforceable in accordance with their respective terms.

3.3 VALIDITY OF CONTEMPLATED TRANSACTIONS; CONSENTS. The execution,
delivery, and performance of this Agreement, the Collateral Documents and the
consummation of the transactions contemplated hereby and thereby do not and will
not:

(a) contravene any provision of the Articles of Incorporation or
Bylaws of VPI;

(b) violate, be in conflict with, or constitute a default under (or
any event which, with notice or lapse of time or both would constitute a default
under), cause the acceleration of any payments or performance pursuant to,
result in the termination of or otherwise impair the good standing, validity, or
effectiveness of any agreement, contract, indenture, lease, or mortgage, or
subject any property or asset of VPI to any liens under any indenture, mortgage,
contract, commitment, or agreement to which VPI is a party, or any of its assets
may be bound or affected; or

(c) violate any provision of law, rule, ordinance, regulation,
order, judgment, permit, or license to which Stockholder or VPI, or any of its
assets, is subject.

Except as set forth in SECTION 3.3 OF THE DISCLOSURE SCHEDULE, no consent,
approval or authorization of, notice to, registration or filing with any person,
entity or governmental authority is required on the part of Stockholder or VPI
in connection with the execution, delivery and performance by Stockholder or VPI
of this Agreement, the Collateral Documents or the consummation of any of the
transactions contemplated hereby and thereby.

3.4 CAPITALIZATION OF VPI. VPI's total authorized capital stock
consists of 100,000 shares of common stock, par value $1.00 per share, of which
91,000 shares are presently issued and outstanding (such issued and outstanding
shares being, the "Shares"). All of the Shares are duly authorized, validly
issued, fully paid and non-assessable. There are no outstanding or authorized
options, warrants, purchase rights, conversion rights, exchange rights,
subscription

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<PAGE> 12
rights or other contracts, commitments or rights of any character relating to
the Shares or any authorized but unissued capital stock of VPI.

3.5 OWNERSHIP OF SHARES. Except for the rights acquired by Parent
pursuant to this Agreement, Stockholder holds all of the legal and beneficial
ownership of and title to the Shares, free and clear of any liens. Delivery to
the Parent of certificates representing the Shares pursuant to this Agreement
will transfer to Parent valid title thereto, free and clear of all liens.
Stockholder has no legal obligation, absolute or contingent, to any other person
or firm to sell any of the Shares or to effect any merger, consolidation, or
other reorganization of VPI or to enter into any agreement with respect to the
Shares.

3.6 NO SUBSIDIARIES. VPI does not own or control, in whole or in part,
directly or indirectly, any corporation, association, partnership or other
business entity.

3.7 TITLE TO PROPERTIES. Except as set forth in SECTION 3.7 OF THE
DISCLOSURE SCHEDULE, VPI has good, valid and marketable title to, or valid
leasehold interests in, all of its properties and assets, real, personal, and
mixed, tangible and intangible including all of the properties and assets
reflected on the latest balance sheet of VPI that is included in the Financial
Statements (as defined in Section 3.9 hereof) and those properties and assets
acquired since the date of such balance sheet, except in each case for
properties and assets sold or otherwise disposed of in the ordinary course of
business, free and clear of all liens, except (a) liens disclosed in such
balance sheet or the notes thereto; (b) liens for current taxes not yet due (c)
liens in connection with workmen's compensation, unemployment insurance, or
other social security obligations; (d) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of money), leases,
statutory obligations, surety and appeal bonds, and other obligations of like
nature arising in the ordinary course of business; (e) mechanic's, workmen's,
materialmen's, or other like liens arising in the ordinary course of business
with respect to obligations that are not due or that are being contested in good
faith; and (f) such imperfections of title, liens, easements, and encumbrances,
if any, as are not substantial and do not materially detract from the value, or
materially interfere with the present use, of any of the properties subject
thereto or affected thereby, or otherwise materially impair the business,
operations, or prospects of VPI.

3.8 INTANGIBLES; NAMES. Except as set forth in SECTION 3.8 OF THE
DISCLOSURE SCHEDULE, to the knowledge of Stockholder, VPI has good and
marketable title to: (i) all service marks, trademarks, trade names, product
names, patents and copyrights necessary to VPI's conduct of its business as
presently conducted, and (ii) all inventions, discoveries, improvements,
processes, formulae, proprietary rights, trade secrets, ideas or other know-how,
necessary to conduct the business of VPI as presently conducted (all of such
items are referred to hereinafter collectively as the "Intangibles"). Except as
set forth in SECTION 3.8 OF THE DISCLOSURE SCHEDULE, to the knowledge of
Stockholder, (a) none of the Intangibles or their past or current uses has
infringed or infringes, upon any patent, copyright, trade secret or other
proprietary right of any other person; (b) no person is infringing upon any of
the Intangibles. In addition, none of the Intangibles is owned by or registered
in the name of Stockholder or any current or former shareholder, director,
officer, employee, contractor or agent of VPI, nor does any such person

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<PAGE> 13
have any interest therein. No person has a right to receive a royalty with
respect to any of the Intangibles. SECTION 3.8 OF THE DISCLOSURE SCHEDULE sets
forth a correct and complete list of all of the trademarks, trade names, service
marks, registered copyrights, patents and patent applications owned or licensed
by VPI.

3.9 FINANCIAL INFORMATION.

(a) Stockholder has delivered to Parent audited balance sheets for
the fiscal years ending December 31, 1994 and December 31, 1995, and the related
statement of operations, stockholders' equity and cash flows for the years then
ended, together with the report thereon of BDO Seidman, LLP, independent
certified public accountants, an unaudited balance sheet as of September 30,
1996 and the related statement of operations, stockholders' equity and cash
flows for the six-months then ended (collectively, the "Financial Statements").
The Financial Statements are complete and correct in all material respects, have
been prepared in accordance with generally accepted accounting principles,
consistently applied, and present fairly in all material respects the financial
condition of VPI and the results of its operations as of the respective dates
thereof.

(b) VPI has no debts, liabilities or obligations of any nature,
known or unknown, fixed or contingent, other than:

(i) those set forth in the Financial Statements and the
notes thereto;

(ii) those incurred since September 30, 1996 and not in
breach of any of the representations of Section 3.16; and

(iii) those which are not material, individually or in the
aggregate, to VPI's business, assets or financial condition. To the knowledge of
Stockholder, there are no circumstances, bases (either with notice, lapse of
time or both), conditions, events or arrangements which may hereafter give rise
to any liabilities of VPI except in the ordinary course of business consistent
with past practices.

3.10 CERTAIN TAX MATTERS.

(i) VPI has filed or caused to be filed with the appropriate
foreign, federal, state and local governmental agencies all income, sales, use,
property, ad valorem, profits, severance, payroll, franchise, withholding,
employment, social security, excise, transfer, gains and other tax returns and
reports (the "Tax Returns") which are required to be filed, and has paid in full
or adequately provided for all taxes shown on such Tax Returns, and for all such
taxes otherwise due and payable by VPI, except those taxes being contested in
good faith and for which adequate reserves have been set aside on the books of
VPI. In addition, Stockholder has filed with the appropriate federal, state and
local income tax authorities all applicable tax returns and reports, and has
paid all applicable taxes, relating to the income or loss of VPI which is
attributable to Stockholder by virtue of VPI's status as an "S" corporation. All
such Tax Returns

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<PAGE> 14
are true and correct in all material respects and reflected as of the time of
filing the facts regarding the income, business, operations, activities and
status of VPI and any other information required to be shown therein. VPI has
delivered to Parent correct and complete copies of, and SECTION 3.10 OF THE
DISCLOSURE SCHEDULE contains a complete and accurate list of, all Tax Returns,
examination reports, and statements of deficiencies assessed against, or agreed
to by VPI since December 31, 1991.

(ii) Except as set forth in SECTION 3.10 OF THE DISCLOSURE
SCHEDULE, adequate accrual has been made in the Financial Statements for all the
accrued and unpaid foreign, federal, state and local taxes (including applicable
interest and penalties) of VPI for the periods then ended, whether or not yet
due and payable.

(iii) Except as set forth in SECTION 3.10 OF THE DISCLOSURE
SCHEDULE, there is no material dispute or claim concerning any tax liability of
VPI either (A) claimed or raised by any authority in writing or (B) as to which
any of Stockholder and the directors and officers of VPI has knowledge based
upon personal contact with any agent of such authority. SECTION 3.10 OF THE
DISCLOSURE SCHEDULE indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit, including a
reasonably detailed description of the nature and outcome of each audit. VPI has
not waived any statute of limitations in respect of income taxes or agreed to
any extension of time with respect to an income tax assessment or deficiency.

(iv) VPI has made a valid election to be treated as an "S"
corporation for federal (and all applicable state and local) income tax
purposes, beginning with the taxable year of VPI beginning January 1, 1996. A
copy of VPI's Subchapter "S" election and application for approval of a December
31 taxable year, and all correspondence with the Internal Revenue Service
relating to the foregoing, have been delivered to Parent.

3.11 LITIGATION. There is no suit, action, claim, arbitration,
administrative or legal or other proceeding, or governmental investigation
pending or, to Stockholder's knowledge, threatened against VPI which, if
adversely determined, would have a material adverse effect on VPI's businesses,
assets or operations and, to Stockholder's knowledge, there exists no reasonable
basis or grounds for any such suit, action, claim, arbitration, administrative,
legal or other proceeding that would have a material adverse effect. A correct
and complete list and brief description, including outcome, of all claims
threatened or filed against VPI within the last five (5) years is set forth in
SECTION 3.11 OF THE DISCLOSURE SCHEDULE.

3.12 COMPLIANCE WITH LAW. To the best of Stockholder's knowledge, VPI
is in compliance with all applicable laws, ordinances, requirements,
regulations, judgments, decrees and orders applicable to VPI, the violation of
which, individually or in the aggregate, might have a material adverse effect on
the financial condition, business, results of operations, properties, or assets
of VPI, or Parent's ownership of the Shares. VPI holds all permits, licenses,
consents, authorizations, approvals, privileges, waivers, exemptions and orders
("Permits") necessary or appropriate to permit it to own its properties and to
conduct its business in accordance with

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<PAGE> 15
applicable laws, regulations and ordinances. SECTION 3.12 OF THE DISCLOSURE
SCHEDULE contains a correct and complete list of all such Permits. Except as
noted on SECTION 3.12 OF THE DISCLOSURE SCHEDULE, to Stockholder's knowledge,
there are no facts in existence that could form the basis of any claim against
VPI for product liability on account of any express or implied warranty.

3.13 ERISA MATTERS.

(a) SECTION 3.13 OF THE DISCLOSURE SCHEDULE sets forth a true and
complete list of each employee benefit or compensation plan, arrangement or
agreement that is maintained, or has been maintained by VPI (including
terminated or transferred plans) by VPI or to which VPI makes contributions and
in each case, which covers employees of VPI (the "Plans"). VPI has delivered to
Parent correct and complete copies of all plan documents, summary plan
descriptions, annual reports, determination letters, trust agreements and other
material agreements relating to the Plans.

(b) Except as set forth in SECTION 3.13 OF THE DISCLOSURE
SCHEDULE:

(i) each of the Plans that is an "employee benefit plan"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") materially complies and has always materially
complied with ERISA, to the extent that any noncompliance would not have a
materially adverse effect;

(ii) each of the Plans intended to be "qualified" within the
meaning of I.R.C. Section401(a), complies and has always materially complied
with the Code, except such non-compliance as shall not disqualify such Plan [and
except further that the plan documents have not been amended to reflect the Tax
Reform Act of 1986 and subsequent legislation to the extent such amendment is
not required to be completed prior to the Closing Date];

(iii) each of the Plans has always been operated in accordance
with its terms in all material respects;

(iv) no Plan is or was subject to Title IV of ERISA and VPI
has never maintained or made contribution to any employee benefit plan subject
to Title IV of ERISA;

(v) no Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of VPI beyond their retirement or other termination of service,
other than

(1) coverage mandated by applicable law,

(2) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of ERISA,

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<PAGE> 16

(3) deferred compensation benefits accrued as
liabilities on the books of VPI or

(4) benefits the full cost of which is borne by the
current or former employee (or his beneficiary);

(vi) no Plan is a "multi-employer pension plan," as such
term is defined in Section 3(37) of ERISA and VPI has never made contributions
to such a multi-employer pension plan;

(vii) all contributions or other amounts payable by VPI as of
the Closing Date with respect to each Plan in respect of current or prior plan
years have been paid or accrued in accordance with generally accepted accounting
practices and I.R.C. Section412;

(viii) neither VPI nor any director, officer, employee or
agent of VPI has engaged in a transaction in connection with which VPI would be
subject to either a civil penalty assessed pursuant to Sections 409 or 502(i) of
ERISA or a tax imposed pursuant to I.R.C. SectionSection4975 or 4976;

(ix) all notices required in connection with continuation
coverage for group health plans under I.R.C. Section4980B have been given to
persons entitled thereto in a timely manner; and

(x) to the knowledge of Stockholder, there are no pending,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Plans or any trusts related thereto.

3.14 INSURANCE. Set forth in SECTION 3.14 TO THE DISCLOSURE SCHEDULE is
a complete list of all material insurance policies that VPI maintains with
respect to its businesses, properties or employees. Except as set forth in
SECTION 3.14 TO THE DISCLOSURE SCHEDULE, such policies are in full force and
effect, and no event has occurred that would give any insurance carrier a right
to terminate any such policy. Such policies are adequate to insure against risks
to which VPI and its properties and assets are exposed in the operation of its
business in such amounts and types of coverage as are commercially reasonable
and are consistent with practices in the industry in which VPI operates. Except
as set forth in SECTION 3.14 OF THE DISCLOSURE SCHEDULE, since September 30,
1996, there has not been any change in VPI's relationship with its insurers or
in the premiums payable pursuant to such policies.

3.15 CONTRACTS. SECTION 3.15 OF THE DISCLOSURE SCHEDULE identifies all
contracts, licenses, guaranties, notes, leases, agreements and instruments to
which VPI is a party, or is bound which are material to the business of VPI
("Contracts"); a correct and complete copy of each Contract has been provided to
Parent. Except as noted in SECTION 3.15 OF THE DISCLOSURE SCHEDULE, VPI has in
all material respects performed all the material obligations required to be
performed by VPI as of the date hereof pursuant to any Contract, and VPI is not
in default under

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<PAGE> 17

any Contract, nor, to Stockholder's knowledge, has an event occurred which, with
the passage of time or giving of notice or both, will result in the occurrence
of a default under any Contract. SECTION 3.15 OF THE DISCLOSURE SCHEDULE
contains a correct and complete list of all powers of attorney, forms of
warranties, and forms of purchase orders, sales contracts and service contracts,
material to the business of VPI. A correct and complete copy of each such
document has been provided to Parent.

3.16 OTHER TRANSACTIONS. Except as disclosed in SECTION 3.16 OF THE
DISCLOSURE SCHEDULE, VPI has not, since September 30, 1996:

(a) operated its business except in the ordinary course;

(b) incurred any debts, liabilities or obligations except in the
ordinary course;

(c) discharged or satisfied any material Liens, or paid any
material debts, liabilities, or obligations, except in the ordinary course;

(d) mortgaged, pledged, or subjected to any Lien any of its
assets, tangible or intangible, having a book value of more than $20,000
individually or in the aggregate;

(e) sold or transferred any of its tangible assets (other than
inventory in the ordinary course) having a book value of more than $20,000, or
cancelled any material debts or claims;

(f) declared, set aside, or paid any dividend or made any other
distribution (whether in cash, stock or property) with respect to any of VPI's
capital stock;

(g) suffered any material extraordinary losses or waived any
rights of substantial value;

(h) suffered any materially adverse change in its condition
(financial or otherwise) or business, assets, liabilities, properties or
prospects;

(i) increased compensation or benefits payable to any directors,
officers, employees or consultants;

(j) suffered any material losses by theft, fire or other casualty;

(k) cancelled or suffered the termination of any Contract except
in the ordinary course of business; or

(l) failed to operate the business of VPI in the ordinary course.

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3.17 BANK ACCOUNTS. SECTION 3.17 OF THE DISCLOSURE SCHEDULE sets forth
the name and address of each bank and other financial institution in which VPI
maintains an account (whether checking, savings or otherwise), lock box, or safe
deposit box and the account numbers and names of persons having signing
authority or other access thereto.

3.18 COMPENSATION ARRANGEMENTS. SECTION 3.18 OF THE DISCLOSURE SCHEDULE
sets forth a correct list showing the names and titles of all officers,
employees, and agents performing services for VPI in connection with its
business and the rate of hourly, monthly, or annual compensation (as the case
may be), and any bonus, severance or similar arrangement with any of them. No
union or collective bargaining agreement or employment agreement is currently in
effect or being negotiated by VPI.

3.19 CORPORATE RECORDS. The copies of the Articles of Incorporation of
VPI, as amended to the date of this Agreement, certified by the Secretary of
VPI, and the Bylaws of VPI, as amended to the date of this Agreement, certified
by the Secretary of VPI, which are being delivered herewith, are true, correct,
and complete copies of said Articles and Bylaws as currently in effect. SECTION
3.19 OF THE DISCLOSURE SCHEDULE sets forth a true and correct list of the names
and titles of all of VPI's current directors and officers, any fictitious names
of VPI and the jurisdictions, if any, in which VPI is qualified as a foreign
corporation. Correct and complete copies of VPI's minute books and stock records
have been delivered to the Parent.

3.20 ENVIRONMENTAL MATTERS.

(a) "Environmental Law" shall mean any federal, state or local
statute, ordinance, rule or regulation, any judicial or administrative order,
judgment, request or directive, any common law doctrine or theory and any
provision or condition of any Permit, license or other operating authorization,
primarily relating to (A) protecting the environment, including without
limitation protection of the environment, persons or the public welfare from
actual or potential exposure (or the effects of exposure) to any actual or
potential release, discharge or emission (whether past or present) of, or
regarding the manufacture, processing, importation, use, transportation,
generation, treatment, storage, disposal, transportation or handling of, any
chemical, raw material, pollutant, contaminant or toxic, hazardous or
radioactive substance; (B) occupational or public health or safety; or (C) land
use.

(b) Except as indicated in SECTION 3.20 OF THE DISCLOSURE
SCHEDULE, VPI is, or will be prior to the Closing Date, in compliance with all
Environmental Laws and in possession of and compliance with all necessary
Permits, licenses and other authorizations, and the present condition of VPI and
its property or VPI's present or past activities or manner of operating VPI and
its property including the real property which is currently leased by VPI (the
"Leased Property") (including disposing or arranging for the disposal of waste
materials), does not give rise to any liability to any person, contingent or
otherwise, under any Environmental Law. VPI has fully disclosed to Parent all
documents and information in its possession and control regarding activities and
conditions relating to VPI and the Leased Property which could in the future
result

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<PAGE> 19

or may in the past have resulted in noncompliance with, or liability under, any
Environmental Law.

(c) To the actual knowledge of Stockholder, there are no proposed
Environmental Laws or amendments to Environmental Laws which would require any
material change in any of VPI's facilities, equipment, operation or procedures,
or materially affect VPI's business or its costs of conducting its business as
now conducted, and to Stockholder's knowledge, the operation by the owner of the
building within which VPI's Leased Property is located is and has been in
compliance with all Environmental Laws.

3.21 SUPPLIERS AND CUSTOMERS. Except for products and services
currently obtained by VPI from Centigram Communications Corporation and its
affiliates or as set forth in SECTION 3.21 OF THE DISCLOSURE SCHEDULE, no
single supplier provided more than ten percent (10%) of VPI's needs in VPI's
most recent fiscal year and there is no "single-source" supplier to VPI that
could not be replaced without a material disruption to VPI's business. In
addition, except as set forth in SECTION 3.21 OF THE DISCLOSURE SCHEDULE, no
single customer accounted for more than ten (10%) of VPI's net sales in VPI's
most recent fiscal year. To the best of Stockholder's knowledge, except as
disclosed in SECTION 3.21 OF THE DISCLOSURE SCHEDULE, no officer or director of
VPI, nor any spouse or child of any such officer or director, nor any trust of
which any such officer or director is a grantor, trustee or beneficiary, has
any ownership interest in or is a director, officer or employee of, or
consultant to, any entity which is a competitor, potential competitor or
supplier of VPI, or has any ownership interest, in whole or in part, in any
property, asset or right which is associated with any property, asset or right
owned or purported to be owned by VPI or which VPI is at present operating or
using or the use of which is necessary or material to VPI's business, or has,
directly or indirectly, engaged in any transaction with VPI other than
transactions inherent in the capacities of director, officer, employee,
consultant or stockholder.

3.22 KNOWLEDGE. When used in this Agreement, "to the knowledge" of
Stockholder means Stockholder's actual knowledge after due inquiry (including
inquiry of the officers of VPI with respect to the matters covered by such
representations and warranties) and the examination of whatever sources of
information as are accessible to Stockholder in order to verify the truth and
accuracy of representations and warranties. Stockholder acknowledges that Parent
has relied and will rely on such representations and warranties in executing
this Agreement and in closing the acquisition of the Shares pursuant to this
Agreement, and agrees, prior to the Closing Date, to promptly notify Parent in
writing of any knowledge Stockholder may obtain of any material change affecting
such representations and warranties.

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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT

Parent hereby represents and warrants to Stockholder as follows:

4.1 ORGANIZATION AND GOOD STANDING. Each of Parent and Merger Sub is a
corporation duly organized and validly existing under the laws of Delaware.
Parent has full corporate power and authority to carry on its business as it is
now being conducted, and to own and operate the properties and assets now owned
and operated by it. Parent is duly qualified to do business in each and every
jurisdiction where the failure to qualify would have a material adverse effect
upon its financial condition, the conduct of its business or the ownership of
its property and assets.

4.2 CORPORATE POWER AND AUTHORITY. Each of Parent and Merger Sub has
full corporate power and authority to enter into this Agreement and to perform
all of its covenants and undertakings herein set forth. The execution and
delivery of this Agreement, and all documents and instruments required hereunder
to be executed by Parent and Merger Sub (the "Collateral Documents") and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and this Agreement and the Collateral Documents are valid and binding
obligations of Parent and Merger Sub, enforceable in accordance with their
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium, or similar laws affecting the rights of creditors
generally.

4.3 CAPITALIZATION.

(a) Prior to the Closing, Parent's total authorized capital stock
will consist of 20,000,000 shares of common stock, par value $0.01 per share,
and 2,000,000 shares of preferred stock, par value $0.01 par value per share. As
a result of the merger of BFI with a wholly-owned subsidiary of Parent pursuant
to the Formation Agreement and Exhibit B thereto (the "BFI Merger"), and
excluding the shares of Parent Common Stock to be issued in connection with the
IPO or the Merger contemplated hereby, Parent will have issued and outstanding
729,005 shares of Common Stock, warrants to purchase a total of 617,184 shares
of Common Stock and options to purchase a total of 534,375 shares of Common
Stock.

(b) Merger Sub's total authorized capital stock consists of 1,000
shares of common stock, par value $0.01 per share, of which 100 shares are
issued and outstanding and held by Parent.

4.4 CONFLICT WITH AUTHORITY, BYLAWS, OTHER INSTRUMENTS. Neither the
execution and delivery of this Agreement and the Collateral Documents nor the
consummation of the transactions contemplated hereby and thereby in the manner
herein and therein provided will:

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(a) contravene any provision of the Certificate of Incorporation or
Bylaws of Parent or Merger Sub;

(b) violate, be in conflict with, constitute a default under, cause
the acceleration of any payments pursuant to, or otherwise impair the good
standing, validity, and effectiveness of any lease, license, permit,
authorization, or approval applicable to Parent or Merger Sub; or

(c) to the knowledge of Parent, violate any provision of law, rule,
regulation, order, or permit to which Parent or Merger Sub is subject.

4.5 AVAILABILITY OF INFORMATION. To the knowledge of Parent, VPI and
Stockholder have granted to Parent and its representatives, the opportunity to
examine such documents and ask such questions of VPI as the Parent has deemed
necessary, and Parent has received satisfactory answers from VPI (or persons
acting on VPI's behalf) concerning the business of VPI and the terms and
conditions of the Merger described herein. Notwithstanding the foregoing,
nothing contained in this representation shall affect the covenants, agreements,
representations and warranties made by the Stockholder and VPI under this
Agreement.

4.6 VALIDITY OF AGREEMENT. This agreement has been duly executed and
delivered by Parent and Merger Sub and is the legal, valid and binding
obligation of Parent in accordance with its terms.

ARTICLE 5
COVENANTS OF VPI AND STOCKHOLDER
PRIOR TO THE CLOSING DATE

5.1 OPERATION OF BUSINESS. VPI and Stockholder hereby agree, jointly
and severally, that from and after the date hereof to the Effective Time, except
for a dividend to the Stockholder and/or compensation to key employees in an
aggregate amount not to exceed One Million Two Hundred Thousand Dollars
($1,200,000) and except as otherwise contemplated by this Agreement or agreed to
in writing by Parent, VPI shall conduct its business solely in the ordinary
course, and Stockholder and VPI shall:

(a) not amend VPI's Articles of Incorporation or Bylaws, except as
may be necessary to carry out this Agreement or as required by law;

(b) not change VPI's corporate name or permit the use thereof by
any other corporation;

(c) not pay or agree to pay to any employee, officer, or director
of VPI any increase in compensation other than in the ordinary course;

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<PAGE> 22

(d) not make any changes in VPI's management;

(e) not merge or consolidate VPI with any other corporation or
allow it to acquire or agree to acquire or be acquired by any corporation,
association, partnership, joint venture, or other entity;

(f) not amend or permit VPI to default in any of its obligations
under any of the Contracts;

(g) not declare or pay any dividend or make any distribution on any
shares of its capital stock or redeem, purchase or otherwise acquire any shares
of its capital stock;

(h) not sell or transfer any of VPI's tangible or intangible assets
having an aggregate book value of $20,000 or more, other than sales of inventory
in the ordinary course, or create any lien or encumbrance on any of VPI's assets
or permit VPI to incur any debt liability or obligation, permit VPI to waive any
right or cancel any debt or claim, enter into any contract or agreement
involving amounts exceeding $20,000;

(i) conduct VPI's business in a diligent manner, and not make any
material change in its business practices; and

(j) in good faith use their best efforts to (i) preserve VPI's
business organization intact; (ii) keep available the services of its current
officers, employees, salesmen, agents and representatives; (iii) maintain the
good will of its suppliers, customers and other persons having business
relations with VPI and (iv) maintain all of its properties in good repair, order
and condition, and maintain in effect all of the insurance policies listed in
SECTION 3.14 OF THE DISCLOSURE SCHEDULE.

5.2 TAX LIABILITY. Stockholder agrees to assume, undertake to pay and
discharge in full, all liabilities of VPI in connection with any income taxes
(federal, state, local or otherwise) due or to become due based upon any events
prior to September 30, 1996, which have not been paid or accrued on the books of
VPI prior to the date of this Agreement, and which in the aggregate exceed
$125,000. Notwithstanding the foregoing, any income tax liability resulting
solely from the timing of recognition of income or expenses, and all tax
liability incurred by VPI after September 30, 1996, shall be the liability of
VPI Sub.

5.3 CONFIDENTIALITY. Except as contemplated by this Agreement, VPI and
Stockholder agree jointly and severally to maintain in confidence and to not use
or disclose to any third person any confidential or proprietary information or
documents relating to Parent or any portion of its business that is provided to
Stockholder or VPI by Parent in connection with the consummation of the
transactions contemplated by this Agreement, as provided by and according to the
terms of the Confidentiality and Non-Disclosure Agreement, dated as of February
12, 1996, by and

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among VPI, Stockholder and BFI (the "Confidentiality Agreement"), which
agreement shall survive the signing of this Agreement but not the Closing.

5.4 ACCESS TO INFORMATION. Each of VPI and Stockholder agree to
cooperate fully with Parent and shall provide Parent and its accountants,
counsel, and other representatives, during normal business hours (or otherwise
agreed upon by VPI), full access to the books, records, equipment, real estate,
contracts, and other assets of VPI and full opportunity to discuss VPI's
business, affairs, and assets with its officers and independent accountants and
furnish to Parent and its representatives copies of such documents, records, and
information with respect to the affairs of VPI, as Parent or its representatives
may reasonably request and without unreasonably disrupting the ordinary conduct
of VPI's business. VPI and Stockholder shall provide any information reasonably
requested by Parent or its managing underwriter in connection with Parent's
proposed initial public offering.

5.5 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, VPI and Stockholder will use their best efforts to cause the conditions in
Sections 7.1 and 7.2 to be met.

ARTICLE 6
COVENANTS OF PARENT PRIOR TO THE CLOSING DATE

6.1 OPERATION OF BFI. Parent hereby agrees that from and after the date
of the BFI Merger to the Effective Time, except as otherwise agreed to in
writing by VPI, Parent shall conduct the business of BFI solely in the ordinary
course, and shall:

(a) not amend BFI's Articles of Incorporation or Bylaws, except as
may be necessary to carry out the BFI Merger or as required by law;

(b) not change BFI's corporate name or permit the use thereof by
any other corporation;

(c) not pay or agree to pay to any employee, officer, or director
of BFI any increase in compensation other than in the ordinary course;

(d) except for the BFI Merger, not merge or consolidate BFI with
any other corporation or allow it to acquire or agree to acquire or be acquired
by any corporation, association, partnership, joint venture, or other entity;

(e) not amend or permit BFI to default in any of its obligations
under any material contract to which BFI is a party;

(f) except in connection with the BFI Merger, not declare or pay
any dividend or make any distribution on any shares of its capital stock or
redeem, purchase or otherwise acquire any shares of its capital stock;

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<PAGE> 24

(g) except as may be necessary in connection with the BFI Merger,
not sell or transfer any of BFI's tangible or intangible assets having an
aggregate book value of $20,000 or more, other than sales of inventory in the
ordinary course, or create any lien or encumbrance on any of BFI's assets or
permit BFI to incur any debt liability or obligation, permit BFI to waive any
right or cancel any debt or claim, enter into any contract or agreement
involving amounts exceeding $20,000;

(h) conduct BFI's business in a diligent manner, and not make any
material change in its business practices; and

(i) in good faith use their best efforts to (i) preserve BFI's
business organization intact; (ii) maintain the good will of its suppliers,
customers and other persons having business relations with BFI and (iii)
maintain all of its properties in good repair, order and condition, and maintain
in effect all of the insurance policies.

6.2 CONFIDENTIALITY. Except as contemplated by this Agreement, Parent
shall maintain in confidence and not use or disclose to any third person any
confidential or proprietary information or documents relating to Stockholder or
VPI or any portion of their business that is provided to Parent by Stockholder
or VPI in connection with the consummation of the transactions contemplated by
this Agreement, as provided by and according to the terms of the Confidentiality
Agreement, which agreement shall survive the signing of this Agreement but not
the Closing; provided, that the parties agree that this Section 6.2 and the
terms of the Confidentiality Agreement shall not apply to required disclosure
made by Parent in connection with the IPO.

6.3 ACCESS TO INFORMATION. Parent agrees to cooperate fully with VPI
and Stockholder and shall provide VPI and Stockholder and their accountants,
counsel, and other representatives, during normal business hours (or otherwise
agreed upon by Parent), full access to the books, records, equipment, real
estate, contracts, and other assets of Parent and full opportunity to discuss
Parent's business, affairs, and assets with its officers and independent
accountants and furnish to VPI and Stockholder and their representatives copies
of such documents, records, and information with respect to the affairs of
Parent as VPI and Stockholder or their representatives may reasonably request
and without unreasonably disrupting the ordinary conduct of Parent's business.

6.4 OFFERING OF SECURITIES. Parent shall use all commercially
reasonable efforts consistent with the prudent conduct of its business to
complete an underwritten initial public offering of its securities pursuant to a
registration statement filed with the Securities and Exchange Commission (the
"SEC") (the "IPO").

6.5 SALE OF REGISTERED SHARES. Parent shall cause the Underwriter to
execute a written agreement with Stockholder for the registration and sale in
connection with the IPO of the number of Consideration Shares equal to the
quotient of Two Million Four Hundred Thousand Dollars ($2,400,000) divided by
the IPO Price (the "Registered Shares") and the receipt by Stockholder of the
net proceeds of such sale, it being understood and agreed that Stockholder will

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<PAGE> 25
pay the underwriting fees and discount in connection with such sale (an amount
equal to 10% of the gross proceeds) (the Consideration Shares remaining after
such sale being, the "Restricted Shares").

6.6 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Parent will use its best efforts to cause the conditions in Sections 7.1
and 7.3 to be met.

ARTICLE 7
CONDITIONS PRECEDENT TO THE CLOSING

7.1 OBLIGATION OF PARTIES TO CLOSE. The obligations of each party
hereto to consummate the Merger shall be subject to the satisfaction of the
following conditions on or prior to the Closing Date:

(a) OFFERING. A registration statement filed with the SEC in
connection with the IPO, registering a minimum of 2,300,000 shares of Parent
Common Stock (including the shares comprising the Registered Shares), shall have
been declared effective, the Underwriter shall have informed the Company that it
intends to close the IPO and the closing of the IPO shall be scheduled to occur
promptly on the date of and following the Closing, and there shall have been no
stop order entered by the SEC with respect to the IPO and no other impediment to
the completion of the IPO promptly following the Closing shall be known to
exist.

(b) BFI MERGER. The closing of the BFI Merger pursuant to the
Formation Agreement and the Agreement and Plan of Merger attached as EXHIBIT B
thereto shall have occurred or shall be scheduled to occur substantially
concurrently with the Closing.

(c) LITIGATION AFFECTING CLOSING. On the Closing Date, no
proceeding brought by any individual or entity other than the Parties shall be
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby, unless each of Parent and Stockholder shall have waived
compliance with this condition.

7.2 OBLIGATION OF PARENT TO CLOSE. The obligations of Parent and Merger
Sub to consummate the Merger shall be subject to the satisfaction of the
following conditions on or prior to the Closing Date, or the waiver of such
conditions by Parent:

(a) COMPLIANCE WITH AGREEMENT. VPI and Stockholder shall have
performed all covenants and agreements to be performed by VPI or Stockholder
under this Agreement on or prior to the Closing Date, and all of the
representations and warranties of Stockholder set forth in Article 3 herein
shall be true and correct in all material respects as of the Closing Date to the
same extent as if given on that date, without giving effect to any supplements
to the DISCLOSURE SCHEDULE, except to the extent such DISCLOSURE SCHEDULE is
updated to reflect events or conditions occurring after the execution hereof
that are not, individually or in the aggregate, material. VPI and Stockholder
shall have delivered to Parent certificates, dated the Closing Date, stating
that

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the representations and warranties contained in Article 3 are true and correct
on the Closing Date in all material respects as if then made, that VPI and
Stockholder have fulfilled the conditions specified in Article 5 and Section
7.2, and to the effect that the transactions contemplated by this Agreement were
duly authorized by all necessary corporate action on the part of VPI.

(b) REQUIRED CONSENTS. The holders of any material indebtedness of
VPI, and the parties to any Material Contracts, to the extent that their consent
or approval is required under the pertinent agreement for the consummation of
the transaction contemplated hereby in the manner provided herein or the
continuation of such agreement without termination or penalty to VPI, shall have
granted such consent or approval.

(c) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the financial condition, business or prospects of VPI since
September 30, 1996.

7.3 OBLIGATION OF VPI AND STOCKHOLDER TO CLOSE. The obligations of VPI
and the Stockholder to consummate the Merger hereof shall be subject to the
satisfaction of the following conditions on or prior to the Closing Date, or the
waiver of such conditions by Stockholder:

(a) COMPLIANCE WITH AGREEMENT. Parent shall have performed all
covenants and agreements to be performed by it under this Agreement on or prior
to the Closing Date and all of the representations and warranties of Parent set
forth herein shall be true and correct in all material respects as of the
Closing Date to the same extent as if given on that date. Parent shall have
delivered to Stockholder certificates dated the Closing Date, signed on behalf
of Parent by its President, to such effect and to the effect that the
transactions contemplated by this Agreement were duly authorized by all
necessary corporate action on the part of Parent.

(b) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the financial condition, business or prospects of BFI since
September 30, 1996.

7.4 CLOSING.

(a) TIME AND PLACE OF CLOSING. Unless another place or date is
agreed to in writing by VPI and Parent, the Closing shall be held at the offices
of Davis, Graham & Stubbs LLP, 370 17th Street, Suite 4700, Denver, Colorado
80202, on the date set for and immediately preceding the closing of the IPO (the
"Closing Date").

(b) TRANSACTIONS AT CLOSING. At the Closing, each of the following
transactions shall occur:

(i) VPI'S PERFORMANCE. At the Closing, VPI and Stockholder
shall deliver to Parent the following:

(1) A certificate or certificates representing the Shares:

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(2) All of the original books and records of VPI, including
the corporate minute book and stock book of VPI;

(3) Resignations of each of the existing directors and
officers of VPI, to be effective at the Effective Time;

(4) A certificate of the Secretary of VPI, dated the
Closing Date, in the form of EXHIBIT G attached hereto;

(5) A certificate of Stockholder and the Officers of VPI,
dated the Closing Date, in the form of EXHIBIT H attached hereto;

(6) A duly executed Employment Agreement in the form of
EXHIBIT E attached hereto (the "Employment Agreement");

(7) A duly executed Stockholder Agreement in the form of
EXHIBIT F attached hereto (the "Stockholder Agreement");

(8) The Rights Agreement, duly executed; and

(9) An opinion of counsel for VPI, dated the Closing Date,
in the form of EXHIBIT I attached hereto.

(ii) PARENT'S PERFORMANCE. At the Closing, Parent
shall deliver to Stockholder the following:

(1) A certificate of the Officers of Parent, dated the
Closing Date, in the form of EXHIBIT J attached hereto;

(2) The duly executed Stockholder Agreement;

(3) The duly executed Rights Agreement;

(4) The duly executed Employment Agreement;

(5) The Promissory Notes;

(6) A certificate representing the Restricted Shares; and

(7) The proceeds of the sale in the IPO of the Registered
Shares.

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ARTICLE 8
POST-CLOSING COVENANT

8.1 POST-CLOSING COVENANT. The parties acknowledge that, in the event
the sale of Parent Common Stock with an aggregate market value of at least Eight
Million Dollars ($8,000,000) and including all of the Registered Shares, is not
consummated promptly after the Closing, the mutual intent under the Formation
Agreement shall not have been effectuated. In such event, Parent covenants to
immediately deliver to Stockholder a certificate or certificates representing
100% of the issued and outstanding shares of VPI Sub upon Stockholder's
relinquishment of the Merger Consideration and all rights thereto, and both
parties agree to execute and deliver all documents necessary to effectuate such
transfers.

ARTICLE 9
INDEMNIFICATION

9.1 BY STOCKHOLDER. From and after the Closing Date, Stockholder shall
indemnify and hold harmless Parent, VPI and their respective officers,
directors, employees, shareholders and agents from and against any and all
damages, losses, obligations, deficiencies, liabilities, claims, encumbrances,
penalties, costs, and expenses, including reasonable attorneys' fees
(collectively, "Losses"), that any of them may suffer or incur, resulting from,
related to, or arising out of any misrepresentation, breach of any
representation and warranty, or nonfulfillment of any of the respective
covenants or agreements of Stockholder or VPI in this Agreement or from any
misrepresentation in or omission from any Schedule to this Agreement,
certificate, financial statement, or from any other document furnished or to be
furnished to Parent hereunder and any and all actions, suits, investigations,
proceedings, demands, assessments, audits, judgments and claims arising out of
any of the foregoing.

9.2 BY PARENT. From and after the Closing Date, Parent agrees to
indemnify and hold harmless Stockholder from and against any and all Losses that
Stockholder may suffer or incur, resulting from, related to, or arising out of
any misrepresentation, breach of warranty, or nonfulfillment of any of the
covenants or agreements of Parent in this Agreement or from any
misrepresentation in or omission from any certificate or document furnished or
to be furnished to Stockholder hereunder and any and all actions, suits,
investigations, proceedings, demands, assessments, audits, judgments, and claims
arising out of any of the foregoing.

9.3 LIMITATION OF INDEMNITY. Notwithstanding any provisions herein to
the contrary:

(a) Stockholder shall not be liable for any misrepresentation,
breach of warranty, or failure to fulfill any covenant or agreement herein,
except to the extent that the aggregate amount for which Stockholder would
otherwise (but for this provision) be liable on account thereof exceeds the sum
of $75,000 (the "Threshold Amount") and then only to the extent of such excess.

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(b) Except for claims based upon breach of Stockholder's
representations and warranties set forth in Section 3.10 (Taxes) or breach of
Stockholder's covenants in Section 5.2 (Tax Liability) (for which claims may be
brought until the expiration of the applicable statute of limitation and any
extensions thereof), neither party shall be liable to the other party for any
claim based on a misrepresentation, breach of warranty, or nonfulfillment of any
covenant or agreement herein unless such party has received written notice of
such claim within three (3) years following the Closing Date.

9.4 NOTICE. Promptly after acquiring knowledge of any Losses against
which Stockholder has indemnified Parent or against which Parent has indemnified
Stockholder, or as to which any party may be liable, Stockholder or Parent, as
the case may be, shall give to the other party written notice thereof. Each
indemnifying party shall, at its own expense, promptly defend, contest or
otherwise protect against any Losses against which it has indemnified an
Indemnified party, and each indemnified party shall receive from the other party
all necessary and reasonable cooperation in said defense including, but not
limited to, the services of employees of the other party who are familiar with
the transactions out of which any such Losses may have arisen. The indemnifying
party shall have the right to control the defense of any such proceeding unless
it is relieved of its liability hereunder with respect to such defense by the
indemnified party. The indemnifying party shall have the right, at its option,
and, unless so relieved, to compromise or defend, at its own expense by its own
counsel, any such matter involving the asserted liability of the indemnified
party. In the event that the indemnifying party shall undertake to compromise or
defend any such asserted liability, it shall promptly notify the indemnified
party of its intention to do so. In the event that an indemnifying party, after
written notice from an indemnified party, fails to take timely action to defend
the same, the indemnified party shall have the right to defend the same by
counsel of its own choosing, but at the cost and expense of the indemnifying
party.

ARTICLE 10
BROKERAGE; EXPENSES

10.1 BROKERAGE. None of the parties, nor, where applicable, any of
their respective shareholders, officers, directors or employees, has employed or
will employ any broker, agent, finder, or consultant, and each Party represents
to the other Parties that such Party has not incurred nor will the other Parties
incur any liability for any brokerage fees, commissions, finders' fees, or other
fees, in connection with the negotiation or consummation of the transactions
contemplated by this Agreement.

10.2 EXPENSES. Parent shall reimburse Stockholder for reasonable and
necessary out-of-pocket expenses of Stockholder, for pre-approved expenses
requested by Parent in connection with this transaction. Parent will pay
expenses associated with (i) third-party accountants retained to prepare the
Financial Statements to be delivered or prepared pursuant hereto, and (ii) legal
fees of Parent's counsel related to the preparation and negotiation of this
Agreement and documents pertaining hereto, and the drafting of disclosure
materials related to VPI for use by Parent in the registration statement filed
in connection with the IPO. VPI is responsible for all other legal

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expenses incurred by Stockholder or VPI in connection with this transaction.
Except as otherwise expressly provided in this Agreement, each of the parties
agrees to bear its own expenses of any character incurred in connection with
this Agreement or the transactions contemplated hereby.

ARTICLE 11
TERMINATION PRIOR TO CLOSING

11.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to the Closing:

(a) MUTUAL CONSENT. By the mutual consent of Parent and VPI; or

(b) DEADLINE. By Parent or Stockholder, in writing, without
liability (except as provided in Section 11.1(c)) if the Closing shall not have
occurred on or before March 31, 1997.

(c) MATERIAL BREACH. By notice in writing to the other party if
the other party shall (1) fail to perform in any material respect its agreements
contained herein required to be performed by, in, on or prior to the Closing
Date or (2) materially breach any of its representations, warranties,
agreements, or covenants contained herein, provided that such failure or breach
is not cured within ten (10) days after such party has been notified of the
other party's intent to terminate this Agreement pursuant hereto.

11.2 TERMINATION OF OBLIGATIONS. Termination of this Agreement pursuant
to this Article 11 shall terminate all obligations of the parties hereunder,
except for the obligations set forth in Article 10, and except that any party
shall be liable for damages suffered by the other parties resulting from a
breach of this Agreement; provided, however, that in the event of a termination
pursuant to Subsections 11.1(a) or 11.1(b) or resulting from Parent's material
breach pursuant to Subsection 11.1(c), Parent shall reimburse Stockholder as
provided in Section 10.2 for all expenses incurred by Stockholder or VPI up to a
maximum of One Hundred Thousand Dollars ($100,000), which sum shall include,
without limitation, legal fees of Stockholder's counsel and consulting fees
incurred by Stockholder or VPI in connection with the transactions contemplated
by this Agreement.

ARTICLE 12
GENERAL

12.1 ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the
entire understanding between the Parties with respect to the subject matter
contained herein and supersedes any prior understandings and agreements among
them respecting such subject matter. This Agreement may be amended,
supplemented, or terminated only by a written instrument duly executed by all of
the Parties.

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12.2 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not affect its interpretation.

12.3 GENDER; NUMBER. Words of gender may be read as masculine,
feminine, or neuter, as required by context. Words of number may be read as
singular or plural, as required by context.

12.4 EXHIBITS AND SCHEDULES. Each Exhibit and Schedule referred to
herein is incorporated into this Agreement by such reference.

12.5 SEVERABILITY. If any provision of this Agreement is held illegal,
invalid, or unenforceable, such illegality, invalidity, or unenforceability
shall not affect any other provision hereof. This Agreement shall, in such
circumstances, be deemed modified to the extent necessary to render enforceable
the provisions hereof.

12.6 NOTICES. All notices, requests, demands, waivers, consents,
approvals, or other communications required or permitted hereunder shall be in
writing and shall be deemed to have been given if delivered personally, sent by
telegram, telex or sent by certified or registered mail or same day or overnight
courier service, postage prepaid, return receipt requested, to the following
addresses:

If to Parent, to:
Nhancement Technologies Inc.
1746 Cole Boulevard, Suite 265
Golden, CO 80401
Attention: General Counsel

If to VPI, to:
Voice Plus, Inc.
39899 Balentine Dr.
Newark, California 94560
Attention: James Gillespie

If to Stockholder to:
James Gillespie
198 Country Club Drive
Incline Village, Nevada 89451

Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the Party entitled to receive such notice.

12.7 WAIVER. The failure of any Party to insist upon performance of any
of the terms or conditions of this Agreement shall not constitute a waiver of
any of his/its rights hereunder.

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<PAGE> 32

12.8 ASSIGNMENT. No Party may assign any of his/its rights or delegate
any of his/its obligations hereunder without the prior written consent of the
other Parties.

12.9 SUCCESSORS AND ASSIGNS. This Agreement binds, inures to the
benefit of, and is enforceable by the successors and permitted assigns of the
Parties and does not confer any rights on any other persons or entities.

12.10 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with Colorado law.

12.11 NO BENEFIT TO OTHERS. The representations, warranties, covenants,
and agreements contained in this Agreement are for the sole benefit of the
Parties hereto and their successors and permitted assigns, and they shall not be
construed as conferring and are not intended to confer any rights on any other
persons.

12.12 PUBLICITY. During the period ending on the Closing Date, all
notices to third parties and all other publicity relating to the transactions
contemplated by this Agreement shall be jointly planned, coordinated, and agreed
to by VPI and Parent. During the period ending on the Closing Date, Stockholder
shall not act unilaterally in this regard without the prior approval of Parent;
provided, however, that such approval shall not be unreasonably withheld by
Parent.

12.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.

[The rest of this page intentionally left blank.]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

PARENT:

NHANCEMENT TECHNOLOGIES INC.

By: /s/ ESMOND T. GOEI
-----------------------------------
Esmond T. Goei, President and CEO

MERGER SUB:

VPI ACQUISITION CORPORATION

By: /s/ ESMOND T. GOEI
-----------------------------------
Esmond T. Goei, President and CEO

VPI:

VOICE PLUS, INC.

By: /s/ JAMES GILLESPIE
-----------------------------------
James Gillespie, President

STOCKHOLDER:

/s/ JAMES GILLESPIE
--------------------------------------
James Gillespie

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FORM OF PROMISSORY NOTE

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE AND THE MAKER SHALL HAVE RECEIVED EVIDENCE OF SUCH
EXEMPTION SATISFACTORY TO IT (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION
OF COUNSEL SATISFACTORY TO THE MAKER).

NHANCEMENT TECHNOLOGIES INC.

NON-NEGOTIABLE UNSECURED PROMISSORY NOTE

$1,000,000 No. ____

____________, 1997

FOR VALUE RECEIVED, the undersigned, NHANCEMENT TECHNOLOGIES INC., a
Delaware corporation ("Maker"), hereby promises to pay to JAMES GILLESPIE, an
individual resident in Nevada ("Payee"), in lawful money of the United States
of America, the principal sum of ONE MILLION DOLLARS ($1,000,000), and to pay
simple interest on the unpaid balance of said principal at a rate of interest
quoted at the close of business on the date of payment for the medium-term
United States Treasury Bill, per annum. Interest shall be calculated on the
basis of a year of 365 or 366 days, as the case may be, and charged for the
actual number of days elapsed.

1. This Note has been executed and delivered pursuant to the terms
of that certain Agreement and Plan of Merger, dated as of October 25, 1996 by
and among Maker, Payee, Voice Plus, Inc., a California corporation, and VPI
Acquisition Corporation, a Delaware corporation, as the same may be amended,
modified or supplemented from time to time as permitted thereby (the "Merger
Agreement"), and is subject to the terms and conditions of the Merger Agreement
which is, by this reference, incorporated herein and made a part hereof.
Capitalized terms used herein without definition shall have the meanings set
forth in the Merger Agreement.

2. Principal in the amount of One Million Dollars ($1,000,000) and
accrued interest under the Note shall be due and payable at the Unsecured Note
Maturity Date, or such earlier date or dates, as set forth in the Merger
Agreement. Payments shall be made by bank cashier's check or by wire transfer
of immediately available funds to an account designated by Payee in writing.

3. The Maker may prepay this Note in whole at any time, or in part
from time to time, without penalty or premium. Each partial prepayment shall
be accompanied by accrued interest on the amount of principal prepaid,
calculated to the date of prepayment.

4. Maker shall have the right to withhold and set-off against any
amount due hereunder the amounts to which Maker may be entitled under the
Merger Agreement.
<PAGE> 35

5. If Maker shall fail to pay when due any payment of principal or
interest on this Note and such failure continues for fifteen (15) days, then
Payee may declare the unpaid principal amount of this Note, together with all
accrued interest thereon, to be immediately due and payable and may exercise
any and all rights and remedies available to it under applicable law,
including, without limitation, the right to collect from Maker all sums due
under this Note. Notwithstanding the foregoing, the exercise in good faith by
Maker of its rights of set-off pursuant to the Merger Agreement, whether or not
ultimately determined to be justified, shall not constitute an event of default
hereunder.

6. Maker hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. Maker promises to pay all reasonable costs of
collection, including reasonable attorneys' fees, if default is made in the
payment of this Note.

7. Any notice required or permitted hereunder shall be given in
accordance with the Merger Agreement.

8. This Note shall bind Maker and its successors and assigns. This
Note shall not be assigned or transferred by Payee without the express prior
written consent of Maker, except by will, or in default thereof, by operation
of law.

9. THE MAKER AND THE PAYEE AGREE THAT THIS NOTE AND THE LEGAL
RELATIONS BETWEEN THE MAKER AND THE PAYEE, AND ALL RIGHTS AND OBLIGATIONS
HEREUNDER, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY, AND PERFORMANCE, SHALL
BE GOVERNED BY AND INTERPRETED, CONSTRUED, APPLIED, AND ENFORCED IN ACCORDANCE
WITH THE LAW OF THE STATE OF COLORADO WITHOUT REFERENCE TO THE LAW OF ANOTHER
JURISDICTION.

IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
as of the _____ day of __________, 1997.

MAKER:

NHANCEMENT TECHNOLOGIES INC.

By:
--------------------------
Name:
Title:

(Corporate Seal)

<PAGE> 36

FORM OF PROMISSORY NOTE

NHANCEMENT TECHNOLOGIES INC.

NON-NEGOTIABLE UNSECURED PROMISSORY NOTE

$500,000 No.

-------

, 1997
------------

FOR VALUE RECEIVED, the undersigned, NHANCEMENT TECHNOLOGIES INC., a
Delaware corporation ("Maker"), hereby promises to pay to JAMES GILLESPIE, an
individual resident in Nevada ("Payee"), in lawful money of the United States
of America, the principal sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000), and
to pay simple interest on the unpaid balance of said principal at a rate of
interest quoted at the close of business on the date of payment for the
medium-term United States Treasury Bill, per annum. Interest shall be
calculated on the basis of a year of 365 or 366 days, as the case may be, and
charged for the actual number of days elapsed.

1. This Note has been executed and delivered pursuant to the terms of
that certain Agreement and Plan of Merger, dated as of October 25, 1996 by and
among Maker, Payee, Voice Plus, Inc., a California corporation, and VPI
Acquisition Corporation, a Delaware corporation, as the same may be amended,
modified or supplemented from time to time as permitted thereby (the "Merger
Agreement"), and is subject to the terms and conditions of the Merger Agreement
which is, by this reference, incorporated herein and made a part hereof.
Capitalized terms used herein without definition shall have the meanings set
forth in the Merger Agreement.

2. Principal in the amount of Five Hundred Thousand Dollars
($500,000) and accrued interest under the Note shall be due and payable at the
Second Note Maturity Date, or such earlier date or dates, as set forth in the
Merger Agreement. Payments shall be made by bank cashier's check or by wire
transfer of immediately available funds to an account designated by Payee in
writing.

<PAGE> 37

4. Maker shall have the right to withhold and set-off against any
amount due hereunder the amounts to which Maker may be entitled under the
Merger Agreement.

5. If Maker shall fail to pay when due any payment of principal or
interest on this Note and such failure continues for fifteen (15) days, then
Payee may declare the unpaid principal amount of this Note, together with all
accrued interest thereon, to be immediately due and payable and may exercise
any and all rights and remedies available to it under applicable law,
including, without limitation, the right to collect from Maker all sums due
under this Note. Notwithstanding the foregoing, the exercise in good faith by
Maker of its rights of set-off pursuant to the Agreement, whether or not
ultimately determined to be justified, shall not constitute an event of default
hereunder.

7. Any notice required or permitted hereunder shall be given in
accordance with the Merger Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the _____ day of __________, 1997.

MAKER:

NHANCEMENT TECHNOLOGIES INC.

By:
-----------------------------------
Name:
Title:

(Corporate Seal)

<PAGE> 1

This exhibit includes two forms of promissory notes. One form of promissory note
contains the material terms of eight promissory notes, issued by Performance
Factors, Inc. ("PFI"), a predecessor to BFI, to Mr. Elliot Steinberg, dated
various dates between September 1991 and January 1993, with principal amounts
ranging from $10,000 to $42,500. The other form of promissory note contains the
material terms of five promissory notes, issued by PFI to Walnut Capital
Corporation, dated various dates between January 1992 and November 1992, with
principal amounts ranging from $6,000 to $17,500, and one note, issued by PFI to
Genesis Group Limited Partnership, dated May 20, 1992, with a principal amount
of $19,000.

<PAGE> 2

EXHIBIT 10.25

PROMISSORY NOTE

For value received, Performance Factors, Inc., a California Corporation
("Maker") promises to pay to the order of________________, or his order, at San
Francisco, California or at such place as the holder of this Note may from time
to time designate in writing, the principal sum of __________________________
($_______), or portion thereof remaining outstanding, with interest from the
date hereof at the rate of two percent (2%) per annum above the Prime Rate
announced by Bank of America NTSA, as in effect from time to time.

All outstanding and unpaid principal and interest shall be due and
payable on demand. This note may be prepaid, in whole or in part, at any time
by maker without premium or penalty.

Principal and interest payments shall be made in money of the United
States of America. Maker hereby waives diligence, presentment, demand, protest
and notice of any kind whatsoever. Maker promises to pay costs of collection
and reasonable attorney's fees if default is made in the payment of this Note.
The right to plead any and all statutes of Limitation as defense to this Note
or to any agreement to pay the same is hereby expressly waived by the Maker to
the full extent permitted by law.

This Note shall be governed by and construed in accordance with the
laws of the State of California.

IN WITNESS WHEREOF, Maker has caused this Note to be executed by its
officer thereunto duly authorized and directed by appropriate corporate
authority.

Dated:

PERFORMANCE FACTORS, INC.

by________________________________
President

<PAGE> 3

PROMISSORY NOTE

$________________ ____________, 199__

FOR VALUE RECEIVED, Performance Factors, Inc., a Delaware corporation
("Maker"), promises to pay to the order of ___________ ________________________
(Payee"), in lawful money of the United States of America, in the manner and at
the times provided hereinafter, (i) the principal sum of
_____________________________ ($___________), or so much thereof as may be
outstanding hereunder, (ii) Interest (as hereinafter defined) and Default
Interest (as hereinafter defined), if any; and (iii) all other amounts due and
payable pursuant to and in accordance with the terms of this Note.

A. Definitions.

The following terms as used herein shall have the following meanings:

1. "Default Interest" shall mean interest computed at fifteen
percent (15%) per annum, on (i) the entire principal balance of this Note from
time to time unpaid from and after such amount becomes due and payable (whether
by maturity, acceleration or otherwise), and (ii) any and all other unpaid
amounts due pursuant to the terms and provisions of this Note (including, but
not limited to, accrued but unpaid Interest) from and after the respective
date(s) on which those amounts become due and payable, whether by maturity,
acceleration, or otherwise; in each case from and after the expiration of any
applicable grace period. Default Interest shall be computed for the actual
number of days elapsed, predicated on a year consisting of three hundred and
sixty (360) days, and shall be payable on demand. Notwithstanding anything to
the contrary contained herein, for any period in which Default Interest is
accruing on the entire unpaid principal balance hereunder, Interest shall not
accrue.

2. "Interest" shall mean interest computed at ten percent (10%)
per annum on the entire principal balance of this Note from time to time
unpaid. Interest shall be computed on the actual number of days elapsed,
predicated on a year consisting of three hundred and sixty (360) days.

B. Payments, Maturity.

1. Interest and Principal. Interest shall accrue commencing the
date hereof. Interest shall accrue during the entire term of this Note.

2. Other; Maturity. Default Interest, if any, shall be payable on
demand. All outstanding and unpaid principal and interest shall be due and
payable on demand, unless otherwise specified herein.

<PAGE> 4
C. Prepayment.

This Note may be prepaid, in whole or in part, at any time by Maker
without premium or penalty. Any prepayment pursuant to this Paragraph C shall
be accompanied by payment of any Interest and Default Interest, if any, accrued
and unpaid through the date of such prepayment.

D. Default.

The following shall constitute events of default hereunder: (i) the
assignment for the benefit of creditors by Maker; (ii) the application for the
appointment of a receiver for Maker or for property of Maker; (iii) the filing
of a petition in bankruptcy by or against Maker; (iv) the issuance of an
attachment or the entry of a judgment against Maker; (v) a default by Maker
with respect to any other indebtedness due to Payee; (vi) the making or sending
of a notice of an intended bulk sale by Maker; (vii) the merger, consolidation,
termination of existence, dissolution or insolvency of Maker; or (viii) the
good faith determination by payee that it deems itself insecure or that a
material adverse change in the financial condition of Maker has occurred since
the date hereof and that Payee's prospect of payment hereunder has been
impaired.

E. Remedies.

If Maker fails to pay any amounts when due hereunder, whether by
maturity, acceleration or otherwise, or if there occurs any event which
entitles Payee to accelerate the indebtedness due under this Note and any grace
period applicable to any such failure to pay or event as set forth herein
expires, then Payee shall have all of the rights and remedies provided to it:
(i) hereunder, and (ii) at law or in equity. The remedies of Payee, as
provided herein shall be cumulative and concurrent, and may be pursued
singularly, successively, or together, at the sole discretion of Payee, and may
be exercised as often as occasion therefor shall arise. Payee may resort for
payment hereunder to any of the security for, or any guaranty of, this Note
whether or not Payee shall have resorted for payment hereunder to any other
security for or guaranty of this Note. No act or omission of Payee, including
specifically any failure to exercise any right, remedy or recourse, shall be
deemed to be a waiver or release of the same, such waiver or release to be
effected only through a written document executed by Payee and then only to the
extent specifically recited therein. A waiver or release with reference to any
one event shall not be construed as continuing, as a bar to, or as a waiver or
release of, any subsequent right, remedy, or recourse as to a subsequent event.
If this Note is placed in the hands of an attorney for collection or is
collected on advice of counsel or through any legal proceeding, Maker promises
to pay, to the extent permitted by law, court costs and reasonable attorneys'
fees incurred by Payee. Maker hereby waives presentment, demand, notice of
dishonor or nonpayment, protest and notice of protest in connection herewith.

F. Miscellaneous.

1. If any provision of this Note is unenforceable, invalid or
contrary to law, or its inclusion herein would affect the validity, legality or
enforcement of this Note, such

-2-
<PAGE> 5
provision shall be limited to the extent necessary to render the same valid or
shall be excised from this Note, as the circumstances require, and this Note
shall be construed as if said provision had been incorporated herein as so
limited or as if said provision had not been included herein, as the case may
be.

2. Time is of the essence of this Note.

3. After demand or following the occurrence of an event which
entitles Payee to accelerate the indebtedness evidenced hereby, all payments
received on account of the indebtedness evidenced hereby shall be applied, in
whatever order, combination and amounts as Payee, in its sole and absolute
discretion, decides, to all costs, expenses, and other indebtedness, if any
owing to Payee by reason of this Note; Default Interest; Interest; and
principal.

4. This Note, and the terms and provisions hereof, shall be
binding upon Maker and its successors, administrators, and assigns, and shall
inure to the benefit of any holder hereof.

5. All amount due hereunder shall be paid without deduction,
set-off or counterclaim, Maker expressly waving any such rights to deduction,
set-off or counterclaim.

6. Notwithstanding any provision to the contrary contained in
this Note or in any of the other documents or instruments referred to in this
Note, if at any time or times the interest and any sums considered for such
purpose to be interest, payable under or by reason of this Note or any such
other documents or Instruments, should exceed the maximum which, by the laws of
the State having jurisdiction, may be charged with respect to the loan
evidenced hereby, given the nature and all of the pertinent circumstances of
such loan, then all such sums in excess of such maximum shall be deemed not be
Interest, but rather to be payments on account of principal, and without
further agreement of the parties shall be so applied without regard to any
other provision of this Note, provided that Payee may elect instead that no
sums shall be payable in excess of such maximum, whereupon this Note and such
other documents and Instruments shall be deemed amended accordingly without
further action by any party.

7. This Note shall inure to the benefit of Payee and his
successors and assigns and shall be governed and interpreted in accordance with
the laws of the State of Illinois.

PERFORMANCE FACTORS, INC.

By:________________________________
Title:_____________________________

-3-

<PAGE> 1

CONSENT OF INDEPENDENT AUDITORS

NHancement Technologies Inc.
(formerly BioFactors, Inc.)
Golden, Colorado

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated April 19, 1996, except
for Notes 10 and 11 which are as of November 5, 1996, relating to the financial
statements of NHancement Technologies Inc. and of our report dated April 19,
1996, except for Notes 10 and 11 which are as of November 26, 1996, relating to
the financial statements of Voice Plus, Inc., both of which are contained in
that Prospectus. Our report on NHancement Technologies Inc. contains an
explanatory paragraph regarding the Company's ability to continue as a going
concern.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

San Francisco, California
January 24, 1997

<PAGE> 1

CONSENT OF INDEPENDENT AUDITORS

NHancement Technologies, Inc.
formerly BioFactors, Inc.
Golden, Colorado

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated October 30, 1996,
relating to the financial statements of Cossey-Capozzi, Inc., which are
contained in that Prospectus.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

/s/ Meredith, Cardozo & Lanz LLP

San Jose, California

January 24, 1997